-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M5u2Vmdn9OauO1NcRIBtu4OLR7+51mUzK1Ql3n/Ya5IzU93qa/0gxBN6Wttf5xZt K4tzGI2miSXJAKSKb5vtSA== 0001095811-00-000571.txt : 20000317 0001095811-00-000571.hdr.sgml : 20000317 ACCESSION NUMBER: 0001095811-00-000571 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLUOR CORP/DE/ CENTRAL INDEX KEY: 0000037748 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 950740960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07775 FILM NUMBER: 571703 BUSINESS ADDRESS: STREET 1: ONE ENTERPRISE DRIVE CITY: ALISO VIEJO STATE: CA ZIP: 92656-2606 BUSINESS PHONE: 949 349-2000 MAIL ADDRESS: STREET 1: 3353 MICHELSON DRIVE CITY: IRVINE STATE: CA ZIP: 92698 FORMER COMPANY: FORMER CONFORMED NAME: FLUOR CORP LTD DATE OF NAME CHANGE: 19710624 10-Q 1 FORM 10-Q (JANUARY 31, 2000) 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________to__________________ Commission File Number: 1-7775 FLUOR CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-0740960 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) I.D. No.) One Enterprise Drive, Aliso Viejo, CA 92698 - -------------------------------------------------------------------------------- (Address of principal executive offices) (949) 349-2000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of February 29, 2000 there were 76,368,610 shares of common stock outstanding. 2 FLUOR CORPORATION FORM 10-Q JANUARY 31, 2000
TABLE OF CONTENTS PAGE - ----------------- ---- Part I: Financial Information Condensed Consolidated Statement of Earnings for the Three Months Ended January 31, 2000 and 1999 .............................................. 2 Condensed Consolidated Balance Sheet at January 31, 2000 and October 31, 1999 ....................................................... 3 Condensed Consolidated Statement of Cash Flows for the Three Months Ended January 31, 2000 and 1999 ........................................ 5 Notes to Condensed Consolidated Financial Statements ................... 6 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 10 Changes in Backlog ..................................................... 19 Part II: Other Information ...................................................... 20 Signatures ...................................................................... 21
1 3 PART I: FINANCIAL INFORMATION FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF EARNINGS Three Months Ended January 31, 2000 and 1999 UNAUDITED
$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2000 1999 - -------------------------------------------------------------------------------------- REVENUES $2,998,519 $3,384,065 COSTS AND EXPENSES Cost of revenues 2,897,758 3,291,204 Corporate administrative and general expense 16,828 9,558 Interest expense 13,108 13,004 Interest income (3,291) (4,600) ---------- ---------- Total Costs and Expenses 2,924,403 3,309,166 ---------- ---------- EARNINGS BEFORE INCOME TAXES 74,116 74,899 INCOME TAX EXPENSE 21,864 23,818 ---------- ---------- NET EARNINGS $ 52,252 $ 51,081 ========== ========== EARNINGS PER SHARE BASIC $ .69 $ .68 ========== ========== DILUTED $ .69 $ .68 ========== ========== DIVIDENDS PER COMMON SHARE $ .25 $ .20 ========== ========== SHARES USED TO CALCULATE BASIC EARNINGS PER SHARE 75,602 75,119 ========== ========== DILUTED EARNINGS PER SHARE 76,149 75,633 ========== ==========
See Accompanying Notes. 2 4 FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET January 31, 2000 and October 31, 1999 UNAUDITED
JANUARY 31, OCTOBER 31, $ IN THOUSANDS 2000 1999* - ---------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 148,130 $ 209,614 Accounts and notes receivable 818,262 850,557 Contract work in progress 393,485 416,285 Deferred taxes 107,737 105,502 Inventories and other current assets 365,726 328,213 ---------- ---------- Total current assets 1,833,340 1,910,171 ---------- ---------- Property, Plant and Equipment (net of accumulated depreciation, depletion and amortization of $1,284,171 and $1,245,644, respectively) 2,271,129 2,222,953 Investments and goodwill, net 299,287 283,936 Other 466,033 469,057 ---------- ---------- $4,869,789 $4,886,117 ========== ==========
- -------------- * Amounts at October 31, 1999 have been derived from audited financial statements. (Continued On Next Page) 3 5 FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET January 31, 2000 and October 31, 1999 UNAUDITED
JANUARY 31, OCTOBER 31, $ IN THOUSANDS 2000 1999* - ---------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $ 729,508 $ 793,465 Short-term debt 347,994 247,911 Advance billings on contracts 509,978 565,373 Accrued salaries, wages and benefit plans 267,585 321,148 Other accrued liabilities 267,104 276,413 ---------- ---------- Total current liabilities 2,122,169 2,204,310 ---------- ---------- Long-term debt due after one year 318,150 317,555 Deferred taxes 168,982 162,210 Other noncurrent liabilities 633,283 620,670 Contingencies and Commitments Shareholders' Equity Capital stock Preferred - authorized 20,000,000 shares without par value; none issued Common - authorized 150,000,000 shares of $.625 par value; issued and outstanding - 76,372,541 shares and 76,034,296 shares, respectively 47,733 47,521 Additional capital 232,222 217,844 Retained earnings 1,408,570 1,375,338 Unamortized executive stock plan expense (28,433) (21,579) Accumulated other comprehensive income (32,887) (37,752) ---------- ---------- Total shareholders' equity 1,627,205 1,581,372 ---------- ---------- $4,869,789 $4,886,117 ========== ==========
