SECURITIES AND EXCHANGE COMMISSION
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2002 | ||
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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 1-16129
Fluor Corporation
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Delaware
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33-0927079 | |
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(State or other jurisdiction of
Incorporation or organization) |
(I.R.S. Employer
Identification Number) |
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One Enterprise Drive,
Aliso Viejo, California (Address of principal executive offices) |
92656
(Zip Code) |
(949) 349-2000
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |
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Common stock, $.01 par value
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
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, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o
Based upon the closing price of the registrant’s common stock as of June 28, 2002, the aggregate market value of the common stock held by non-affiliates was $3,115,234,749.
As of March 12, 2003, there were 81,183,981 shares of Fluor common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate certain information by reference from the registrant’s Annual Report to shareholders for the fiscal year ended December 31, 2002.
Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the annual meeting of shareholders to be held on May 7, 2003, which proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2002.
From time to time, Fluor® Corporation makes certain comments and disclosures in reports and statements, including this report, or statements made by its officers or directors which may be forward-looking in nature. Examples include statements related to our growth, the adequacy of funds to service debt and our opinions about trends and factors which may impact future operating results. These forward-looking statements could also involve, among other things, statements regarding our intent, belief or expectation with respect to (i) our results of operations and financial condition, (ii) the consummation of acquisition, disposition or financing transactions, and the effect thereof on our business, and (iii) our plans and objectives for future operations and expansion or consolidation.
Any forward-looking statements are subject to the risks and uncertainties that could cause actual results of operations, financial condition, cost reductions, acquisitions, dispositions, financing transactions, operations, expansion, consolidation and other events to differ materially from those expressed or implied in such forward-looking statements. Any forward-looking statements are also subject to a number of assumptions regarding, among other things, future economic, competitive and market conditions generally. These assumptions would be based on facts and conditions as they exist at the time such statements are made, as well as predictions as to future facts and conditions, the accurate prediction of which may be difficult and involve the assessment of events beyond our control. We undertake no obligation to publicly update or revise any forward-looking statements. As a result, the reader is cautioned not to rely on these forward-looking statements.
We wish to caution readers that forward-looking statements, including disclosures which use words such as the Company “believes,” “anticipates,” “expects,” “estimates” and similar statements, are subject to certain risks and uncertainties which could cause actual results of operations to differ materially from expectations. Any forward-looking statements should be considered in context with the various disclosures made by the us about our businesses, including without limitation the risk factors more specifically described below in Item 1. Business, under the heading “Company Risk Factors.”
The Company is basically a holding Company which owns the stock of numerous subsidiary corporations. Except as the context otherwise requires, the terms “Fluor” or the “Registrant” as used herein are to Fluor Corporation and its predecessors and references to the “Company”, “we”, “us”, or “our” as used herein shall include Fluor Corporation, its consolidated subsidiaries and divisions.
PART I
| Item 1. | Business |
Fluor Corporation was incorporated in Delaware on September 11, 2000. Its executive offices are located at One Enterprise Drive, Aliso Viejo, California 92656, telephone number (949) 349-2000.
The Distribution
On November 30, 2000 (the “Distribution Date”), Fluor Corporation (“Old Fluor”), a corporation incorporated in Delaware in 1978 as successor in interest to a California corporation of the same name incorporated in 1924, announced that it had completed a reverse spin-off transaction wherein the Coal segment, previously operated under the A. T. Massey Coal Company, Inc. subsidiary, was separated from the other business segments of Old Fluor. As a result, two publicly-traded companies were created: Massey Energy Company and a “new” Fluor Corporation referred to as the Company herein.
The separation of the two companies was accomplished through a tax-free dividend (the “Distribution”) by Old Fluor of the Company, which is a new entity comprised of all of Old Fluor’s business segments, other than those involving the Coal segment (the “New Fluor Businesses”). Old Fluor, the continuing entity consisting of the Coal segment of Old Fluor, changed its name to Massey Energy Company (“Massey”). The tax-free dividend was declared on the Distribution Date to shareholders of record at the close of business on November 30, 2000. Due to the relative significance of the New Fluor Businesses, the New Fluor Businesses have been treated as the “accounting successor” for financial reporting purposes, and the Coal segment has been classified as discontinued operations despite the legal form of the separation resulting from the
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For purposes of effecting the Distribution and of governing certain relationships between the Company and Massey after the Distribution, the two companies have entered into various agreements, including a Distribution Agreement (the “Distribution Agreement”) and a Tax Sharing Agreement (the “Tax Sharing Agreement”). The following descriptions summarize the material terms of such agreements, but are qualified by reference to the texts of such agreements, which are incorporated herein by this reference.
The Distribution Agreement
The Distribution Agreement entered into between Massey and the Company provides for the transactions required to effect the Distribution, including defining the assets and liabilities which were allocated to and assumed by the Company and those that will remain with Massey.
In general, pursuant to the Distribution Agreement, all assets of Old Fluor prior to the Distribution Date, other than those relating to the Coal segment, became assets of the Company. The Distribution Agreement also provides for assumptions of liabilities and cross-indemnities designed to allocate financial responsibility for all liabilities arising out of or in connection with New Fluor Businesses to the Company and all liabilities arising out of or in connection with the Coal segment to Massey. The Company further assumed responsibility for certain liabilities and expenses incurred by the parties in connection with the Distribution and will indemnify Massey for liabilities relating to past divestitures made by Old Fluor and for liabilities relating to certain litigation in which Old Fluor is involved.
In addition, in the event that the transfers contemplated by the Distribution Agreement are not effected on or prior to the Distribution Date, the parties agreed to reasonably cooperate with one another to effect such transfers in the future. Each party also agrees, subject to certain conditions, to provide access to certain records and information to one another.
Finally, the Distribution Agreement provides the basis for separating the assets of pension benefit plans of Massey and the Company that were held in a single master trust, and transfers sponsorship of those welfare and pension benefit plans which cover employees of the New Fluor Businesses to the Company.
The Tax Sharing Agreement
The Tax Sharing Agreement sets forth the rights and obligations of the Company and Massey with respect to tax matters for periods before and after the Distribution Date. Commencing with the federal income tax return for the year ending October 31, 2001, Old Fluor’s subsidiary, A. T. Massey Coal Company, Inc. and its subsidiaries will join Old Fluor in a single consolidated federal income tax return.
The Tax Sharing Agreement provides that if the Company and A. T. Massey Coal Company, Inc. and their subsidiaries are included in the same consolidated federal income tax return for the year ending October 31, 2001, Massey will be responsible for the tax that would have been incurred had the Company and its subsidiaries not been so included, and the Company will be responsible for the balance of the tax. However, each corporation included as a member of a consolidated federal income tax group is jointly and severally liable to the government for all of the federal income tax associated with such return, notwithstanding any tax sharing agreement which allocates the tax liability between the parties. Therefore, the Company or Massey may be liable for all of the federal income tax with respect to a given return if the party upon whom the Tax Sharing Agreement imposes responsibility for all or a portion of such tax fails to discharge that responsibility.
The Tax Sharing Agreement further details the Company and Massey’s responsibilities relating to the tax payments and refunds, the filing of returns and the conduct of audits. The Tax Sharing Agreement also provides for cooperation with respect to certain tax matters, and for the exchange of information and retention of records which may affect the tax liability of the other party.
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Since a favorable ruling was obtained from the IRS with respect to the Distribution, it is not anticipated that the tax-free status of the Distribution would be challenged by the IRS. However, should any federal income tax liability arise as a result of the Distribution being found to be a taxable transaction, the Tax Sharing Agreement allocates liability between the parties. Generally, the Company will bear 60% of any such corporate tax liability and Massey will bear 40% of any such corporate tax liability except where the liability is attributable to one party’s breach of a covenant or a change of ownership, as described in Section 355(e) of the Internal Revenue Code with respect to one party’s stock.
Subsequent to the Distribution, we changed our fiscal year to a calendar year end for reporting purposes.
On March 27, 2003, Massey advised us that they would be restating their prior period earnings for a correction in the recognition of the expense related to black lung liabilities. Based upon information provided to us by Massey, their adjustments would not have a material effect on the Company’s earnings from discontinued operations and net earnings for the years ended October 31, 2000, 1999 and 1998. The adjustments would have reduced earnings from discontinued operations and net earnings by $0.3 million for the year ended October 31, 2000, $0.9 million for the year ended October 31, 1999, and nil for the year ended October 31, 1998. Due to the immateriality of these amounts no changes have been made to the Company’s financial statements for these years.
Business Segments
We are aligned into five principal operating segments (each, a “Segment”). The Energy and Chemicals segment provides design, engineering, procurement and construction services on a worldwide basis to an extensive range of oil, gas, refining, chemical, polymer and petrochemical clients. The Industrial and Infrastructure segment provides design, engineering, procurement and construction services to a broad base of businesses including life sciences, general commercial, institutional, manufacturing, mining, microelectronics, telecommunications and transportation customers on a global basis. The Power segment designs, engineers and constructs power facilities globally. The Global Services segment provides operations and maintenance support, temporary staffing, equipment and outsourcing and asset management solutions to our projects as well as to third party clients. The Government Services segment provides administration and support services to the federal government and other governmental parties. In addition, and as noted above, a sixth segment, the Coal segment which produces, processes and sells high-quality, low-sulfur steam coal for the utility industry as well as industrial customers, and metallurgical coal for the steel industry, is being reported as a discontinued operation as a result of the Distribution. Fluor Constructors International, Inc. (“Fluor Constructors”) which is organized and operates separately from our business segments, provides unionized management, construction and management services in the United States and Canada, both independently and as a subcontractor on projects to our Segments.
A summary of our operations and activities by business segment and geographical area is set forth below.
Energy and Chemicals
The Energy and Chemicals segment is an integrated service supplier providing a full range of design, engineering, procurement, construction and project management services in a broad spectrum of energy and chemical industries. Specific industries served include upstream oil and gas production, refining, petrochemical, and specialty and fine chemicals. Our role in each project can vary, but may include features such as front-end engineering, program management and final design services, construction management services, oversight of other contractors and the responsibility for the procurement of labor, materials, equipment and subcontractors.
Typical projects include new facilities, upgrades, revamps, fire and explosion re-builds, expansions for refineries, pipeline and offshore facility installations, gas field development and oil sands projects. During the past year, we were engaged to perform front-end engineering for a number of major upstream oil and gas projects which, if developed, could result in projects for the production of new oil and gas projects on a global basis. In addition, we continue to work on so-called “clean fuels projects” for a number as refiners in North
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We also see continuing strength in the natural gas and petrochemical markets where we provide a complete line of services to our clients. For example, clients in the Middle East continue to focus on developing natural gas resources with the intent of diversifying and expanding the region’s economic base beyond oil. Thus, we continue to assist in the development of several large petrochemical projects in the Middle East which process natural gas into the basic building blocks for a variety of plastics and chemicals. Similarly, China also continues to expand its capacity in the petrochemical area where, for example, we are managing the design, procurement and construction of a multi-billion dollar petrochemical site.
Industrial and Infrastructure
Our Industrial and Infrastructure segment provides design, engineering, procurement and construction services necessary for the development of manufacturing and life sciences facilities, commercial and institutional buildings, and mining, microelectronics, telecommunications and transportation projects. This segment provides our clients in these markets with the key discipline resources of architecture, industrial design, engineering, construction and commissioning (including validation) for new construction and refurbishment of existing facilities.
Our extensive construction legacy allows us to better serve the commercial and institutional markets. We utilize our experience and expertise to provide services to a broad spectrum of client markets such as the hospitality and higher education sector, the research and development area, and commercial and municipal buildings. We have achieved growth in markets where project complexity, coupled with geographic remoteness, allow us to demonstrate our competitive advantage, as evidenced by awards for the construction of five-star resorts in the Caribbean. We are successfully positioned to execute technically challenging assignments that require state-of-the-art application of client’s process and intellectual knowledge. Specific examples include medical and biological research facilities as well as programming assignments for nano- and meso-scale university research facilities. Another major focus for this group is supporting community enrichment projects with program management for the Orange County Performing Arts Center, Charlotte Convention Center and the execution of various community medical expansion projects. In the general construction arena, we have been recently selected to design and build Raytheon’s new headquarters in Massachusetts, and program manage the new Citigroup Tower in Shanghai, China.
We also continue to experience significant growth in the life sciences area where, for example, we have seen increasing opportunities in the pharmaceutical and biotechnology markets. We are able to leverage thirty-five years of expertise in the design and construction of a broad range of bulk, secondary manufacturing and biotech facilities. We provide client solutions for cost containment and for schedule delivery compression to achieve rapid time-to-market implementation. Recently, our efforts have been focussed on retrofits and upgrades to existing facilities. An important component of our comprehensive offering is the provision of commissioning, start-up, validation, and regulatory compliance services. This integrated approach allows for an expedited FDA or country-specific approval process. We are well-positioned to provide a complete
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Our client portfolio also includes project development worldwide for the microelectronics, consumer products, metals, forest products and general manufacturing industries. While the recent economic turndown has limited new capital investment, we still believe there are opportunities in the food, beverages and consumer products sectors, which we have pursued with success. Similarly, while the microelectronics sector has suffered from oversupply, we believe that the market may be turning, with new opportunities, especially in the Asia Pacific region, becoming available. We believe that we are well situated to pursue these projects.
We serve the mining and minerals industry by providing a wide range of services including feasibility studies, project management, materials management and logistics, technical and engineering services, equipment selection, permitting, construction, operations and maintenance and remediation. We believe that our strong relationships with many of the world’s larger mining companies, are important as consolidation in the industry continues due to the depressed market for most mining products. Our efforts have focussed on oil sands projects in Canada, base metals projects in South America and Australia and precious metals projects primarily in southern Africa.
For the infrastructure markets, we specialize in the design, assistance in the securing of development financing and management of large, complex roadway and railway projects, both domestically and in select international markets, where we often use our successful public/private partnership business model. This model permits private entities to assist public agencies in meeting transportation needs. An example of our continuing success in this area is the award to a Fluor-led consortium to build the State Highway 130 toll road project in Austin, Texas. Additionally, we are active in designing and building telecommunication systems for advanced signaling and emergency response centers.
Power
We design, engineer and construct power generation facilities predominantly in the fossil fuel power industry through Duke/ Fluor Daniel, a partnership with Duke Energy Corp. While new orders for power generation facilities declined dramatically, we are focusing on executing our backlog of remaining projects and continue to identify opportunities for new projects. This is evidenced by our award to provide EPC services for power facilities in Pennsylvania and North Carolina, each with a capacity of 620 megawatts, and an award to provide turnkey EPC services to a 1,240 megawatt power facility in Ohio. Expanding economies in the international market are also increasing demand for power generation facilities, especially in Southern Europe. We also believe that many existing power facilities will be upgraded by the addition of emissions equipment to comply with environmental guidelines. We have also been successfully increasing the plant services we provide to the power market where, for example, we can assist clients in operational improvements, predictive and preventative maintenance and turbine fleet management.
The Power segment also has responsibility for execution of our work in Mexico and Central America through ICA Fluor Daniel, a partnership between the Company and Grupo ICA. Recent project awards include a contract to provide engineering, procurement and construction startup services for two plants and one fuel terminal for Pemex.
Global Services
The Global Services segment brings together a variety of customized service capabilities that significantly broaden our participation in the growing outsourcing market. In today’s competitive markets, clients are focusing on their core competencies, such as research and product development, as well as seeking new and better ways to maximize the financial benefit from their non-core assets. Working in concert with its clients, the strategic focus of Global Services is to assist its clients in achieving a sustainable advantage and profit growth by providing customized and integrated services that better optimize the total life-cycle of their assets
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Global Services’ activities in the operations and maintenance markets provide facility management, maintenance, operations and asset management services to the oil and gas, chemicals and life sciences, fossil and nuclear power, and manufacturing industries. We are a leading supplier of integrated facility management services, including on-site maintenance and operation support services, and continue to benefit from the outsourcing trend. We combine advanced management techniques with our value-added solutions to lower operating costs and enhance returns on clients’ plant and facilities investments. Sales efforts are focussed on leveraging existing engineering, procurement and construction clients by marketing our services to those facilities where we have recently completed a project. We are presently providing value-added services to nearly 200 facilities and project sites worldwide. An added benefit of providing these services is that while a specific project may be of a short term nature, the overall services provided generally result in long term relationships with clients at specific facilities.
We are a leading provider of Site Services and Fleet Outsourcing through our American Equipment Company, Inc. (“AMECO”) subsidiary. During fiscal 2002, we completed our liquidation of four out of five discontinued dealership operations and we continue to actively pursue the disposition of the fifth dealership. We continue to place greater emphasis on providing integrated construction equipment, tool and fleet outsourcing solutions on a global basis for construction projects and plant sites. As examples, AMECO is the primary equipment, tool and site services provider of a major construction contractor in the eastern United States and provides similar services for many other clients as well as our Duke/ Fluor Daniel joint venture, and in Mexico through our ICA Fluor joint venture. Our significant fleet outsourcing awards include a fleet maintenance contract to support a major Texas refinery. Other significant fleet outsourcing contracts include a fleet maintenance contract support multiple facilities for a Texas power generation company and a large telecommunications company in Jamaica. AMECO has more than 50 years of experience in the construction equipment business and offers an extremely broad range of services. With locations throughout North and South America, AMECO supports some of the largest construction projects and plant locations in the world.
We serve the temporary staffing market through our TRS Staffing Solutions (“TRS”) subsidiary. TRS is a global enterprise of staffing specialists that provides clients with recruiting and placement of temporary, contract and direct hire technical professionals. During 2002, we completed our exit from the discontinued non-EPC TRS staffing business including those that provided temporary staffing services in information technology, accounting and finance. As a result, TRS will focus on increasing opportunities to provide temporary staffing for EPC-related activities both to the Company and to third parties. By doing so, TRS provides both the Company and our clients flexibility and economies in meeting fluctuations in staffing requirements. TRS operates from four offices in the United States, as well as in offices in Canada, the United Kingdom, the Netherlands and South Africa.
In March 2003, we acquired five specialty operations and maintenance business groups from Philip Services Corporation. The acquired business groups will provide operations and maintenance to domestic industrial facilities, particularly in the oil and gas, refining, chemicals, petrochemicals and power generation industries.
Government Services
Government Services is a leading provider of project management services to the United States government, particularly to the Department of Energy and the Department of Defense. Government Services is presently providing environmental restoration, engineering, construction, site operations and maintenance services at two major Department of Energy project sites. These sites are the Fernald Environmental Management Project, located near Cincinnati, Ohio, and the Hanford Environmental Management Project, located in Richland, Washington. Despite the complexity of these projects, both sites have achieved exemplary safety and project performance records. As part of these services, we also provide asset management services in the form of infrastructure operations and maintenance.
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Fluor also provides engineering and construction services, as well as contingency operations support to the Departments of Defense, State and Transportation and to agencies such as the Federal Emergency Management Agency. We received an award in the second quarter award to provide construction services for the U.S. Ground-Based Missile Defense Facilities in Alaska. Our contingency operations activities, which support military logistical and infrastructure needs around the world, are evidenced by our recent U.S. Airforce task order to upgrade airports in Afghanistan with radar and runway lighting.
In January 2003, we acquired Del-Jen, Inc., a leading provider of outsourced services to the federal government. Del-Jen provides operations and maintenance services at military bases and education and training services to the Department of Labor, particularly through its Job Corps programs.
Discontinued Coal Segment
During fiscal 2000, the Coal segment, which
operated through A. T. Massey Coal Company, Inc. and its
subsidiaries, was headquartered in Richmond, Virginia. As a
result of the Distribution, on November 30, 2000, the Coal
segment ceased to be part of our continuing operations and
reported results, and is now reported as a discontinued
operation. The Coal segment, now operated by Massey, is a
publicly-traded Company that is listed on the New York Stock
Exchange, and files reports with the Securities and Exchange
Commission.
Other Matters
Backlog
The following table sets forth the consolidated
backlog of the Energy and Chemicals, Industrial and
Infrastructure, Power, Global Services and Government Services
segments at December 31, 2002 and 2001.
December 31,
December 31,
2002
2001
(in millions)
$
2,385
$
3,823
4,133
2,959
841
2,256
1,555
1,860
795
608
$
9,709
$
11,506
The following table sets forth the consolidated
backlog the Energy and Chemicals, Industrial and Infrastructure,
Power, Global Services and Government Services segments at
December 31, 2002 and 2001 by region.
December 31,
December 31,
2002
2001
(in millions)
$
5,608
$
7,515
712
219
1,570
1,625
1,819
2,147
$
9,709
$
11,506
Estimated portion not to be performed during 2003: 30%.
For purposes of the preceding tables, Global Services backlog figures are not provided for AMECO or TRS Staffing Solutions since there is no way to meaningfully measure backlog for these business units due to the nature of the services they provide.
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The dollar amount of the backlog is not necessarily indicative of our future earnings related to the performance of such work. Although backlog represents only business which is considered to be firm, there can be no assurance that cancellations or scope adjustments will not occur. Due to additional factors outside of our control, such as changes in project schedules, we cannot predict with certainty the portion of our December 31, 2002 backlog estimated to be performed subsequent to 2003.
For additional information with respect to our
backlog, please see Management’s Discussion and Analysis
contained in Fluor’s 2002 Annual Report to shareholders,
which information is incorporated herein by this reference (and
except for this section and other sections specifically
incorporated herein by this reference in Items 1 through 8
of this report, Fluor’s 2002 Annual Report to shareholders
is not deemed to be filed as part of this report).
Types of Contracts
While the basic terms and conditions of the
contracts that we perform may vary considerably, generally we
perform our work under two groups of contracts: cost
reimbursable, and guaranteed maximum and fixed price contracts.
As of December 31, 2002, the following table breaks down
the percentage and amount of revenue associated with these types
of contracts for our existing backlog:
2002
Backlog
(in millions)
67
%
$
6,452
33
%
$
3,257
Under cost reimbursable contracts, the client reimburses our costs in developing a project and pays us a pre-determined fee or a fee based upon a percentage of the costs incurred in completing the project. Our profit may be in the form of a fee, a simple mark-up applied to labor costs incurred in the contract, or a combination of the two. Under fixed price contracts, including so-called lump sum contracts or unit price contracts, we bid on a contract based upon specifications provided by the client, agreeing to develop a project at a fixed price. In some fixed price contracts, we share our savings with the client in exchange for the client bearing some of risk if the actual cost exceeds the contract award. As a result, if we perform well, we can benefit from cost savings; however, if the project does not proceed as originally envisioned, we cannot recover for cost overruns except in certain limited situations. Some of our contracts can also be categorized as guaranteed maximum price contracts. These contracts, while having some characteristics similar to reimbursable contracts, tend to carry a level of risk similar to fixed price contracts since the total actual cost of the project plus our fee cannot exceed a specified amount.
Our Government Services segment, as a prime contractor or a major subcontractor for a number of United States government programs, generally performs its services under cost reimbursable contracts although subject to applicable statutes and regulations. In many cases, these contracts include incentive-fee arrangements. The programs in question often take many years to complete and may be implemented by the award of many different contracts. Despite the fact that these programs are generally awarded on a multi-year basis, the funding for the programs is generally approved on an annual basis by Congress. The government is under no obligation to maintain funding at any specific level, or funds for a program may even be eliminated thereby significantly curtailing or stopping a program.
Contracts and business with the government are also subject to a number of socio-economic and other requirements as well as certain procurement regulations. If a contractor fails to comply with the requirements and regulations, it could lead to suspension or even debarment from government contracting. Finally, government contracting and the continued funding of programs is also subject to a variety of factors beyond our control such as political developments both domestically and internationally, budget considerations and changes in procurement policies.
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Competition
We are one of the world’s larger providers of engineering, procurement and construction services. The markets served by the business are highly competitive and for the most part require substantial resources, particularly highly skilled and experienced technical personnel. A large number of companies are competing in the markets served by the business, including the Bechtel Group, the Shaw Group, Jacobs Engineering Group, Kellogg Brown & Root, Washington Group International and Foster Wheeler. Competition is primarily centered on performance and the ability to provide the design, engineering, planning, management and project execution skills required to complete complex projects in a safe, timely and cost-efficient manner. Our engineering, procurement and construction business derives its competitive strength from our diversity, reputation for quality, technology, cost-effectiveness, worldwide procurement capability, project management expertise, geographic coverage and ability to meet client requirements by performing construction on either a union or an open shop basis, ability to execute projects of varying sizes, strong safety record and lengthy experience with a wide range of services and technologies.
The markets served by each Global Services business unit, while containing some similarities, tend also to have discrete issues particularly impacting that unit. Each of the markets we serve has a large number of companies competing in its markets. In the equipment market, which operates in numerous markets, the equipment rental industry is highly fragmented and very competitive, with most competitors operating in specific geographic areas. The competition for larger capital project services is more narrow and limited to only those capable of providing comprehensive equipment, tool and management services. Temporary staffing is a highly fragmented market with over 1,000 companies competing nationally. The key competitive factors in this business line are price, service, quality, breadth of service, and the ability to retain qualified personnel and geographical coverage. The barriers to entry to in the operations and maintenance are both financially and logistically low with the result that the industry is highly fragmented with no single company being dominant. Competition is generally driven by reputation, price and the capacity to perform.
Key competitive factors in our Government Services Segment are primarily centered on performance and the ability to provide the design, engineering, planning, management and project execution skills required to complete complex projects in a safe, timely and cost-efficient manner.
Raw Materials
Raw Materials and the components necessary for the conduct of our businesses are generally available from numerous sources. We do not foresee any unavailability of raw materials and components that would have a material adverse effect on its businesses in the near term.
Research and Development
While we engage in research and development efforts both on current projects and in the development of new products and services, during the past three fiscal years, we have not incurred costs for Company-sponsored research and development activities which would be material, special or unusual in any of our business segments.
Environmental, Safety and Health Matters
We believe, based upon present information available to it, that our accruals with respect to future environmental costs are adequate and any future costs will not have a material effect on our consolidated financial position, results of operations or liquidity. Some factors, however could result in additional expenditures or the provision of additional accruals in expectation of such expenditures. These include the imposition of more stringent requirements under environmental laws or regulations, new developments or changes regarding site cleanup costs or the allocation of such costs among potentially responsible parties, or a determination that we are potentially responsible for the release of hazardous substances at sites other than those currently identified.
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Number of Employees
The following table sets forth the number of
salaried and craft/hourly employees of Fluor and its
subsidiaries engaged in our continuing business segments as of
December 31, 2002:
Salaried
Craft/Hourly
Total
6,199
4,491
10,690
2,552
1,501
4,053
768
7,885
8,653
3,461
10,850
14,311
3,577
805
4,382
2,702
18
2,720
19,259
25,550
44,809
Operations by Business Segment and Geographical Area
The financial information for business segments and geographic areas is included in the Operations by Business Segment and Geographical Area section of the Notes to Consolidated Financial Statements in Fluor’s 2002 Annual Report to shareholders, which section is incorporated herein by reference.
Available Information
Our website address is www.fluor.com . You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on our “Investor Relations” portion of our website, http://investor.fluor.com/ Edgar.cfm , under the heading “SEC Filings.” These reports are available on our website as soon as reasonably practicable after we electronically file them with the Securities and Exchange Commission.
Company Risk Factors
| We bear the risk of cost overruns in approximately 33% of the dollar-value of our contracts. We may experience reduced profits or, in some cases, losses under these contracts if costs increase above our estimates. |
We conduct our business under various types of contractual arrangements. In terms of dollar-value, the majority of our contracts allocate the risk of cost overruns to our client by requiring our client to reimburse us for our costs. Approximately 33% of the dollar-value of our contracts, however, are guaranteed maximum or lump sum contracts, where we bear a significant portion of the risk for cost overruns. Under these fixed-price contracts, contract prices are established in part on cost and scheduling estimates which are based on a number of assumptions, including assumptions about future economic conditions, prices and availability of labor, equipment and materials, and other exigencies. If these estimates prove inaccurate, or circumstances change, cost overruns may occur, and we could experience reduced profits or, in some cases, a loss for that project.
| Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future earnings. |
As of December 31, 2002, our backlog was approximately $9.7 billion. We cannot guarantee that the revenues projected in our backlog will be realized or, if realized, will result in profits. Projects may remain in our backlog for an extended period of time. In addition, project cancellations or scope adjustments may occur, from time to time, with respect to contracts reflected in our backlog. For example, during our fourth quarter in fiscal 2002, the remaining portions of three power projects for Duke Energy Corp. were canceled, reducing our projected backlog by approximately $305 million. These types of backlog reductions adversely affect the revenue and profit we actually receive from contracts reflected in our backlog. Future project cancellations and
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| If we guarantee the timely completion or performance standards of a project, we could incur additional costs to cover our guarantee obligations. |
In some instances and in many of our fixed-price contracts, we guarantee a customer that we will complete a project by a scheduled date. We sometimes provide that the project, when completed, will also achieve certain performance standards. If we subsequently fail to complete the project as scheduled, or if the project subsequently fails to meet guaranteed performance standards, we may be held responsible for cost impacts to the client resulting from any delay or the costs to cause the project to achieve the performance standards. In some cases, where we fail to meet performance standards, we may also be subject to agreed-upon liquidated damages. To the extent that these events occur, the total costs of the project would exceed our original estimates and we could experience reduced profits or, in some cases, a loss for that project.
| The nature of our engineering and construction business exposes us to potential liability claims and contract disputes which may reduce our profits. |
We engage in engineering and construction activities for large industrial facilities where design, construction or systems failures can result in substantial injury or damage to third parties. Any liability in excess of our insurance limits at locations engineered or constructed by us could result in significant liability claims against us, which claims may reduce our profits. In addition, if there is a customer dispute regarding our performance of project services, the customer may decide to delay or withhold payment to us. If we were ultimately unable to collect on these payments, our profits would be reduced.
| We are vulnerable to the cyclical nature of the markets we serve. |
The demand for our services and products is dependent upon the existence of projects with engineering, procurement, construction and management needs. Although downturns can impact our entire business, our telecommunications and mining markets exemplify businesses that are cyclical in nature and continue to be affected by a decrease in worldwide demand for the projects during the past year. Similarly, the Power segment, which services the power industry, has seen strong growth in the past few years due to previously unmet power needs and deregulation but is now seeing its business opportunities decrease relative to the last few years. Industries such as these and many of the others we serve have historically been and will continue to be vulnerable to general downturns and are cyclical in nature. As a result, our past results have varied considerably and may continue to vary depending upon the demand for future projects in these industries.
| We maintain a workforce based upon current and anticipated workloads. If we do not receive future contract awards or if these awards are delayed, significant costs may result. |
Our estimates of future performance depend on, among other matters, whether and when we will receive certain new contract awards. While our estimates are based upon our good faith judgment, these estimates can be unreliable and may frequently change based on newly available information. In the case of large-scale domestic and international projects where timing is often uncertain, it is particularly difficult to predict whether and when we will receive a contract award. The uncertainty of contract award timing can present difficulties in matching our workforce size with our contract needs. If an expected contract award is delayed or not received, we could incur costs resulting from reductions in staff or redundancy of facilities that would have the effect of reducing our profits.
| We have international operations that are subject to foreign economic and political uncertainties. Unexpected and adverse changes in the foreign countries in which we operate could result in project disruptions, increased costs and potential losses. |
Our business is subject to fluctuations in demand and to changing domestic and international economic and political conditions which are beyond our control. As of December 31, 2002, approximately 42% of our
11
Operating in the international marketplace exposes us to a number of risks including: Abrupt changes in foreign government policies and regulations,
| • | Embargoes, | |
| • | United States government policies, and | |
| • | International hostilities. |
The lack of a well-developed legal system in some of these countries may make it difficult to enforce our contractual rights. We also face significant risks due to civil strife, acts of war, terrorism and insurrection. Our level of exposure to these risks will vary with respect to each project, depending on the particular stage of each such project. For example, our risk exposure with respect to a project in an early development stage will generally be less than our risk exposure with respect to a project in the middle of construction. To the extent that our international business is affected by unexpected and adverse foreign economic and political conditions, we may experience project disruptions and losses. Any project disruptions and losses could significantly reduce our revenues and profits.
| Our government contracts may be terminated at any time. Also, if we do not comply with restrictions and regulations imposed by the government, our government contracts may be terminated and we may be unable to enter into future government contracts. The termination of our government contracts could significantly reduce our expected revenues. |
We enter into significant government contracts, from time to time, such as those that we have with the U.S. Department of Energy at Fernald and Hanford. Government contracts are subject to various uncertainties, restrictions and regulations, including oversight audits by government representatives and profit and cost controls. Government contracts are also exposed to uncertainties associated with congressional funding. The government is under no obligation to maintain funding at any specific level and funds for a program may even be eliminated.
In addition, government contracts are subject to specific procurement regulations and a variety of other socio-economic requirements. We must comply with these government regulations and requirements as well as various statutes related to employment practices, environmental protection, recordkeeping and accounting. If we fail to comply with any of these regulations, requirements or statutes, our existing government contracts could be terminated, and we could be temporarily suspended from government contracting or subcontracting. If one or more of our government contracts are terminated for any reason, or if we are suspended from government contract work, we could suffer a significant reduction in expected revenues.
| Our international operations expose us to foreign currency fluctuations that could increase our U.S. dollar costs or reduce our U.S. dollar revenues. |
Because our functional currency is the U.S. dollar, we try to denominate our contracts in United States dollars. However, from time to time our contracts are denominated in foreign currencies, which results in our foreign operations facing the additional risk of fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. Changes in the value of foreign currencies could increase our U.S. dollar costs for, or reduce our U.S. dollar revenues from, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency fluctuations could affect our profits.
| Intense competition in the engineering and construction industry could reduce our market share and profits. |
We serve markets that are highly competitive and in which a large number of multinational companies, such as the Bechtel Group, the Shaw Group, Jacobs Engineering Group, Kellogg Brown & Root, Washington
12
| The success of our joint ventures depends on the satisfactory performance by our joint venture partners of their joint venture obligations. The failure of our joint venture partners to perform their joint venture obligations could impose on us additional financial and performance obligations that could result in reduced profits or, in some cases, significant losses for us with respect to the joint venture. |
We enter into various joint ventures as part of our engineering, procurement and construction businesses, such as ICA/ Fluor Daniel and Duke/ Fluor Daniel. The success of these and other joint ventures depend, in large part, on the satisfactory performance of our joint venture partners of their joint venture obligations. If our joint venture partners fail to satisfactorily perform their joint venture obligations as a result of financial or other difficulties, the joint venture may be unable to adequately perform or deliver its contracted services. Under these circumstances, we may be required to make additional investments and provide additional services to ensure the adequate performance and delivery of the contracted services. These additional obligations could result in reduced profits or, in some cases, significant losses for us with respect to the joint venture.
| We could incur substantial tax liabilities if certain representations and warranties made by our predecessor-in-interest are inaccurate, or if we or Massey Energy Company engage in a transaction that effects a transfer of more than 50% of our respective equity interests. |
Prior to the reverse spin-off, our predecessor-in-interest received a ruling from the Internal Revenue Service that the reverse spin-off qualified as a tax-free spin-off under Section 355 of the Internal Revenue Code of 1986. The ruling was granted based upon certain representations made by our predecessor-in-interest. While we are not aware of any facts or circumstances that would cause those representations to be incorrect or incomplete, if those representations were inaccurate, it is possible that the ruling would no longer be valid. In such event, we could incur a significant corporate tax liability that could have a material adverse effect on our financial condition. In addition, under the ruling, neither Massey Energy Company nor we may, for up to two years following the reverse spin-off transaction, engage in certain business combinations that would constitute a change of more than 50% of the equity interest in Massey Energy Company or us. If either Massey Energy Company or we fail to conform to the requirements of the ruling and, if pursuant to a tax sharing agreement, we are responsible for any liability related thereto, we could incur a substantial tax liability with respect to both Massey Energy Company and us.
| Past and future environmental, safety and health regulations could impose on us significant additional costs that reduce our profits. |
We are subject to numerous environmental laws and health and safety regulations. Our projects can involve the handling of hazardous and other highly regulated materials which, if improperly handled or disposed of, could subject us to civil and criminal liabilities. It is impossible to reliably predict the full nature and effect of judicial, legislative or regulatory developments relating to health and safety regulations and environmental protection regulations applicable to our operations. The applicable regulations, as well as the technology and length of time available to comply with those regulations, continue to develop and change. In addition, past activities could also have a material impact on us. For example, when we sold our mining business formerly conducted through St. Joe Minerals Corporation, we retained responsibility for certain non-lead related environmental liabilities, but only to the extent that such liabilities were not covered by St. Joe’s comprehensive general liability insurance. While we are not currently aware of any material exposure arising from our former St. Joe’s business or otherwise, the costs of complying with rulings and regulations or
13
| If we experience delays and/or defaults in customer payments, we could be unable to recover all expenditures. |
Because of the nature of our contracts, at times we commit resources to projects prior to receiving payments from the customer in amounts sufficient to cover expenditures on client projects as they are incurred. Delays in customer payments may require us to make a working capital investment. If a customer defaults in making its payments on a project in which we have devoted significant resources, it could have a material negative effect on our results of operations.
| Our recent and any future acquisitions may not be successful. |
Fluor expects to continue to pursue select acquisitions of businesses. We cannot assure you that we will be able to locate suitable acquisitions or that we will be able to consummate any such transactions on terms and conditions acceptable to us, or that such transactions will be successful. Acquisitions may bring us into businesses we have not previously conducted and expose us to additional business risks that are different than those we have traditionally experienced. We also may encounter difficulties integrating acquisitions and successfully managing the growth we expect to experience from these acquisitions.
14
| Item 2. | Properties |
| Major Facilities |
Operations of Fluor and its subsidiaries are conducted in both owned and leased properties totaling approximately 7.0 million square feet. In addition, certain owned or leased properties of Fluor and its subsidiaries are leased or subleased to third party tenants. The following table describes the location and general character of the major existing facilities:
| Location | Interest | Purpose | ||
|
|
|
|
||
|
United States and Canada:
|
||||
|
Aliso Viejo, California
|
Leased | Executive offices, general office and engineering | ||
|
Calgary, Canada
|
Leased | Fluor Canada operations | ||
|
Charlotte, North Carolina
|
Leased | Duke/ Fluor Daniel operations | ||
|
Cincinnati, Ohio
|
Leased | General office and engineering | ||
|
Greenville, South Carolina
|
Owned and Leased | General office, engineering, AMECO operations and undeveloped land | ||
|
Houston (Sugar Land), Texas
|
Owned and Leased | General office, engineering and undeveloped land | ||
|
Richland, Washington
|
Leased | Government Services operations | ||
|
Rumford, Rhode Island
|
Leased | Industrial and Infrastructure operations and general office | ||
|
San Juan, Puerto Rico
|
Leased | General office and engineering | ||
|
Tucson, Arizona
|
Leased | General office and engineering | ||
|
Vancouver, Canada
|
Leased | Fluor Daniel Wright Operations | ||
|
The Americas:
|
||||
|
Caracas, Venezuela
|
Leased | General office and engineering | ||
|
Mexico City, Mexico
|
Leased | ICA Fluor Daniel Operations | ||
|
Santiago, Chile
|
Owned | Fluor Chile Operations | ||
|
Europe, Africa and Middle East:
|
||||
|
Al Khobar, Saudi Arabia (Dhahran area)
|
Owned | Fluor Arabia Operations | ||
|
Asturias, Spain
|
Owned | Fluor Spain Operations | ||
|
Camberley, England
|
Owned and Leased | Fluor Limited Operations | ||
|
Gilwice, Poland
|
Owned | General office and engineering | ||
|
Haarlem, Netherlands
|
Owned and Leased | General office and engineering | ||
|
Sandton, South Africa
|
Leased | Fluor South Africa Operations | ||
|
Asia and Asia Pacific:
|
||||
|
Jakarta, Indonesia
|
Leased | Fluor Daniel Eastern, Inc. Operations | ||
|
Manila, Philippines
|
Owned | Fluor Daniel Inc. Philippines Operations | ||
|
Melbourne, Australia
|
Leased | Fluor Australia Operations | ||
|
New Dehli, India
|
Leased | Fluor Daniel India Private Ltd. Operations | ||
|
Perth, Australia
|
Leased | Fluor Australia Operations | ||
| Item 3. | Legal Proceedings |
Fluor and its subsidiaries, incident to their normal business activities, are parties to a number of legal proceedings and other matters in various stages of development. While we cannot predict the outcome of these proceedings, in our opinion and based on reports of counsel, any liability arising from these matters individually and in the aggregate will not have a material adverse effect upon the consolidated financial
15
| Item 4. | Submission of Matters to a Vote of Security Holders |
The Company did not submit any matters to a vote of security holders during the fourth quarter of 2002.
16
PART II
| Item 5. | Market for Registrant’s Common Equity and Related Stockholder Matters |
Disclosure of market information, holders and dividends pursuant to Item 201 of Regulation S-K is incorporated by reference from the information contained in our 2002 Annual Report to Shareholders in the section entitled “Shareholders’ Reference”. This section of our 2002 Annual Report to Shareholders are attached in Exhibit 13 to this Annual Report on Form 10-K. Disclosure of securities authorized for issuance under our equity compensation plans pursuant to Item 201 of Regulation S-K is incorporated by reference from the information contained in the section entitled “Securities Authorized for Issuance under Equity Compensation Plans” in the Executive Compensation and Other Information portion of our Proxy Statement.
| Item 6. | Selected Financial Data |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| Item 7A. | Quantitative and Qualitative Discussions about Market Risk |
Information for Items 6, 7 and 7A is contained in Fluor’s 2002 Annual Report to Shareholders, which information is incorporated herein by reference:
| Item No. | Title | Annual Report to Shareholders Section | ||||
|
|
|
|
||||
|
Item 6.
|
Selected Financial Data | Selected Financial Data | ||||
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations | Management’s Discussion and Analysis | ||||
|
Item 7A.
|
Quantitative and Qualitative Discussions about Market Risk | Management’s Discussion and Analysis | ||||
Certain portions of our 2002 Annual Report to Shareholders are attached in Exhibit 13 to this Annual Report on Form 10-K.
| Item 8. | Financial Statements and Supplementary Data |
Information for Item 8 is included in Fluor’s Consolidated Balance Sheet as of December 31, 2002 and 2001 and Consolidated Statement of Earnings, Consolidated Statement of Cash Flows, Consolidated Statement of Shareholders’ Equity and Notes to Consolidated Financial Statements for the years ended December 31, 2002 and 2001 and October 31, 2000 and the two months ended December 31, 2000 and Fluor’s unaudited Quarterly Financial Data for the years ended December 31, 2002 and 2001 appearing in Fluor’s 2002 Annual Report to shareholders, all of which are incorporated herein by reference. The report of independent auditors on Fluor’s consolidated financial statements is in the Management’s and Independent Auditors’ Reports section of Fluor’s 2002 Annual Report to shareholders and is also incorporated herein by reference. Certain portions of our 2002 Annual Report to Shareholders are attached in Exhibit 13 to this Annual Report on Form 10-K.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
There have been no changes in, or disagreements with, accountants on accounting and financial disclosure.
17
PART III
| Item 10. | Directors and Executive Officers of the Registrant |
The information required by this item regarding
directors incorporated by reference from the information
contained in the Biographical section of the Election of
Directors portion of our definitive proxy statement for the 2003
annual meeting of our shareholders (the “Proxy
Statement”) which will be filed with the Securities and
Exchange Commission (the “Commission”) not later than
120 days after the close of Fluor’s fiscal year ended
December 31, 2002. Disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is incorporated by
reference from the information contained in the section entitled
“Section 16(a) Beneficial Ownership Reporting
Compliance” in the Corporate Governance portion of our
Proxy Statement.
Executive Officers of the Registrant
Pursuant to the requirements of Item 401(b)
and 401(e) of Regulation S-K, the following information is
being furnished with respect to the Company’s executive
officers:
Name
Age
Position with the Company(1)
54
Chairman and Chief Executive Officer
59
Senior Vice President, Law and Secretary
55
Senior Vice President, Human Resources and
Administration
45
Group Executive, Energy & Chemicals
49
Group Executive, Sales, Marketing & Strategic
Planning
49
Group Executive, Industrial and Infrastructure
52
Group Executive, Government
54
Senior Vice President and Chief Financial Officer
50
Group Executive, Global Services
| (1) | Except where otherwise indicated, all references are to positions held with Fluor Corporation or one of its subsidiaries. |
Alan L. Boeckmann
Chairman and Chief Executive Officer, since February 2002; member of the Board since 2000; formerly, Chief Operating Officer since 2000; President and Chief Executive Officer, Fluor Daniel, since 1999; formerly Group President, Energy and Chemicals from 1996; joined the Company in 1979 with previous service from 1974 to 1977.
Lawrence N. Fisher
Senior Vice President, Law and Secretary, since 1996; formerly Vice President, Corporate Law and Assistant Secretary from 1984; joined the Company in 1974.
H. Steven Gilbert
Senior Vice President, Human Resources, and Administration since February 2002; formerly, Senior Vice President, Business and Work Process Integration from 1999; Vice President, Work Process Improvement from 1998; Vice President and General Manager of the Company’s Irvine, Houston, Calgary, Greenville, Chicago and Philadelphia offices from 1997; joined the Company in 1970.
Kirk D. Grimes
Group Executive, Energy & Chemicals since 1999; formerly President, Telecommunications SBU from 1998; Vice President, Operations, for Telecommunications from 1999; Executive Director, Fluor Daniel Telecom, from 1997; joined the Company in 1980.
18
John L. Hopkins
Group Executive, Sales, Marketing and Strategic Planning since February 2002; formerly Group Executive, Fluor Global Services from September 2001; President and Chief Executive Officer, TradeMC, a developer and promoter of supplier networks for the procurement of capital goods from March 2000; Group President, Sales & Marketing from 1988; President, Chemicals & Life Sciences from 1991; joined the Company in 1988.
Robert A. McNamara
Group Executive, Industrial and Infrastructure since February 2002; formerly, Group Executive, Industrial since 2001; President, Manufacturing and Life Sciences SBU from 1998; President, ADP Marshall, Inc., a construction subsidiary of the Company from 1996; joined the Company in 1996.
Ronald W. Oakley
Group Executive, Government since October 2002; formerly Group Executive, Strategic Operations from February 2002; formerly Group Executive, Infrastructure from 2001; President of Infrastructure for Fluor Daniel from 1995; joined the Company in 1979.
D. Michael Steuert
Senior Vice President and Chief Financial Officer since May 2001; formerly Senior Vice President and Chief Financial Officer, Litton Industries Inc, a major defense contractor from 1999 to 2001, and Senior Vice President and Chief Financial Officer, GenCorp Inc., a technology-based manufacturing company from 1994 to 1999; joined the Company in May 2001.
Mark A. Stevens
Group Executive, Global Services since February 2002; formerly Senior Executive, Sales, Marketing & Strategic Planning from 2001; President, Energy & Chemicals from 1997; President, Central American Operations from 1995; joined the Company in 1975.
Code of Ethics
We have long maintained and enforced “Code of Business Ethics” which applies to all Fluor officers and employees, including our chief executive officer, chief financial officer, and principal accounting officer and controller. A copy of the code, which has been substantially in its current form since 1987 has been filed as an exhibit to this Form 10-K and will be posted on the investor relations portion of our website, at www.fluor.com as soon as practicable after the filing of this report. We intend to disclose any changes or amendments to our code of ethics or waivers from our code of ethics applicable to our chief executive officer, chief financial officer, and principal accounting officer or controller by posting such changes or waivers to our website.
| Item 11. | Executive Compensation |
Information required by this item is included in the Organization and Compensation Committee Report on Executive Compensation and Executive Compensation and Other Information sections of our Proxy Statement, which is incorporated herein by reference.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Information required by this item is included in the Stock Ownership and Executive Compensation and Other Information sections of our Proxy Statement which are incorporated herein by reference.
| Item 13. | Certain Relationships and Related Transactions |
Information required by this item is included in the Other Matters section of the Election of Directors portion of our Proxy Statement which is incorporated herein by reference.
19
PART IV
| Item 14. | Controls and Procedures |
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, within 90 days of the filing date of this report (the “Evaluation Date”). To maintain a cost-effective controls structure, management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can only provide reasonable assurance that our management’s control objectives are met. In addition, the design of any system of control is based upon certain assumptions about the likelihood of future events, and there can no assurance that any design will succeed in achieving its stated goals under all future events, no matter how remote.
Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective in timely alerting them to material information relating to the company required to be included in our periodic SEC reports. In addition, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.
| Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K |
| (a) | Documents filed as part of this report: |
1. Financial Statements: The following financial statements are contained in the Company’s 2002 Annual Report to shareholders:
| Consolidated Statement of Earnings for the years ended December 31, 2002 and 2001, and October 31, 2000, and the transition period for the two months ended December 31, 2000. | |
| Consolidated Balance Sheet as of December 31, 2002 and 2001. | |
| Consolidated Statement of Cash Flows for the years ended December 31, 2002 and 2001, October 31, 2000 and the transition period for the two months ended December 31, 2000. | |
| Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2002 and 2001, and October 31, 2000, and the transition period for the two months ended December 31, 2000. | |
| Notes to Consolidated Financial Statements. | |
| See Part II, Item 8 of this report for information regarding the incorporation by reference herein of such financial statements. |
2. Financial Statement Schedules: All schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.
20
3.
Exhibits:
Exhibit
Description
3
.1
Amended and Restated Certificate of Incorporation
of the registrant(1)
3
.2
Amended and Restated Bylaws of the registrant*
10
.1
Distribution Agreement between the registrant and
Fluor Corporation (renamed Massey Energy Company)(2)
10
.2
Tax Sharing Agreement between the Fluor
Corporation and A.T. Massey Coal Company, Inc.(3)
10
.3
Employment Agreement, dated as of July 1,
1998, between Fluor Corporation and Philip J. Carroll(1)
10
.4
Special Retention Program, dated March 7,
2000, between Fluor Corporation and Alan L. Boeckmann(1)
10
.5
Special Retention Program, dated
September 12, 2000, between Fluor Corporation and Mark A.
Stevens*
10
.6
Fluor Corporation 2000 Executive Performance
Incentive Plan(4)
10
.7
Fluor Corporation 2000 Restricted Stock Plan for
Non-Employee Directors(5)
10
.8
Fluor Corporation Executive Deferred Compensation
Plan(6)
10
.9
Fluor Corporation Deferred Director’s Fees
Program*
10
.10
Directors’ Life Insurance Summary(1)
10
.11
Fluor Executives’ Supplemental Benefit
Plan(1)
10
.12
Fluor Corporation Retirement Plan for Outside
Directors(1)
10
.13
Executive Severance Plan*
10
.14
2001 Key Employee Performance Incentive Plan(6)
10
.15
2001 Fluor Stock Appreciation Rights Plan(6)
10
.16
Fluor Corporation 2003 Executive Performance
Incentive Plan (proposed)*
10
.17
Code of Ethics and Business Conduct* Certain
portions of the Fluor Corporation 2002 Annual Report to
shareholders (with the exception of the information incorporated
by reference into Items 1, 3, 5, 6, 7, 7A and 8 of this
report,
13
Fluor’s 2002 Annual Report to shareholders
is not deemed to be filed as a part of this report)*
21
Subsidiaries of the registrant*
23
Consent of Independent Auditors* Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the
99
.1
Sarbanes-Oxley Act of 2002*
| * | New exhibit filed with this report. |
| (1) | Filed as the same numbered exhibit to the Registrant’s Registration Statement on Form 10/A (Amendment No. 1) filed on November 22, 2000 and incorporated herein by reference. |
| (2) | Filed as Exhibit 10.1 to the Registrant’s report on Form 8-K filed on December 7, 2000 and incorporated herein by reference. |
| (3) | Filed as Exhibit 10.2 to the Registrant’s report on Form 8-K filed on December 7, 2000 and incorporated herein by reference. |
| (4) | Filed as Exhibit 10.1 to the Registrant’s report on Form 8-K filed on December 29, 2000 and incorporated herein by reference. |
| (5) | Filed as Exhibit 10.2 to the Registrant’s report on Form 8-K filed on December 29, 2000 and incorporated herein by reference. |
| (6) | Filed as an exhibit to the Registrant’s report on Form 10-K filed on March 21, 2002 and incorporated herein by reference. |
21
(b) Reports on Form 8-K filed during fiscal 2002:
On August 14, 2002, we filed a current report on form 8-K to file the certifications of our Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 |
| By: | /s/ D. MICHAEL STEUERT |
|
|
|
| D. Michael Steuert, | |
| Senior Vice President | |
| and Chief Financial Officer |
March 25, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||
|
|
|
|
||||
| Principal Executive Officer and Director: | ||||||
|
/s/ ALAN L. BOECKMANN
Alan L. Boeckmann |
Chairman of the Board and
Chief Executive Officer |
March 25, 2003 | ||||
| Principal Financial Officer: | ||||||
|
/s/ D. MICHAEL STEUERT
D. Michael Steuert |
Senior Vice President and
Chief Financial Officer |
March 25, 2003 | ||||
| Principal Accounting Officer: | ||||||
|
/s/ VICTOR L. PRECHTL
Victor L. Prechtl |
Vice President and Controller | March 25, 2003 | ||||
| Other Directors: | ||||||
|
*
Paul M. Anderson |
Director | March 25, 2003 | ||||
|
/s/ PETER J. FLUOR
Peter J. Fluor |
Director | March 25, 2003 | ||||
|
/s/ DAVID P. GARDNER
David P. Gardner |
Director | March 25, 2003 | ||||
|
/s/ THOMAS L. GOSSAGE
Thomas L. Gossage |
Director | March 25, 2003 | ||||
|
/s/ JAMES T. HACKETT
James T. Hackett |
Director | March 25, 2003 | ||||
23
| Signature | Title | Date | ||||
|
|
|
|
||||
|
/s/ BOBBY R. INMAN
Bobby R. Inman |
Director | March 25, 2003 | ||||
|
*
Kent Kresa |
Director | March 25, 2003 | ||||
|
/s/ VILMA S. MARTINEZ
Vilma S. Martinez |
Director | March 25, 2003 | ||||
|
/s/ DEAN R. O’HARE
Dean R. O’Hare |
Director | March 25, 2003 | ||||
|
/s/ ROBIN RENWICK
Lord Robin Renwick, K.C.M.G |
Director | March 25, 2003 | ||||
|
/s/ MARTHA R. SEGER
Martha R. Seger |
Director | March 25, 2003 | ||||
*Joined the Company’s Board of Directors on March 14, 2003.
24
CERTIFICATIONS
Certification of Chief Executive Officer
I, Alan L. Boeckmann, certify that:
1. I have reviewed this annual report on Form 10-K of Fluor Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | |
| b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and | |
| c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
| a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| /s/ ALAN L. BOECKMANN | |
|
|
|
| Alan L. Boeckmann, | |
| Chief Executive Officer |
Date: March 25, 2003
25
Certification of Chief Financial
Officer
I, D. Michael Steuert, certify that:
1. I have reviewed
this annual report on Form 10-K of Fluor Corporation;
2. Based on my
knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my
knowledge, the financial statements, and other financial
information included in this annual report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The
registrant’s other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:
5. The
registrant’s other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the
equivalent function):
6. The
registrant’s other certifying officers and I have indicated
in this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003
26
a) designed such disclosure controls and
procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) evaluated the effectiveness of the
registrant’s disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual
report (the “Evaluation Date”); and
c) presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date;
a) all significant deficiencies in the
design or operation of internal controls which could adversely
affect the registrant’s ability to record, process,
summarize and report financial data and have identified for the
registrant’s auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrant’s internal controls; and
/s/ D. MICHAEL STEUERT
D. Michael Steuert,
Chief Financial Officer
Table of Contents
EXHIBIT INDEX
Exhibit
Description
3
.1
Amended and Restated Certificate of Incorporation
of the registrant(1)
3
.2
Amended and Restated Bylaws of the registrant*
10
.1
Distribution Agreement between the registrant and
Fluor Corporation (renamed Massey Energy Company)(2)
10
.2
Tax Sharing Agreement between the Fluor
Corporation and A.T. Massey Coal Company, Inc.(3)
10
.3
Employment Agreement, dated as of July 1,
1998, between Fluor Corporation and Philip J. Carroll(1)
10
.4
Special Retention Program, dated March 7,
2000, between Fluor Corporation and Alan L. Boeckmann(1)
10
.5
Special Retention Program, dated
September 12, 2000, between Fluor Corporation and Mark A.
Stevens*
10
.6
Fluor Corporation 2000 Executive Performance
Incentive Plan(4)
10
.7
Fluor Corporation 2000 Restricted Stock Plan for
Non-Employee Directors(5)
10
.8
Fluor Corporation Executive Deferred Compensation
Plan(6)
10
.9
Fluor Corporation Deferred Director’s Fees
Program*
10
.10
Directors’ Life Insurance Summary(1)
10
.11
Fluor Executives’ Supplemental Benefit
Plan(1)
10
.12
Fluor Corporation Retirement Plan for Outside
Directors(1)
10
.13
Executive Severance Plan*
10
.14
2001 Key Employee Performance Incentive Plan(6)
10
.15
2001 Fluor Stock Appreciation Rights Plan(6)
10
.16
Fluor Corporation 2003 Executive Performance
Incentive Plan (proposed)*
10
.17
Code of Ethics and Business Conduct*
13
Certain portions of the Fluor Corporation 2002
Annual Report to shareholders (with the exception of the
information incorporated by reference into Items 1, 3, 5,
6, 7, 7A and 8 of this report, Fluor’s 2002 Annual Report
to shareholders is not deemed to be filed as a part of this
report)*
21
Subsidiaries of the registrant*
23
Consent of Independent Auditors*
99
.1
Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002*
| * | New exhibit filed with this report |
| (1) | Filed as the same numbered exhibit to the Registrant’s Registration Statement on Form 10/A (Amendment No. 1) filed on November 22, 2000 and incorporated herein by reference. |
| (2) | Filed as Exhibit 10.1 to the Registrant’s report on Form 8-K filed on December 7, 2000 and incorporated herein by reference. |
| (3) | Filed as Exhibit 10.2 to the Registrant’s report on Form 8-K filed on December 7, 2000 and incorporated herein by reference. |
| (4) | Filed as Exhibit 10.1 to the Registrant’s report on Form 8-K filed on December 29, 2000 and incorporated herein by reference. |
| (5) | Filed as Exhibit 10.2 to the Registrant’s report on Form 8-K filed on December 29, 2000 and incorporated herein by reference. |
| (6) | Filed as an exhibit to the Registrant’s report on Form 10-K filed on March 21, 2002 and incorporated herein by reference. |
EXHIBIT 3.2
Amended and Restated
BYLAWS
(as amended March 14, 2003)
OF
FLUOR CORPORATION
(a Delaware corporation)
ARTICLE I
OFFICES
Section 1.01 Registered Office. The registered office of FLUOR CORPORATION (hereinafter called the "Corporation") in the State of Delaware shall be at 9 East Loockerman Street, City of Dover, County of Kent, 19901 and the name of the registered agent at that address shall be National Registered Agents, Inc.
Section 1.02 Principal Office. The principal office for the transaction of the business of the Corporation shall be at One Enterprise Drive, Aliso Viejo, California 92656. The Board of Directors (hereinafter called the "Board") is hereby granted full power and authority to change said principal office from one location to another.
Section 1.03 Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01 Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution.
Section 2.02 Special Meetings. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board or by a committee of the Board which has been duly created by the Board and whose powers and authority, as provided in a resolution of the Board or in the Bylaws of the Corporation, include the power to call such meetings, but such special meetings may not be called by any other person or persons; provided, however, that if and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provisions of the Certificate of Incorporation or any amendment thereto or any certificate filed under Section 151(g) of the General Corporation Law of the State of Delaware (or its successor statute as in effect from time to time hereafter), then such special meeting may also be called by the person or persons, in the manner, at the times and for the purposes so specified.
Section 2.03 Place of Meetings. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meeting and specified in the respective notices or waivers of notice thereof.
Section 2.04 Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders only (a) pursuant to the Corporation's notice of meeting (or any supplement thereto), (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record of the Corporation at the time the notice provided for in this Section 2.04 is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 5.
(2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this Section 2.04, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and any such proposed business other than the nominations of persons for election to the Board of Directors must constitute a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth day nor earlier than the close of business on the one hundred twentieth day prior to the first anniversary of the preceding year's annual meeting (provided, however, that in the event that the date of the annual meeting is more than thirty days before or more than seventy days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth day prior to such annual meeting and not later than the close of business on the later of the ninetieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by the Corporation). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (and such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws of the Corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner, (ii) the class and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (iii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, and (iv) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation's outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (b) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any successor thereof) promulgated under the Exchange Act and such stockholder's proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Section 2.04 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation at an annual meeting is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 2.04 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (1) by or at the direction of the Board of
Directors or (2) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time the notice provided for
in this Section 2.04 is delivered to the Secretary of the Corporation, who is
entitled to vote at the meeting and upon such election and who complies with the
notice procedures set forth in this Section 2.04. In the event the Corporation
calls a special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder entitled to vote in
such election of directors may nominate a person or persons (as the case may be)
for election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by paragraph (A)(2) of this
Section 2.04 shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the close of business on the one
hundred twentieth day prior to such special meeting and not later than the close
of business on the later of the ninetieth day prior to such special meeting or
the
tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above.
(C) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.04 shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.04. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty (a) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.04 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder's nominee or proposal in compliance with such stockholder's representation as required by clause (A)(2)(c)(iv) of this Section 2.04) and (b) if any proposed nomination or business was not made or proposed in compliance with this Section 2.04, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 5, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation.
(2) For purposes of this Section 2.04, "public announcement" shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 2.04, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.04. Nothing in this Section 2.04 shall be deemed to affect any rights (a) of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the certificate of incorporation.
Section 2.05 Notice of Meetings. Except as otherwise required by law, the certificate of incorporation or the Bylaws, notice of each meeting of the stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a notice thereof to him or her personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to him or her at his or her post office address furnished by him or her to the Secretary of the Corporation for such purpose or, if he or she shall not have furnished to the
Secretary his or her address for such purposes, or if otherwise consented to by such stockholder, then at his or her post office address last known to the Secretary, or by transmitting a notice thereof to him or her at such address by means of electronic transmission. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken.
Section 2.06 Quorum. Except in the case of any meeting for the election of directors summarily ordered as provided by law, the holders of record of a majority of the voting power of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. In the absence of a quorum at any meeting or any adjournment thereof, the holders of a majority of the voting power of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called.
Section 2.07 Voting.
(a) Except as otherwise provided by or pursuant to the provisions of the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him or her and registered in his or her name on the books of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of the Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which meeting shall be held.
(b) Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the corporation or any subsidiary of the corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation such person has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or such person's proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his or her proxy or by his or her attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting by a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he or she shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by the certificate of incorporation, these by-laws, the rules or regulations of any stock exchange applicable to the corporation, or applicable law or pursuant to any regulation applicable to the corporation or its securities, be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock of the corporation which are present in person or by proxy and entitled to vote thereon. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his or her proxy, if there be such proxy, and it shall state the number of shares voted.
Section 2.08 List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, as required by applicable law. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 2.09 Inspectors of Election. The corporation may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed
or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspectors' count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 General Powers. The property, business and affairs of the Corporation shall be managed by the Board.
Section 3.02 Number. The authorized number of Directors of the
Corporation shall be twelve and such authorized number shall not be changed
except by a Bylaw or amendment thereof duly adopted by the stockholders in
accordance with the Certificate of Incorporation or by the Board amending this
Section 3.02.
Section 3.03 Election of Directors. The directors shall be elected by the stockholders of the Corporation, and at each election the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provisions for a classified board.
Section 3.04 Mandatory Retirement. The Chairman of the Board and the President and any former Chairman of the Board and any former President, if serving as a director of the Corporation at age 72, shall retire from the Board at the end of the calendar year in which his or her 72nd birthday occurs. Each other employee or former employee of the Corporation or its subsidiaries serving as a director of the Corporation at age 65 shall retire from the Board at the end of the calendar year in which his or her 65th birthday occurs unless the Chairman of the Board recommends and the Board approves his or her continued service as a non-employee director. Each other employee of the Corporation or its subsidiaries under age 65 serving as a director of the Corporation who elects to take early retirement or who for any other reason is no longer an officer of the Corporation or its subsidiaries shall retire from the Board as of the date he or she ceases to be an officer unless the Chairman of the Board recommends and the Board approves his or her continued directorship. Each non-employee director of the Corporation
serving at age 72 shall retire from the Board at the end of the calendar year in which his or her 72nd birthday occurs. For purposes of this Section, "end of the calendar year" shall include the period ending with the seventh day of January next following.
Section 3.05 Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, it shall take effect immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 3.06 Vacancies. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board. Any director so chosen shall hold office until the next election of the class for which such director shall have been chosen and until such director's successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director.
Section 3.07 Place of Meeting, etc. The Board may hold any of its meetings at such place or places within or without the State of Delaware and at such times as the Board may from time to time determine. Directors may participate in any regular or special meeting of the Board by means of conference telephone or other communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting.
Section 3.08 First Meeting. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required.
Section 3.09 Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given.
Section 3.10 Special Meetings. Special meetings of the Board may be called at any time by the Chairman of the Board or the President or by any two directors, to be held at the principal office of the Corporation, or at such other place or places, within or without the State of Delaware, as the person or persons calling the meeting may designate. Notice of all special meetings of the Board shall be given to each director by two days' service of the same by telegram, by letter, or personally. Such notice may be waived by any director and any meeting shall be a legal meeting without notice having been given if all the directors shall be present thereat or if those not present shall, either before or after the meeting, sign a written waiver of notice of, or a consent to, such meeting or shall after the meeting sign the approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or be made a part of the minutes of the meeting.
Section 3.11 Quorum and Manner of Acting. Except as otherwise provided in the Bylaws or by law, the presence of a majority of the whole Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such.
Section 3.12 Action by Consent. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic means, and such consents are filed with the minutes of proceedings of the Board of Directors or such committee.