- -------------- * Amounts at October 31, 1999 have been derived from audited financial statements. See Accompanying Notes. 4 6 FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended January 31, 2000 and 1999 UNAUDITED
$ IN THOUSANDS 2000 1999 - ------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 52,252 $ 51,081 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation, depletion and amortization 73,805 77,917 Deferred taxes 3,340 469 Changes in operating assets and liabilities, excluding effects of business acquisitions/dispositions (157,847) (51,277) Other, net 1,831 (27,997) --------- --------- Cash (utilized) provided by operating activities (26,619) 50,193 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (132,129) (135,057) Proceeds from sale of subsidiary -- 36,300 Proceeds from sale of property, plant and equipment 21,323 42,272 Investments, net (13,045) (4,502) Other, net 1,234 (4,629) --------- --------- Cash utilized by investing activities (122,617) (65,616) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term borrowings 114,814 (41,135) (Payments on) proceeds from issuance of note payable to affiliate (14,506) 38,500 Cash dividends paid (19,020) (15,159) Stock options exercised 5,811 1,854 Other, net 653 (933) --------- --------- Cash provided (utilized) by financing activities 87,752 (16,873) --------- --------- Decrease in cash and cash equivalents (61,484) (32,296) Cash and cash equivalents at beginning of period 209,614 340,544 --------- --------- Cash and cash equivalents at end of period $ 148,130 $ 308,248 ========= =========
See Accompanying Notes. 5 7 FLUOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (1) The condensed consolidated financial statements do not include footnotes and certain financial information normally presented annually under generally accepted accounting principles and, therefore, should be read in conjunction with the Company's October 31, 1999 annual report on Form 10-K. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three months ended January 31, 2000 are not necessarily indicative of results that can be expected for the full year. The condensed consolidated financial statements included herein are unaudited; however, they contain all adjustments (consisting of normal recurring accruals) which, in the opinion of the Company, are necessary to present fairly its consolidated financial position at January 31, 2000 and its consolidated results of operations and cash flows for the three months ended January 31, 2000 and 1999. Certain 1999 amounts have been reclassified to conform with the 2000 presentation. (2) Inventories comprise the following: January 31, October 31, $ in thousands 2000 1999 ---------------------------------------------------------------- Equipment for sale/rental $119,714 $131,781 Coal 76,698 72,070 Supplies and other 54,271 44,267 -------- -------- $250,683 $248,118 ======== ======== (3) Short-term debt comprises the following: January 31, October 31, $ in thousands 2000 1999 ---------------------------------------------------------------- Commercial paper $244,060 $113,746 Note payable to affiliate 98,873 113,379 Loan notes -- 15,500 Trade notes payable 5,061 5,286 -------- -------- $347,994 $247,911 ======== ======== 6 8 FLUOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED (4) Total comprehensive income represents the net change in shareholders' equity during a period from sources other than transactions with shareholders and as such, includes net earnings. For the Company, the only other component of total comprehensive income is the change in the cumulative foreign currency translation adjustments recorded in shareholders' equity. The components of comprehensive income, net of related tax, are as follows: Three months ended January 31, --------------------------- ($ in thousands) 2000 1999 --------------------------------------------------------------------- Net earnings $ 52,252 $ 51,081 Foreign currency translation adjustment 4,865 226 -------- -------- Comprehensive income $ 57,117 $ 51,307 ======== ======== (5) Cash paid for interest was $8.8 million and $7.5 million for the three month periods ended January 31, 2000 and 1999, respectively. Income tax payments, net of receipts, were $12.0 million and $21.5 million during the three month periods ended January 31, 2000 and 1999, respectively. (6) The Company has a forward purchase contract for 1,850,000 shares of its common stock. The contract matures in October 2000 and gives the Company the ultimate choice of settlement option, either physical settlement or net share settlement. As of January 31, 2000, the contract settlement cost per share exceeded the current market price per share by $12.10. Although the ultimate choice of settlement option resides with the Company, if the price of the Company's common stock falls to certain levels, as defined in the contract, the holder of the contract has the right to require the Company to settle the contract. 7 9 FLUOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED (7) In March 1999, the Company announced a new strategic direction, including a reorganization of the operating units and administrative functions of its engineering and construction segment. In connection with this reorganization, the Company recorded in the second quarter of fiscal year 1999 a special provision of $136.5 million pre-tax to cover direct and other reorganization related costs, primarily for personnel, facilities and asset impairment adjustments. In October 1999, $19.3 million of the special provision was reversed into earnings as a result of lower than anticipated severance costs for personnel reductions in certain overseas offices. Both the actual number of employee terminations as well as the cost per employee were lower than originally estimated. To date, the Company has eliminated slightly more than 5,000 jobs with additional separations to be completed by the end of the third quarter. No offices were closed during the quarter; however, the Company anticipates closing two additional offices by July 31, 2000. The following table summarizes the status of the Company's reorganization plan as of January 31, 2000:
Lease Personnel Asset Termination ($ in millions) Costs Impairments Costs Other Total ---------------------------------------------------------------------------------------------------------- Balance at October 31, 1999 $25.2 $23.4 $ 9.7 $ 0.2 $58.5 Cash expenditures (2.8) -- (1.6) -- (4.4) Non-cash activities (0.2) (0.4) -- (0.2) (0.8) ----- ----- ----- ----- ----- Balance at January 31, 2000 $22.2 $23.0 $ 8.1 $ -- $53.3 ===== ===== ===== ===== =====
The special provision liability as of January 31, 2000 is included in other accrued liabilities. The liability for personnel costs and asset impairments will be substantially utilized by July 31, 2000. The liability associated with abandoned lease space will be amortized as an offset to lease expense over the remaining life of the respective leases starting on the date of abandonment. 8 10 FLUOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED (8) In the fourth quarter of 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). The statement establishes new standards for the way that business enterprises report information about operating segments as well as the related disclosures about products and services, geographical areas and major customers. The adoption of SFAS No. 131 did not affect the consolidated results of operations or financial position of the Company, but it did affect the business segments that are disclosed. Prior year disclosures have been restated to conform to the new basis of reporting. Operating Information by Segment - For the three months ended January 31, 2000 and 1999:
Fluor Fluor Fluor Global Massey Signature ($ in millions) Daniel Services Coal Services Total -------------------------------------------------------------------------------------------------------- 2000 External revenues $1,969.6 $764.1 $260.1 $ 4.7 $2,998.5 Operating profit (loss) $ 40.9 $ 28.1 $ 31.6 $(1.0) $ 99.6 1999 External revenues $2,445.1 $664.3 $274.6 -- $3,384.0 Operating profit $ 39.8 $ 17.3 $ 38.7 -- $ 95.8
Reconciliation of Segment Information to Consolidated Amounts - For the three months ended January 31, 2000 and 1999: ($ in millions) 2000 1999 --------------------------------------------------------------------- Operating Profit Total segment operating profit $ 99.6 $ 95.8 Corporate administrative and general expense (16.8) (9.6) Interest (expense) income, net (9.8) (8.4) Other items, net 1.1 (2.9) ------ ------ Earnings before taxes $ 74.1 $ 74.9 ====== ====== 9 11 FLUOR CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, the condensed consolidated financial statements and accompanying notes and the Company's October 31, 1999 annual report on Form 10-K. For purposes of reviewing this document "operating profit" is calculated as revenues less cost of revenues excluding: corporate administrative and general expense; interest expense; interest income; domestic and foreign income taxes; gain or loss on discontinued operations; the cumulative effect of a change in accounting principles; and certain other miscellaneous non-operating income and expense items which are immaterial. FORWARD-LOOKING INFORMATION Statements regarding the Company's expectations for future performance or results, including estimated and projected operating profits and earnings, expectations regarding office closures and projected reductions in employment levels and overhead expenses, expectations regarding its resolution of any "Year 2000" issues, expectations regarding continued weakness in new contract awards and expectations regarding the issuance of long-term debt are forward looking. Statements regarding industry and competitive trends are also forward looking. Forward-looking statements reflect current analysis of existing information. Caution must be exercised in relying on forward-looking statements. Due to known and unknown risks, actual results may differ materially from expected or projected results. Factors potentially contributing to such differences include, among others: o Cost overruns on contracts and other contract performance risk o The uncertain timing of awards and revenues under contracts o Conditions affecting the domestic and international coal market, including competition in the global market for steel and weather conditions o Global economic and political conditions o Unforeseen impediments to the Company's access to capital markets o Year 2000 readiness o Unforeseen impediments to the realization of the Company's strategic initiatives There is also a risk that future results may be impacted by currently unforeseen impediments to the realization of revenues or other payments that have been recognized through accruals prior to actual receipt. Failure to realize such accrued amounts may result in a charge against future earnings. Additional information concerning these and other factors can be found in press releases as well as the Company's public periodic filings with the Securities and Exchange Commission, including the discussion under the heading "Item 1. Business - Other Matters - Company Business Risks" in the Company's Form 10-K for its fiscal year ended October 31, 1999. Such filings are available publicly and upon request from Fluor's Investor Relations Department: (949) 349-3909. The Company disclaims any intent or obligation to update its forward-looking statements. 