Section 3.13 Compensation. No stated salary need be paid directors, as such, for their services, but, by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board or an annual directors' fee may be paid; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefore. Members of special or standing committees may be allowed like compensation for attending committee meetings.
Section 3.14 Committees. The Board may, by resolution passed by the Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Former employees of the Corporation or its subsidiaries who are no longer officers of the Corporation or its subsidiaries, if serving as a director of the Corporation, shall not be eligible to serve as a member of any committee of the Board. Except as otherwise provided in the Board resolution designating a committee, the presence of a majority of the authorized number of members of such committee shall be required to constitute a quorum for the transaction of business at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have any power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of the dissolution, or amending the Bylaws of the Corporation; and unless the resolution of the Board expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board.
Section 3.15 Officers of the Board. The Board shall have a Chairman of the Board and may, at the discretion of the Board, have a Vice Chairman and other officers. The Chairman of the Board and the Vice Chairman shall be appointed from time to time by the Board, unless such positions are elected offices of the Corporation, currently filled, and shall have such powers and duties as shall be designated by the Board.
ARTICLE IV
OFFICERS
Section 4.01 Officers. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a Secretary, a Treasurer and such other officers as may be appointed by the Board as the business of the Corporation may require. Officers shall have such powers and duties as are permitted or required by law or as may be specified by or in accordance with resolutions of the Board. Any number of offices may be held by the same person. Unless the Board shall otherwise determine, the Chairman of the Board shall be the Chief Executive Officer of the Corporation. In the absence of any contrary determination by the Board, the Chief Executive Officer shall, subject to the power and authority of the Board, have general supervision, direction and control of the officers, employees, business and affairs of the Corporation.
Section 4.02 Election and Term. The officers of the Corporation shall be elected annually by the Board. The Board may at any time and from time to time elect such additional officers as the business of the Corporation may require. Each officer shall hold his or her office until his or her successor is elected and qualified or until his or her earlier resignation or removal.
Section 4.03 Removal and Resignation. Any officer may be removed, either with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board. Any officer may resign at any time by giving notice to the Board. Such resignation shall take effect at the time specified in such notice or, in the absence of such specification, at the date of the receipt by the Board of such notice. Unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective.
Section 4.04 Vacancies. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, shall be filled in the manner prescribed in these Bylaws for the regular appointment to such office.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 5.01 Execution of Contracts. The Board, except as in the Bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by the
Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount.
Section 5.02 Checks, Drafts, etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person shall give such bond, if any, as the Board may require.
Section 5.03 Deposit. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chief Executive Officer, the President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation.
Section 5.04 General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of the Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 6.01 Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him or her. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the President and by the Secretary. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall thereafter have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such
certificates, respectively, and the respective dates thereof, and in case of cancellation the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 6.04 of the Bylaws.
Section 6.02 Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03 of the Bylaws, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be stated expressly in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.
Section 6.03 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with the Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them.
Section 6.04 Lost, Stolen, Destroyed, And Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do.
Section 6.05 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If, in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders, the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Seal. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation.
Section 7.02 Waiver of Notices. Whenever notice is required to be given by the Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice.
Section 7.03 Fiscal Year. The fiscal year of the Corporation shall end on the 31st day of December of each year.
Section 7.04 Amendments. The Bylaws, or any of them, may be rescinded, altered, amended or repealed, and new Bylaws may be made, (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board, or (ii) by the vote of the holders of not less than 80% of the total voting power of all outstanding shares of voting stock of the Corporation, at any annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting. Any Bylaws made or altered by the stockholders may be altered or repealed by the Board or may be altered or repealed by the stockholders.
Exhibit 10.5
[ALAN BOECKMANN'S LETTERHEAD]
September 12, 2000
Mark A. Stevens
President
Energy & Chemicals
Fluor Daniel
Dear Mark,
It is my pleasure to inform you that at the September 6, 2000 Organization and Compensation Committee meeting of the Fluor Board of Directors, Phil Carroll recommended and they approved your participation in a special Incentive/Retention Program. The amount of the award is $1,000,000. The award has been structured as follows:
AWARD AMOUNT: $1,000,000 INCENTIVE/RETENTION PERIOD: September 6, 2000 through December 31, 2004 INCENTIVE/RETENTION AGREEMENT: The Award Amount is divided between the |
following two components:
INCENTIVE AWARD
The Organization and Compensation Committee has made a $500,000 grant of 10,000 shares of restricted stock and 6,700 tandem-restricted units. The earning of these shares and units will be based on exceeding pre-established annual performance objectives to be determined annually by the President and CEO Fluor Daniel. The award will be earned in equal 25% increments if the established objectives for each of the next four fiscal years (ending December 31, 2001, 2002, 2003 and 2004 respectively) are achieved. Your performance objective for fiscal year 2001 performance will be established by me within the next 90 days. These objectives will be communicated to you in a separate memorandum. If the annual objective is not achieved, 100% of each annual portion of the award is forfeited. The earned restricted stock and units will then vest on January 1, 2005. The entire Incentive Award, earned and unearned portion, will be forfeited in the event that prior to December 31, 2004 you voluntarily terminate your employment with the Company, or your employment with the Company is terminated for cause. The specific terms and conditions of this award will be set forth in the agreement to be forwarded to you shortly.
Mark A. Stevens
September 12, 2000
ACCRUAL TO EXECUTIVE DEFERRAL COMPENSATION PROGRAM ("EDCP")
You may earn $500,000, said amount to be adjusted as provided below, if you remain continuously employed by the Company until on or after December 31, 2004 (the "EDCP Accrual"). During the period from September 6, 2000 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 Fluor Executive Deferred Compensation Program. 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 January 1, 2005 and credited in your Fluor Executive Deferred Compensation Program 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 Fluor Executive Deferred Compensation Program.
The EDCP Accrual, as adjusted, will vest and be credited to your existing Company Fluor Executive Deferred Compensation Program account (a) if you remain continuously employed by the Company until December 31, 2004 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) a Company initiated termination following a Change of Control. If in the event your employment terminates 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.
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.
Mark A. Stevens
September 12, 2000
Also, would you please indicate below how you want the "EDCP accrual" portion of
you award invested in the space provided below. Crediting options are the same
as currently used for other Executive Deferred Compensation Program accounts.
(Allocations must be in whole percentages and must total 100%.)
Money Market _____%
Interest Income Plus _____%
Global Diversified _____%
Global Diversified Plus _____%
Total 100 %
|
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) 349-4148.
Sincerely,
/s/ Alan Boeckmann Alan Boeckmann |
AGREED BY:
/s/ Mark A. Stevens ------------------------------------------------------------- MARK A. STEVENS DATE |
cc: Mark Krouse
Lew Smith
EXHIBIT 10.9
FLUOR CORPORATION
DEFERRED DIRECTORS' FEES PROGRAM
(AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 2002)
THIS INSTRUMENT, executed and made effective as of January 1, 2002 by Fluor Corporation, a Delaware corporation, evidences an amendment and restatement of the terms of the Fluor Corporation Deferred Directors' Fees Program adopted for the benefit of its non-employee directors.
WITNESSETH:
WHEREAS, the Company has previously amended and restated the terms and conditions of the Fluor Corporation Deferred Directors' Fees Program on October 31, 1997; and
WHEREAS, the Company is in the process of updating its administrative process respecting the Plan, and is changing the crediting options available to participants in the Plan, and for these and other reasons, now desires to amend and restate the terms and conditions of the Plan:
NOW, THEREFORE, the Company hereby declares the current terms and conditions of the Fluor Corporation Deferred Directors' Fees Program to be, as of January 1, 2002, as follows:
ARTICLE 1
PURPOSE
The primary purpose of the Plan is to provide the Company's non-employee directors with an opportunity to defer receipt of fees for services rendered to the Company on a pre-tax basis.
ARTICLE 2
DEFINITIONS
Whenever used herein, the following terms shall have the meanings set forth below, and, when the defined meaning is intended, the term is capitalized:
(a) "Board" or "Board of Directors" means the Board of Directors of the Company.
(b) "Change in Control" means the occurrence of either of the following events:
(i) a third person, including a "group" as defined in Section 13(d)(3) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), acquires shares of the Company having twenty-five percent or more of the total number of votes that may be cast for the election of directors of the Company; or
(ii) as the result of any cash tender or exchange offer, merger or other business combination, or any combination of the foregoing transactions (a "Transaction"), the persons who were directors of the Company before the Transaction shall cease to constitute a majority of the Board of the Company or any successor to the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time to time.
(d) "Committee" means the Executive Compensation Committee of the Company as appointed by the Board to administer the Plan pursuant to ARTICLE 3.
(e) "Company" means Fluor Corporation, a Delaware corporation.
(f) "Deferral Account" means the accounting entry made with respect to each Participant for the purpose of maintaining a record of each Participant's entitlement under the Plan.
(g) "Director Contributions" means those contributions credited to a Participant's Deferral Account in accordance with the Participant's deferral election pursuant to Section 5.1.
(h) "Director's Fees" means such amounts payable to a director for the Plan Year for the director's service on the Board for the Plan Year including, without limitation, annual retainer fees, meeting fees and annual California tax allowances, if any.
(i) "Disability" means a condition that meets the definition of a disability as contained in the Company's long-term disability plan, as determined by the Committee in its sole discretion. If the Company discontinues to sponsor such a plan, Disability will be determined by the Committee in its sole discretion.
(j) "Eligible Director" means a director who is eligible to participate in the Plan pursuant to Section 4.1.
(k) "Fair Market Value" means the closing sales price of the Company's common stock for such day, as reported on the New York Stock Exchange.
(l) "Matching Contributions" means those contributions made by the
Company to the Participant's Deferral Account in accordance with
Section 5.2 of the Plan.
(m) "Participant" means an Eligible Director who is participating in the Plan pursuant to Section 4.2.
(n) "Plan" means the Fluor Corporation Deferred Compensation Directors' Fees Program, as set forth herein, and as it may be amended from time to time.
(o) "Plan Year" means January 1 to December 31 of each calendar year.
(p) "Stock Equivalent Fund" means the fund established pursuant to
Section 7.3.
(q) "Stock Equivalents" means a measure of value equal to one share of the Company's common stock.
ARTICLE 3
ADMINISTRATION
3.1 AUTHORITY OF THE COMMITTEE. The Committee shall administer the Plan. The members of the Committee shall be appointed by and shall serve at the discretion of the Board.
Subject to the provisions herein, the Committee shall have full power and discretion to:
(a) confirm a director's eligibility to participate in the Plan;
(b) determine the terms and conditions of each director's participation in the Plan;
(c) construe and interpret the Plan and any agreement or instrument entered into under the Plan;
(d) compute and certify to the amount and kind of benefits payable to Participants or their beneficiaries;
(e) maintain all records that may be necessary for the administration of the Plan;
(f) provide for the disclosure of all information and the filing or provision of all reports and statements to Participants, beneficiaries, or governmental agencies as the Committee may determine or as shall be required by law;
(g) establish, amend, or waive rules and regulations for the Plan's administration;
(h) appoint a plan administrator or any other agent, and to delegate to such person such powers and duties in connection with the administration of the Plan as the Committee may from time to time prescribe; and
(i) make other determinations which may be necessary or advisable for the administration of the Plan
3.2 DECISIONS BINDING. All determinations and decisions of the Committee as to any disputed question arising under the Plan, including questions of construction and interpretation, shall be final, conclusive, and binding on all parties and shall be given the maximum possible deference allowed by law.
3.3 CLAIM PROCEDURES. The Committee shall establish and maintain procedures for the filing of claims for benefits under this Plan and for the review of the denial of any such claims. The Committee is designated as the fiduciary of this Plan to which appeals of claim denials shall be submitted for review.
ARTICLE 4
ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBILITY. The Committee shall determine, in its sole and absolute discretion, which such directors shall be eligible to participate from time to time, and may modify such determinations at any time, provided that at all times the Plan shall continue to qualify as an unfunded plan. To be eligible to participate in the Plan, a director must be a non-employee director serving on the Board and entitled to Director's Fees.
4.2 PARTICIPATION AND DEFERRAL ELECTION. Each Eligible Director shall become a Participant in the Plan upon his deferral of Director's Fees hereunder. Eligible directors and participants shall make their elections to defer all or a portion of their Director's Fees for the Plan Year by completing a "Deferral Election Form," during the applicable enrollment period, as determined by the Committee. Any Director's Fees deferral elections must be made before the Director Fees are earned and before the amount thereof is substantially certain of payment.
In the event a Participant ceases to be eligible to participate in the Plan, such Participant shall become an inactive Participant, retaining all the rights described under the Plan, except the right to make any further deferrals, until such time that the Participant again becomes an active Participant.
4.3 PARTIAL YEAR ELIGIBILITY. In the event that an director first becomes eligible to participate in the Plan after the beginning of a Plan Year, the Company shall notify the director of his eligibility to participate, and the Company shall provide each such Participant with a "Deferral Election Form"; provided, however, that such Participant must make his election within 30 days thereof and may elect only to defer that portion of his Director's Fees for such Plan Year which is to be earned after the filing of the deferral election.
4.4 NOTICE. The Company shall notify a director within a reasonable time of such director's gaining or losing eligibility for active participation in the Plan.
ARTICLE 5
CONTRIBUTIONS TO DEFERRAL ACCOUNTS; MATCHING CONTRIBUTIONS
5.1 COMPENSATION DEFERRALS. Subject to Section 4.2 and 4.3, an Eligible Director may elect to defer and have credited to his Deferral Account for any Plan Year up to one hundred percent (100%) of his Director's Fees.
5.2 MATCHING CONTRIBUTIONS. The Company shall credit matching contributions to the Participant's Deferral Account in an amount equal to 25% of Director Contributions actually deferred under the Plan directly into the Stock Equivalent Fund by the Participant.
ARTICLE 6
DISTRIBUTIONS
6.1 SCHEDULED IN-SERVICE DISTRIBUTIONS. A Participant may elect in the manner prescribed by the Committee to receive all or a portion of the vested portion of his Deferral Account while he is still a director of the Company in (i) a single lump sum payment, or (ii) annual installment payments over a period of two (2) to twenty (20) years. If the amount the Participant elects to receive is less than $25,000 (for all years combined), payment shall be made in a single lump sum. If a Participant elects to receive installment payments under (ii) above, the amount of each installment payment shall be equal to the balance remaining in the portion of the Participant's Deferral Account that is subject to such installment election (as determined immediately prior to each such payment), multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the total number of remaining installment payments. The installment amount shall be adjusted annually to reflect gains and losses, if any, allocated to such Participant's Deferral Account pursuant to ARTICLE 7.
A Participant's election under this Section 6.1 must specify the future
year in which the payment of the deferred amounts shall commence. Any
desired in-service distribution must be separately elected for each year
fees are deferred. Thus, to elect a scheduled in-service withdrawal for
future plan years' deferrals, a new distribution election form must be
submitted during the applicable enrollment period. Once the applicable
enrollment period has passed, a scheduled in-service distribution cannot
be elected for that plan year's deferrals. Distributions under this
Section 6.1 shall commence in January of the year specified in the
Participant's election. Elections to receive in-service payments shall be
irrevocable both as to the date of the distribution and the amount of the
distribution. If a Participant's Board service with the Company terminates
for any reason prior to receiving full payment of an in-service
distribution or while he is receiving scheduled installment payments
pursuant to this Section 6.1, the unpaid portion of the Participant's
elected distribution shall be paid in accordance with Section 6.2 below.
6.2 DISTRIBUTIONS UPON SEPARATION FROM BOARD SERVICE, DISABILITY, OR DEATH. At the sole discretion of the Committee, the Participant may elect to receive in the manner specified by the
Committee, the vested balance credited to his Deferral Account upon separation from Board service, or upon incurring a Disability in (i) a single lump sum payment or, (ii) annual installment payments over a period of two (2) to twenty (20) years. If a Participant fails to make a distribution election relating to his separation from Board Service or if the vested balance credited to his Deferral Account is less than $25,000, payment shall be made in a single lump sum. The amount of each installment payment under (ii) above shall be equal to the balance remaining in the portion of the Participant's Deferral Account that is subject to such installment election (as determined immediately prior to each such payment), multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the total number of remaining installment payments. The installment amount shall be adjusted annually to reflect gains and losses, if any, allocated to such Participant's Deferral Account pursuant to ARTICLE 7.
In the event a Participant dies prior to receipt of all amounts in Participant's Deferral Account, all cash distributable hereunder shall be distributed in a lump sum to such Participant's beneficiary (as described in Section 7.5), in accordance with this Section 6.2, unless Participant is receiving or has elected to receive installment payments in accordance with Section 6.1 or this Section 6.2, the Company may pay in either installments or a lump-sum, in its sole discretion.
Lump sum payments under this Section 6.2 shall be made in the January of the year succeeding separation from Board Service, unless the Committee, in its sole discretion, elects to make payment on or before December 31 of the year of separation from Board service. The first installment payment made under this Section 6.3 will be paid in the January of the second year succeeding separation from Board Service. Remaining installments will be paid annually in January.
6.3 NONSCHEDULED IN-SERVICE WITHDRAWALS. Notwithstanding any provision of this Plan to the contrary, a Participant may at any time request a lump sum distribution of all or a portion of his vested Deferral Account. In the event a Participant requests a distribution under this Section 6.3, (i) such Participant will receive a portion of his Deferral Account equal to 90% of the requested distribution, and the remaining 10% of the requested distribution will be forfeited, and (ii) such Participant will be ineligible to participate in the Plan for the remainder of the Plan Year in which the distribution is received and for the immediately following Plan Year.
6.4 FINANCIAL HARDSHIP. The Committee shall have the authority to alter the timing or manner of payment of deferred amounts in the event that the Participant establishes, to the satisfaction of the Committee, severe financial hardship. In such event, the Committee may, in its sole discretion, distribute all or a portion of such Participant's Deferral Account to the Participant without penalty.
For purposes of this Section 6.4, "severe financial hardship" shall mean any financial hardship resulting from extraordinary and unforeseeable circumstances arising as a result of one or more recent events beyond the control of the Participant, including, but not limited to, the illness or injury of a Participant or dependent (as determined by the Committee), or the casualty loss of a Participant's real or personal property. In any event, payment under this Section 6.4 may not be made to the extent such emergency is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; and (iii) by cessation of deferrals under the Plan. Withdrawals of amounts because of a severe financial hardship may only be permitted to the extent reasonably necessary to satisfy the hardship, plus to pay taxes on the withdrawal. Examples of what are not considered to be severe financial hardships include the need to send a Participant's child to college or the desire to purchase a
home. The Participant's Deferral Account will be credited with earnings in accordance with the Plan up to the date of distribution.
The Committee shall judge the severity of the financial hardship. The Committee's decision with respect to the severity of financial hardship and the manner in which, if at all, the Participant's future deferral opportunities shall be ceased, and/or the manner in which, if at all, the payment of deferred amounts to the Participant shall be altered or modified, shall be final, conclusive, and not subject to appeal.
In the event a Participant receives a distribution under this Section 6.4, then such Participant will be ineligible to participate in the Plan for the remainder of the Plan Year in which the distribution was received.
6.5 INCOMPETENCE OF DISTRIBUTEE. In the event that it shall be found that a person entitled to receive payment under the Plan (including a designated beneficiary) is a minor or is physically or mentally incapable of personally receiving and giving a valid receipt for any payment due (unless prior claim therefor shall have been made by a duly qualified committee or other legal representative), such payment may be made to any person whom the Committee in its sole discretion determines is entitled to receive it, and any such payment shall fully discharge the Company, the Committee and the Plan from any further liability to the person otherwise entitled to payment hereunder, to the extent of such payment.
ARTICLE 7
DEFERRAL ACCOUNTS
7.1 PARTICIPANTS' ACCOUNTS. The Company shall establish and maintain an individual bookkeeping Deferral Account for Director Contributions and Matching Contributions made on Participant's behalf. For Director Contributions and Matching Contributions deferred directly into the Stock Equivalent Fund, such Participant's Deferral Account shall be credited with Director Contributions and Matching Contributions, if any, on the date such fees would have been paid to the Participant had Participant not deferred such Director's Fees to the Plan, and as provided in Section 7.2. For Director Contributions deferred directly into all other funds, such Participant's Deferral Account shall be credited with Director Contributions, on the first day of the month following the date such fees would have been paid to the Participant had Participant not deferred such Director's Fees to the Plan, and as provided in Section 7.2. A Participant's Deferral Account shall also be credited with any deemed earnings credit to such amounts as provided in Section 7.2.
7.2 EARNINGS ON DEFERRED AMOUNTS. A Participant's Deferral Account shall be credited with earnings (or losses) based on a deemed investment of the Participant's Deferral Account, as directed by each Participant, which deemed investment shall be in one or more funds, among the investment options selected by the Committee from time to time, which options presently include the Stock Equivalent Fund described in Section 7.3. Except with respect to deemed investments in the Stock Equivalent Fund, deemed earnings (and losses) on a Participant's Deferral shall be based upon the daily unit valuation of the funds selected by such Participant, and shall be credited to a Participant's Deferral Account on a monthly basis. Deemed earnings (or losses) shall be paid out to a Participant in accordance with the applicable Deferral Election Form. Any portion of a Participant's Deferral Account which is subject to distribution in installments shall continue to be credited with deemed earnings (or losses) until fully paid out to the Participant.
The Committee reserves the right to change the options available for deemed investments under the Plan from time to time, or to eliminate any such option at any time. A Participant may
specify a separate investment allocation with respect to each Deferral
Election Form or amended Deferral Election Form. Participants may modify
their deemed investment instructions once a month with respect to any
portion (whole percentages only) of their Deferral Account; provided they
notify the Committee or its designee within the time and in the manner
specified by the Committee. Not limiting the foregoing, the Committee or
its designee may provide additional limitations on the ability of
Participants to change their deemed investment instructions regarding
deemed investments in the Stock Equivalent Fund to prevent violations of
Section 16(b) of the Securities Exchange Act of 1934, as amended, as
determined by the Committee or its designee in its sole discretion.
Elections and amendments thereto pursuant to this Section 7.2 shall be
made in the manner prescribed by the Committee. The Committee reserves the
right to credit earnings (or losses) on a basis different from that
elected by the Participants.
7.3 STOCK EQUIVALENT FUND. One of the deemed investment options is the Stock Equivalent Fund which is a deemed investment in the Company's common stock. Directors Contributions directly allocated to the Stock Equivalent Fund are eligible for Matching Contributions in accordance with Section 5.2.
The number of Stock Equivalents, or fractions thereof, will be credited to a Participant's Deferral Account in an amount determined by dividing the amount of Director Contributions and Matching Contributions to be deferred to the Stock Equivalent Fund, by the Fair Market Value on the date of crediting in accordance with Section 7.1. To the extent dividends or other distributions on the Company's common stock are paid or made, dividend equivalents and fractions thereof shall be calculated with respect to balances of such Stock Equivalents converted to additional Stock Equivalents (by dividing the value of the dividend equivalents by the Fair Market Value) and credited to the appropriate accounts as of the dividend payment dates. Upon the occurrence of any stock split, stock dividend, combination or reclassification with resect to any outstanding class of stock of the Company, the number of Stock Equivalents deemed invested in the Stock Equivalent Fund shall, to the extent deemed necessary by the Board of Directors, be adjusted accordingly.
7.4 VESTING AND FORFEITURE. The Director Contributions held in each Participant's Deferral Account shall be fully vested at all times. A Participant's Matching Contributions (and any related deemed earnings) shall, in each case, become vested on January 1st, of the calendar year that is five years after the date said Matching Contribution is credited to Participant's Deferral Account. Notwithstanding the immediately preceding sentence, if prior to the occurrence of such vesting (a) the Participant dies, (b) the Participant's employment with the Company is terminated due to Disability or (c) a Change of Control occurs, such Participant's Matching Contributions in Participant's Deferral Account shall become vested as of the date of death, the date of such termination or the date of any such Change of Control, as the case may be. If Participant receives distributions from, or transfers amounts deemed invested in the Stock Equivalent Fund before the Matching Contributions are fully vested, such unvested accrued balance in such Participant's Deferral Account shall be forfeited by such Participant.
7.5 DESIGNATION OF BENEFICIARY. Each Participant may designate a beneficiary or beneficiaries who, upon the Participant's death, or physical or mental incapacity will receive the amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee. Each
designation shall be effective as of the date delivered to the Committee or its designee by the Participant.
Participants may change their beneficiary designations on such form as prescribed by the Committee. The payment of amounts deferred under the Plan shall be in accordance with the last unrevoked written beneficiary designation that has been signed by the Participant and delivered to the Committee or its designee prior to the Participant's death. Notwithstanding the foregoing, a Participant who is married may not designate a beneficiary other than the Participant's spouse, unless the spouse consents in writing to such alternate beneficiary designation.
In the event that all the beneficiaries named by a Participant pursuant to this Section 7.5 predecease the Participant, the deferred amounts that would have been paid to the Participant or the Participant's beneficiaries shall be paid to the Participant's estate.
In the event a Participant does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participant's beneficiaries under the Plan shall be paid to the Participant's estate.
ARTICLE 8
TRUST
Nothing contained in this Plan shall create a trust of any kind or a fiduciary relationship between the Company and any Participant. Nevertheless, the Company may establish one or more trusts, with such trustee(s) as the Committee may approve, for the purpose of providing for the payment of deferred amounts and earnings thereon. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's general creditors upon the bankruptcy or insolvency of the Company.
ARTICLE 9
CHANGE IN CONTROL
9.1 TRUST AND TRUSTEES. Upon the occurrence of a Change in Control, the trust or trusts that may be established by the Company pursuant to ARTICLE 8 shall become irrevocable and the Company shall not thereafter be permitted to remove, terminate, or change the trustee(s) for a period of three years.
9.2 ADVANCED FUNDING. No later than 30 days after a Change in Control occurs, the Company shall make a contribution to the trust or trust(s) established pursuant to ARTICLE 8 to the extent required to fully fund all benefits that are or may become payable under the Plan, assuming for purposes of this calculation that all Participants retire with 100% vesting, and to fund in advance all administrative, legal, and other costs of maintaining the Plan, in an amount no less than $150,000. From time to time in the Company's discretion, Company shall make such additional contributions to the trust or trusts to fully fund the additional benefits that may become payable to Participants or beneficiaries under the Plan and the additional administrative, legal, and other Plan expenses.
9.3 AMENDMENT AND TERMINATION. After the occurrence of a Change in Control, the Company may not amend the Plan without the prior approval of a majority of the Participants. After a Change in Control, the Company may not terminate the Plan until either (i) all benefits have been paid in full, or (ii) the majority of the Participants approve the same. For purposes hereof, Participants' votes shall be weighted based on their relative Plan account balances.
ARTICLE 10
RIGHTS OF PARTICIPANTS
10.1 CONTRACTUAL OBLIGATION. The Plan shall create an unfunded, unsecured
contractual obligation on the part of the Company to make payments from
the Participants' Deferral Accounts when due. Payment of Deferral Account
balances shall be made out of the general assets of the Company or from
the trust or trusts referred to in ARTICLE 8 above.
10.2 UNSECURED INTEREST. No Participant or party claiming an interest in
deferred amounts of a Participant shall have any interest whatsoever in
any specific asset of the Company. To the extent that any party acquires a
right to receive payments under the Plan, such right shall be equivalent
to that of an unsecured general creditor of the Company. Each Participant,
by participating hereunder, agrees to waive any priority creditor status
for wage payments with respect to any amounts due hereunder. The Company
shall have no duty to set aside or invest any amounts credited to
Participants' Deferral Accounts under this Plan. Deferral Accounts
established hereunder are solely for bookkeeping purposes and the Company
shall not be required to segregate any funds based on such Deferral
Accounts.
ARTICLE 11
WITHHOLDING OF TAXES
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The Company shall have the right to require Participants to remit to the Company an amount sufficient to satisfy federal, state, and local withholding tax requirements, or to deduct from all payments made pursuant to the Plan (or from a Participant's other Director's Fees) amounts sufficient to satisfy withholding tax requirements. The Company makes no representations, warranties, or assurances and assumes no responsibility as to the tax consequences of this Plan or participation herein.
ARTICLE 12
AMENDMENT AND TERMINATION
Subject to ARTICLE 9, the Company reserves the right to amend, modify, or terminate the Plan (in whole or in part) at any time by action of the Board, with or without prior notice. Except as described below in this ARTICLE 12, no such amendment or termination shall in any material manner adversely affect any Participant's rights to any amounts already deferred or credited hereunder or deemed earnings thereon, up to the point of amendment or termination, without the consent of the Participant. Notwithstanding an other provision in this Plan to the contrary, payment of the Deferral Accounts shall occur not later than the last business day of the month following the month the termination of this Plan is made effective.
ARTICLE 13
MISCELLANEOUS
13.1 NOTICE. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail to the Fluor
Corporation Deferred Directors' Fees Program c/o the Committee, and if
mailed, shall be addressed to the principal executive offices of the
Company. Notice mailed to a Participant shall be at such address as is
given in the records of the Company. Notices to the Company shall be
deemed given as of the date of delivery. Notice to a Participant or
beneficiary shall be deemed given as of the date of hand delivery, or if
delivery is made by mail, three (3) days following the postmark date.
13.2 NONTRANSFERABILITY. Except as provided in Section 7.5 and this Section
13.2, Participants' rights to deferred amounts and earnings credited
thereon under the Plan may not be sold, transferred,
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assigned, or otherwise alienated or hypothecated, other than by will or by
the laws of descent and distribution, or pursuant to a domestic relations
order, nor shall the Company make any payment under the Plan to any
assignee or creditor of a Participant.
13.3 RESPONSIBILITY FOR LEGAL EFFECT. Neither the Committee nor the Company
makes any representations or warranties, express or implied, or assumes
any responsibility concerning the legal, tax or other implications or
effects of this Plan.
13.4 SEVERABILITY. In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
13.5 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural
shall include the singular, and the singular shall include the plural.
13.6 COSTS OF THE PLAN. All costs of implementing and administering the Plan
shall be borne by the Company.
13.7 SUCCESSORS. All obligations of the Company under the Plan shall be binding
on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of
the Company.
13.8 APPLICABLE LAW. Except to the extent preempted by applicable federal law,
the Plan shall be governed by and construed in accordance with the laws of
the state of California.
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Exhibit 10.13
FLUOR CORPORATION AND SUBSIDIARIES
MANAGEMENT MANUAL
Section: Compensation Page: 129
Subject: EXECUTIVE SEVERANCE PLAN Effective: 12-31-02
Applies To: Fluor Corporation and Selected Subsidiaries Supersedes: 12-04-01
OBJECTIVE
To provide severance compensation to eligible executives of Fluor Corporation and designated subsidiaries collectively, the "company", who leave the company, depending on the circumstances and conditions leading to termination.
ELIGIBILITY
Executives of Fluor Corporation and designated subsidiaries actively at work who are participants in the Fluor Corporation and Subsidiaries Executive Incentive Compensation Plan and who execute the required settlement and release agreement in exchange for the severance.
DEFINITIONS
For the purpose of the Plan, the following definitions apply:
A. VOLUNTARY SEPARATION
Action taken by an executive for personal reasons, to seek other employment, to accept another position, for failure to return at conclusion of leave, or to voluntarily retire.
B. INVOLUNTARY SEPARATION
1. Action taken by the company due to reduction in force resulting from reorganization or reduced workload or other similar circumstances whereby the executive's services are no longer required on the job. Executives involuntarily separated who meet the retirement criteria may elect retirement.
2. Action taken by the company when an executive has a qualifying disability under the Americans with Disabilities Act, or a similar disability statute, and is unable to perform his/her essential job functions with or without reasonable accommodation.
C. INVOLUNTARY DISCHARGE
Action taken by the company for reasons other than stated in Paragraph B. above including but not limited to absenteeism, misconduct, insubordination, appearing at work under the influence of a controlled substance or alcohol, unethical behavior, disclosure of confidential information, sexual harassment, employment discrimination, unsatisfactory performance, or violation of any company policy.
FLUOR CORPORATION AND SUBSIDIARIES
MANAGEMENT MANUAL
Section: Compensation Page: 130
Subject: EXECUTIVE SEVERANCE PLAN Effective: 12-31-02
(Continued)
Applies To: Fluor Corporation and Selected Subsidiaries Supersedes: 12-04-01
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D. OFFICER
An executive who is a vice president or above of Fluor Corporation, Fluor Enterprises Inc., or Fluor Constructors, Inc., who participates in the Fluor Corporation and subsidiaries Executive Incentive Compensation Plan.
E. COMPLETED YEARS OF ACCUMULATED SERVICE
A period of accumulated service with the company, subject to the limitation set forth under Procedure, A.4.c.
F. BENEFICIARY
The beneficiary designated by the executive under the Fluor Corporation Employee's Retirement Plan, or, if no such designation has been made, then as designated under the Group Life/Health Insurance Plan unless the executive otherwise makes a beneficiary designation on the form provided by the executive's corporate employer, or, in the absence of any designation, the administrator or executor of the executive's estate.
PROCEDURE
A. SEVERANCE PAY
1. Voluntary Separation
The company will not provide severance pay nor prorated Incentive Compensation (Paragraph A under "Definitions").
2. Involuntary Separation
Severance pay will be based on current base salary and total completed years of accumulated service as follows:
a. Officers
1. Two weeks' severance pay for each completed year of accumulated service up to 52 weeks.
2. Minimum eight weeks' severance.
FLUOR CORPORATION AND SUBSIDIARIES
MANAGEMENT MANUAL
Section: Compensation Page: 131
Subject: EXECUTIVE SEVERANCE PLAN Effective: 12-31-02
(Continued)
Applies To: Fluor Corporation and Selected Subsidiaries Supersedes: 12-04-01
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b. Non-Officer Executives
1. Two weeks' severance pay for each completed year of accumulated service up to 26 weeks.
2. Minimum four weeks' severance
3. Involuntary Discharge
a. The company will not provide severance pay nor consider proration of Incentive Compensation (Paragraph C, Definitions).
4. Limitations
a. Maximum severance pay will be 52 weeks for officers, 26 weeks for non-officer executives.
b. Minimum severance pay will be eight weeks for officers, four weeks for non-officer executives.
c. The total completed years of accumulated service calculated for a severance payment may only be used one time in severance calculations.
d. For executives involuntarily separated and placed on Leave of Absence in Lieu of Layoff, severance pay will be based on completed years of accumulated service up to the effective date of the Leave of Absence.
e. Officers in policy making positions who meet retirement criteria will receive severance pay as follows:
1. Officers who meet the minimum retirement income requirement set forth by federal law, excluding any amount payable under this Plan, will receive severance pay for only the period from the date of termination until January 2 following the officer's 65th birthday subject to the limitation set forth under Procedure, A.2.a.
2. Officers who do not meet the minimum
retirement income requirement set forth by
federal law, computed excluding any amount
payable under this Plan, will receive
severance pay as determined under Procedure,
A.2.a.
FLUOR CORPORATION AND SUBSIDIARIES
MANAGEMENT MANUAL
Section: Compensation Page: 132
Subject: EXECUTIVE SEVERANCE PLAN Effective: 12-31-02
(Continued)
Applies To: Fluor Corporation and Selected Subsidiaries Supersedes: 12-04-01
|
f. In the case of involuntary separation due to an executive's inability to perform his/her essential job functions with reasonable accommodation, the executive's severance pay amount will be reduced by the expected entitlements under Fluor's short-term and long-term disability for the number of weeks determined under Procedure A.2.a and b. If the actual entitlements received by the employee are less than that deducted from severance pay, the employee will be paid the difference for the period of weeks for which the employee received severance. This provision is not intended to affect any state or federal benefits to which the executive may be entitled.
g. In cases where the executive is entitled to
legislated severance pay in non-U.S. countries,
executive's severance pay amount will be reduced
by any legislated severance payments required of
the company that are calculated with reference to
the number of weeks determined under Procedure
A.2.a and b.
5. Severance pay will be paid in a lump sum, or at the discretion of the company, annual installments over a period not to exceed the total number of weeks determined under Paragraph A.2.a. and b. above.
6. In event of an executive's death prior to payment of the entire entitlement, payment may be made to the designated beneficiary in one lump sum or by continuation of installments at the discretion of the executive's corporate employer.
B. INCENTIVE COMPENSATION
(As defined in the Executive Incentive Compensation Plan, Fluor Corporation and Subsidiaries Management Manual)
1. Voluntary Separation
The company will not provide a prorated incentive award.
2. Involuntary Separation
Incentive Compensation may be considered based on the number of completed months of service during the current fiscal year prior to termination and consistent with the administration of the Plan during the year of termination.
FLUOR CORPORATION AND SUBSIDIARIES
MANAGEMENT MANUAL
Section: Compensation Page: 133
Subject: EXECUTIVE SEVERANCE PLAN Effective: 12-31-02
(Continued)
Applies To: Fluor Corporation and Selected Subsidiaries Supersedes: 12-04-01
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3. Involuntary Discharge
The company will not provide a prorated incentive award.
C. COMPANY AUTOMOBILES
In company locations where officers/directors may be assigned company-owned automobiles, the following will apply:
a. Voluntary Separation
Officers/directors who voluntarily retire will be presented with the automobile that is currently assigned as a gift.
b. Involuntary Separation
Officers/directors who are requested to take early retirement will be presented with the automobile which is currently assigned as a gift.
c. Involuntary Discharge
Officers/directors will not be given an automobile and it will not be available for purchase.
D. CLUB MEMBERSHIP
Company memberships will not be awarded to an executive regardless of reason for termination.
E. AUTOMOBILE ALLOWANCE
1. In locations where executives receive a car allowance/ insurance, the following will apply:
a. Voluntary Separation
The company will not provide a car allowance/ insurance.
FLUOR CORPORATION AND SUBSIDIARIES
MANAGEMENT MANUAL
Section: Compensation Page: 134
Subject: EXECUTIVE SEVERANCE PLAN Effective: 12-31-02
(Continued)
Applies To: Fluor Corporation and Selected Subsidiaries Supersedes: 12-04-01
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b. Involuntary Separation
The company will not provide a car allowance/ insurance.
c. Involuntary Discharge
The company will not provide a car allowance/ insurance.
F. INSURANCE COVERAGE
Applicable insurance coverage, i.e., group health, long-term disability, executive health, etc., will cease on date of termination. Where applicable, departing executive may elect continued coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA).
G. TIME OFF WITH PAY (TOWP) PROGRAM
Balance will be paid at time of termination.
H. STOCK BASED AWARDS
1. Voluntary Separation
Upon qualified retirement, awards may become 100 percent vested.
2. Involuntary Separation
Upon qualified retirement, awards may become 100 percent vested.
3. Involuntary Discharge
Vested portion may be exercised.
I. LONG TERM INCENTIVE (LTI) PROGRAM
Applicable cash awards under the long-term incentive program will not be prorated for any reason, except death or total and permanent disability.
FLUOR CORPORATION AND SUBSIDIARIES
MANAGEMENT MANUAL
Section: Compensation Page: 135
Subject: EXECUTIVE SEVERANCE PLAN Effective: 12-31-02
(Continued)
Applies To: Fluor Corporation and Selected Subsidiaries Supersedes: 12-04-01
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J. WAIVERS
A settlement agreement and release form must be obtained from employees in exchange for severance benefits. No severance benefit will be due employees unless a settlement and release agreement provided by the company has been properly and timely executed.
K. OUTPLACEMENT
In-house outplacement services are available.
L. PLAN TERMINATION
This Plan will expire December 31, 2003. Any executive whose employment terminates after the Plan expires, will not be eligible for participation in the Plan. Further, no benefits will accrue or be payable under the Plan after Plan Termination.
M. EXCEPTION
Approved by the Chief Executive Officer of Fluor Corporation.
Exhibit 10.16
2003 EXECUTIVE PERFORMANCE INCENTIVE PLAN
SECTION 1. Purpose of Plan
The purpose of this “Fluor Corporation 2003 Executive Performance Incentive Plan” (the “Plan”) of Fluor Corporation, a Delaware corporation, is to enable the Company, as defined in Section 2.2(a)(ii) hereof, to attract, retain and motivate its officers, management and other key personnel, and to further align the interests of such persons with those of the shareholders of the Company, by providing for or increasing their proprietary interest in the Company.
SECTION 2. Administration of the Plan
2.1 Composition of Committee. The Plan shall be administered by the Organization and Compensation Committee of the Board of Directors, and/or by the Board of Directors or another committee of the Board of Directors of the Company, as appointed from time to time by the Board of Directors (any such administrative body, the “Committee”). The Board of Directors shall fill vacancies on, and from time to time may remove or add members to, the Committee. The Committee shall act pursuant to a majority vote or unanimous written consent. If an award granted under the Plan (an “Award”) is intended to satisfy the conditions of Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended (the “Code”), then each of the Committee members approving such grant shall be an “outside director” as described in the Treasury regulations under Section 162(m). Notwithstanding the foregoing, with respect to any Award that is not intended to satisfy the conditions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or Code Section 162(m)(4)(C), the Committee may appoint one or more separate committees (any such committee, a “Subcommittee”) composed of one or more directors of the Company (who may but need not be members of the Committee) and may delegate to any such Subcommittee(s) the authority to grant Awards, as defined in Section 5.1 hereof, under the Plan to Employees, to determine all terms of such Awards, and/or to administer the Plan or any aspect of it. Any action by any such Subcommittee within the scope of such delegation shall be deemed for all purposes to have been taken by the Committee. The Committee may designate the Secretary of the Company or other Company employees to assist the Committee in the administration of the Plan, and may grant authority to such persons to execute agreements evidencing Awards made under this Plan or other documents entered into under this Plan on behalf of the Committee or the Company.
2.2 Powers of the Committee. Subject to the express provisions of this Plan, the Committee shall be authorized and empowered to do all things necessary or desirable in connection with the administration of this Plan with respect to the Awards over which such Committee has authority, including, without limitation, the following:
| (a) to prescribe, amend and rescind rules and regulations relating to this Plan and to define terms not otherwise defined herein; provided that, unless the Committee shall specify otherwise, for purposes of this Plan: (i) the term “fair market value” shall mean, as of any date, the average of the highest price and the lowest price per share at which the Shares (as defined in Section 3.1 hereof) are sold in the regular way on the New York Stock Exchange or, if no Shares are traded on the New York Stock Exchange on |
| the date in question, then for the next preceding date for which Shares are traded on the New York Stock Exchange; and (ii) the term “Company” shall mean Fluor Corporation and its subsidiaries and affiliates, unless the context otherwise requires. | ||
| (b) to determine which persons are Eligible Employees (as defined in Section 4 hereof), to which of such Eligible Employees, if any, Awards shall be granted hereunder, to make Awards under the Plan and to determine the terms of such Awards and the timing of any such Awards; | ||
| (c) to determine the number of Shares subject to Awards and the exercise or purchase price of such Shares; | ||
| (d) to establish and verify the extent of satisfaction of any performance goals applicable to Awards; | ||
| (e) to prescribe and amend the terms of the agreements or other documents evidencing Awards made under this Plan (which need not be identical); | ||
| (f) to determine whether, and the extent to which, adjustments are required pursuant to Section 11 hereof; | ||
| (g) to interpret and construe this Plan, any rules and regulations under the Plan and the terms and conditions of any Award granted hereunder, and to make exceptions to any such provisions in good faith and for the benefit of the Company; and | ||
| (h) to make all other determinations deemed necessary or advisable for the administration of the Plan. |
2.3 Determinations of the Committee. All decisions, determinations and interpretations by the Committee or the Board regarding the Plan shall be final and binding on all Eligible Employees and Participants, as defined in Section 4 hereof. The Committee or the Board, as applicable, shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer of the Company or Eligible Employee and such attorneys, consultants and accountants as it may select.
SECTION 3. Stock Subject to Plan
3.1 Aggregate Limits. Subject to adjustment as provided in Section 11, at any time, the aggregate number of shares of the Company’s common stock, $0.01 par value (“Shares”), issued pursuant to all Awards (including all ISOs (as defined in Section 5.1 hereof)) granted under this Plan shall not exceed 4,900,000, plus the number of Shares subject to awards outstanding as of February 5, 2003 under the Company’s 2000 Executive Performance Incentive Plan or the Company’s 2001 Key Employee Performance Incentive Plan but which are not thereafter issued upon exercise or settlement of such awards or are returned or delivered to the Company under such plans; provided that the total number of Shares that may be issued under this Plan shall be reduced by an additional three-quarters (3/4) of a Share for each Share issued upon settlement of an Award granted under the Plan other than a Stock Option. The Shares subject to the Plan may
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be either Shares reacquired by the Company, including Shares purchased in the open market, or authorized but unissued Shares.
3.2 Code Section 162(m) Limits. The aggregate number of Shares subject to Options granted under this Plan during any calendar year to any one Eligible Employee shall not exceed 750,000. The aggregate number of Shares issued, issuable or underlying any Restricted Stock Awards, Incentive Awards denominated in shares or Stock Unit Awards (other than Stock Units issued or issuable upon exercise of Options) granted under this Plan during any calendar year to any one Eligible Employee shall not exceed 250,000. Notwithstanding anything to the contrary in the Plan, the foregoing limitations shall be subject to adjustment under Section 11 only to the extent that such adjustment will not affect the status of any Award intended to qualify as “performance based compensation” under Code Section 162(m).
3.3 Issuance of Shares. For purposes of Section 3.1, the aggregate number of Shares issued under this Plan at any time shall equal only the number of Shares actually issued upon exercise or settlement of an Award and not returned to the Company upon cancellation, expiration or forfeiture of an Award or delivered (either actually or by attestation) in payment or satisfaction of the purchase price, exercise price or tax obligation of an Award.
SECTION 4. Persons Eligible Under Plan
Any person who is (i) an employee of the Company and who also is an officer, key employee or member of the Executive Management Team (“EMT”), (ii) a prospective employee of the Company who is to be an officer, key employee or member of the EMT, (iii) a consultant to the Company, or (iv) an advisor of the Company (each, an “Eligible Employee”) shall be eligible to be considered for the grant of Awards hereunder. For purposes of this Plan, the Chairman of the Board’s status as an Employee shall be determined by the Board. For purposes of the administration of Awards, the term “Eligible Employee” shall also include a former Eligible Employee or any person (including any estate) who is a beneficiary of a former Eligible Employee. A “Participant” is any Eligible Employee to whom an Award has been made and any person (including any estate) to whom an Award has been assigned or transferred pursuant to Section 10.1.
SECTION 5. Plan Awards
5.1 Award Types. The Committee, on behalf of the Company, is authorized under this Plan to enter into certain types of arrangements with Eligible Employees and to confer certain benefits on them. The following such arrangements or benefits are authorized under the Plan if their terms and conditions are not inconsistent with the provisions of the Plan: Stock Options, Restricted Stock, Incentive Awards and Stock Units. Such arrangements and benefits are sometimes referred to herein as “Awards.” The authorized types of arrangements and benefits for which Awards may be granted are defined as follows:
| Stock Option Awards: A Stock Option is a right granted under Section 6 to purchase a number of Shares at such exercise price, at such times, and on such other terms and conditions as are specified in or determined pursuant to the document(s) evidencing the Award (the “Option Agreement”). Options intended to qualify as Incentive Stock |
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| Options (“ISOs”) pursuant to Code Section 422 and Options that are not intended to qualify as ISOs (“Non-qualified Options”) may be granted under Section 6 as the Committee in its sole discretion shall determine. | ||
| Restricted Stock Awards: Restricted Stock is an award of Shares made under Section 7, the grant, issuance, retention and/or vesting of which is subject to such performance and other conditions as are expressed in the document(s) evidencing the Award (the “Restricted Stock Agreement”). | ||
| Incentive Awards: An Incentive Award is a bonus opportunity awarded under Section 8 pursuant to which a Participant may become entitled to receive an amount (which may be payable in cash, Shares or other property) based on satisfaction of such performance criteria as are specified in the document(s) evidencing the Award (the “Incentive Bonus Agreement”). | ||
| Stock Unit Awards: A Stock Unit Award is an award of a right to receive the fair market value of one Share made under Section 9, the grant, issuance, retention and/or vesting of which is subject to such performance and other conditions as are expressed in the document(s) evidencing the Award (the “Stock Unit Agreement”). |
5.2 Grants of Awards. An Award may consist of one such arrangement or benefit or two or more of them in tandem or in the alternative.
SECTION 6. Stock Option Awards
The Committee may grant an Option or provide for the grant of an Option, either from time-to-time in the discretion of the Committee or automatically upon the occurrence of specified events, including, without limitation, the achievement of performance goals, the satisfaction of an event or condition within the control of the recipient of the Award, within the control of others or not within any person’s control.
6.1 Option Agreement. Each Option Agreement shall contain provisions regarding (a) the number of Shares which may be issued upon exercise of the Option, (b) the purchase price of the Shares and the means of payment for the Shares, (c) the term of the Option, (d) such terms and conditions of exercisability as may be determined from time to time by the Committee, (e) restrictions on the transfer of the Option and forfeiture provisions, and (f) such further terms and conditions, in each case not inconsistent with the Plan as may be determined from time to time by the Committee. Option Agreements evidencing ISOs shall contain such terms and conditions as may be necessary to comply with the applicable provisions of Section 422 of the Code.
6.2 Option Price. The purchase price per Share of the Shares subject to each Option granted under the Plan shall equal or exceed 100% of the fair market value of such Stock on the date the Option is granted, except that (a) the Committee may specifically provide that the exercise price of an Option may be higher or lower in the case of an Option granted to employees of a company acquired by the Company in assumption and substitution of options held by such employees at the time such company is acquired, and (b) in the event an Eligible Employee is required to pay or forego the receipt of any cash amount in consideration of receipt of an Option, the exercise
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price plus such cash amount shall equal or exceed 100% of the fair market value of such Stock on the date the Option is granted.
6.3 Option Term. The “term” of each Option granted under the Plan, including any ISOs, shall not exceed ten (10) years from the date of its grant.
6.4 Option Vesting. Options granted under the Plan shall be exercisable at such time and in such installments during the period prior to the expiration of the Option’s Term as determined by the Committee in its sole discretion. The Committee shall have the right to make the timing of the ability to exercise any Option granted under the Plan subject to such performance requirements as deemed appropriate by the Committee. At any time after the grant of an Option the Committee may, in its sole discretion, reduce or eliminate any restrictions surrounding any Participant’s right to exercise all or part of the Option, except that no Option shall first become exercisable within one (1) year from its date of grant, other than upon death, disability, retirement, a Change of Control (as defined in Section 12.2 hereof) or upon satisfaction of such performance requirements as deemed appropriate by the Committee.
6.5 Option Exercise.
| (a) Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional Shares and the Committee may require, by the terms of the Option Agreement, a partial exercise to include a minimum number of Shares. | ||
| (b) Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery to the representative of the Company designated for such purpose by the Committee all of the following: (i) notice of exercise in such form as the Committee authorizes specifying the number of Shares to be purchased by the Participant, (ii) payment or provision for payment of the exercise price for such number of Shares, (iii) such representations and documents as the Committee, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as amended, and any other federal, state or foreign securities laws or regulations, (iv) in the event that the Option shall be exercised pursuant to Section 10.1 by any person or persons other than the Eligible Employee, appropriate proof of the right of such person or persons to exercise the Option, and (v) such representations and documents as the Committee, in its sole discretion, deems necessary or advisable to provide for the tax withholding pursuant to Section 13. Unless provided otherwise by the Committee, no Participant shall have any right as a shareholder with respect to any Shares purchased pursuant to any Option until the registration of Shares in the name of such person, and no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such Shares are so registered. | ||
| (c) Payment of Exercise Price. To the extent authorized by the Committee, the exercise price of an Option may be paid in the form of one of more of the following, either through the terms of the Option Agreement or at the time of exercise of an Option: (i) cash or certified or cashiers’ check, (ii) shares of capital stock of the Company that |
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| have been held by the Participant for such period of time as the Committee may specify, (iii) other property deemed acceptable by the Committee, (iv) a reduction in the number of Shares or other property otherwise issuable pursuant to such Option, (v) a promissory note of or other commitment to pay by the Participant or of a third party, the terms and conditions of which shall be determined by the Committee, or (vi) any combination of (i) through (v). |
SECTION 7. Restricted Stock Awards
Restricted Stock consists of an award of Shares, the grant, issuance, retention and/or vesting of which shall be subject to such performance conditions and to such further terms and conditions as the Committee deems appropriate.
7.1 Restricted Stock Award. Each Restricted Stock Award shall reflect, to the extent applicable (a) the number of Shares subject to such Award or a formula for determining such, (b) the time or times at which Shares shall be granted or issued and/or become retainable or vested, and the conditions or restrictions on such Shares, (c) the performance criteria and level of achievement versus these criteria which shall determine the number of Shares granted, issued, retainable and/or vested, (d) the period as to which performance shall be measured for determining achievement of performance, (e) forfeiture provisions, and (f) such further terms and conditions, in each case not inconsistent with the Plan as may be determined from time to time by the Committee.
7.2 Restrictions and Performance Criteria. The grant, issuance, retention and/or vesting of each Restricted Stock Award may be subject to such performance criteria and level of achievement versus these criteria as the Committee shall determine, which criteria may be based on financial performance, personal performance evaluations and/or completion of service by the Participant; provided, however, that no Restricted Stock Award shall fully vest within three years from its date of grant, other than (a) upon death, disability, retirement, a Change of Control (as defined in Section 12.2 hereof) or (b) upon satisfaction of such performance requirements as deemed appropriate by the Committee, and provided further that no portion of a Restricted Stock Award shall vest based upon the satisfaction of performance requirements within one year from its date of grant. Notwithstanding anything to the contrary herein, the performance criteria for any Restricted Stock Award that is intended by the Committee to satisfy the requirements for “performance-based compensation” under Code Section 162(m) shall be a measure based on one or more Qualifying Performance Criteria (as defined in Section 10.2 hereof) selected by the Committee.
7.3 Timing and Form of Award. The Committee shall determine the timing of award of any Restricted Stock Award. The Committee may provide for or, subject to such terms and conditions as the Committee may specify, may permit a Participant to elect for the award or vesting of any Restricted Stock to be deferred to a specified date or event. The Committee may provide for a Participant to have the option for his or her Restricted Stock, or such portion thereof as the Committee may specify, to be granted in whole or in part in Stock Units.
7.4 Discretionary Adjustments. Notwithstanding satisfaction of any completion of service or performance goals, the number of Shares granted, issued, retainable and/or vested under a Restricted Stock Award on account of either financial performance or personal performance
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evaluations may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine.
SECTION 8. Incentive Awards
Each Incentive Award will confer upon the Eligible Employee the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period of not less than one year.
8.1 Incentive Award. Each Incentive Award shall contain provisions regarding (a) the target and maximum amount payable to the Participant as an Incentive Award, (b) the performance criteria and level of achievement versus these criteria which shall determine the amount of such payment, (c) the period as to which performance shall be measured for establishing the amount of any payment, (d) the timing of any payment earned by virtue of performance, (e) restrictions on the alienation or transfer of the Incentive Award prior to actual payment, (f) forfeiture provisions, and (g) such further terms and conditions, in each case not inconsistent with the Plan as may be determined from time to time by the Committee. In establishing the provisions of Incentive Awards, the Committee may refer to categories of such Awards as parts of “Programs” or “Plans”, which names will not affect the applicability of this Plan. The maximum amount payable as an Incentive Award that is settled for cash may be a multiple of the target amount payable, but the maximum amount payable pursuant to that portion of an Incentive Award granted under this Plan for any fiscal year to any Participant that is intended to satisfy the requirements for “performance based compensation” under Code Section 162(m) shall not exceed Five Million Dollars ($5,000,000).
8.2 Performance Criteria. The Committee shall establish the performance criteria and level of achievement versus these criteria which shall determine the target and the minimum and maximum amount payable under an Incentive Award, which criteria may be based on financial performance and/or personal performance evaluations. The Committee may specify the percentage of the target Incentive Award that is intended to satisfy the requirements for “performance-based compensation” under Code Section 162(m). Notwithstanding anything to the contrary herein, the performance criteria for any portion of an Incentive Award that is intended by the Committee to satisfy the requirements for “performance-based compensation” under Code Section 162(m) shall be a measure based on one or more Qualifying Performance Criteria (as defined in Section 10.2 hereof) selected by the Committee and specified at the time required under Code Section 162(m).
8.3 Timing and Form of Payment. The Committee shall determine the timing of payment of any Incentive Award. The Committee may provide for or, subject to such terms and conditions as the Committee may specify, may permit a Participant to elect for the payment of any Incentive Award to be deferred to a specified date or event. The Committee may specify the form of payment of Incentive Awards, which may be cash, shares or other property, or may provide for a Participant to have the option for his or her Incentive Award, or such portion thereof as the Committee may specify, to be paid in whole or in part in Shares or Stock Units.
8.4 Discretionary Adjustments. Notwithstanding satisfaction of any performance goals, the amount paid under an Incentive Award on account of either financial performance or personal
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performance evaluations may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine.
SECTION 9. Stock Units
9.1 Stock Units. A “Stock Unit” is a bookkeeping entry representing an amount equivalent to the fair market value of one Share, also sometimes referred to as a “restricted unit” or “shadow stock”. Stock Units represent an unfunded and unsecured obligation of the Company, except as otherwise provided for by the Committee.
9.2 Stock Unit Awards. Each Stock Unit Award shall reflect, to the extent applicable (a) the number of Stock Units subject to such Award or a formula for determining such, (b) the time or times at which Stock Units shall be granted or issued and/or become retainable or vested, and the conditions or restrictions on such Stock Units, (c) the performance criteria and level of achievement versus these criteria which shall determine the number of Stock Units granted, issued, retainable and/or vested, (d) the period as to which performance shall be measured for determining achievement of performance, (e) forfeiture provisions, and (f) such further terms and conditions, in each case not inconsistent with the Plan as may be determined from time to time by the Committee. Stock Units may also be issued upon exercise of Options, may be granted in payment and satisfaction of Incentive Awards and may be issued in lieu of Restricted Stock or any other Award that the Committee elects to be paid in the form of Stock Units.
9.3 Performance Criteria. The grant, issuance, retention and or vesting of each Stock Unit may be subject to such performance criteria and level of achievement versus these criteria as the Committee shall determine, which criteria may be based on financial performance, personal performance evaluations and/or completion of service by the Participant; provided, however, that no Stock Unit shall first vest within one (1) year from its date of grant, other than upon death, disability, retirement, a Change of Control (as defined in Section 12.2 hereof) or upon satisfaction of such performance requirements as deemed appropriate by the Committee. Notwithstanding anything to the contrary herein, the performance criteria for any Stock Unit that is intended by the Committee to satisfy the requirements for “performance-based compensation” under Code Section 162(m) shall be a measure based on one or more Qualifying Performance Criteria (as defined in Section 10.2 hereof) selected by the Committee and specified at the time the Stock Unit is granted.
9.4 Timing and Form of Award. The Committee shall determine the timing of award of any Stock Unit. The Committee may provide for or, subject to such terms and conditions as the Committee may specify, may permit a Participant to elect for the award or vesting of any Stock Unit to be deferred to a specified date or event. The Committee may provide for a Participant to have the option for his or her Stock Unit, or such portion thereof as the Committee may specify, to be granted in whole or in part in Shares.
9.5 Settlement of Stock Units. The Committee may provide for Stock Units to be settled in cash or Shares (at the election of the Company or the Participant, as specified by the Committee) and to be made at such other times as it determines appropriate or as it permits a Participant to choose. The amount of cash or Shares, or other settlement medium, to be so distributed may be increased by an interest factor or by dividend equivalents, as the case may be, which may be
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valued as if reinvested in Shares. Until a Stock Unit is settled, the number of Shares represented by a Stock Unit shall be subject to adjustment pursuant to Section 11.
9.6 Discretionary Adjustments. Notwithstanding satisfaction of any completion of service or performance goals, the number of Stock Units granted, issued, retainable and/or vested under a Stock Unit Award on account of either financial performance or personal performance evaluations may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine.
SECTION 10. Other Provisions Applicable to Awards
10.1 Transferability. During an Eligible Employee’s lifetime, Options may be exercised only by the Participant. Unless the agreement evidencing an Award (or an amendment thereto authorized by the Committee) expressly states that it is transferable as provided hereunder, no Award granted under the Plan, nor any interest in such Award, may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner, other than by will or the laws of descent and distribution, prior to the vesting or lapse of any and all restrictions applicable to any Shares issued under an Award. The Committee may in its sole discretion grant an Award or amend an outstanding Award to provide that the Award is transferable or assignable to a member or members of the Eligible Employee’s “immediate family”, as such term is defined under Exchange Act Rule 16a-1(e), or to a trust for the benefit solely of a member or members of the Eligible Employee’s immediate family, or to a partnership or other entity whose only owners are members of the Eligible Employee’s family, provided that following any such transfer or assignment the Award will remain subject to substantially the same terms applicable to the Award while held by the Eligible Employee, as modified as the Committee in its sole discretion shall determine appropriate, and the Participant shall execute an agreement agreeing to be bound by such terms.
10.2 Qualifying Performance Criteria. For purposes of this Plan, the term “Qualifying Performance Criteria” shall mean any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit, subsidiary or business segment, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee in the Award: (a) cash flow; (b) earnings (including gross margin, earnings before interest and taxes (“EBIT”), earnings before taxes (“EBT”), and net earnings); (c) earnings per share; (d) growth in earnings or earnings per share; (e) stock price; (f) return on equity or average stockholders’ equity; (g) total stockholder return; (h) return on capital; (i) return on assets or net assets; (j) return on investment; (k) revenue; (l) income or net income; (m) operating income or net operating income; (n) operating profit or net operating profit; (o) operating margin; (p) return on operating revenue; (q) market share; (r) contract awards or backlog; (s) overhead or other expense reduction; (t) growth in stockholder value relative to the two-year moving average of the S&P 500 Index; (u) growth in stockholder value relative to the two-year moving average of the Dow Jones Heavy Construction Index; (v) credit rating; (w) strategic plan development and implementation; (x) succession plan development and implementation; (y) retention of executive talent; (z) improvement in workforce diversity; (aa) return on average stockholders’ equity
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relative to the Ten Year Treasury Yield (as hereinafter defined); (bb) improvement in safety records; (cc) capital resource management plan development and implementation; (dd) improved internal financial controls plan development and implementation; (ee) corporate tax savings; (ff) corporate cost of capital reduction; (gg) investor relations program development and implementation; (hh) corporate relations program development and implementation; (ii) executive performance plan development and implementation; and (jj) tax provision rate for financial statement purposes. The Committee may appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to exclude any of the following events that occurs during a performance period: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; (iv) accruals for reorganization and restructuring programs; and (v) any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year. The term “Ten Year Treasury Yield” shall mean, for any fiscal period, the daily average percent per annum yield for U.S. Government Securities — 10 year Treasury constant maturities, as published in the Federal Reserve statistical release or any successor publication. Prior to the payment of any compensation under an Award intended to qualify as “performance-based compensation” under Code Section 162(m) the Committee shall certify the extent to which any Qualifying Performance Criteria and any other material terms under such Award have been satisfied (other than in cases where such relate solely to the increase in the value of the Company’s Common Stock).
10.3 Dividends. Unless otherwise provided by the Committee, no adjustment shall be made in Shares issuable under Awards on account of cash dividends which may be paid or other rights which may be issued to the holders of Shares prior to their issuance under any Award. The Committee shall specify whether dividends or dividend equivalent amounts shall be paid to any Participant with respect to the Shares subject to any Award that have not vested or been issued or that are subject to any restrictions or conditions on the record date for dividends.
10.4 Agreements Evidencing Awards. The Committee shall, subject to applicable law, determine the date an Award is deemed to be granted, which for purposes of this Plan shall not be affected by the fact that an Award is contingent on subsequent stockholder approval of the Plan. The Committee or, except to the extent prohibited under applicable law, its delegate(s) may establish the terms of agreements evidencing Awards under this Plan and may, but need not, require as a condition to any such agreement’s effectiveness that such agreement be executed by the Participant and that such Participant agree to such further terms and conditions as specified in such agreement. The grant of an Award under this Plan shall not confer any rights upon the Participant holding such Award other than such terms, and subject to such conditions, as are specified in this Plan as being applicable to such type of Award (or to all Awards) or as are expressly set forth in the Agreement evidencing such Award.
10.5 Tandem Stock or Cash Rights. Either at the time an Award is granted or by subsequent action, the Committee may, but need not, provide that an Award shall contain as a term thereof, a right, either in tandem with the other rights under the Award or as an alternative thereto, of the Participant to receive, without payment to the Company, a number of Shares, cash or a combination thereof, the amount of which is determined by reference to the value of the Award;
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provided, however, that the number of such rights granted under any Award shall not exceed the per Eligible Employee share limitation for such Award as set forth in Section 3.2.
10.6 Financing. The Committee may in its discretion provide financing to a Participant in a principal amount sufficient to pay the purchase price of any Award and/or to pay the amount of taxes required by law to be withheld with respect to any Award. Any such loan shall be subject to all applicable legal requirements and restrictions pertinent thereto, including Regulation G promulgated by the Federal Reserve Board. The grant of an Award shall in no way obligate the Company or the Committee to provide any financing whatsoever in connection therewith.
SECTION 11. Changes in Capital Structure
If the outstanding securities of the class then subject to this Plan are increased, decreased or exchanged for or converted into cash, property or a different number or kind of shares or securities, or if cash, property or shares or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, restructuring, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split, spin-off or the like, or if substantially all of the property and assets of the Company are sold, then, unless the terms of such transaction shall provide otherwise, the Committee may make appropriate and proportionate adjustments in (i) the number and type of shares or other securities or cash or other property that may be acquired pursuant to Awards theretofore granted under this Plan and the exercise or settlement price of such Awards, provided, however, that any such adjustment shall be made in such a manner that will not affect the status of any Award intended to qualify as an ISO under Code Section 422 or as “performance based compensation” under Code Section 162(m), and (ii) the maximum number and type of shares or other securities that may be issued pursuant to such Awards thereafter granted under this Plan.