10 12 RECENT EVENTS On February 22, 2000, the Company announced that it will be changing its fiscal year end to a calendar year effective January 1, 2001. The change is being made to better align the Company with its clients, suppliers and the financial markets. On February 23, 2000, the Company announced that it will close its Marlton, New Jersey facility, eliminating more than 300 jobs. The closure reflects the Company's continuing efforts to capitalize on new market opportunities and create greater operational efficiencies. The Company expects to phase out all Marlton operations by July 1, 2000. On March 8, 2000, the Company's Board of Directors approved a stock buyback program authorizing the repurchase of up to 7.5 million shares of its common stock. The repurchase program will begin immediately and will be funded from operating cash flow and supplemented by short-term credit facilities as repurchase opportunities arise. RESULTS OF OPERATIONS Revenues for the three month period ended January 31, 2000 decreased 11 percent, compared with the same period of 1999. Despite this decline, net earnings for the three month period ended January 31, 2000 were $52.3 million compared with $51.1 million for the same period of 1999, an increase of 2 percent. The increase in net earnings was the result of improved operating profit in the Fluor Daniel and Fluor Global Services segments, the settlement of a dispute with a major service provider that resulted in an after-tax gain of $2.9 million and a lower effective tax rate. These items were offset by lower operating profit in the Massey segment, increased net interest expense and higher corporate administrative and general expense. The Company anticipates a slightly weaker second quarter followed by a stronger second half, as operating profit improvements become more broadly based across all business segments. The Company continues to anticipate a modest earnings growth in 2000 as compared to 1999, excluding the impact of the special provision. FLUOR DANIEL Revenues for the Fluor Daniel segment declined by 19 percent for the three month period ended January 31, 2000 compared with the same period of 1999, primarily due to a reduction in work performed which is consistent with the downward trend in new awards experienced during 1999 and 1998. Operating profit for the three months ended January 31, 2000 nonetheless increased 3 percent to $40.9 million, compared with $39.8 million during the same period of 1999, due to improvements in both overhead cost management and project margins. 11 13 New awards for the three months ended January 31, 2000 were $1.4 billion compared with $1.5 billion for the three months ended January 31, 1999. Approximately 51 percent of first quarter 2000 new awards were for projects located outside the United States. The slight decrease in 2000 new awards as compared to 1999 reflects the increased focus on project selectivity and deferred capital spending in the chemicals industry, offset by growth in the power sector. The following table sets forth backlog for each of the segment's business units: January 31, October 31, January 31, $ in millions 2000 1999 1999 - ------------------------------------------------------------------------ Chemicals & Life Sciences $1,682 $1,964 $3,259 Oil, Gas & Power 3,053 2,583 2,497 Mining 395 657 1,256 Manufacturing 1,028 1,170 1,503 Infrastructure 340 396 458 ------ ------ ------ Total backlog $6,498 $6,770 $8,973 ====== ====== ====== United States $2,818 $2,870 $3,231 International 3,680 3,900 5,742 ------ ------ ------ Total backlog $6,498 $6,770 $8,973 ====== ====== ====== The decrease in total backlog is consistent with the reduced levels of new awards in the prior two years. Although backlog reflects business which is considered to be firm, cancellations or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, deferrals and revised project scope and cost, both upward and downward. FLUOR GLOBAL SERVICES Revenues for the Fluor Global Services segment increased by 15 percent for the three month period ended January 31, 2000 compared with the same period of 1999, primarily due to increases in the Fluor Federal Services, Telecommunications and Operations & Maintenance business units. Operating profit for the three months ended January 31, 2000 increased 62 percent to $28.1 million, compared with $17.3 million during the same period of 1999, reflecting improved operating results in several business units. New awards for the three months ended January 31, 2000 were $1.0 billion compared with $.2 billion for the three months ended January 31, 1999. Approximately 52 percent of first quarter 2000 new awards were for projects located outside the United States. The increase in 2000 new awards as compared to 1999 reflects a $465 million telecommunications award as well as increased Operations & Maintenance awards. 