SECTION 12. Change of Control
12.1 Effect of Change of Control. The Committee may through the terms of the Award or otherwise provide that any or all of the following shall occur, either immediately upon the Change of Control or a Change of Control Transaction, or upon termination of the Eligible Employee’s employment within twenty-four (24) months following a Change of Control or a Change of Control Transaction: (a) in the case of an Option, the Participant’s ability to exercise any portion of the Option not previously exercisable; (b) in the case of an Incentive Award, the right to receive a payment equal to the target amount payable or, if greater, a payment based on performance through a date determined by the Committee prior to the Change of Control; and (c) in the case of Shares issued in payment of any Incentive Award, and/or in the case of Restricted Stock or Stock Units, the lapse and expiration of any conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award. The Committee also may, through the terms of the Award or otherwise, provide for an absolute or conditional exercise, payment or lapse of conditions or restrictions on an Award which shall only be effective if, upon the announcement of a Change of Control Transaction, no provision is made in such Change of Control Transaction for the exercise, payment or lapse of conditions or restrictions on the Award, or other procedure whereby the Participant may realize the full benefit of the Award.
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12.2 Definitions. Unless the Committee or the Board shall provide otherwise, “Change of Control” shall mean an occurrence of any of the following events: (a) a third person, including a “group” as defined in Section 13(d)(3) of the Exchange Act, acquires shares of the Company having twenty-five percent or more of the total number of votes that may be cast for the election of directors of the Company; (b) as the result of any cash tender or exchange offer, merger or other business combination, or any combination of the foregoing transactions (a “Transaction”), the persons who were directors of the Company before the Transaction shall cease to constitute a majority of the Board of the Company or any successor to the Company; or (c) such other events as the Committee or the Board from time to time may specify. “Change of Control Transaction” shall include any tender offer, offer, exchange offer, solicitation, merger, consolidation, reorganization or other transaction that is intended to or reasonably expected to result in a Change of Control.
SECTION 13. Taxes
13.1 Withholding Requirements. The Committee may make such provisions or impose such conditions as it may deem appropriate for the withholding or payment by the Employee or Participant, as appropriate, of any taxes which it determines are required in connection with any Awards granted under this Plan, and a Participant’s rights in any Award are subject to satisfaction of such conditions.
13.2 Payment of Withholding Taxes. Notwithstanding the terms of Section 13.1 hereof, the Committee may provide in the agreement evidencing an Award or otherwise that all or any portion of the taxes required to be withheld by the Company or, if permitted by the Committee, desired to be paid by the Participant, in connection with the exercise of a Non-qualified Option or the exercise, vesting, settlement or transfer of any other Award shall be paid or, at the election of the Participant, may be paid by the Company withholding shares of the Company’s capital stock otherwise issuable or subject to such Award, or by the Participant delivering previously owned shares of the Company’s capital stock, in each case having a fair market value equal to the amount required or elected to be withheld or paid. Any such elections are subject to such conditions or procedures as may be established by the Committee and may be subject to disapproval by the Committee.
SECTION 14. Amendments or Termination
The Board may amend, alter or discontinue the Plan or any agreement evidencing an Award made under the Plan, but any such amendment shall be subject to approval of the shareholders of the Company to the extent required by law or by any applicable listing standard of the New York Stock Exchange or other securities exchange or stock market where the Company has listed the Shares. In addition, unless approved by a majority of the shareholders of the Company present in person or by proxy and actually voting, no such amendment shall be made that would:
| (a) | materially increase the maximum number of Shares for which Awards may be granted under the Plan, other than an increase pursuant to Section 11 (“Changes in Capital Structure”); | ||
| (b) | reduce the price at which Options may be granted, as described in Section 6.2; |
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| (c) | reduce the exercise price of outstanding Options; | ||
| (d) | extend the term of the Plan; or | ||
| (e) | change the class of persons eligible to be Participants. |
After the date of a Change of Control, no amendment to the Plan or any agreement evidencing an Award made under the Plan shall be effected that impairs the rights of any Award holder, without such holder’s consent, under any Award granted prior to the date of any Change of Control.
SECTION 15. Compliance With Other Laws and Regulations
The Plan, the grant and exercise of Awards thereunder, and the obligation of the Company to sell, issue or deliver Shares under such Awards, shall be subject to all applicable federal, state and foreign laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to register in a Participant’s name or deliver any Shares prior to the completion of any registration or qualification of such Shares under any federal, state or foreign law or any ruling or regulation of any government body which the Committee shall, in its sole discretion, determine to be necessary or advisable. This Plan is intended to constitute an unfunded arrangement for a select group of management or other key employees.
No Option shall be exercisable unless a registration statement with respect to the Option is effective or the Company has determined that such registration is unnecessary. Unless the Awards and Shares covered by this Plan have been registered under the Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person receiving an Award and/or Shares pursuant to any Award may be required by the Company to give a representation in writing that such person is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof.
SECTION 16. Option Grants by Subsidiaries
In the case of a grant of an Option to any Eligible Employee employed by a subsidiary or affiliate, such grant may, if the Committee so directs, be implemented by the Company issuing any subject Shares to the subsidiary or affiliate, for such lawful consideration as the Committee may determine, upon the condition or understanding that the subsidiary or affiliate will transfer the Shares to the optionholder in accordance with the terms of the Option specified by the Committee pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Option may be issued by and in the name of the subsidiary or affiliate and shall be deemed granted on such date as the Committee shall determine.
SECTION 17. No Right to Company Employment
Nothing in this Plan or as a result of any Award granted pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual’s employment at any time. The Award
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agreements may contain such provisions as the Committee may approve with reference to the effect of approved leaves of absence.
SECTION 18. Effectiveness and Expiration of Plan
The Plan shall be effective on the date the Board adopts the Plan. No Stock Option Award, Restricted Stock Award or Incentive Award shall be granted pursuant to the Plan more than ten (10) years after the effective date of the Plan.
SECTION 19. Non-Exclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board or the Committee to adopt such other incentive arrangements as it or they may deem desirable, including without limitation, the granting of restricted stock or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
SECTION 20. Governing Law
This Plan and any agreements hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. The Committee may provide that any dispute as to any Award shall be presented and determined in such forum as the Committee may specify, including through binding arbitration. Any reference in this Plan or in the agreement evidencing any Award to a provision of law or to a rule or regulation shall be deemed to include any successor law, rule or regulation of similar effect or applicability.
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EXHIBIT 10.17
FLUOR HUMAN RESOURCES POLICY
POLICY/PROCEDURE
THIS FLUOR ENTERPRISES, INC. POLICY IS SUBJECT TO MODIFICATION OR REVISION IN
PART OR IN ITS ENTIRETY TO REFLECT CHANGES IN CONDITIONS SUBSEQUENT TO THE
EFFECTIVE DATE OF THIS POLICY.
SUBJECT: BUSINESS ETHICS AND CONDUCT
HR-148
EFFECTIVE DATE: 03-03-03
SUPERSEDES: 08-05-02
I. POLICY
Employees are expected to adhere to the highest standards of business ethics and to conduct themselves and Fluor's business in a manner that will safeguard the company's reputation and retain the respect of its shareholders and all who associate with Fluor. No one in Fluor may give any order or directive that would violate the principle of strict adherence to the law, regulations governing company activities, or this policy. Fluor has additional policies in place that supplement and support the standards of conduct in this policy. Employees are expected to adhere to these and all other company policies as well.
II. STANDARDS OF CONDUCT
A. CONFLICTS OF INTEREST AND MISAPPROPRIATION OF CORPORATE OPPORTUNITIES:
1. Employees must avoid circumstances giving rise to potential bias due to conflicting personal interests and investments not consistent with the employee's performance of company business. In addition, employees are prohibited from taking for themselves opportunities related to Fluor's business, using Fluor's property, information, or position for personal gain, or competing with Fluor for business opportunities.
2. The company recognizes that the complexities of personal and company interests may occasionally result in situations where employees feel compelled to excuse themselves from a particular transaction because of inability to preclude the appearance of bias or the occurrence of personal gain at the expense of the company. To facilitate the avoidance of such circumstances and to protect both employees and the company, all potential personal conflicts and all opportunities that relate to Fluor's business must be disclosed in writing upon initial employment with the company, at the time of the re-certification of this policy, and at any other time in the course of employment when potential conflict situations or opportunities that relate to Fluor's business arise.
3. Employees must disclose to their supervisors, management, Human Resources or the Ethics Hotline (see Section III of this policy) circumstances, investments, interests, or affiliations which could reasonably be expected to:
a. Create the appearance of personal gain at company expense (including, but not limited to, opportunities that relate to Fluor's business);
b. Create the appearance of preferential treatment or lack of impartiality;
c. Impede company economy or efficiency;
d. Result in a loss of independence and objectivity;
e. Reflect poorly on the company or its clients; or
UNITED STATES HUMAN RESOURCES POLICIES
HR-148
EFFECTIVE DATE: 03-03-03
FLUOR HUMAN RESOURCES POLICY
POLICY/PROCEDURE
THIS FLUOR ENTERPRISES, INC. POLICY IS SUBJECT TO MODIFICATION OR REVISION IN
PART OR IN ITS ENTIRETY TO REFLECT CHANGES IN CONDITIONS SUBSEQUENT TO THE
EFFECTIVE DATE OF THIS POLICY.
SUBJECT: BUSINESS ETHICS AND CONDUCT
f. Have the effect of diminishing the trust and confidence of the public, the government, our clients, or other employees in the company.
4. Employees must notify a supervisor, member of management or member of Human Resources before accepting membership on any for-profit board of directors.
5. Officers must disclose any circumstances,
investments, interests, or affiliations described in
Section II.A.3. (a) through (f) of this policy to the
Senior Vice President Law. Officers must notify the
Senior Vice President Law before accepting membership
on any board of directors, whether of a charitable
organization, or otherwise.
B. CONFIDENTIAL INFORMATION: Many aspects of Fluor's business, with the exception of those normally found in the public domain, are confidential and proprietary information and are only to be shared with co-workers on a need-to-know basis. This includes, but is not necessarily restricted to, technologies and concepts, financial position, construction or expansion plans, computer programs, process data, bid data, and employee histories / pay, or any business plans of Fluor's clients, partners, customers, suppliers, and contractors. All employees are required to sign an agreement in which they agree not to disclose confidential information belonging to Fluor, its clients, or others with whom it does business. Furthermore, Fluor recognizes the confidentiality of business data and no employee shall seek to obtain such data through collusion, bribery, or any illegal or unethical means.
C. ANTI-TRUST: Employees will not engage in any practice that restricts trade and, as such, violates anti-trust regulations, such as giving to, accepting from, or discussing with a competitor, unpublished competitive data (prices or terms and conditions of sales agreements). Employees may not enter into any agreement or plan that would restrict competition.
D. ACCURATE RECORD-KEEPING AND REPORTING: Fluor's books, records, accounts, and reports must accurately reflect its transactions, and must be subject to an adequate system of internal controls and disclosure controls to promote the highest degree of integrity. Reports and documents that Fluor files with or submits to the Securities and Exchange Commission, and other public communications, should contain full, fair, accurate, timely and understandable disclosure.
E. POLITICAL CONTRIBUTIONS AND ACTIVITIES: Participation and involvement in public issues, including political activities, are on the individual's own behalf and not on behalf of the company. Employees may also, if they so choose, make voluntary contributions to political causes which are solicited without direction or coercion. Any such contribution or failure to contribute shall not advantage or disadvantage the employee.
F. GOVERNMENT CONTRACTING: The statutes and regulations governing business with or for governmental entities are complex and impose different and special requirements from those applicable to the private sector. Failure to comply with these requirements may be a criminal offense. The company has specific business conduct standards for this area. Any questions regarding compliance should be referred to Fluor's Legal Services Group.
G. BOYCOTT: Employees shall not engage in any organized effort on behalf of the company to punish an organization by refusing to buy, sell, or use its products or services. It is illegal for Fluor or employees acting on its behalf to participate in or cooperate with boycotts conducted by countries other than the United States. When an issue over a boycott arises, employees are expected to contact Fluor's Legal Services Group.
UNITED STATES HUMAN RESOURCES POLICIES
HR-148
EFFECTIVE DATE: 03-03-03
FLUOR HUMAN RESOURCES POLICY
POLICY/PROCEDURE
THIS FLUOR ENTERPRISES, INC. POLICY IS SUBJECT TO MODIFICATION OR REVISION IN
PART OR IN ITS ENTIRETY TO REFLECT CHANGES IN CONDITIONS SUBSEQUENT TO THE
EFFECTIVE DATE OF THIS POLICY.
SUBJECT: BUSINESS ETHICS AND CONDUCT
H. INSIDER TRADING: Trading on inside information about a corporation's securities or conveying such inside information to others ("tipping") or suggesting that anyone purchase or sell a corporation's securities while in possession of inside information is strictly prohibited by law. An employee who, during the course of his or her employment, has come into possession of material non-public information relating to Fluor or any other corporation, including any of its clients, may not buy or sell the securities of that corporation. In addition, the employee may not permit any member of his or her immediate family or anyone acting on his or her behalf to purchase or sell such securities.
I. CORPORATE ASSETS: Employees are expected to respect the company's assets as they would their own. Corporate assets take many forms (land, buildings, equipment, etc.), and support daily work (desks, tools, computers, telephones, etc.).
J. FAIR DEALING: Employees should deal fairly with Fluor's customers, supplier, competitors and employees. No employee should take unfair advantage of anyone through manipulation, concealment, abuse of confidential, privileged or proprietary information, or misrepresentation of material facts.
K. BRIBES, PAYOFFS AND GRATUITIES: Employees must not bribe or make payoffs to anyone, nor may they accept anything of more than nominal value from anyone with whom Fluor does business (suppliers, contractors, clients, etc.).
L. COPYRIGHTS: In accordance with United States law, no employee shall make unauthorized copies of copyrighted materials such as books, magazines, newspapers, periodicals, computer programs, or user manuals.
M. COMPLIANCE WITH LAWS AND REGULATIONS: Employees shall comply with all applicable laws and regulations including those applicable to the conduct of business with governmental bodies, which include, but are not limited to, those regarding cost accounting, time charging, national security, procurement, and discrimination.
III. COMMUNICATIONS AND REPORTING
A. ENCOURAGING OPEN COMMUNICATION: No policy can anticipate every situation that may arise. Accordingly, this policy is not meant to be all-inclusive, but rather is intended to serve as a source of guiding principles and to encourage communication and dialogue between employees and supervisors concerning standards of conduct addressed in the policy. Employees are encouraged to discuss with any supervisor, manager or member of Human Resources questions about particular circumstances that may implicate the provisions of this policy.
B. REPORTING OBLIGATIONS: Employees who believe that Fluor's standards are not being practiced are required to report the circumstances to their supervisors, managers or a member of Human Resources, Retaliation for reports of misconduct by others made in good faith is prohibited by law, and Fluor will not permit retaliation of any kind against any employee who reports misconduct in good faith.
C. ETHICS HOTLINE: In the event that an employee does not want to report internally, the company has an Ethics Hotline which is managed by an external organization specializing in compliance and reporting issues. Employees may call the hotline at 1-800-223-1544 to report potential legal, ethical, accounting or auditing violations or concerns. Any calls to the Ethics Hotline may be made anonymously, although employees are encouraged to identify themselves so that a full confidential investigation is possible.
UNITED STATES HUMAN RESOURCES POLICIES
HR-148
EFFECTIVE DATE: 03-03-03
FLUOR HUMAN RESOURCES POLICY
POLICY/PROCEDURE
THIS FLUOR ENTERPRISES, INC. POLICY IS SUBJECT TO MODIFICATION OR REVISION IN
PART OR IN ITS ENTIRETY TO REFLECT CHANGES IN CONDITIONS SUBSEQUENT TO THE
EFFECTIVE DATE OF THIS POLICY.
SUBJECT: BUSINESS ETHICS AND CONDUCT
IV. COMPLIANCE
A. VIOLATIONS: Violation of this policy by any employee may result in disciplinary action, up to and including termination. Civil charges against the employee may also be filed.
B. SIGNATURES AND REAFFIRMATIONS
1. Newly hired employees will sign and receive copies of Fluor Human Resources Policy, HR-148, Business Ethics and Conduct.
2. Employees will recertify their adherence to Policy HR-148 as required.
V. EXCEPTIONS
None
UNITED STATES HUMAN RESOURCES POLICIES
FLUOR CORPORATION 2002 ANNUAL REPORT
Exhibit 13
SELECTED FINANCIAL DATA
Year Ended
Two Months Ended
December 31,
Year Ended October 31,
December 31,
2002
2001
2000
1999
1998
2000
(in millions, except per share amounts)
$
9,959.0
$
8,972.2
$
9,422.9
$
10,752.3
$
11,857.8
$
1,782.0
260.5
185.3
164.3
88.7
193.8
(7.2
)
170.0
127.8
116.3
38.2
117.9
(4.1
)
(6.4
)
(108.4
)
7.7
66.0
117.4
0.1
163.6
19.4
124.0
104.2
235.3
(4.0
)
Continuing operations
2.14
1.64
1.55
0.51
1.50
(0.05
)
(0.08
)
(1.39
)
0.10
0.87
1.49
—
2.06
0.25
1.65
1.38
2.99
(0.05
)
2.13
1.61
1.52
0.50
1.49
(0.05
)
(0.08
)
(1.36
)
0.10
0.87
1.48
—
2.05
0.25
1.62
1.37
2.97
(0.05
)
19.4
%
2.6
%
7.7
%
6.8
%
14.5
%
3.8
%
0.64
0.64
1.00
0.80
0.80
—
1,941.5
1,851.3
1,318.3
1,391.1
1,841.2
1,230.7
1,756.2
1,862.7
1,570.3
1,834.2
2,156.8
1,604.1
185.3
(11.4
)
(252.0
)
(443.1
)
(315.6
)
(373.4
)
467.0
508.1
570.8
514.7
513.0
573.0
3,142.2
3,142.5
4,958.4
4,886.1
5,019.2
2,700.6
—
38.4
88.7
20.7
200.2
227.6
17.6
17.6
17.6
17.5
—
17.6
883.9
789.3
1,609.2
1,581.4
1,525.6
633.1
901.5
845.3
1,715.5
1,619.7
1,725.8
878.3
2.0
%
6.6
%
6.2
%
2.4
%
11.6
%
27.9
%
11.02
9.85
21.25
20.80
20.19
8.49
80.2
80.1
75.7
76.0
75.6
74.6
$
8,596.8
$
10,766.6
$
9,644.2
$
6,789.4
$
9,991.9
$
1,037.1
9,709.1
11,505.5
10,012.2
9,142.0
12,645.3
9,766.7
63.0
148.4
156.2
140.6
176.1
29.8
$
206.9
$
614.7
$
186.1
$
572.6
$
697.8
$
(67.6
)
*Includes commercial paper, loan notes, miscellaneous trade notes payable and the current portion of long-term debt.
In September 2001, the company adopted a plan to dispose certain non-core construction equipment and temporary staffing businesses. The assets and liabilities (including debt) and results of operations of Massey and the non-core businesses for all periods presented have been reclassified and are presented as discontinued operations. In addition, the company changed to a calendar-year basis of reporting financial results in connection with the spin-off.
See Management’s Discussion and Analysis on pages 23 to 34 and Notes to Consolidated Financial Statements on pages 39 to 55 for information relating to significant items affecting the results of operations.
FINANCIAL TABLE OF CONTENTS
| 23 | Management’s Discussion and Analysis | |
| 35 | Consolidated Financial Statements | |
| 39 | Notes to Consolidated Financial Statements | |
| 54 | Operating Information by Segment | |
| 56 | Management’s and Independent Auditors’ Reports | |
| 57 | Quarterly Financial Data | |
| 58 | Officers | |
| 59 | Board of Directors | |
| 60 | Shareholders’ Reference |
PAGE 22
FLUOR CORPORATION 2002 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
INTRODUCTION
The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, the consolidated financial statements and accompanying notes. For purposes of reviewing this document, “operating profit” is calculated as revenues less cost of revenues excluding: special provision; corporate administrative and general expense; interest expense; interest income; domestic and foreign income taxes; other non-operating income and expense items; and earnings or loss from discontinued operations.
The company changed to a calendar-year basis of reporting financial results effective January 1, 2001. For comparative purposes, the reported audited consolidated results of operations and cash flows for the 2000 annual period is for the twelve months ended October 31. As a requirement of the change in fiscal year, the company is reporting audited consolidated results of operations and cash flows for a transition period for the two months ended December 31, 2000.
On November 30, 2000, a spin-off distribution to shareholders was effected which separated Fluor Corporation (“Fluor”) into two publicly traded companies - a “new” Fluor (“new Fluor” or the “company”) and Massey Energy Company (“Massey”). The spin-off was accomplished through the distribution of 100% of the common stock of new Fluor to shareholders of existing Fluor. As a result, each existing Fluor shareholder received one share of new Fluor common stock for each share of existing Fluor common stock. Existing Fluor shares were changed to Massey Energy Company shares. The company received a ruling from the Internal Revenue Service that the spin-off would be tax-free to its shareholders. Commencing December 1, 2000 the financial statements of the company no longer include Massey. Because of the relative significance of the company’s operations to Fluor, the company was treated as the “accounting successor” for financial reporting purposes. Accordingly, Massey’s results of operations for all periods prior to the spin-off have been reclassified and are presented as discontinued operations. See further discussion of Massey’s results of operations below under Discontinued Operations.
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). Under SFAS 144, a component of a business that is held for sale is reported in discontinued operations if (i) the operations and cash flows will be, or have been, eliminated from the ongoing operations of the company and, (ii) the company will not have any significant continuing involvement in such operations. In the quarter ended September 30, 2001, the company adopted the provisions of SFAS 144 effective January 1, 2001.
In September 2001, the Board of Directors approved a plan to dispose of certain non-core operations of the company’s construction equipment and temporary staffing businesses. An active program to consummate such disposal was initiated and is complete except for the disposition of one remaining operation in the construction equipment business. Management’s plan calls for this operation to be disposed of by sale and a transaction is expected to be completed in the first half of 2003. The operating results for discontinued operations are discussed later in this Management’s Discussion and Analysis.
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No.141, “Business Combinations” and No.142, “Goodwill and Other Intangible Assets”. These statements were effective for the company’s calendar year 2002. Under the new rules, goodwill is no longer amortized, but is subject to annual impairment tests. During 2002, the company completed its transitional and annual goodwill impairment tests as of the first and fourth quarters, respectively, and has determined that none of the goodwill is impaired. Application of the non-amortization provisions resulted in an increase in earnings from continuing operations of $3.4 million ($0.04 per diluted share) in 2002 compared with 2001.
In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The Statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. Application of this statement is not expected to have a significant effect on the company’s consolidated results of operations or financial position.
In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others"(FASI 45). FASI 45 expands on the accounting and disclosure requirements under existing accounting standards. It clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation. Disclosures required by the Interpretation are provided below in the Financial Position and Liquidity section of this Management’s Discussion and Analysis and in the footnotes to the accompanying financial statements. The accounting requirements of the Interpretation are applicable to transactions entered into beginning January 1, 2003.
In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities"(FASI 46). FASI 46 provides guidance on the factors to consider in determining when variable interest entities must be consolidated in the financial statements of the primary beneficiary. In general, a variable interest entity is an entity used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not
PAGE 23
FLUOR CORPORATION 2002 ANNUAL REPORT
provide sufficient financial resources for the entity to support its activities. FASI 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity.
Certain engineering office facilities are leased through lease arrangements involving variable interest entities. These leases have been accounted for by the company in accordance with lease accounting principles applicable to operating leases as prescribed by Statement of Financial Accounting Standards No. 13, “Accounting for Leases”. These leasing arrangements have been disclosed in the footnotes to the company’s financial statements since their inception and such disclosures have included the company’s lease commitment and residual value obligations. In addition, these obligations have been fully considered in all periodic evaluations of the company’s credit rating and debt capacity by recognized rating agencies. Beginning in 2003, the company will consolidate these entities in its financial statements as now prescribed by FASI 46. The effect of this consolidation will result in an increase of approximately $123 million in reported long-term debt. None of the terms of the leasing arrangements or the company’s obligations as a lessee will be impacted by this change in accounting. The effect on other balance sheet accounts, including shareholders’ equity and the impact on earnings from depreciation and interest expense that would replace recognition of lease expense is currently being determined. The cumulative impact of the difference in earnings relating to prior years will be reported in the first quarter of 2003 as the cumulative effect of a change in accounting principle. Additional disclosures as required by FASI 46 concerning the company’s variable interests are provided below in the Financial Position and Liquidity section of this Management’s Discussion and Analysis and in the footnotes to the accompanying financial statements. The company may also use variable interest entities from time to time to facilitate financing of various projects. There are no such project-related entities in use at the present time.
DISCUSSION OF CRITICAL ACCOUNTING POLICIES
The company’s discussion and analysis of its financial condition and results of operations is based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The company’s significant accounting policies are described in footnotes accompanying the consolidated financial statements. The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the financial statements, and accordingly, actual results in future periods could differ from these estimates.
Significant judgments and estimates used in the preparation of the consolidated financial statements apply the following critical accounting policies.
ENGINEERING AND CONSTRUCTION CONTRACTS
Engineering and construction contract revenues are recognized on the percentage-of-completion method based on contract costs incurred to date compared with total estimated contract costs. This method of revenue recognition requires the company to prepare estimates of costs to complete contracts in progress. In making such estimates, judgments are required to evaluate contingencies such as potential variances in schedule and the cost of materials, labor costs and productivity, the impact of change orders, liability claims, contract disputes, or achievement of contractual performance standards. Changes in total estimated contract costs and losses, if any, are recognized in the period they are determined.
The majority of the company’s engineering and construction contracts provide for reimbursement of costs plus a fixed or percentage fee. In the highly competitive markets served by the company, there is an increasing trend for cost-reimbursable contracts with incentive-fee arrangements. As of December 31, 2002, approximately 67 percent of the company’s backlog was cost reimbursement while approximately 33 percent was for guaranteed maximum, fixed or unit price contracts. In certain instances, the company has provided guaranteed completion dates and/or achievement of other performance criteria. Failure to meet schedule or performance guarantees or increases in contract costs can result in unrealized incentive fees or non-recoverable costs, which could exceed revenues realized from the project.
Claims arising from engineering and construction contracts have been made against the company by clients, and the company has made certain claims against clients for costs. The company recognizes certain significant claims for recovery of incurred costs when it is probable that the claim will result in additional contract revenue and when the amount of the claim can be reliably estimated. Unapproved change orders are accounted for in revenue and cost when it is probable that the costs will be recovered through a change in the contract price. In circumstances where recovery is considered probable but the costs cannot be reliably estimated, costs attributable to change orders are deferred pending determination of the impact on contract price.
Backlog in the engineering and construction industry is a measure of the total dollar value of work to be performed on contracts awarded and in progress. Although backlog reflects business that 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 costs, both upward and downward.
PAGE 24
FLUOR CORPORATION 2002 ANNUAL REPORT
ENGINEERING AND CONSTRUCTION PARTNERSHIPS AND JOINT VENTURES
Certain contracts are executed jointly through partnerships and joint ventures with unrelated third parties. The company accounts for its interests in the operations of these ventures on a proportional consolidation basis. Under this method of accounting, the company consolidates its proportional share of venture revenues, costs and operating profits. The most significant application of the proportional consolidation method is in the Power segment. This segment includes Duke/Fluor Daniel and ICA Fluor Daniel.
The company’s accounting for project specific joint venture or consortium arrangements is closely integrated with the accounting for the underlying engineering and construction project for which the joint venture was established. The company engages in project specific joint venture or consortium arrangements in the ordinary course of business to share risks and/or to secure specialty skills required for project execution. Frequently, these arrangements are characterized by a 50 percent or less ownership or participation interest that requires only a small initial investment. Execution of a project is generally the single business purpose of these joint venture arrangements. When the company is the primary contractor responsible for execution, the project is accounted for as part of normal operations and included in consolidated revenues using appropriate contract accounting principles.
FOREIGN CURRENCY
The company generally limits its exposure to foreign currency fluctuations in most of its engineering and construction contracts through provisions that require client payments in U.S. dollars or other currencies corresponding to the currency in which costs are incurred. As a result, the company generally does not need to hedge foreign currency cash flows for contract work performed. Under certain limited circumstances, such foreign currency payment provisions could be deemed embedded derivatives. As of December 31, 2002 and 2001, the company had no significant foreign currency arrangements that constitute embedded derivatives in any of its contracts. Managing foreign currency risk on projects requires estimates of future cash flows and judgments about the timing and distribution of expenditures of foreign currencies.
The company generally uses forward exchange contracts to hedge foreign currency transactions where contract provisions do not contain foreign currency provisions or the transaction is for a non-contract-related expenditure. The objective of this activity is to hedge the foreign exchange currency risk due to changes in exchange rates for currencies in which anticipated future cash payments will be made. As of December 31, 2002 and 2001, the company did not have any significant forward exchange contracts. The company does not engage in currency speculation.
In connection with the Hamaca Crude Upgrader Project located in Jose, Venezuela, the company has incurred foreign currency exposures and related translation losses due to weakness in the Venezuelan bolivar compared with the U.S. dollar. Weakness in the currency has accompanied the impact of the recent national strike. See additional discussion concerning the Hamaca project below under Results of Operations-Energy & Chemicals.
Deferred Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the company’s financial statements or tax returns. At December 31, 2002 the company had deferred tax assets of $359 million partially offset by a valuation allowance of $62 million and further reduced by deferred tax liabilities of $55 million. The valuation allowance reduces certain deferred tax assets to amounts that are more likely than not to be realized. This allowance primarily relates to the deferred tax assets established for certain project performance reserves, U.S. capital loss carryforwards, and the net operating loss carryforwards of certain U.S. and non-U.S. subsidiaries. The company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the company’s effective tax rate on future earnings.
RETIREMENT BENEFITS
The company accounts for its defined benefit pension plans in accordance with Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions”, as amended (SFAS 87). As permitted by SFAS 87, changes in retirement plan obligations and assets set aside to pay benefits are not recognized as they occur but are recognized over subsequent periods. Assumptions concerning discount rates, long-term rates of return on assets and rates of increase in compensation levels are determined based on the current economic environment in each host country at the end of each respective annual reporting period. The company evaluates the funded status of each of its retirement plans using these current assumptions and determines the appropriate funding level considering applicable regulatory requirements, tax deductibility, reporting considerations and other factors. Recent decreases in long-term interest rates have the effect of increasing plan liabilities and if expected returns on plan assets are not achieved, future funding obligations could increase substantially. Assuming no changes in current assumptions, the company expects to fund approximately $30 to $50 million for the calendar year 2003. If the discount rate were reduced by 25 basis points, plan liabilities would increase by approximately $22 million.
PAGE 25
FLUOR CORPORATION 2002 ANNUAL REPORT
RESULTS OF OPERATIONS
Revenue increased 11 percent in 2002 compared with 2001 primarily due to increases in the Energy & Chemicals segment. Revenue declined 4.8 percent in 2001 compared with 2000 due to decreases in the Energy & Chemicals and Industrial & Infrastructure segments partially offset by a significant increase in Power revenue. Earnings from continuing operations increased 32 percent to $2.13 per share in 2002 compared with $1.61 per share in 2001. This increase is partially due to a $15.2 million ($0.19 per share) unusual charge for stock price driven compensation plan expense in 2001 due to the increase in stock price following the reverse spin-off of Massey. Excluding the stock price expense, the increase in earnings from continuing operations in 2002 compared with 2001 was 18.9 percent. This increase is primarily due to significantly improved operating profit performance in the Power segment. Following is a comprehensive discussion of segment operating performance, corporate administrative and general expense and other items. Also discussed below is the results of discontinued operations.
The company is organized into five business segments: Energy & Chemicals, Industrial & Infrastructure, Power, Global Services and Government Services. The Energy & Chemicals segment provides engineering and construction professional services for upstream oil and gas production, refining, petrochemical, and specialty and fine chemicals facilities. The Industrial & Infrastructure segment provides engineering and construction professional services for manufacturing and life sciences facilities, commercial and institutional buildings, mining, telecommunication and transportation projects and other facilities. The Power segment provides professional services to engineer and construct power generation facilities. Services provided by the Power segment are conducted through two joint ventures; Duke/Fluor Daniel, a 50 percent owned partnership with Duke Energy, and ICA Fluor Daniel, a 49 percent owned joint venture with Grupo ICA, a Mexican company. The Global Services segment includes operations and maintenance, construction equipment, temporary staffing and global sourcing and procurement services. The Government Services segment provides project management services to the United States government.
The results of segment operations as reported herein have been conformed to the organizational alignment discussed above for all periods presented.
ENERGY & CHEMICALS
Energy & Chemicals had revenues of $3.6 billion for the year ended December 31, 2002 representing an increase of 44 percent over revenue for the year ended December 31, 2001. Revenue for the 2001 period declined 22 per cent compared with the revenue for the year ended October 31, 2000. The increase in revenue during 2002 reflects the increase in work performed on projects in the execution stage compared with revenue primarily from front-end studies and preliminary engineering in the comparable prior period. The revenue decline in 2001 compared with 2000 reflects the lower volume of work performed as a result of the deferral of capital spending in the chemical and petrochemical industry and increased project selectivity. Operating profit margin in the Energy & Chemicals segment declined in 2002 to 3.6 percent compared with 4.3 percent in 2001 due to the impact of projects moving in to full execution from the higher margin front-end studies and preliminary engineering work performed in 2001. The improvement in margin in 2001 compared with 2000 reflects selectivity of projects undertaken and improved project execution.
The Hamaca Crude Upgrader Project located in Jose, Venezuela is a $1 billion lump sum project of Grupo Alvica (“GA”), a joint venture including Fluor Daniel (80 percent) and Inelectra C.A. (20 percent), to design and build a petroleum upgrader for a consortium of owners called Petrolera Ameriven (“PA”) including Petrolios de Venezuela S.A. (“PDVSA”), ChevronTexaco and ConocoPhillips. The joint venture is continuing to actively pursue two issues that were referred to arbitration in December 2001: one is responsibility for costs arising from the site labor agreement for 2000 called “Acta Convenio” and two, modifications and extra work arising from differing site soil conditions. Arbitration of the fundamental cost differences between the earlier 1998 labor agreement and the 2000 Acta Convenio will be heard in April 2003. The site soil conditions issue (collapsible soils on site) was the subject of hearings in November 2002 on both schedule and cost issues. There are no cross-claims by PA in the arbitration. Recent events in Venezuela are having a significant impact on the progress of the project. In accordance with the contract, the joint venture is entitled to cost and schedule relief for the impact of the recent national strike.
The client has conditionally accepted responsibility relating to the soil conditions and certain incurred costs have been paid. Substantial additional costs are expected to be incurred as the project progresses and resolution of outstanding issues concerning the total costs to be reimbursed under the soil conditions change order are yet to be determined. The amount of the claim for site soil conditions is $159 million, $28 million of which has been conditionally paid by the client. The company is accounting for the additional costs incurred for the soil conditions matter as additional revenue as payments are received. Incurred costs associated with Acta Convenio and soil conditions are being deferred and will be recognized in revenue when a change order is approved or payment is received. As of December 31, 2002, the company’s share of incurred costs amounting to $44 million has been deferred. If future costs relating to Acta Convenio, soil conditions or the recent national strike are determined to be not fully recoverable, the company could face reduced profits or losses on this project.
New awards in the Energy & Chemicals segment were $2.0 billion in 2002, a decline of 23 percent over 2001. New awards in
PAGE 26
FLUOR CORPORATION 2002 ANNUAL REPORT
2001 were higher by 15 percent compared with 2000. The 2002 decline is primarily due to the temporary suspension of the Tengizchevroil (“TCO”) project, a major oil and gas development program in Kazakhstan due to funding considerations. The company was expecting the TCO project to be awarded in the fourth quarter of 2002 and total approximately $1 billion. As recently announced, TCO has reconfirmed the role of the joint venture in which the company has a 50 percent interest, as the contractor for engineering, procurement and construction management services for the project. The improvement in 2001 new awards compared with 2000 is attributable to increased awards for upstream oil and gas and clean-fuels projects for major oil companies. The large size and uncertain timing of complex, international projects can create variability in the segment’s award pattern; consequently, future award trends are difficult to predict with certainty.
Backlog for the Energy & Chemicals segment declined to $2.4 billion at December 31, 2002 compared with $3.8 billion and $3.0 billion as of December 31, 2001 and October 31, 2000, respectively. The 2002 decline in backlog primarily is the result of the suspension of the TCO project discussed above. The increase in backlog in 2001 is partially the result of the lower level of work performed during 2001 compared with 2000 due to several projects that were in the early stages of project execution where activity is focused on engineering and project planning.
INDUSTRIAL & INFRASTRUCTURE
The Industrial & Infrastructure segment had revenues of $2.2 billion for the year ended December 31, 2002 representing an increase of 6 percent from the year ended December 31, 2001. Revenue for the 2001 period declined 27 percent compared with revenue for the year ended October 31, 2000. The increase in revenue in 2002 reflects progress on life science and mining projects awarded in both 2002 and 2001. The decline in revenue in 2001 compared with 2000 reflects the impact of depressed economic conditions in 2001 and the effects of increased project selectivity. Operating profit declined 46 percent in 2002 compared with 2001 primarily due to a charge of $26 million for dispute resolution provisions recognized in the second quarter of 2002.
The major portion of the dispute resolution provisions relates to an unfavorable arbitration ruling on the Verde Gold project in Chile, a gold ore processing facility completed in 1996. During the second quarter of 2002, the company recognized a loss provision of $20 million representing the arbitration award plus applicable interest, less a $3 million reserve provided in prior years. The company anticipates recovering a portion of the award from available insurance and has recorded $6 million in expected insurance recoveries. The net impact on results of operations was a charge of $14 million.
The operating profit margin in the Industrial & Infrastructure segment showed an improvement to 4.6 percent in 2001 compared with 4.0 percent in 2000 primarily due to the selectivity of projects undertaken and improved project execution.
New awards in the Industrial & Infrastructure segment were $3.4 billion in 2002, an increase of 33 percent over 2001. New awards in 2001 declined 21 percent over 2000. The improvement in 2002 is due primarily to higher awards in the mining and transportation markets compared with 2001. The 2001 decline compared with 2000 is primarily attributable to decreased awards for telecommunications and mining projects reflecting over capacity and poor commodity pricing in these industries, respectively, and an overall focus on project selectivity. Backlog for the Industrial & Infrastructure segment improved to $4.1 billion at December 31, 2002 compared with $3.0 billion and $3.3 billion as of December 31, 2001 and October 31, 2000, respectively. The increase in 2002 compared with 2001 reflects the strong increase in new awards particularly in life sciences and transportation. The 2001 backlog decline compared with 2000 reflects the decrease in 2001 new awards, the lower level of work performed during 2001 and the cancellation of a telecommunications project that resulted in the removal of $400 million from backlog.
POWER
The Power segment had revenues of $2.2 billion for the year ended December 31, 2002, a decrease of 13 percent compared with revenue for the year ended December 31, 2001. Revenue for the 2001 period increased 87 percent over revenue for the year ended October 31, 2000. The decline in revenue in 2002 compared with 2001 reflects the completion of a substantial number of projects in 2002 that were awarded in prior years and a significant decline in new awards in the most recent twelve-month period. The increases in revenue in both 2002 and 2001 compared with 2000 reflect the impact of new power plant awards beginning in 2000 and peaking in 2001 due to the significant increase in demand for power generation.
Operating profit margin in the Power segment showed a significant improvement in 2002 compared with 2001. Operating profit in 2002 totaled $107 million compared with $74 million in 2001. Early completion of projects and improved execution resulted in operating margin of 4.9 percent in 2002 compared with 3.0 percent in 2001. The results for 2000 were significantly impacted by the provision totaling $60 million on a Duke/Fluor Daniel project located in Dearborn, Michigan. The provision represents the company’s proportional share of the cost overruns on the project that were incurred due to a number of adverse factors, including labor productivity and substantial owner delays and scope of work changes. Operating profit margin was 3.0 percent in 2001 compared with break-even in 2000 primarily due to the Dearborn provision. Projects in the Power segment are primarily bid and awarded on a fixed price basis. This method of contracting exposes the segment to the risk of cost overruns due to factors such as material cost and labor productivity variances or schedule delays.
New awards in the Power segment were $1.1 billion in 2002 representing a decrease of 70 percent over 2001. New awards in 2001 improved 115 percent over 2000 as there was a surge in new awards in response to steep increases in power demand and
PAGE 27
FLUOR CORPORATION 2002 ANNUAL REPORT
power shortages in certain markets. Backlog for the Power segment decreased to $0.8 billion at December 31, 2002 compared with $2.3 billion and $1.4 billion as of December 31, 2001 and October 31, 2000, respectively. Most of the projects awarded in prior years have now been completed or will be completed in 2003. The higher demand for power has been met with the recent completion of a substantial amount of new power generation capacity. Demand for new power generation has declined as growth in the world economy and particularly in the United States has slowed resulting in overcapacity. New award activity for the near term future is expected to be modest as existing capacity is expected to meet anticipated demand.
Global Services
The Global Services segment had revenues of $961 million for the year ended December 31, 2002, down 6 percent compared with the year ended December 31, 2001. Revenue for the 2001 period was lower by 15 percent compared with revenue for the year ended October 31, 2000. The revenue decline in 2002 and 2001 primarily reflects the impact of increased selectivity to improve margins and depressed economic conditions resulting in lower operations and maintenance activity in the manufacturing sector. Operating profit margin in the Global Services segment substantially improved to 9.7 percent compared with 4.9 percent and 5.3 percent in 2001 and 2000, respectively. The improvement in 2002 compared with 2001 and 2000 is primarily attributable to the procurement services business which incurred substantial amounts of development and start-up expenses in the prior two periods.
New awards in the Global Services segment for operations and maintenance projects were $1.0 billion in 2002, a decline of 17 percent over 2001. The decline in 2002 is primarily attributable to increased selectivity and the depressed economic conditions in the manufacturing sector as mentioned above. Backlog for the Global Services segment was $1.6 billion at December 31, 2002 compared with $1.9 billion and $1.6 billion as of December 31, 2001 and October 31, 2000, respectively. The equipment, temporary staffing and global sourcing and procurement operations do not report backlog due to the short turnaround between the receipt of new awards and the recognition of revenue. Accordingly, new awards and backlog for the segment relate to the operations and maintenance activities only.
Government Services
The Government Services segment had revenues of $952 million for the year ended December 31, 2002, representing an increase of 17 percent over revenue for the year ended December 31, 2001. Revenue for the 2001 period was higher by 13 percent compared with revenue for the year ended October 31, 2000. The revenue increase in 2002 reflects higher activity levels on projects being executed for the Department of Energy (“DOE”). The Government Services segment is providing environmental restoration, engineering, construction, site operations and maintenance services at two major DOE sites: the Fernald Environmental Management Project in Ohio and the Hanford Environmental Management Project in Washington. Operating profit margin for Government Services improved to 3.1 percent from 2.7 percent in 2001 and 2.2 percent in 2000. This improvement is attributable to improved project execution and realization of performance incentives on the DOE contracts, activity on the Midcourse Missile Defense test bed facilities in Alaska and increased logistical support activities internationally. In addition, good performance on the Fernald contract led to a re-baselining of the project, which favorably impacted operating profit in the last half of 2002.
Many projects performed on behalf of U.S. government clients under multi-year contracts provide for annual funding. As a result, new awards for the Government Services segment reflect the annual award of work to be performed over the ensuing 12 months. Backlog for Government Services has remained fairly stable reflecting annual funding for the multi-year Fernald and Hanford projects.
Corporate
Corporate administrative and general expenses totaled $160.1 million for the year ended December 31, 2002. This compares with $167.0 million for the year ended December 31, 2001 and $98.9 million for the year ended October 31, 2000. During 2002 overhead cost reductions were realized as a result of the early retirement of two former senior executives at the end of 2001 and the elimination of the Business Services and Other segment. This segment included the company’s shared services operations. Shared services are grouped in corporate administrative and general expense for all periods presented. In addition, during 2002 significant cost reductions were realized as a result of the company’s reevaluation of the scope of implementation and deployment of its enterprise resource management (“ERM”) system (formerly known as Knowledge@Work). As part of this reevaluation effort the company altered the original ERM implementation plan and recognized a charge of $13.0 million in 2002 for abandonment of certain system functionality and to adjust depreciation expense. This charge partially offset the impact of the cost reductions realized upon changing the implementation and deployment plan. The company has narrowed the scope of the ERM system but is continuing implementation of the SAP system on an enterprise wide basis. Costs for Knowledge@Work were $14.6 million higher in 2001 compared with 2000 due to the initial implementation and deployment of the SAP system component of the overall Knowledge@Work project.
Stock-based compensation expense in 2002 was $25.3 million lower compared with 2001 primarily as a result of a significant increase in the trading price of the company’s common stock during the first half of 2001. The impact of the lower stock price in 2002 did not have a significant impact on stock-based compensation expense as exercises and retirements have reduced the number of stock price sensitive units outstanding. Stock-based compensation expense in 2001 was also significantly higher compared with 2000 due to the stock price increase previously mentioned. Other components of incentive compensation
PAGE 28
FLUOR CORPORATION 2002 ANNUAL REPORT
expense were higher in 2002 compared with 2001 and 2000 due to the higher level of earnings and resulting higher awards under long-term incentive compensation plans.
During 2002, the company recognized two significant charges and a one-time gain in corporate administrative and general expense. The first of these charges was a provision for a guarantee obligation amounting to $14 million for pollution control bonds related to zinc operations that were sold in 1987. The provision was recorded due to the obligor’s bankruptcy filing and inability to meet the current obligation on the bonds without financial assistance from the company. The other charge was to recognize impairment of $9.4 million related to an investment in The Beacon Group Energy Investment Fund, L.P., which invested in energy related projects. The one-time gain item amounted to $15.4 million and relates to the demutualization of an insurance company in which the company had an investment.
The defined benefit retirement plan expense component of corporate administrative and general expense increased during 2002 compared with both 2001 and 2000. This increase by $11 million is primarily due to recognition of a portion of net actuarial losses that have accumulated as the result of depressed investment results over the last two years. Defined benefit retirement plan accounting principles provide for initial deferral and future recognition of investment results that vary from the expected return on plan assets over stipulated amortization periods. All of the company’s plans have experienced losses in the last two years resulting in the accumulation of net unrecognized actuarial losses. These loss amounts are recognizable over future periods and, accordingly, future defined benefit plan expense recognized may increase over current levels.
Net interest income was $6.5 million in the year ended December 31, 2002 compared with net interest expense of $0.9 million and $14.7 million in the years ended December 31, 2001 and October 31, 2000, respectively. The reduction in interest expense over the three years ended in 2002 is primarily due to the elimination of short-term borrowings.
The effective tax rates of the company’s continuing operations, were 34.8 percent, 31.1 percent and 32.8 percent, for the years 2002, 2001 and 2000, respectively. The increase in the tax rate in 2002 compared with 2001 primarily reflects the reduced impact from the utilization of foreign net operating loss carryforwards that were realized in the prior year. The 2001 tax rate reflects the tax benefits from tax settlements and the utilization of foreign net operating loss carryforwards. These favorable tax rate variances in 2001 were partially offset by a decrease in tax benefits attributable to the foreign sales corporation as a result of the continuing migration of engineering activity overseas. The effective tax rate for 2000 excludes the tax effect of the reversal of the provision for certain strategic reorganizational costs.
During fiscal 2000, the company recorded a nonrecurring charge of $19.3 million relating to the write-off of certain assets and the loss on the sale of a European-based consulting business.
Matters in Dispute Resolution
During 2002, several matters on certain completed projects were in the dispute resolution process. The following discussion provides a background and current status of these matters:
AT&T WIRELESS (“AWS”)
This matter relates to a dispute concerning certain project costs that the company incurred in connection with a contract to install and manage a fixed wireless plan that would deliver (always on) high speed internet access without a cable footprint. The contract was cancelled and the company claimed reimbursement of certain incurred costs. During the third quarter of 2002, an agreement was reached providing for AWS to pay the company $20 million to settle all outstanding issues. The company received $10 million of the settlement in November 2002 with the final $10 million due in November 2004. There was no impact on earnings from this settlement.
MURRIN MURRIN
Disputes between Fluor Australia (“Fluor”) and its client, Anaconda Nickel (“Anaconda”), over the Murrin Murrin Nickel Cobalt project located in Western Australia were partially resolved through arbitration during the third quarter of 2002. The first phase of the arbitration hearing was completed in May 2002 and a decision was rendered in September 2002 resulting in an award to Anaconda of A$147 million (subsequently amended to A$150 million [US$84.0 million]) and an award to Fluor of A$107 million [US$59.9 million] for amounts owing from Anaconda under the contract. The company anticipates recovering the $84.0 million award from available insurance. Expected proceeds from insurance recovery, including legal fees, total approximately $77 million as of December 31, 2002. Insurance carriers have initiated certain proceedings seeking to limit their coverage. The trial court has entered a ruling dismissing these proceedings against the company.
The second phase of the arbitration will be heard in late 2003. The company does not anticipate that there will be any material impact from proceedings under the second phase of arbitration.
FLUOR ENTERPRISES, INC. V. SOLUTIA, INC.
U.S.D.C., SOUTHERN DIVISION, TEXAS
On February 8, 2001, Fluor Enterprises, Inc. filed suit against Solutia, Inc. in the United States District Court for the Southern District of Texas. The complaint alleged breach of a construction contract involving a new acrylonitrile plant project near Alvin, Texas, and sought recovery of damages. In September 2002, the court reached verdicts in favor of the company and ordered mediation. The matter was settled in early October 2002 for $20 million, with $10 million of the settlement amount paid immediately and $10 million to be paid over three years with interest. The deferred payments are secured by a priority lien on the plant
PAGE 29
FLUOR CORPORATION 2002 ANNUAL REPORT
property. The settlement resulted in recognition of approximately $4 million in earnings in the fourth quarter.
FLUOR DANIEL INTERNATIONAL AND FLUOR ARABIA LTD. V. GENERAL ELECTRIC COMPANY, ET
AL U.S.D.C., SOUTHERN DISTRICT COURT, NEW YORK
In October 1998, Fluor Daniel International and Fluor Arabia Ltd. filed a complaint in the United States District Court for the Southern District of New York against General Electric Company and certain operating subsidiaries as well as Saudi American General Electric, a Saudi Arabian corporation. The complaint seeks damages in connection with the procurement, engineering and construction of the Rabigh Combined Cycle Power Plant in Saudi Arabia. Subsequent to a motion to compel arbitration of the matter the company initiated arbitration proceedings in New York under the American Arbitration Association international rules. The evidentiary phase of the arbitration has been concluded and a decision is expected in the latter part of 2003.
DEARBORN INDUSTRIAL PROJECT
DUKE/FLUOR DANIEL (D/FD)
The Dearborn Industrial Project (the “Project”) started as a co-generation combined cycle power plant project in Dearborn, Michigan. The initial Turnkey Agreement, dated November 24, 1998, consisted of three phases. Commencing shortly after Notice to Proceed, the owner/operator, Dearborn Industrial Generation (“DIG”), issued substantial change orders enlarging the scope of the project.
The Project has been severely delayed with completion of Phase II. DIG has unilaterally taken over completion and operation of Phase II and is commissioning that portion of the plant. Shortly thereafter, DIG drew upon a $30 million letter of credit which D/FD expects to recover upon resolution of the dispute. D/FD retains lien rights (in fee) against the project. In October 2001, suit was commenced in Michigan State Court to foreclose on the lien interest.
On December 12, 2001, DIG filed a responsive pleading denying liability and simultaneously served a demand for arbitration to D/FD claiming, among other things, that D/FD is liable to DIG for alleged construction delays and defective engineering and construction work at the Dearborn plant.
BUTINGE NAFTA OIL TERMINAL
On March 10, 2000, Butinge Nafta (“Nafta”) commenced arbitration proceedings against Fluor Daniel Intercontinental (“FDI”) concerning a bulk oil storage terminal (the “Facility”) located in Lithuania alleging, among other issues, that FDI represented costs in excess of actual estimates. FDI vigorously disputes and denies Nafta’s allegations. FDI engineered, procured and managed the construction of the Facility on a lump sum basis. On June 21, 2000, Fluor filed a separate arbitration against Nafta to recover delay/disruption damages caused by Nafta, as well as compensation for out of scope services. The first hearing on the merits of the case was conducted in late May 2001 with an additional hearing in June 2002. Final legal submissions and arguments were completed in September 2002. The parties are engaging in a mediated resolution process. A decision on the arbitration is expected in April 2003.
Strategic Reorganization Costs
In March 1999, the company reorganized its engineering and construction operations and recorded a special provision of $136.5 million to cover direct and other reorganization related costs primarily for personnel, facilities and asset impairment adjustments. Overall, the plan was successfully implemented and carried out resulting in the elimination of 5,000 jobs and the exit from certain non-strategic locations and businesses. During 2000, $17.9 million of the special provision was reversed into earnings due to a change in the plan resulting in the decision to retain ownership and remain in the company’s office location in Camberley, U.K. As of December 31, 2002, the remaining unexpended reserve is $1.7 million and primarily relates to non-U.S. personnel costs that will be paid as follows: 2003 — $0.8 million; 2004 — $0.3 million; 2005 — $0.3 million; 2006 — $0.2 million; 2007 — $0.1 million. During 2002, cash payments for non-U.S. personnel costs totaled $1.2 million.
Discontinued Operations
In September 2001, the Board of Directors approved a plan to dispose of certain non-core operations of the company’s construction equipment and non-EPC components of its temporary staffing businesses. An active program to consummate such disposal was initiated and is substantially complete as of the end of 2002. As of December 31, 2002, one remaining dealership operation is pending disposal, which is expected to be completed by the end of the first half of 2003. Operating results for these non-core businesses have been reclassified and are reported as discontinued operations in the accompanying Consolidated Statement of Earnings. In addition to the non-core operations, Massey is also reported as discontinued operations for periods prior to the spin-off.
In the first quarter of 2002, the sale of S&R Equipment Company was completed resulting in cash proceeds of $45.9 million. Other dealership operations disposed of during 2002 have produced proceeds of $46 million. In December 2001, the company sold Stith Equipment, one of the AMECO dealership entities, for cash equal to its carrying value.
During the second quarter of 2002, the Australian operations of the temporary staffing operations of TRS were sold, resulting in cash proceeds of $5.1 million. The temporary staffing industry experienced severe competition in 2002 due to depressed economic conditions, which resulted in significant erosion in the fair value of the TRS businesses that were sold. As a result, the company recognized adjustments to the carrying value of TRS’s U.S. and U.K. based disposal groups. The sales of the U.S. and U.K.
PAGE 30
FLUOR CORPORATION 2002 ANNUAL REPORT
operations were completed in the fourth quarter of 2002 resulting in proceeds of $2 million.
Disposal of AMECO operations in Argentina and Peru were finalized in 2002 resulting in proceeds of $5.1 million primarily from collection of accounts receivable and sales of inventory and equipment.
Revenue and the results of operations, including loss on disposal, for all
discontinued operations are as follows:
Year Ended
December 31,
December 31,
October 31,
2002
2001
2000
$
155,909
$
279,099
$
321,979
7,880
10,153
23,571
67,661
138,102
201,725
—
—
1,085,833
$
231,450
$
427,354
$
1,633,108
$
4,214
$
13,569
$
(19,087
)
213
(1,787
)
(3,165
)
(4,036
)
(9,898
)
186
—
—
96,115
391
1,884
74,049
—
—
27,857
391
1,884
46,192
891
1,632
14,301
$
(500
)
$
252
$
31,891
$
(8,770
)
$
(139,423
)
$
(24,215
)
(2,909
)
(30,815
)
—
$
(5,861
)
$
(108,608
)
$
(24,215
)
Revenues and results of operations for the equipment and staffing operations have declined each year since 2000 as a result of worsening economic conditions in the markets served by these businesses. The loss in the dealership operations in 2000 was primarily the result of a $21 million provision to adjust accounts receivable and equipment inventory to fair value at one of the dealership locations that was experiencing intense competition in the market it serves.
The loss on disposal in 2001 includes $115.6 million for impairment provisions to adjust the carrying value of the assets held for sale of the various individual non-core businesses to fair value. Impairment provisions for the equipment operations included adjustments to the carrying value of equipment inventories, fixed assets and goodwill. Impairment provisions for the temporary staffing operations primarily included adjustments to the carrying value of goodwill.
The $24.2 million loss on disposal in 2000 relates to the cost associated with the spin-off of Massey. These charges include legal, audit and consulting fees, employment agreement settlement costs, debt placement fees and other expenses. The results of operations for Massey includes interest expense based on the actual interest for debt obligations including the 6.95% Senior Notes and commercial paper retained by Massey.
FINANCIAL POSITION AND LIQUIDITY
Cash provided by operating activities declined in 2002 compared with 2001 primarily due to the decline in cash provided by operating assets and liabilities. The largest reduction in cash from operating assets and liabilities in 2002 was the decrease of $282.1 million in advances from affiliate. These advances represent the company’s proportional share of excess cash from Duke/Fluor Daniel that was generated from client advance payments on contracts in progress. The joint venture partners manage excess cash of Duke/Fluor Daniel through these proportional advances. Client advances on Duke/Fluor Daniel projects is a normal condition of contracts in the power industry where most of the projects are negotiated on a fixed price basis. As these projects progress, the expenditures for labor and materials will be partially funded from these advance payments. The reduction in 2002 is due to the completion of a substantial number of projects that were in progress at the end of the 2001 period. Such advances contributed $374.8 million in 2001 and $51 million in 2000 to cash provided by operating activities. The work-off of projects in progress and the moderation in new power industry awards experienced in 2002 is expected to continue in the near term future and will further reduce total advances available to the company.
Excluding the impact of the advances from Duke/Fluor Daniel, operating assets and liabilities contributed $279 million in 2002 and $66 million in 2001 of cash provided by operating activities. The changes in cash provided by operating activities is primarily due to the changes in net operating assets and liabilities associated with engineering and construction activities. Activities associated with the disposal of certain discontinued equipment and temporary staffing businesses generated $24 million of cash from liquidation of operating assets and liabilities, primarily from accounts receivable and inventories. The levels of operating assets and liabilities vary from year to year and are affected by the mix, stage of completion and commercial terms of engineering and construction projects.
Cash provided by operating activities was also impacted by contributions to the company’s defined benefit retirement plans. Contributions in 2002 amounted to $110 million compared with
PAGE 31
FLUOR CORPORATION 2002 ANNUAL REPORT
$68 million in 2001 and $7 million in 2000. The increase in contributions is due to lower than expected investment results on plan assets experienced in the last two years coupled with the business objective to utilize available resources to maintain full funding of accumulated benefits in most of its plans. One plan was not fully funded in 2002, and the company recognized a minimum pension liability amounting to $29 million for this plan. Recognition of the minimum liability plus a write-off of $12 million of prepaid pension assets resulted in an after-tax charge amounting to $29 million in the Accumulated Other Comprehensive Loss classification of Shareholders’ Equity.
Cash provided by investing activities in 2002 was benefited by the sale and liquidation activities associated with discontinued operations. Sales of discontinued businesses generated $101 million in proceeds from the liquidation of property, plant and equipment and sales of dealership and temporary staffing businesses. Partially offsetting these proceeds was capital expenditures of $16 million primarily for the one remaining equipment dealership that is expected to be sold in the first half of 2003. Capital expenditures for continuing operations primarily relate to the portion of the equipment business that was retained to support engineering and construction projects. Capital expenditures were substantially lower in 2002 than in the prior two periods primarily as the result of substantial completion of the SAP system component of the company’s Enterprise Resource Management system.
The spin-off of Massey and the decision to divest certain equipment operations substantially reduces the company’s capital investment requirements. Capital expenditures in 2001 include expenditures for capital investments in construction equipment of $60 million for continuing operations and $52 million for discontinued operations. Capital expenditure levels were $339 million in 2000 for the discontinued equipment and coal operations. Because coal operations were discontinued as a result of the spinoff of Massey on November 30, 2000, there were no related capital expenditures in 2002 or 2001. Capital expenditures in future periods will include equipment purchases for the equipment operations of the Global Services segment, facility renewal and refurbishment, and computer infrastructure in support of the company’s substantial investment in automated systems.
Significant cash was generated from a sale-leaseback transaction and the exercise of stock options in 2001. The sale-leaseback of the company’s Sugar Land, Texas engineering center generated $127 million in proceeds. Stock option exercises generated $144.6 million in proceeds and resulted in the issuance of 5.6 million shares of company stock. The cash generated from the sale-leaseback, stock option exercises and advances of excess cash from Duke/Fluor Daniel discussed above all substantially contributed to the $550.8 million increase in cash in 2001 and enabled the company to eliminate all outstanding commercial paper borrowings.
Liquidity is currently being provided by substantial customer advances on contracts in progress including the company’s proportional share of excess cash that has been advanced to the company by Duke/Fluor Daniel. As of December 31, 2002, the company’s only outstanding debt consists of the 5.625 percent Municipal bonds totaling $17.6 million. The company has access to the commercial paper market from which it may borrow up to $290 million that is supported with lines of credit from banks.
The company has a common stock buyback program, authorized by the Board of Directors, to purchase shares under certain market conditions. During 2002, the company purchased 726,000 shares of its common stock for a total consideration of $19 million and in the year ended December 31, 2001 repurchased 39,000 shares of its common stock for $1.4 million.
Cash dividends in 2002 and 2001 amounted to $51 million ($0.64 per share) compared with $76 million ($1.00 per share) in the year ended October 31, 2000. No dividends were paid in the transition period that resulted from the change in fiscal year. The dividends declared in 2001 were adjusted commensurate with the Massey spin-off. This dividend policy is consistent with the dividend policy of Fluor prior to the spin-off of Massey. The payment and level of future cash dividends will be subject to the discretion of the company’s board of directors.
The company has on hand and access to sufficient sources of funds to meet its anticipated operating needs. Cash on hand and short- and long-term lines of credit (see Commercial Commitment table below) give the company significant operating liquidity.
Off-Balance Sheet Arrangements
The company maintains a variety of commercial commitments that are generally made available to provide support for various commercial provisions in its engineering and construction contracts. The company has $787 million in short-term committed and uncommitted lines of credit to support letters of credit. In addition, the company has $124 million in uncommitted lines for general cash management purposes. Letters of credit are provided to clients in the ordinary course of business in lieu of retention or for performance and completion guarantees on engineering and construction contracts. The company also posts surety bonds to guarantee its performance on contracts.
PAGE 32
FLUOR CORPORATION 2002 ANNUAL REPORT
Commercial commitments outstanding as of December 31, 2002 are summarized below:
Amount of Commitment Expiration Per Period
Total
Amount
Commercial Commitment
Committed
Under 1 year
1-3 years
4-5 years
Over 5 years
$
352
$
300
$
42
$
2
$
8
11
2
—
—
9
1,047
380
590
77
—
$
1,410
$
682
$
632
$
79
$
17
All commercial commitments are unsecured.
Contractual obligations at December 31, 2002 are summarized below:
Amount of Commitment Expiration Per Period
Contractual Obligations
Total
Under 1 year
1-3 years
4-5 years
Over 5 years
$
18
$
—
$
—
$
—
$
18
305
39
58
34
174
236
23
53
53
107
10
—
5
5
—
$
569
$
62
$
116
$
92
$
299
| (1) | Operating lease commitments are primarily for engineering and project execution office facilities in Sugar Land, Texas, Aliso Viejo, California and Calgary, Canada. The lease agreements in Aliso Viejo and Calgary contain residual value guarantees totaling $105 million. |
As discussed above in the Introduction to this Management’s Discussion and Analysis, the company has lease arrangements for its facilities in Aliso Viejo and Calgary. The company has accounted for these arrangements as operating leases and has recognized rent expense as paid. The entities that own the facilities have debt issued by banks that is secured by leases of the facilities. The leases provide for the company to pay rent that is sufficient to provide debt service and a return to the equity interests. The leases contain residual value guarantees totaling $105 million. These leasing arrangements have been disclosed since inception and such disclosures have included the company’s lease commitment and residual value obligations. These obligations have been fully considered in all periodic evaluations of the company’s credit rating and debt capacity by recognized rating agencies. The company has no ownership interest in the companies that own the facilities but is deemed to be the primary beneficiary of the variable interests of these entities and will consolidate these interests in the company’s financial statements beginning in 2003 as prescribed by FASI 46. The effect of this consolidation will result in an increase of approximately $123 million in reported long-term debt. None of the terms of the leasing arrangements or the company’s obligations as a lessee will be impacted by this change in accounting. If the company defaults on the lease payments or were to fail to meet its obligations under the residual value guarantee, the lenders and owners of the entities could proceed with recourse actions against the company to enforce payment.
Guarantees
In the ordinary course of business, the company enters into various agreements providing financial or performance assurances to clients on behalf of certain unconsolidated subsidiaries, joint ventures and other jointly executed contracts. These agreements are entered into primarily to support the project execution commitments of these entities. The guarantees have various expiration dates ranging from mechanical completion of the facilities being constructed to a period extending beyond contract completion in certain circumstances. The maximum potential payment amount of an outstanding performance guarantee is the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts. The amount of guarantees outstanding measured on this basis totals $3 billion as of December 31, 2002. Amounts that may be required to be paid in excess of estimated costs to complete contracts in progress are not estimable. For cost reimbursable contracts amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For lump sum or fixed price contracts,
PAGE 33
FLUOR CORPORATION 2002 ANNUAL REPORT
this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete. In those cases where costs exceed the remaining amounts payable under the contract the company may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors for claims.
Financial guarantees, made in the ordinary course of business on behalf of clients and others in certain limited circumstances, are entered into with financial institutions and other credit grantors and generally obligate the company to make payment in the event of a default by the borrower. Most arrangements require the borrower to pledge collateral in the form of property, plant and equipment which is deemed adequate to recover amounts the company might be required to pay. As of December 31, 2002, the company had extended financial guarantees on behalf of certain clients and other unrelated third parties totaling approximately $11 million. A financial guarantee for $14 million of pollution control bonds related to zinc operations that were sold in 1987 has been recognized at the full amount of the underlying obligation. The obligation was recognized by a charge to earnings in 2002 due to the obligor’s bankruptcy filing and inability to meet the current obligation on the bonds without financial assistance from the company.