12 14 The following table sets forth backlog for each of the segment's business units: January 31, October 31, January 31, $ in millions 2000 1999 1999 - ------------------------------------------------------------------------ Fluor Federal Services $ 518 $ 710 $ 647 Telecommunications 852 525 171 Operations & Maintenance 1,355 1,127 1,265 Consulting Services and Other 15 10 8 ------ ------ ------ Total backlog $2,740 $2,372 $2,091 ====== ====== ====== United States $2,086 $2,137 $1,827 International 654 235 264 ------ ------ ------ Total backlog $2,740 $2,372 $2,091 ====== ====== ====== The increase in total backlog is consistent with the growth in new awards. Although backlog reflects business which is considered to be firm, cancellations or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, deferrals and revised project scope and cost, both upward and downward. COAL Revenues decreased 5 percent for the three month period ended January 31, 2000 compared with the same period in 1999. The decrease was primarily due to the combination of a reduction in volume for the higher priced metallurgical coal and a decline in prices. Metallurgical coal volume decreased by 19 percent during the quarter ended January 31, 2000 compared with the same period in 1999. This decrease was largely offset by an increase in lower priced steam coal sales. Steam and metallurgical coal prices have both declined by approximately 4 percent during the current fiscal year. The metallurgical coal market continues to be adversely affected by a weak coal export market. Demand is weak for U.S. coal exported to foreign markets as the U.S. Dollar remains strong. Additionally, the market for steam coal, which is used to fire electric-generating plants, continues to be impacted by high customer inventory levels resulting from recent mild winters and competition from western coals, which continue to penetrate the traditional eastern coal market areas. Operating profit for the three months ended January 31, 2000 was $31.6 million compared with $38.7 million for the same period in 1999. The decline was the combined result of the continued difficult market conditions and a number of operating disruptions, including severe geologic conditions and a roof fall at a longwall mine. FLUOR SIGNATURE SERVICES The Fluor Signature Services segment, which was created to provide business and administrative support services to the operating units with distinct profit-and-loss accountability, officially began operations at the start of fiscal 2000. External revenues during the quarter totaled $4.7 million and were primarily for safety-related services. The segment reported a slight operating loss of $1 million during the first quarter. 13 15 STRATEGIC REORGANIZATION COSTS The Company continues to implement its reorganization plan initiated in March 1999. To date, slightly more than 5,000 jobs have been eliminated with additional separations to be completed by the end of the third quarter. No offices were closed during the quarter; however, the Company anticipates closing two additional offices by July 31, 2000. The special provision liability as of January 31, 2000 totaled $53.3 million and is comprised as follows: $22.2 million for personnel costs; $23.0 million for asset impairments; and $8.1 million for lease termination costs. The remaining liability for personnel costs and asset impairments will be substantially utilized by July 31, 2000. The remaining liability associated with abandoned lease space will be amortized as an offset to lease expense over the remaining life of the respective leases starting on the date of abandonment. OTHER During the three months ended January 31, 2000 the Company recognized a gain of $4.7 million ($2.9 million after-tax) relating to the settlement of a dispute with a major service provider. This gain is included in cost of revenues, but was not allocated to a specific business segment. Net interest expense for the three months ended January 31, 2000 increased compared with the same period of 1999 primarily due to a decline in interest income resulting from lower average cash balances outstanding during the quarter. Corporate administrative and general expense in the first quarter ended January 31, 2000 was higher compared with the same period in 1999 as the result of development costs associated with the Company's several knowledge management and global sales development programs. Costs related to the Company's Enterprise Resource Management system, Knowledge@Work, totaled $4.3 million during the first quarter of 2000. The Company's effective tax rate decreased approximately 2 percentage points for the three month period ended January 31, 2000 as compared with the same period of 1999. This decrease was the result of the successful implementation of a number of tax reduction initiatives. FINANCIAL POSITION AND LIQUIDITY At January 31, 2000, the Company had cash and cash equivalents of $148.1 million and a total debt to total capital ratio of 29.0 percent. At January 31, 1999, the Company had cash and cash equivalents of $308.2 million and a total debt to total capital ratio of 31.7 percent. Cash flow utilized by operating activities was $26.6 million during the three month period ended January 31, 2000, compared with cash flow generated from operations of $50.2 million during the same period in 1999. The decrease in cash generated from operating activities is primarily due to reductions in current liabilities during the current quarter. 