Although inflation and cost trends affect the company, its engineering and construction operations are generally protected by the ability to fix costs at the time of bidding or to recover cost increases in cost reimbursable contracts. The company has taken actions to reduce its dependence on external economic conditions; however, management is unable to predict with certainty the amount and mix of future business.
FINANCIAL INSTRUMENTS
The company invests excess cash in short-term securities that carry a floating money market rate of return. Debt instruments carry a fixed rate coupon on the $17.6 million in long-term debt. The company does not currently use derivatives, such as swaps, to alter the interest characteristics of its short-term securities or its debt instruments. The company’s exposure to interest rate risk on its long-term debt is not material.
The company utilizes forward exchange contracts to hedge foreign currency transactions entered into in the ordinary course of business and does not engage in currency speculation. At December 31, 2002, the company had forward foreign exchange contracts of less than eighteen months duration, to exchange major world currencies for U.S. dollars. The total gross notional amount of these contracts at December 31, 2002 was $8 million.
In 2001, the company issued a warrant for the purchase of 460,000 shares, at $36.06 per share, of the company’s common stock to a partner in the company’s e-commerce procurement venture. Any compensation realized by the holder through exercise of the warrant will offset royalties otherwise payable under a five-year cooperation and services agreement.
SUPPLEMENTAL DISCUSSION AND ANALYSIS OF TRANSITION PERIOD
RESULTS OF OPERATIONS
The company changed its fiscal year to December 31 from October 31 following the spin-off of Massey. The two-month transition period ended December 31, 2000 is presented on all financial statements and in certain footnote tables where the information may be of assistance in understanding activity and the continuity of information contained within the disclosures.
Operating results for the two months ended December 31, 2000 were impacted by an unusual compensation charge totaling $24.0 million after tax. In connection with the reverse spin-off of Massey Energy Company, all stock-based compensation plans were adjusted to preserve the value of such plans on the date of the distribution. The charge reflects the impact of the increase in the “new” Fluor stock price from the date of conversion to December 31, 2000.
Further discussion and analysis of this transition period is not presented due to the short period covered and the relative immateriality of the data.
PAGE 34
FLUOR CORPORATION 2002 ANNUAL REPORT
Consolidated Statement of EARNINGS
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
$
9,958,956
$
8,972,161
$
9,422,879
$
1,781,986
9,544,785
8,618,972
9,162,941
1,740,671
—
—
(17,919
)
—
160,097
166,961
98,874
43,585
8,925
25,011
26,315
6,808
(15,375
)
(24,103
)
(11,619
)
(1,846
)
9,698,432
8,786,841
9,258,592
1,789,218
260,524
185,320
164,287
(7,232
)
90,548
57,554
48,014
(3,155
)
169,976
127,766
116,273
(4,077
)
(500
)
252
31,891
54
(5,861
)
(108,608
)
(24,215
)
—
$
163,615
$
19,410
$
123,949
$
(4,023
)
$
2.14
$
1.64
$
1.55
$
(0.05
)
(0.08
)
(1.39
)
0.10
—
$
2.06
$
0.25
$
1.65
$
(0.05
)
$
2.13
$
1.61
$
1.52
$
(0.05
)
(0.08
)
(1.36
)
0.10
—
$
2.05
$
0.25
$
1.62
$
(0.05
)
79,344
77,801
75,256
74,098
79,853
79,157
76,365
74,098
See Notes to Consolidated Financial Statements
PAGE 35
FLUOR CORPORATION 2002 ANNUAL REPORT
Consolidated BALANCE SHEET
December 31, 2002
December 31, 2001
$
753,367
$
572,654
503,399
565,525
449,989
393,380
128,558
210,104
106,152
109,664
1,941,465
1,851,327
49,694
208,951
43,523
39,797
158,422
158,469
581,218
423,818
2,721
179,394
785,884
801,478
318,864
293,374
467,020
508,104
21,247
22,277
125,610
143,333
113,514
66,714
167,256
111,322
256,345
230,449
683,972
574,095
$
3,142,151
$
3,142,477
$
452,613
$
382,528
—
38,442
257,330
539,414
524,661
423,996
320,280
302,817
201,287
175,536
1,756,171
1,862,733
23,420
58,111
17,613
17,594
461,080
414,773
—
—
802
801
357,432
352,960
(18,603
)
(22,779
)
(75,983
)
(49,805
)
620,219
508,089
883,867
789,266
$
3,142,151
$
3,142,477
Notes to Consolidated Financial Statements
PAGE 36
FLUOR CORPORATION 2002 ANNUAL REPORT
Consolidated Statement of CASH FLOWS
Year Ended
Two Months Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
$
163,615
$
19,410
$
123,949
$
(4,023
)
77,989
71,911
84,033
14,105
—
45,268
227,655
8,593
(110,468
)
(68,080
)
(7,152
)
(955
)
45,357
(17,128
)
(2,651
)
(15,423
)
(1,558
)
(7,054
)
(36,619
)
—
41,349
139,423
42,793
—
—
—
21,762
(13,493
)
(3,316
)
440,363
(288,081
)
(68,102
)
(13,186
)
(14,910
)
14,800
(6,062
)
7,079
5,525
5,592
17,781
206,861
614,728
186,081
(67,579
)
(63,014
)
(148,426
)
(156,174
)
(29,807
)
(15,960
)
(52,489
)
(339,392
)
(6,557
)
31,690
27,960
28,384
2,895
63,041
51,930
92,966
15,250
50,955
25,696
—
—
2,385
1,260
(5,529
)
1,085
69,097
(94,069
)
(379,745
)
(17,134
)
(51,485
)
(50,913
)
(75,983
)
—
(38,175
)
(188,636
)
150,116
138,852
—
127,000
—
—
14,851
144,577
5,829
39
(19,199
)
(1,404
)
(23,003
)
(101,233
)
(1,237
)
(479
)
(3,483
)
(521
)
(95,245
)
30,145
53,476
37,137
180,713
550,804
(140,188
)
(47,576
)
572,654
21,850
209,614
69,426
$
753,367
$
572,654
$
69,426
$
21,850
See Notes to Consolidated Financial Statements.
PAGE 37
FLUOR CORPORATION 2002 ANNUAL REPORT
Consolidated Statement of SHAREHOLDERS’ EQUITY
Unamortized
Accumulated
Executive
Other
(in thousands,
Additional
Stock Plan
Comprehensive
Retained
except per share amounts)
Shares
Amount
Capital
Expense
Income (Loss)
Earnings
Total
76,034
$
47,521
$
217,844
$
(21,579
)
$
(37,752
)
$
1,375,338
$
1,581,372
—
—
—
—
—
123,949
123,949
—
—
—
—
(8,648
)
—
(8,648
)
115,301
—
—
—
—
—
(75,983
)
(75,983
)
148
92
5,737
—
—
—
5,829
—
—
334
—
—
—
334
—
—
—
5,597
—
—
5,597
(747
)
(467
)
(22,536
)
—
—
—
(23,003
)
308
193
10,728
(11,111
)
—
—
(190
)
75,743
47,339
212,107
(27,093
)
(46,400
)
1,423,304
1,609,257
—
—
—
—
—
(4,023
)
(4,023
)
—
—
—
—
3,681
—
3,681
(342
)
1
—
39
—
—
—
39
—
—
—
1,236
—
—
1,236
(1,850
)
(18
)
(101,215
)
—
—
—
(101,233
)
388
—
—
3,927
—
(879,689
)
(875,762
)
—
(46,578
)
46,578
—
—
—
—
327
3
10,360
(10,481
)
—
—
(118
)
74,609
746
167,869
(32,411
)
(42,719
)
539,592
633,077
—
—
—
—
—
19,410
19,410
—
—
—
—
(7,086
)
—
(7,086
)
12,324
—
—
—
—
—
(50,913
)
(50,913
)
5,565
55
144,522
—
—
—
144,577
—
—
35,170
—
—
—
35,170
—
—
6,380
—
—
—
6,380
—
—
—
9,308
—
—
9,308
(39
)
—
(1,404
)
—
—
—
(1,404
)
(28
)
—
423
324
—
—
747
80,107
$
801
352,960
(22,779
)
(49,805
)
508,089
789,266
—
—
—
—
—
163,615
163,615
—
—
—
—
2,538
—
2,538
—
—
—
—
(28,716
)
—
(28,716
)
137,437
—
—
—
—
—
(51,485
)
(51,485
)
618
6
14,845
—
—
—
14,851
—
—
2,799
—
—
—
2,799
—
—
—
10,433
—
—
10,433
(726
)
(7
)
(19,192
)
—
—
—
(19,199
)
—
—
(1,237
)
1,002
—
—
(235
)
189
2
7,257
(7,259
)
—
—
—
80,188
$
802
$
357,432
$
(18,603
)
$
(75,983
)
$
620,219
$
883,867
NOTES to Consolidated Financial Statements
PAGE 38
FLUOR CORPORATION 2002 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the company and its
subsidiaries. The equity method of accounting is used for investment ownership
ranging from 20 percent to 50 percent. Investment ownership of less than 20
percent is accounted for on the cost method. Certain contracts are executed
jointly through partnerships and joint ventures with unrelated third parties.
The company recognizes its proportional share of venture revenues, costs and
operating profits in its consolidated statement of earnings.
As more fully described in the following Note, on November 30, 2000,
shareholders approved a spin-off distribution that separated the company into
two publicly traded entities. Also discussed in the following Note is the
adoption of a plan in September 2001 to dispose of certain non-core operations.
As a result of these actions, the company’s Coal related business and certain
non-core operations are presented as discontinued operations.
All significant intercompany transactions of consolidated subsidiaries are
eliminated. Certain amounts in 2000 and 2001 have been reclassified to conform
with the 2002 presentation.
The company changed its fiscal year end from October 31 to December 31
effective January 1, 2001 and as a requirement of this change, the results for
the two months ended December 31, 2000 are reported as a separate transition
period.
USE OF ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect reported amounts. These estimates are based on
information available as of the date of the financial statements. Therefore,
actual results could differ from those estimates.
ENGINEERING AND CONSTRUCTION CONTRACTS
The company recognizes engineering and construction contract revenues using the
percentage-of-completion method, based primarily on contract costs incurred to
date compared with total estimated contract costs. Customer-furnished materials,
labor and equipment, and in certain cases subcontractor materials, labor and
equipment, are included in revenues and cost of revenues when management
believes that the company is responsible for the ultimate acceptability of the
project. Contracts are segmented between types of services, such as engineering
and construction, and accordingly, gross margin related to each activity is
recognized as those separate services are rendered. Changes to total estimated
contract costs or losses, if any, are recognized in the period in which they are
determined. Revenues recognized in excess of amounts billed are classified as
current assets under contract work in progress. Amounts billed to clients in
excess of revenues recognized to date are classified as current liabilities
under advance billings on contracts. The company anticipates that substantially
all incurred costs associated with contract work in progress at December 31,
2002 will be billed and collected in 2003. The company recognizes certain
significant claims for recovery of incurred costs when it is probable that the
claim will result in additional contract revenue and when the amount of the
claim can be reliably estimated. Unapproved change orders are accounted for in
revenue and cost when it is probable that the costs will be recovered through a
change in the contract price. In circumstances where recovery is considered
probable but the costs cannot be reliably estimated, costs attributable to
change orders are deferred pending determination of contract price.
DEPRECIATION AND AMORTIZATION
Additions to property, plant and equipment are recorded at cost. Assets are
depreciated principally using the straight-line method over the following
estimated useful lives: buildings and improvements — six to 50 years and
machinery and equipment — one to 10 years. Leasehold improvements are amortized
over the lives of the respective leases. Goodwill was amortized on the
straight-line method over periods not longer than 40 years.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”
(SFAS 142). Under SFAS 142, goodwill and intangible assets with indefinite lives
are no longer amortized but are reviewed at least annually for impairment. The
company adopted SFAS 142 effective January 1, 2002 and ceased amortizing
goodwill. The company completed its transitional and annual goodwill impairment
tests as of the first and fourth quarters, respectively, and has determined that
none of the goodwill is impaired. For purposes of impairment testing, goodwill
was allocated to the applicable reporting units based on the current reporting
structure.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the company’s financial
statements or tax returns.
EARNINGS PER SHARE
Basic earnings per share (EPS) is calculated by dividing earnings (loss) from
continuing operations, earnings (loss) from discontinued operations and net
earnings (loss) by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the assumed conversion of all dilutive
securities, consisting of employee stock options and restricted stock, equity
forward contracts, and a warrant for the purchase of 460,000 shares.
PAGE 39
FLUOR CORPORATION 2002 ANNUAL REPORT
The impact of dilutive securities used in the company’s EPS calculation is
as follows:
ADVANCES FROM AFFILIATE
Advances from affiliate relate to cash received by a joint venture entity from
advance billings on contracts, which are made available to the partners. Such
advances are classified as an operating liability of the company.
DERIVATIVES AND HEDGING
Effective November 1, 2000, the company adopted Statement of Financial
Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” (SFAS 133) as amended, which requires that all derivative
instruments be reported on the balance sheet at fair value. The adoption of SFAS
133 did not have a material effect on the company’s financial statements.
The company generally uses forward exchange contracts to hedge certain
foreign currency transactions entered into in the ordinary course of business.
At December 31, 2002, the company had approximately $8 million of foreign
exchange contracts outstanding relating to engineering and construction contract
obligations. The company does not engage in currency speculation. The forward
exchange contracts generally require the company to exchange U.S. dollars for
foreign currencies at maturity, at rates agreed to at inception of the
contracts. If the counterparties to the exchange contracts (AA or A+ rated
banks) do not fulfill their obligations to deliver the contracted currencies,
the company could be at risk for any currency related fluctuations. The
contracts are of varying duration, none of which extend beyond March 2004. The
company formally documents its hedge relationships at inception, including
identification of the hedging instruments and the hedged items, as well as its
risk management objectives and strategies for undertaking the hedge transaction.
The company also formally assesses both at inception and at least quarterly
thereafter, whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in the fair value of the hedged items.
All existing fair value hedges are determined to be highly effective. As a
result, the impact to earnings due to hedge ineffectiveness is immaterial for
2002, 2001 and the two months ended December 31, 2000. The transition adjustment
upon adoption was immaterial.
Prior to November 1, 2000, unrealized gains and losses on forward exchange
contracts were deferred and included in the measurement of the related foreign
currency transaction. The amount of any gain or loss on these contracts for the
year ended October 31, 2000 was immaterial.
The company limits exposure to foreign currency fluctuations in most of its
engineering and construction contracts through provisions that require client
payments in U.S. dollars or other currencies corresponding to the currency in
which costs are incurred. As a result, the company generally does not need to
hedge foreign currency cash flows for contract work performed. Under certain
limited circumstances, such foreign currency payment provisions could be deemed
embedded derivatives under SFAS 133. At the November 1, 2000 implementation date
and as of December 31, 2002, 2001 and 2000, the company had no significant
embedded derivatives in any of its contracts.
CONCENTRATIONS OF CREDIT RISK
The majority of accounts receivable and all contract work in progress are from
clients in various industries and locations throughout the world. Most contracts
require payments as the projects progress or in certain cases advance payments.
The company generally does not require collateral, but in most cases can place
liens against the property, plant or
equipment constructed or terminate the
contract if a material default occurs. The company maintains adequate reserves
for potential credit losses, and such losses have been minimal and within
management’s estimates.
STOCK PLANS
The company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the company’s stock at the date of the grant
over the amount an employee must pay to acquire the stock. Compensation cost for
stock appreciation rights and performance equity units is recorded based on the
quoted market price of the company’s stock at the end of the period.
In December 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 148, “Accounting for Stock-Based
Compensation — Transition and Disclosure” (SFAS 148). This statement amends the
disclosure requirements of Statement of Financial Accounting Standards No. 123,
“Accounting for Stock-Based Compensation” (SFAS 123) to require more prominent
disclosures in financial statements about the effects of stock-based
compensation. The company adopted the disclosure provisions of SFAS 148
effective December 31, 2002. The company does not intend to change its
accounting method for stock-based compensation.
Under APB Opinion No. 25, no compensation cost is recognized for the option
plans where vesting provisions are based only on the passage of time. Had the
company recorded compensation
PAGE 40
FLUOR CORPORATION 2002 ANNUAL REPORT
expense using the accounting method recommended by SFAS 123, net earnings and
earnings per share would have been reduced to the pro forma amounts as follows:
Recorded compensation cost for these plans totaled $6 million, $9 million
and $3 million for the years ended December 31, 2002 and 2001 and October 31,
2000, respectively, and $1 million for the two months ended December 31, 2000.
COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive
Income,” establishes standards for reporting and displaying comprehensive income
and its components in the consolidated financial statements. The company reports
the cumulative foreign currency translation adjustments and adjustments related
to recognition of minimum pension liabilities as components of Accumulated other
comprehensive income (loss).
DISCONTINUED OPERATIONS
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (SFAS 144). Under SFAS 144, a component of a
business that is held for sale is reported in discontinued operations if (i) the
operations and cash flows will be, or have been, eliminated from the ongoing
operations of the company and, (ii) the company will not have any significant
continuing involvement in such operations. In the quarter ended September 30,
2001, the company adopted the provisions of SFAS 144 effective January 1, 2001.
NON-CORE OPERATIONS
In September 2001, the Board of Directors approved a plan to dispose of certain
non-core elements of the company’s construction equipment and non-EPC components
of its temporary staffing businesses. An active program to consummate such
disposal was initiated. As of December 31, 2002, the company has substantially
completed the sale or liquidation of its discontinued equipment dealerships and
is actively pursuing disposition of the one remaining operation. Additionally,
the company has completed its exit of the discontinued TRS staffing businesses.
Results of operations for the non-core businesses for all periods presented
have been reclassified and are presented as discontinued operations. Interest
expense was not reclassified to discontinued operations in connection with the
non-core businesses because it is not expected that disposal of those operations
will include any debt to be assumed by the buyers.
In the first quarter of 2002, the sale of S&R Equipment Company was
completed resulting in cash proceeds of $45.9 million. Other dealership
operations disposed of during 2002 have produced proceeds of $46 million. For
2002, results of operations relate primarily to the one remaining unsold
dealership.
In December 2001, the company sold Stith Equipment, one of the AMECO
dealership entities, for cash equal to its carrying value.
During the second quarter of 2002, the Australian operations of the
temporary staffing operations of TRS were sold, resulting in cash proceeds of
$5.1 million. The sales of the U.S. and U.K. operations were completed in the
fourth quarter of 2002 resulting in proceeds of $2 million. The temporary
staffing industry experienced severe competition in 2002 due to depressed
economic conditions, which resulted in significant erosion in the fair value of
the TRS businesses that were sold. As a result, the company recognized $7.5
million of impairment in the carrying value of TRS’s U.S. and U.K. based
disposal groups.
Disposal of AMECO operations in Argentina and Peru were finalized in 2002
resulting in proceeds of $5.1 million primarily from collection of accounts
receivable and sales of inventory and equipment.
The loss on disposal in 2001 includes $115.6 million for impairment
provisions to adjust the carrying value of the assets held for sale of the
various individual non-core businesses to fair value. Impairment provisions for
the equipment operations included adjustments to the carrying value of equipment
inventories, fixed assets and goodwill. Impairment provisions for the temporary
staffing operations primarily included adjustments to the carrying value of
goodwill.
PAGE 41
FLUOR CORPORATION 2002 ANNUAL REPORT
MASSEY ENERGY COMPANY
On November 30, 2000, a spin-off distribution to shareholders was effected which
separated Fluor Corporation (Fluor) into two publicly traded companies — a
“new” Fluor (“new Fluor” or the “company”) and Massey Energy Company (“Massey”).
The spin-off was accomplished through the distribution of 100% of the common
stock of new Fluor to shareholders of existing Fluor. As a result, each existing
Fluor shareholder received one share of new Fluor common stock for each share of
existing Fluor common stock and retained their shares in existing Fluor, whose
name was changed to Massey Energy Company. The company received a ruling from
the Internal Revenue Service that the spin-off would be tax-free to its
shareholders. Commencing December 1, 2000 the financial statements of the
company no longer include Massey. Because of the relative significance of the
company’s operations to Fluor, the company was treated as the “accounting
successor” for financial reporting purposes. Accordingly, Massey’s results of
operations for all periods presented have been reclassified and are presented as
discontinued operations.
In connection with the spin-off, the 6.95% Senior Notes due March 1, 2007
remained an obligation of Massey. In addition, Massey issued $278 million of
commercial paper, the proceeds of which were transferred to the company.
Interest expense on the 6.95% Senior Notes and up to $230 million of commercial
paper has been reclassified to discontinued operations to recognize the impact
that the debt would have on Massey’s results of operations.
Net earnings for the year ended October 31, 2000 includes a $24.2 million
loss on disposal associated with the spin-off. The charges include legal, audit
and consulting fees, employment agreement settlement costs, debt placement fees
and other expenses of the spin-off.
The revenues and earnings (loss) from discontinued operations related to
non-core operations and Massey are as follows:
The assets and liabilities of the discontinued operations consisted of the
following:
PAGE 42
FLUOR CORPORATION 2002 ANNUAL REPORT
BUSINESS INVESTMENTS AND ACQUISITIONS
From time to time, the company enters into investment arrangements, including
joint ventures, that are related to its engineering and construction business.
During 2000 through 2002, the majority of these expenditures related to ongoing
investments in an equity fund that focuses on energy related projects and a
number of smaller, diversified ventures.
In 2002, the company adopted Statement of Financial Accounting Standards
No. 141, “Business Combinations” (SFAS 141). SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. Application of this statement did
not have a significant effect on the company’s consolidated results of
operations or financial position.
BUSINESS DISPOSITIONS
During fiscal 2000, the company recorded a nonrecurring charge of $19.3 million
relating to the write-off of certain assets and the loss on the sale of a
European-based consulting business.
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows as shown in the Consolidated Statement of Cash Flows and changes in
operating assets and liabilities shown below include the effects of discontinued
operations on a consolidated basis, without separate identification and
classification of discontinued operations.
Securities with maturities of 90 days or less at the date of purchase are
classified as cash equivalents. Securities with maturities beyond 90 days, when
present, are classified as marketable securities within current assets and are
carried at fair value.
The changes in operating assets and liabilities as shown in the
Consolidated Statement of Cash Flows comprise:
STRATEGIC REORGANIZATION COSTS
In March 1999, the company reorganized its engineering and construction
operations and recorded a special provision of $136.5 million to cover direct
and other reorganization related costs primarily for personnel, facilities and
asset impairment adjustments. Overall, the plan was successfully implemented and
carried out resulting in the elimination of 5,000 jobs and the exit from certain
non-strategic locations and businesses. During 2000, $17.9 million of the
special provision was reversed into earnings due to a change in the plan
resulting in the decision to retain ownership and remain in the company’s office
location in Camberley, U.K.
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FLUOR CORPORATION 2002 ANNUAL REPORT
The following table summarizes the status of the company’s reorganization
plan as of December 31, 2002, 2001 and 2000 and October 31, 2000:
The special provision liability is included in other accrued liabilities.
The remaining liability consists primarily of personnel costs for non-U.S.
operations and will be paid as follows: 2003 — $0.8 million; 2004 — $0.3
million; 2005 — $0.3 million; 2006 — $0.2 million; 2007 — $0.1 million.
In June 2002, the Financial Accounting Standards Board issued SFAS 146,
“Accounting for Costs Associated with Exit or Disposal Activities”. SFAS 146
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue
94-3, “Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)”. SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred. The
Statement also establishes that fair value is the objective for initial
measurement of the liability. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. Application of this
statement is not expected to have a significant effect on the Company’s
consolidated results of operations or financial position.
INCOME TAXES
The income tax expense (benefit) included in the Consolidated Statement of
Earnings is as follows:
The income tax expense (benefit) applicable to continuing operations and
discontinued operations is as follows:
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FLUOR CORPORATION 2002 ANNUAL REPORT
A reconciliation of U.S. statutory federal income tax expense to income tax
expense on earnings from continuing operations is as follows:
Deferred taxes reflect the tax effects of differences between the amounts
recorded as assets and liabilities for financial reporting purposes and the
amounts recorded for income tax purposes. The tax effects of significant
temporary differences giving rise to deferred tax assets and liabilities are as
follows:
The company has U.S. and non-U.S. net operating loss carryforwards of
approximately $39 million and $96 million, respectively, at December 31, 2002.
This excludes $133 million of U.S. loss generated in 2001, which the company
expects to utilize in its 2002 federal income tax return. The non-U.S. losses
primarily relate to the company’s operations in Australia, and can be carried
forward indefinitely until fully utilized. The company also has U.S. capital
loss carryforwards of approximately $19 million that expire in 2006.
In 2002, SMA Equipment Co. (“SMA”), was liquidated into American Equipment
Co. (“AMECO”), a wholly owned subsidiary of the company. SMA had net operating
loss carryforwards of
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FLUOR CORPORATION 2002 ANNUAL REPORT
approximately $8 million at December 31, 2002, which were carried over to its
parent AMECO in the liquidation. The company’s utilization of such loss
carryforwards is subject to stringent limitations under the Internal Revenue
Code, and such loss carryforwards will expire in the years 2004 and 2005.
In September 2001, TradeMC Inc. (“TradeMC”) was merged into Fluor Global
Sourcing, Inc. (“FGSI”), a wholly owned subsidiary of the company, in a
qualified tax-free statutory merger. Concurrently with the merger, FGSI changed
its name to TradeMC. As a result of the merger, the company owns 82% of TradeMC.
On the effective date of the merger, TradeMC had a net operating loss
carryforward of approximately $31 million, which will expire in the years 2020
and 2021. The utilization of such loss carryforward will be limited to the
taxable profits of TradeMC, which changed its name to Fluor Global Sourcing and
Supply Inc. (“FGSSI”) in 2002.
The company has foreign tax credit carryforwards of approximately $33
million, of which $6 million will expire in 2004 and $27 million will expire in
2006. The company also has alternative minimum tax credits and non-U.S. tax
credit carryforwards of approximately $9 million and $3 million, respectively.
These credits can be carried forward indefinitely until fully utilized.
The company maintains a valuation allowance to reduce certain deferred tax
assets to amounts that are more likely than not to be realized. This allowance
primarily relates to the deferred tax assets established for certain project
performance reserves, U.S. capital loss carryforwards, and the net operating
loss carryforwards of FGSSI and certain non-U.S. subsidiaries. In 2002, the
increase in the valuation allowance is primarily attributable to an increase in
U.S. capital loss carryforwards and certain project performance reserves.
Residual income taxes of approximately $8 million have not been provided on
approximately $20 million of undistributed earnings of certain foreign
subsidiaries at December 31, 2002 because the company intends to keep those
earnings reinvested indefinitely.
United States and foreign earnings from continuing operations before taxes
are as follows:
RETIREMENT BENEFITS
The company sponsors contributory and non-contributory defined contribution
retirement and defined benefit pension plans for eligible employees.
Contributions to defined contribution retirement plans are based on a percentage
of the employee’s compensation. Expense recognized for these plans of
approximately $68 million, $37 million and $46 million in the years ended
December 31, 2002 and 2001 and October 31, 2000, respectively, is primarily
related to domestic engineering and construction operations. Effective January
1, 1999, the company replaced its domestic defined contribution retirement plan
with a defined benefit cash balance plan. During 2002, the company contributed
$85 million and $25 million, respectively, to the domestic defined benefit cash
balance plan and to non-U.S. pension plans in order to partially offset lower
than expected investment results and to maintain full funding of benefits
accumulated under the plan. Payments to retired employees under these plans are
generally based upon length of service, age and/or a percentage of qualifying
compensation. The defined benefit pension plans are primarily related to
domestic and international engineering and construction salaried employees and
U.S. craft employees.
Net periodic pension expense for continuing operations defined benefit
pension plans includes the following components:
The ranges of assumptions indicated below cover defined benefit pension
plans in Australia, Germany, the United Kingdom, The Netherlands and the United
States. These assumptions are as of each respective fiscal year-end based on
the then current economic environment in each host country.
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FLUOR CORPORATION 2002 ANNUAL REPORT
The following table sets forth the change in benefit obligation, plan
assets and funded status of the company’s defined benefit pension plans.
The above table includes obligations and assets of certain discontinued
operations for which the company retains responsibility.
Due to the decline in financial markets, the investment portfolio in a
non-U.S. plan declined in value to an amount below the accumulated benefit
obligation. Accounting principles require the company to eliminate any pension
assets and recognize a minimum pension liability for the underfunded plan
through a net of tax charge to equity. The benefit obligation for this plan was
$120 million, the accumulated benefit obligation was $109 million and the fair
value of plan assets was $80 million at December 31, 2002. At December 31, 2002,
$29 million was included in noncurrent liabilities relating to the minimum
pension liability for the non-U.S. plan.
In addition to the company’s defined benefit pension plans, the company
and certain of its subsidiaries provide health care and life insurance benefits
for certain retired employees. The health care and life insurance plans are
generally contributory, with retiree contributions adjusted annually. Service
costs are accrued currently. The accumulated postretirement benefit obligation
at December 31, 2002, 2001 and 2000 and October 31, 2000 was determined in
accordance with the current terms of the company’s health care plans, together
with relevant actuarial assumptions and health care cost trend rates projected
at annual rates ranging from 10 percent in 2003 down to 5 percent in 2008 and
beyond. The effect of a one percent annual increase in these assumed cost trend
rates would increase the accumulated postretirement benefit obligation and the
aggregate of the annual service and interest costs by approximately $2.0 million
and $0.1 million, respectively. The effect of a one percent annual decrease in
these assumed cost trend rates would decrease the accumulated postretirement
benefit obligation and the aggregate of the annual service and interest costs by
approximately $1.8 million and $0.1 million, respectively.
Net periodic postretirement benefit cost for continuing operations
includes the following components:
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FLUOR CORPORATION 2002 ANNUAL REPORT
The following table sets forth the change in benefit obligation of the
company’s postretirement benefit plans for continuing operations:
The discount rate used in determining the postretirement benefit
obligation was 7.00 percent at December 31, 2002 and 2001 and 7.75 percent at
December 31, 2000.
The preceding information does not include amounts related to benefit
plans applicable to employees associated with certain contracts with the U.S.
Department of Energy because the company is not responsible for the current or
future funded status of these plans.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the company’s financial instruments are as follows:
Fair values were determined as follows:
The carrying amounts of cash and cash equivalents, short-term notes
receivable, commercial paper, loan notes and notes payable approximate fair
value because of the short-term maturity of these instruments.
Long-term investments are based on quoted market prices for these or
similar instruments. Long-term notes receivable are estimated by discounting
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings.
The fair value of long-term debt, including current portion, is estimated
based on quoted market prices for the same or similar issues or on the current
rates offered to the company for debt of the same maturities.
Other noncurrent financial liabilities consist primarily of deferred
payments, for which cost approximates fair value.
Foreign currency contracts are estimated by obtaining quotes from brokers.
Letters of credit and lines of credit amounts are based on fees currently
charged for similar agreements or on the estimated cost to terminate or settle
the obligations.
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FLUOR CORPORATION 2002 ANNUAL REPORT
FINANCING ARRANGEMENTS
The company has unsecured committed revolving short- and long-term lines
of credit with banks from which it may borrow for general corporate purposes up
to a maximum of $314 million. Commitment and facility fees are paid on these
lines. At December 31, 2002, there were no amounts outstanding under the
committed and uncommitted lines of credit. Borrowings under these lines of
credit bear interest at prime or rates based on the London Interbank Offered
Rate (“LIBOR”), domestic certificates of deposit or other rates which are
mutually acceptable to the banks and the company.
The company has $787 million in short-term committed and uncommitted lines
of credit to support letters of credit. At December 31, 2002, $352 million of
these lines of credit were used to support undrawn letters of credit. In
addition, the company had $124 million in uncommitted lines for general cash
management purposes.
Short-term debt comprises:
Long-term debt comprises:
The municipal bonds are due June 1, 2019 with interest payable
semiannually on June 1 and December 1 of each year, commencing December 1, 1999.
The bonds are redeemable, in whole or in part, at the option of the company at a
redemption price ranging from 100 percent to 102 percent of the principal amount
of the bonds on or after June 1, 2009. In addition, the bonds are subject to
other redemption clauses, at the option of the holder, should certain events
occur, as defined in the offering prospectus.
As discussed below under Lease Obligations, beginning in the first quarter
of 2003 approximately $123 million of debt associated with variable interest
entities in which the company is the primary beneficiary will be consolidated in
the financial statements. These leasing arrangements have been disclosed in the
footnotes to the company’s financial statements since their inception and such
disclosures have included the company’s lease commitment and residual value
obligations. These obligations have been fully considered in all periodic
evaluations of the company’s credit rating and debt capacity by recognized
rating agencies.
OTHER NONCURRENT LIABILITIES
The company maintains appropriate levels of insurance for business risks.
Insurance coverages contain various deductible amounts for which the company
provides accruals based on the aggregate of the liability for reported claims
and an actuarially determined estimated liability for claims incurred but not
reported. Other noncurrent liabilities include $55 million at both December 31,
2002 and 2001 relating to these liabilities.