14 16 Cash utilized by investing activities totaled $122.6 million during the three month period ended January 31, 2000 compared with $65.6 million during the same period in 1999. Capital expenditures were down slightly, reflecting a decrease of $24 million for Massey Coal partially offset by increases in Fluor Global Services (primarily for AMECO) and for Knowledge@Work. Proceeds from the sale of property, plant and equipment were lower in 2000 compared with 1999, reflecting the cyclical nature of the equipment sale/rental business. The Company also completed the sale of its ownership interest in Fluor Daniel GTI, Inc. during the first quarter of 1999 and received proceeds totaling $36.3 million. Cash provided by financing activities totaled $87.8 million during the three month period ended January 31, 2000 compared with the same period in 1999 during which time the Company utilized cash from financing activities of $16.9 million. During 2000 the Company increased its short-term borrowings by $114.8 million, representing an increase in commercial paper of $130.3 million offset by a reduction in loan notes of $15.5 million. In addition, the Company reduced its note payable to affiliate by $14.5 million during the three month period ended January 31, 2000. Dividends paid during the first quarter of 2000 were $19.0 million ($.25 per share) compared with $15.2 million ($.20 per share) for the comparable period in 1999. The Company has on hand and access to sufficient sources of funds to meet its anticipated operating needs. Significant short- and long-term lines of credit are maintained with banks which, along with cash on hand, provide adequate operating liquidity. Liquidity is also provided by the Company's commercial paper program. FINANCIAL INSTRUMENTS The Company has a forward purchase contract for 1,850,000 shares of its common stock. The contract matures in October 2000 and gives the Company the ultimate choice of settlement option, either physical settlement or net share settlement. As of January 31, 2000, the contract settlement cost per share exceeded the current market price per share by $12.10. Although the ultimate choice of settlement option resides with the Company, if the price of the Company's common stock falls to certain levels, as defined in the contract, the holder of the contract has the right to require the Company to settle the contract. The Company utilizes forward exchange contracts to hedge foreign currency transactions entered into in the ordinary course of business and not to engage in currency speculation. At January 31, 2000 and October 31, 1999, the Company had forward foreign exchange contracts of less than eighteen months duration, to exchange principally Euros, Australian Dollars, Canadian Dollars, Dutch Guilders and German Marks for U.S. Dollars. The total gross notional amount of these contracts at January 31, 2000 and October 31, 1999 was $100 million and $124 million, respectively. Forward contracts to purchase foreign currency represented $99 million and $122 million and forward contracts to sell foreign currency represented $1 million and $2 million, at January 31, 2000 and October 31, 1999, respectively. 15 17 THE YEAR 2000 ISSUE - READINESS DISCLOSURE - UPDATE The Year 2000 issue is the result of computer systems and other equipment with processors that use only two digits to identify a year rather than four. If not corrected, many computer applications and date sensitive equipment could fail or create erroneous results before, during and after the Year 2000. The Company utilizes information technology ("IT") systems, such as, computer networking systems and non-IT devices, which may contain embedded circuits, such as those which may be found in building security equipment. Both IT systems and non-IT devices are subject to potential failure due to the Year 2000 issue. The Company developed and implemented a plan to achieve Year 2000 readiness (the "Y2K Program"). The Y2K Program was implemented through (1) identification and assessment, (2) remediation and testing and (3) contingency planning. Transitioning into Year 2000, the Company did not experience any material issues and all of its computer systems are operating normally. The Company will continue to monitor its systems on an ongoing basis for the immediate future. As of March 16, 2000, the Company has not been made aware of any Year 2000 disruptions for which it is responsible at any of its various project sites throughout the world. With respect to systems and equipment provided to clients, the Company does not control the upgrades, additions and/or changes made by its clients or by others for its clients, to those systems and equipment. Accordingly, the Company does not provide any assurances or current information about Year 2000 capabilities with respect to past projects. Each project is performed under an agreement with the Company's client, which describes the extent of the Company's obligations and warranties and the limitations that may apply. The Company used both internal and external resources in its Y2K Program. The Company estimates that, from 1996 to date, it has spent approximately $26 million on the Year 2000 issue, including $.6 million during the first quarter of fiscal year 2000. The estimate was derived utilizing numerous assumptions, including the assumption that the Company has completed its Y2K Program, and any further Y2K activities will be provided by its third party suppliers without cost to the Company. The Company estimates its direct costs for the Y2K Program (costs necessary to assess and remediate existing systems) are approximately $15 million. In addition, the Company has accelerated its program of replacing out-of-date personal computers and operating systems, regardless of whether or not such computers and systems were Year 2000 compliant. The costs associated with those replacements are estimated at $11 million. The Y2K Program has been funded under the Company's general IT and operating budgets. The Year 2000 expenditures have been expensed and deducted from income when incurred, except for costs incurred to acquire new software developed or obtained to replace old software, which may be capitalized and amortized under generally accepted accounting principles. The above amounts are the Company's best estimate given other systems initiatives that were ongoing irrespective of the Y2K Program (such as the migration to Windows NT and related hardware upgrades). The Company has developed contingency plans to address the Year 2000 issues that may pose a significant risk to its ongoing operations and existing projects, including, but not limited to, the Year 2000 compliance of systems and equipment provided by suppliers. Due to the large number 16 18 of variables involved with estimating resultant lost revenues should there be a third party failure, the Company cannot provide an estimate of damage if any of the scenarios were to occur. There can be no assurance that any contingency plans implemented by the Company would be adequate to meet the Company's needs without materially impacting its operations, that any such plan would be successful or that the Company's results of operations would not be materially and adversely affected by the delays and inefficiencies inherent in conducting operations in an alternative manner. The Company believes that its most reasonably likely worst case Year 2000 scenarios would relate to problems with the equipment and systems supplied by third parties. If such equipment or systems were to fail at any location, the Company's operations at that location could be shut down or disrupted until compliant equipment or systems could be supplied. Depending on the location and the delivery time of compliant equipment or systems, the Company could suffer delays in fulfilling its commitments. The Company expects to mitigate that risk through the use of alternate suppliers. However, delays could materially adversely impact the Company's receipt of payments due from customers. Further, there is the possibility that significant litigation may occur due to business and equipment failures caused by the Year 2000 issue. It is uncertain whether, or to what extent, the Company may be affected by such litigation. No assurance can be given that the Company will achieve all aspects of Year 2000 readiness and the failure to achieve Year 2000 readiness could materially and adversely affect the Company's results from operations. EURO CONVERSION - UPDATE Given the nature and size of the Company's European operations, the Company does not perceive the conversion to the Euro as a significant risk area. The Company's businesses operate under long-term contracts, typically denominated in U.S. Dollars, compared with more traditional retail or manufacturing environments. If required, the Company is currently able to bid, price and negotiate contracts using the Euro. The Company's treasury function is also capable of operating with the Euro. Specifically, the Company is able to: establish bank accounts; obtain financing; obtain bank guarantees or letters of credit; trade foreign currency; and hedge transactions. The Company's ongoing Euro conversion effort will be primarily concentrated in the systems area. Conversion to the Euro impacts the Company's subsidiaries in The Netherlands, Germany, Belgium and Spain. All subsidiaries use a standard accounting system and all reside in the same database. The Company's conversion plan is to maintain the legacy database for historical reference and to create a new database with the Euro as the base currency. The new database will permit transactions to take place in both legacy currencies and the Euro as well as perform prescribed rounding calculations. The new Euro-based database is available and testing is in progress. Full conversion is anticipated to be complete by the start of fiscal year 2001. The Company has not incurred and it does not expect to incur any significant costs from the continued conversion to the Euro, including any currency risk, which could significantly affect the Company's business, financial condition and results of operations. 17 19 The Company has not experienced any significant operational disruptions to date and does not currently expect the continued conversion to the Euro to cause any significant operational disruptions, including the impact of systems operated by others. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes new standards for recording derivatives in interim and annual financial statements. This statement, as amended, is effective for the Company's fiscal year 2001. Management does not anticipate that the adoption of the new statement will have a significant impact on the results of operations or the financial position of the Company. 18 20 FLUOR CORPORATION CHANGES IN CONSOLIDATED BACKLOG Three Months Ended January 31, 2000 and 1999 UNAUDITED $ in millions 2000 1999 - ------------- --------- --------- Backlog - beginning of period $ 9,142.0 $12,645.3 New awards 2,363.9 1,700.9 Adjustments and cancellations, net 281.8 (391.5) Work Performed (2,549.0) (2,890.2) --------- --------- Backlog - end of period $ 9,238.7 $11,064.5 ========= ========= 19 21 PART II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10.1 Special Retention Program between Fluor Corporation and James C. Stein dated September 24, 1999. 27.1 Financial Data Schedule as of and for the three months ended January 31, 2000. (b) Reports on Form 8-K. None. 20 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLUOR CORPORATION ----------------------------------------- (Registrant) Date: March 16, 2000 /s/ R. F. Hake ----------------------------------------- R. F. Hake, Executive Vice President and Chief Financial Officer /s/ V. L. Prechtl ----------------------------------------- V. L. Prechtl, Vice President and Controller 21 23 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Special Retention Program between Fluor Corporation and James C. Stein dated September 24, 1999. 27.1 Financial Data Schedule as of and for the three months ended January 31, 2000. EX-10.1 2 SPECIAL RETENTION PROGRAM 1 EXHIBIT 10.1 September 24, 1999 Mr. Jim Stein President and Chief Executive Officer Fluor Global Services Dear Jim, It is my pleasure to inform you that at the December 1998 Organization and Compensation Committee meeting, the Board of Directors of Fluor Corporation (the "Company") selected you to participate in a Retention Program. The amount of the retention award was $2,750,000. At your request the award has been structured as follows: AWARD AMOUNT: $2,750,000 RETENTION PERIOD: October 1, 1998 through October 31, 2001 RETENTION AGREEMENT: The Award Amount is divided between the following two components: HOUSING You have previously been provided with a personal loan of $1,006,841 secured by a deed of trust on your residence. The loan provides for an interest rate of 4.52%, compounded annually with a balloon payment of the entire amount due on termination of employment. The loan presently states that it is subject to acceleration in the event of your termination of employment for any reason prior to October 31, 2001. The Company will forgive the loan including accrued interest in its entirety (a) if you remain continuously employed by the Company until October 31, 2001, or (b) if your employment terminates prior to that date due to (i) death, (ii) permanent and total disability, (iii) a Company-initiated termination for any reason other than for-cause or (iv) following a Change of Control. If your employment with the Company terminates for 2 Jim Stein September 24, 1999 Page 2 any other reason prior to October 31, 2001 (including, without limitation, your voluntary termination or a termination for cause) then this loan shall remain in effect in accordance with its terms. For purposes hereof, the term "Change of Control" shall be deemed to have occurred if, (a) a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, acquires shares of the Company having 25% or more of the votes that may be cast for the election of directors of the Company or (b) as a result of any cash tender or exchange offer, merger or other business combination, or any combination of the preceding (a "transaction"), the persons who are the directors of the Company before the transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor thereto. ACCRUAL TO EXECUTIVE DEFERRAL COMPENSATION PROGRAM ("EDCP") You may earn $1,743,159, said amount to be adjusted as provided below, if you remain continuously employed by the Company until on or after October 31, 2001 (the "EDCP Accrual"). During the period from October 1, 1998 to the date upon which the EDCP Accrual vests (if at all), you will also be entitled to invest the EDCP Accrual by selecting one or more of the crediting options contained in the EDCP. Thereafter, the amount of your EDCP Accrual, if vested, shall be adjusted based upon the investment return that you would have otherwise received had the EDCP Accrual been actually earned as of October 1, 1998 and credited in your EDCP account based upon your chosen crediting option through the date of vesting. If no crediting option is indicated, the EDCP Accrual will be automatically credited as if you chose the Money Market crediting option under the EDCP. The EDCP Accrual, as adjusted, will vest and be credited to your existing Company EDCP account (a) if you remain continuously employed by the Company until October 31, 2001 3 Jim Stein September 24, 1999 Page 3 or (b) if your employment terminates prior to that date due to (i) death, (ii) permanent and total disability, (iii) a Company-initiated termination other than on a for-cause basis or (iv) following a Change of Control. If in the event your employment terminates for any reason prior to any such vesting date for any other reason (including, without limitation, your voluntary termination or a termination for cause), then the EDCP Accrual, as adjusted, will be forfeited. Please indicate your acknowledgment of the terms of the letter by signing in the space provided and returning the original to me for your employee records. You should also retain a copy for your file. If you should have any questions, please give me a call at (949) 349-5435. Sincerely, Philip J. Carroll AGREED BY: AGREED BY: - ----------------------------------- --------------------------------------- PHILIP J. CARROLL DATE JAMES C. STEIN DATE EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS OCT-31-2000 NOV-01-1999 JAN-31-2000 148,130 0 818,262 0 250,683 1,833,340 3,555,300 1,284,171 4,869,789 2,122,169 0 0 0 47,733 1,579,472 4,869,789 0 2,998,519 0 2,897,758 0 0 13,108 74,116 21,864 52,252 0 0 0 52,252 .69 .69
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