The company has deferred compensation and retirement arrangements for
certain key executives which generally provide for payments upon retirement,
death or termination of employment. At December 31, 2002 and 2001, $202 million
and $197 million, respectively, were accrued under these plans and included in
noncurrent liabilities.
STOCK PLANS
The company’s executive stock plans provide for grants of non-qualified or
incentive stock options, restricted stock awards and stock appreciation rights
(“SARS”). All executive stock plans are administered by the Organization and
Compensation Committee of the Board of Directors (“Committee”) comprised of
outside directors, none of whom are eligible to participate in the plans. Option
grant prices are determined by the Committee and are established at the fair
value of the company’s common stock at the date of grant. Options and SARS
normally extend for 10 years and become exercisable over a vesting period
determined by the Committee, which can include accelerated vesting for
achievement of performance or stock price objectives.
During the year ended December 31, 2002, the company issued 736,660
nonqualified stock options and 34,300 SARS with annual vesting of 25%. During
the year ended December 31, 2001, the company issued 1,040,298 nonqualified
stock options and 48,750 SARS with annual vesting of 25%. During the year ended
October 31, 2000, the company issued 1,581,790 nonqualified stock options and
58,880 SARS that vest 100 percent at the end of four years, with accelerated
vesting based upon the price of the company’s stock, and also issued 52,660
stock options with annual vesting of 25%.
Restricted stock awards issued under the plans provide that shares awarded
may not be sold or otherwise transferred until restrictions have lapsed or
performance objectives have been attained as established by the Committee. Upon
termination of employment, shares upon which restrictions have not lapsed must
be returned to the company. Restricted stock granted under the plans totaled
245,110 shares, 17,504 shares and 351,630 shares in the years ended December 31,
2002 and 2001 and October 31, 2000, respectively.
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FLUOR CORPORATION 2002 ANNUAL REPORT
For purposes of calculating the pro forma stock-based compensation expense
as presented in the table appearing on page 41, the following weighted-average
assumptions were used for new grants:
The fair value of each option grant is estimated on the date of grant by
using the Black-Scholes option-pricing model. The weighted-average fair value of
options granted during the years ended December 31, 2002 and 2001 and October
31, 2000 was $12, $20 and $18, respectively.
The following table summarizes stock option activity:
In connection with the separation of Massey from Fluor, all outstanding
options were adjusted to preserve the value of such options on the date of the
distribution, including the conversion of options held by Massey employees to
options for shares of Massey.
At December 31, 2002, there are 3,399,320 shares available for future
grant. Available for grant includes shares which may be granted as either stock
options or restricted stock, as determined by the Committee under the company’s
various stock plans.
At December 31, 2002, there are 4,572,655 options outstanding with
exercise prices between $17 and $45, with a weighted-average exercise price of
$31 and a weighted-average remaining contractual life of 4.1 years; 3,400,858 of
these options are exercisable with a weighted-average exercise price of $30. Of
the options outstanding, 2,311,431 have exercise prices between $17 and $26,
with a weighted-average exercise price of $25 and a weighted-average remaining
contractual life of 5.8 years; 2,303,956 of these options are exercisable with a
weighted-average exercise price of $25. The remaining 2,261,224 outstanding
options have exercise prices between $27 and $45, with a weighted-average
exercise price of $28 and a weighted-average remaining contractual life of 3.8
years; 1,096,902 of these options are exercisable with a weighted-average
exercise price of $40.
LEASE OBLIGATIONS
Net rental expense for continuing operations amounted to approximately $83
million, $76 million and $80 million in the years ended December 31, 2002 and
2001 and October 31, 2000, respectively. The company’s lease obligations relate
primarily to office facilities, equipment used in connection with long-term
construction contracts and other personal property.
During 2001, the company entered into a sale/leaseback arrangement for its
engineering center in Sugar Land, Texas. The net proceeds from the sale were
$127 million resulting in a $6 million gain on sale that was deferred and will
be amortized over the initial lease term of 20 years. The lease contains four
options to renew for five years each at the then-applicable fair market rent and
the right of first offer to purchase the facility in the event the landlord
desires to sell its interests. The lease has been accounted for as an operating
lease and the rent payments are included in the below schedule of minimum rental
obligations.
The company also has operating leases for its corporate headquarters and
engineering center in California and an office in Calgary, Canada. The entities
that own the facilities have debt issued by banks that is secured by leases of
the facilities. The leases provide for the company to pay rent that is
sufficient to provide debt service and a return to the equity interests. The
leases contain residual value guarantees totaling $105 million. The company has
no ownership interest in the companies that own the facilities but is deemed to
be the primary beneficiary of the variable interests of these entities and will
consolidate these interests in the company’s financial statements beginning in
2003 as prescribed by Financial Accounting Standards Board Interpretation No.
46, “Consolidation of Variable Interest Entities” (FASI 46). The entities have
approximately $123 million in reported long-term debt. The effect on other
balance sheet accounts, including shareholders’ equity and the impact on
earnings from depreciation and interest expense that would replace recognition
of lease expense is currently being determined. If the company defaults on the
lease payments or were to fail to meet its obligations under the
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FLUOR CORPORATION 2002 ANNUAL REPORT
residual value guarantee, the lenders and owners of the entities could proceed
with recourse actions against the company to enforce payment.
The company’s obligations for minimum rentals under non-cancelable
leases are as follows
CONTINGENCIES AND COMMITMENTS
The company and certain of its subsidiaries are involved in litigation in the
ordinary course of business. The company and certain of its subsidiaries are
contingently liable for commitments and performance guarantees arising in the
ordinary course of business. Clients have made claims arising from engineering
and construction contracts against the company, and the company has made certain
claims against clients for costs incurred in excess of the current contract
provisions. Recognized claims against clients amounted to $16 million and $84
million at December 31, 2002 and 2001, respectively. Amounts ultimately realized
from claims could differ materially from the balances included in the financial
statements. The company does not expect that claim recoveries will have a
material effect on its consolidated financial position or results of operations.
During 2002, several matters were in the dispute resolution process. The
following discussion provides a background and current status of these matters:
AT&T WIRELESS (“AWS”)
This matter relates to a dispute concerning certain project costs that the
company incurred in connection with a contract to install and manage a fixed
wireless plan that would deliver (always on) high speed internet access without
a cable footprint. The contract was cancelled and the company claimed
reimbursement of certain incurred costs. During the third quarter of 2002, an
agreement was reached providing for AWS to pay the company $20 million to settle
all outstanding issues. The company received $10 million of the settlement in
November 2002 with the final $10 million due in November 2004. There was no
impact on earnings from this settlement.
MURRIN MURRIN
Disputes between Fluor Australia and its client, Anaconda Nickel, over the
Murrin Murrin Nickel Cobalt project located in Western Australia were partially
resolved through arbitration during the third quarter of 2002. The first phase
of the arbitration hearing was completed in May 2002 and a decision was rendered
in September 2002 resulting in an award to Anaconda of A$147 million
(subsequently amended to A$150 million [US$84.0 million]) and an award to Fluor
of A$107 million [US$59.9 million] for amounts owing from Anaconda under the
contract. The company anticipates recovering the $84.0 million award from
available insurance. Expected proceeds from insurance recovery, including legal
fees, total approximately $77 million as of December 31, 2002. Insurance
carriers have initiated certain proceedings seeking to limit their coverage. The
trial court has entered a ruling dismissing these proceedings against the
company.
The second phase of the arbitration will be heard in late 2003. The
company does not anticipate that there will be any material impact from
proceedings under the second phase of arbitration.
FLUOR ENTERPRISES, INC. V. SOLUTIA, INC.
On February 8, 2001, Fluor Enterprises, Inc. (“Fluor”) filed suit against
Solutia, Inc. in the United States District Court for the Southern District of
Texas. The complaint alleges breach of a construction contract involving a new
acrylonitrile plant project near Alvin, Texas, and seeks recovery of damages. In
September 2002, the court reached verdicts in favor of the company and ordered
mediation. The matter was settled in early October 2002 for $20 million, with
$10 million of the settlement amount paid immediately and $10 million to be paid
over three years with interest. The deferred payments are secured by a priority
lien on the plant property. The settlement resulted in recognition of
approximately $4 million in earnings in the fourth quarter.
FLUOR DANIEL INTERNATIONAL AND FLUOR ARABIA LTD. V.
In October 1998, Fluor Daniel International (“FDI”) and Fluor Arabia Ltd.
(“FAL”) filed a complaint in the United States District Court for the Southern
District of New York against General Electric Company and certain operating
subsidiaries as well as Saudi American General Electric, a Saudi Arabian
corporation. The complaint seeks damages in connection with the procurement,
engineering and construction of the Rabigh Combined Cycle Power Plant in Saudi
Arabia. Subsequent to a motion to compel arbitration of the matter the company
has initiated arbitration proceedings in New York under the American Arbitration
Association (“AAA”) international rules. The evidentiary phase of the
arbitration has been concluded and a decision is expected in the latter part of
2003.
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FLUOR CORPORATION 2002 ANNUAL REPORT
DEARBORN INDUSTRIAL PROJECT
The Dearborn Industrial Project (the “Project”) started as a co-generation
combined cycle power plant project in Dearborn, Michigan. The initial Turnkey
Agreement, dated November 24, 1998, consisted of three phases. Commencing
shortly after Notice to Proceed, the owner/operator, Dearborn Industrial
Generation (“DIG”), issued substantial change orders enlarging the scope of the
project.
The Project has been severely delayed with completion of Phase II. DIG has
unilaterally taken over completion and operation of Phase II and is
commissioning that portion of the plant. Shortly thereafter, DIG drew upon a $30
million letter of credit which D/FD expects to recover upon resolution of the
dispute. D/FD retains lien rights (in fee) against the project. In October 2001,
suit was commenced in Michigan State Court to foreclose on the lien interest.
On December 12, 2001, DIG filed a responsive pleading denying liability
and simultaneously served a demand for arbitration to D/FD claiming, among other
things, that D/FD is liable to DIG for alleged construction delays and defective
engineering and construction work at the Dearborn plant.
BUTINGE NAFTA OIL TERMINAL
On March 10, 2000, Butinge Nafta (“Nafta”), the project owner, commenced
arbitration proceedings against Fluor Daniel Intercontinental (“FDI”) concerning
a bulk oil storage terminal (the “Facility”) located in Lithuania alleging,
among other issues, that FDI represented costs in excess of actual estimates.
FDI vigorously disputes and denies Nafta’s allegations. FDI engineered, procured
and managed the construction of the Facility on a lump sum basis. On June 21,
2000, Fluor filed a separate arbitration against Nafta to recover
delay/disruption damages caused by Nafta, as well as compensation for out of
scope services. The first hearing on the merits of the case was conducted in
late May 2001 with an additional hearing in June 2002. Final legal submissions
and arguments were completed in September 2002. The parties are engaging in a
mediated resolution process. A decision on the arbitration is expected in April
2003.
HAMACA CRUDE UPGRADER
The Hamaca Crude Upgrader Project located in Jose, Venezuela is a $1 billion
lump sum project of Grupo Alvica (“GA”), a joint venture including Fluor Daniel
(80 percent) and Inelectra C.A. (20 percent), to design and build a petroleum
upgrader for a consortium of owners called Petrolera Ameriven (“PA”) including
Petrolios de Venezuela S.A. (“PDVSA”), ChevronTexaco and ConocoPhillips. The
joint venture is continuing to actively pursue two issues that were referred to
arbitration in December 2001: one is responsibility for costs arising from the
site labor agreement for 2000 called “Acta Convenio” and two, modifications and
extra work arising from differing site soil conditions. Arbitration of the
fundamental cost differences between the earlier 1998 labor agreement and the
2000 Acta Convenio will be heard in April 2003. The site soil conditions issue
(collapsible soils on site) was the subject of hearings in November 2002 on both
schedule and cost issues. There are no cross-claims by PA in the arbitration.
Recent events in Venezuela are having a significant impact on the progress of
the project. In accordance with the contract, the joint venture is entitled to
cost and schedule relief for the impact of the recent national strike.
The client has conditionally accepted responsibility relating to the soil
conditions and certain incurred costs have been paid. Substantial additional
costs are expected to be incurred as the project progresses and resolution of
outstanding issues concerning the total costs to be reimbursed under the soil
conditions change order are yet to be determined. The amount of the claim for
site soil conditions is $159 million, $28 million of which has been
conditionally paid by the client. The company is accounting for the additional
costs incurred for the soil conditions matter as additional revenue as payments
are received. Incurred costs associated with Acta Convenio and soil conditions
are being deferred and will be recognized in revenue when a change order is
approved or payment is received. As of December 31, 2002, the company’s share of
incurred costs amounting to $44 million has been deferred. If future costs
relating to Acta Convenio, soil conditions or the recent national strike are
determined to be not fully recoverable, the company could face reduced profits
or losses on this project.
Following is a discussion of litigation matters:
ASBESTOS MATTERS
The company is a defendant in various lawsuits wherein plaintiffs allege
exposure to asbestos fibers and dust due to work that the company may have
performed at various locations. The company has substantial third party
insurance coverage to cover a significant portion of existing and any potential
costs, settlements or judgments. The company does not believe that the outcome
of any actions will have a material adverse impact on its financial position,
results of operations or cash flows.
SECURITIES CLASS ACTION LITIGATION
Plaintiffs in three separate lawsuits are alleging that certain Fluor officers
and directors violated the Securities Exchange Act of 1934 by providing false or
misleading statements about the company’s business and prospects. These
complaints purport to be class action complaints brought on behalf of purchasers
of the company’s stock during the period from May 22, 1996 through February 18,
1997. The company’s initial motion to dismiss the action was granted by the
court with leave to amend. The plaintiffs filed their amended complaint and the
company moved the court
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FLUOR CORPORATION 2002 ANNUAL REPORT
to dismiss the new amended complaint. The Court has now granted the company’s
motion and dismissed plaintiff’s action without leave to amend on July 10, 2002.
Plaintiffs have appealed the dismissal.
None of the dispute resolution or litigation matters are expected to have
a material effect on consolidated financial position or results of operations.
GUARANTEES
In the ordinary course of business, the company enters into various agreements
providing financial or performance assurances to clients on behalf of certain
unconsolidated subsidiaries, joint ventures and other jointly executed
contracts. These agreements are entered into primarily to support the project
execution commitments of these entities. The guarantees have various expiration
dates ranging from mechanical completion of the facilities being constructed to
a period extending beyond contract completion in certain circumstances. The
maximum potential payment amount of an outstanding performance guarantee is the
remaining cost of work to be performed by or on behalf of third parties under
engineering and construction contracts. The amount of guarantees outstanding
measured on this basis totals $3 billion as of December 31, 2002. Amounts that
may be required to be paid in excess of estimated costs to complete contracts in
progress are not estimable. For cost reimbursable contracts amounts that may
become payable pursuant to guarantee provisions are normally recoverable from
the client for work performed under the contract. For lump sum or fixed price
contracts, this amount is the cost to complete the contracted work less amounts
remaining to be billed to the client under the contract. Remaining billable
amounts could be greater or less than the cost to complete. In those cases where
costs exceed the remaining amounts payable under the contract the company may
have recourse to third parties, such as owners, co-venturers, subcontractors or
vendors for claims.
Financial guarantees, made in the ordinary course of business on behalf of
clients and others in certain limited circumstances, are entered into with
financial institutions and other credit grantors and generally obligate the
company to make payment in the event of a default by the borrower. Most
arrangements require the borrower to pledge collateral in the form of property,
plant and equipment which is deemed adequate to recover amounts the company
might be required to pay. As of December 31, 2002, the company had extended
financial guarantees on behalf of certain clients and other unrelated third
parties totaling approximately $11 million. A financial guarantee for $14
million of pollution control bonds related to zinc operations that were sold in
1987 has been recognized at the full amount of the underlying obligation. The
obligation was recognized by a charge to earnings in 2002 due to the obligor’s
bankruptcy filing and inability to meet the current obligation on the bonds
without financial assistance from the company.
OTHER MATTERS
In 2001, the company issued a warrant for the purchase of 460,000 shares at
$36.06 per share of the company’s common stock to a partner in the company’s
e-commerce procurement venture. Any compensation realized by the holder through
exercise of the warrant will offset royalties otherwise payable under a
five-year cooperation and services agreement.
The company’s operations are subject to and affected by federal, state and
local laws and regulations regarding the protection of the environment. The
company maintains reserves for potential future environmental costs where such
obligations are either known or considered probable, and can be reasonably
estimated.
The company believes, based upon present information available to it, that
its reserves with respect to future environmental costs are adequate and such
future costs will not have a material effect on the company’s consolidated
financial position, results of operations or liquidity. However, the imposition
of more stringent requirements under environmental laws or regulations, new
developments or changes regarding site cleanup costs or the allocation of such
costs among potentially responsible parties, or a determination that the company
is potentially responsible for the release of hazardous substances at sites
other than those currently identified, could result in additional expenditures,
or the provision of additional reserves in expectation of such expenditures.
In connection with the Massey spin-off, Massey retained all contingent
liabilities related to its business, including environmental matters.
OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA
The company provides professional services on a global basis in the fields of
engineering, procurement, construction and maintenance. In 2002, the company
reorganized the alignment of its operations into five industry segments: Energy
& Chemicals, Industrial & Infrastructure, Power, Global Services and Government
Services. The Energy & Chemicals segment provides engineering, procurement,
construction and project management to energy-related industries including
upstream oil and gas production and processing in refinery, and petrochemical
and chemical markets. The Industrial & Infrastructure segment provides
engineering, procurement and construction for the manufacturing and life
sciences, commercial and institutional, telecommunications, mining and
transportation markets. The Power segment includes the company’s 50 percent
proportional interest in Duke/Fluor Daniel and its 49 percent interest in the
ICA Fluor Daniel joint venture. The Global Services segment includes operations
and maintenance, equipment and temporary staffing services. The Government
Services segment provides
PAGE 53
FLUOR CORPORATION 2002 ANNUAL REPORT
project management services to the federal government primarily in environmental
restoration at two former nuclear processing facilities for the Department of
Energy.
All segments except Global Services and Government Services provide
design, engineering, procurement and construction services on a worldwide basis
to an extensive range of industrial, commercial, utility, natural resources and
energy clients. Services provided by these segments include: feasibility
studies, conceptual design, detail engineering, procurement, project and
construction management and construction.
The Global Services segment provides a variety of services including:
equipment services and outsourcing for construction and industrial needs;
repair, renovation, replacement, predictive and preventative services to
commercial and industrial facilities; and productivity consulting services and
maintenance management to the manufacturing and process industries. In addition,
Global Services provides temporary staffing specializing in technical,
professional and administrative personnel for projects in all segments.
The reportable segments follow the same accounting policies as those
described in the summary of major accounting policies. Management evaluates a
segment’s performance based upon operating profit. Intersegment revenues are
insignificant. The company incurs costs and expenses and holds certain assets at
the corporate level which relate to its business as a whole. Certain of these
amounts have been charged to the company’s business segments by various methods,
largely on the basis of usage.
Engineering services for international projects are often performed within
the United States or a country other than where the project is located. Revenues
associated with these services have been classified within the geographic area
where the work was performed.
OPERATING INFORMATION BY SEGMENT
PAGE 54
FLUOR CORPORATION 2002 ANNUAL REPORT
OPERATING INFORMATION BY SEGMENT (CONT’D)
RECONCILIATION OF SEGMENT INFORMATION TO CONSOLIDATED AMOUNTS
ENTERPRISE-WIDE DISCLOSURES
PAGE 55
FLUOR CORPORATION 2002 ANNUAL REPORT
MANAGEMENT’S AND INDEPENDENT AUDITORS’ REPORTS
Management
The company is responsible for preparation of the accompanying consolidated
balance sheet and the related consolidated statements of earnings, cash flows
and shareholders’ equity. These statements have been prepared in conformity with
generally accepted accounting principles and management believes that they
present fairly the company’s consolidated financial position and results of
operations. The integrity of the information presented in the financial
statements, including estimates and judgments relating to matters not concluded
by fiscal year end, is the responsibility of management. To fulfill this
responsibility, an internal control structure designed to protect the company’s
assets and properly record transactions and events as they occur has been
developed, placed in operation and maintained. The internal control structure is
supported by an extensive program of internal audits and is tested and evaluated
by the independent auditors in connection with their annual audit. The Board of
Directors pursues its responsibility for financial information through an Audit
Committee of Directors who are not employees. The internal auditors and the
independent auditors have full and free access to the Committee. Periodically,
the Committee meets separately with the independent auditors and with internal
audit without management present to discuss the results of their audits, the
adequacy of the internal control structure and the quality of financial
reporting.
Report of Independent Auditors
Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheets of Fluor
Corporation at December 31, 2002 and 2001, and the related consolidated
statements of earnings, cash flows, and shareholders’ equity for each of the two
years in the period ended December 31, 2002, the two months ended December 31,
2000 and the year ended October 31, 2000. These financial statements are the
responsibility of the company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Fluor Corporation
at December 31, 2002 and 2001, and the consolidated results of its operations
and its cash flows for each of the two years in the period ended December 31,
2002, the two months ended December 31, 2000 and the year ended October 31,
2000, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Orange County, California
PAGE 56
FLUOR CORPORATION 2002 ANNUAL REPORT
SHAREHOLDERS’ REFERENCE
Common Stock and Dividend
At March 12, 2003, there were 81,183,981 shares outstanding and approximately
10,887 shareholders of record of Fluor’s common stock.
The following table sets forth for the periods indicated the cash
dividends paid per share of common stock and the high and low sales prices of
such common stock as reported in the Consolidated Transactions Reporting System.
Form 10-K
Senior Vice President-Law
Independent Auditors
Annual Shareholders’ Meeting
Registrar and Transfer Agent
and
Mellon Investor Services LLC
For change of address, lost dividends, or lost stock certificates, write or
telephone:
Mellon Investor Services LLC
Web page address:
Duplicate Mailings
FORWARD-LOOKING STATEMENTS
The forward-looking statements are also based on various operating assumptions
regarding, among other things, overhead costs and employment levels that may
not be realized. In addition, while most risks affect only future costs or
revenues that the company anticipates it will receive, some risks may relate to
accruals that have already been reflected in earnings. The company’s failure to
receive payments of these accrued earnings could result in charges against
future earnings.
Additional information concerning factors that may influence the company’s
results can be found in its press releases and 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 10-K
filed March 25, 2003. These 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.
PAGE 60
Proxy Voting
Shareholders may vote their proxies 24 hours a day, 7 days a
week. Please refer to your proxy card for control number and complete
instructions. Shareholders outside the United States and Canada must
vote via the Internet or by mail.
Shareholders of record may vote:
(1) electronically via the Internet at www.eproxy.com/flr, or
(2) by phone, 800-435-6710 within the United States, or
(3) by mailing the completed, signed and dated proxy card.
In most cases, shares held with a bank or brokerage firm may vote:
(1) electronically via the Internet at www.proxyvote.com
(2) by phone, 800-454-8683, or
(3) by mailing the completed, signed and dated proxy card.
Please see the instructions provided by your bank or brokerage
firm for specific information on how to vote your shares.
Electronic Delivery of Annual Reports and Proxy
Statements
Stock Trading
Company Contacts
Shareholder Services
Investor Relations
[PHOTO]
Fluor’s investor relations activities are dedicated to providing
investors with complete and timely information. All investor
questions are welcome.
Web Site Address
Fluor is a registered service mark of Fluor Corporation. Fluor
Global Services is a registered service mark of Fluor Corporation.
TRS Staffing Solutions is a registered service mark of Fluor
Corporation. UpFRONT is a service mark of Fluor Corporation. AMECO is a registered
service mark of American Equipment Company. Site Services is a service
mark of American Equipment Company. Fleet Outsourcing is a service
mark of American Equipment Company.
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
Period Ended
2002
2001
2000
2000
509
1,340
54
—
—
—
1,055
—
—
16
—
—
509
1,356
1,109
—
December 31,
December 31,
October 31,
Year Ended
2002
2001
2000
$
163,615
$
19,410
$
123,949
(5,421
)
(6,835
)
(7,074
)
$
158,194
$
12,575
$
116,875
$
2.06
$
0.25
$
1.65
$
1.99
$
0.16
$
1.55
$
2.05
$
0.25
$
1.62
$
1.98
$
0.16
$
1.53
Year Ended
Two Months Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
$
155,909
$
279,099
$
321,979
$
49,826
7,880
10,153
23,571
2,472
67,661
138,102
201,725
32,235
—
—
1,085,833
—
$
231,450
$
427,354
$
1,633,108
$
84,533
$
4,214
$
13,569
$
(19,087
)
$
1,607
213
(1,787
)
(3,165
)
275
(4,036
)
(9,898
)
186
(1,752
)
—
—
96,115
—
391
1,884
74,049
130
—
—
27,857
—
391
1,884
46,192
130
891
1,632
14,301
76
$
(500
)
$
252
$
31,891
$
54
$
(8,770
)
$
(139,423
)
$
(24,215
)
$
—
(2,909
)
(30,815
)
—
—
$
(5,861
)
$
(108,608
)
$
(24,215
)
$
—
December 31,
December 31,
At Period End
2002
2001
$
9,551
$
47,996
10,905
54,272
29,238
106,683
$
49,694
$
208,951
$
10,093
$
21,090
13,327
37,021
$
23,420
$
58,111
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
$
106,213
$
57,355
$
(3,009
)
$
(1,909
)
(55,360
)
(28,406
)
(22,923
)
72,985
35,207
40,462
35,876
(9,853
)
(7,133
)
80,186
(43,376
)
(24,516
)
59,067
(80,273
)
(108,616
)
(47,161
)
(282,084
)
386,326
51,433
(11,724
)
100,419
113,003
(169,501
)
(84,633
)
40,355
(128,290
)
(27,965
)
38,709
$
(3,316
)
$
440,363
$
(288,081
)
$
(68,102
)
$
8,780
$
30,072
$
60,455
$
6,023
$
46,485
$
52,631
$
58,637
$
3,099
$
—
$
6,380
$
—
$
—
Lease
Personnel
Termination
Costs
Costs
Total
$
9,740
$
2,854
$
12,594
(685
)
(1,958
)
(2,643
)
9,055
896
9,951
(6,115
)
(581
)
(6,696
)
2,940
315
3,255
(1,243
)
(315
)
(1,558
)
$
1,697
$
—
$
1,697
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
$
4,904
$
—
$
17,864
$
5,216
33,406
44,090
42,736
6,835
4,863
1,409
4,366
293
43,173
45,499
64,966
12,344
34,027
(19,110
)
(12,082
)
(17,302
)
14,771
157
7,829
1,529
(3,441
)
1,825
1,602
350
45,357
(17,128
)
(2,651
)
(15,423
)
$
88,530
$
28,371
$
62,315
$
(3,079
)
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
$
56,249
$
45,499
$
68,880
$
13,370
34,299
12,055
(20,866
)
(16,525
)
90,548
57,554
48,014
(3,155
)
(13,076
)
—
(3,916
)
(1,026
)
11,058
(29,183
)
18,217
1,102
(2,018
)
(29,183
)
14,301
76
$
88,530
$
28,371
$
62,315
$
(3,079
)
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
$
91,183
$
64,862
$
57,500
$
(2,531
)
10,066
9,251
6,060
2,025
4,214
1,950
920
418
—
—
345
1,057
(6,671
)
(5,823
)
(3,075
)
—
(4,587
)
(4,020
)
(5,975
)
(498
)
(2,218
)
(7,678
)
(538
)
(2,044
)
—
—
(4,657
)
(1,305
)
—
—
(971
)
—
(1,439
)
(988
)
(1,595
)
(277
)
$
90,548
$
57,554
$
48,014
$
(3,155
)
December 31,
December 31,
2002
2001
$
53,335
$
66,460
44,228
43,432
35,148
18,918
29,155
26,258
44,745
41,043
43,158
80,550
41,206
25,060
30,220
31,843
15,374
30,815
6,718
—
5,651
5,537
10,043
5,854
358,981
375,770
(61,711
)
(52,960
)
$
297,270
$
322,810
$
(26,712
)
$
(19,872
)
(13,431
)
(10,506
)
(15,055
)
(15,614
)
(55,198
)
(45,992
)
$
242,072
$
276,818
December 31,
December 31,
October 31,
Year Ended
2002
2001
2000
$
116,481
$
41,263
$
7,999
144,043
144,057
156,288
$
260,524
$
185,320
$
164,287
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
$
33,928
$
31,195
$
35,168
$
5,929
33,988
30,244
26,068
4,911
(44,252
)
(41,249
)
(41,059
)
(6,936
)
(1,690
)
(1,808
)
(1,917
)
(298
)
36
34
46
5
8,958
1,352
(541
)
(21
)
$
30,968
$
19,768
$
17,765
$
3,590
December 31,
December 31,
December 31,
2002
2001
2000
5.75-7.00
%
6.25-7.75
%
6.00-7.75
%
3.00-4.00
%
3.50-4.00
%
3.50-3.75
%
5.00-9.50
%
5.00-9.50
%
5.00-9.50
%
December 31,
December 31,
2002
2001
(in thousands)
$
515,651
$
448,485
33,928
31,195
33,988
30,244
2,939
1,931
37,202
(10,530
)
12,576
40,743
(36,023
)
(26,417
)
$
600,261
$
515,651
$
503,839
$
502,649
(80,056
)
(28,656
)
110,468
68,080
2,939
1,931
32,400
(13,748
)
(36,023
)
(26,417
)
$
533,567
$
503,839
$
(66,694
)
$
(11,812
)
264,524
126,340
(326
)
(329
)
(1,368
)
(2,877
)
(28,880
)
—
$
167,256
$
111,322
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
(in thousands)
$
—
$
—
$
—
$
—
2,055
2,009
1,865
375
—
—
—
—
—
—
—
—
165
—
—
—
114
—
(329
)
—
$
2,334
$
2,009
$
1,536
$
375
Year Ended
Two Months
Ended
December 31,
December 31,
December 31,
2002
2001
2000
(in thousands)
$
31,429
$
30,588
$
29,316
—
—
—
2,055
2,009
375
4,215
363
54
12,091
2,595
1,457
(8,257
)
(4,126
)
(614
)
$
41,533
$
31,429
$
30,588
$
(41,533
)
$
(31,429
)
$
(30,588
)
15,813
4,001
1,406
$
(25,720
)
$
(27,428
)
$
(29,182
)
December 31, 2002
December 31, 2001
Carrying
Fair
Carrying
Fair
Value
Value
Value
Value
(in thousands)
$
753,367
$
753,367
$
572,654
$
572,654
18,077
18,033
26,262
26,229
25,214
25,682
46,656
47,124
—
—
38,442
38,442
17,613
18,857
17,594
17,915
14,728
14,728
12,898
12,898
(449
)
(449
)
273
273
—
735
—
1,196
—
672
—
788
December 31,
December 31,
2002
2001
(in thousands)
$
—
$
38,175
—
267
$
—
$
38,442
December 31,
December 31,
2002
2001
(in thousands)
$
17,613
$
17,594
December 31,
December 31,
October 31,
2002
2001
2000
6
6
6
3.25
%
4.74
%
6.03
%
2.20
%
1.75
%
1.74
%
45.50
%
48.30
%
39.81
%
Weighted Average
Exercise Price
Stock Options
Per Share
6,096,461
$
46
3,978,375
—
(673,030
)
46
(45,582
)
48
(1,100
)
35
9,355,124
27
1,040,298
44
(269,189
)
34
(5,564,921
)
26
4,561,312
31
736,660
30
(97,421
)
37
(627,896
)
24
4,572,655
$
31
3,400,858
$
30
3,299,216
27
7,493,971
27
3,352,234
49
Year Ended December 31,
(in thousands)
$
39,316
35,946
22,318
18,079
15,475
173,870
U.S.D.C., SOUTHERN DIVISION, TEXAS
GENERAL ELECTRIC COMPANY, ET AL U.S.D.C.,
SOUTHERN DISTRICT COURT, NEW YORK
DUKE/FLUOR DANIEL (D/FD)
U.S.D.C., CENTRAL DISTRICT, SOUTHERN DIVISION, CALIFORNIA
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
(in millions)
$
3,633
$
2,529
$
3,251
$
952
2,249
2,115
2,903
412
2,164
2,476
1,325
—
961
1,017
1,196
229
952
813
722
180
—
22
26
9
$
9,959
$
8,972
$
9,423
$
1,782
$
132
$
110
$
85
$
19
52
97
115
7
107
74
—
—
93
50
63
13
30
22
16
2
$
414
$
353
$
279
$
41
$
—
$
1
$
2
$
—
—
2
2
—
—
—
—
—
40
35
42
7
—
—
—
—
38
34
38
7
$
78
$
72
$
84
$
14
$
339
$
383
$
439
$
363
461
380
490
502
116
91
5
8
318
395
378
375
128
85
64
76
1,730
1,599
1,022
962
$
3,092
$
2,933
$
2,398
$
2,286
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
(in millions)
$
—
$
—
$
—
$
—
—
—
—
—
—
—
—
—
46
60
38
6
—
—
—
—
17
88
118
24
$
63
$
148
$
156
$
30
Year Ended
Two Months
Ended
December 31,
December 31,
October 31,
December 31,
2002
2001
2000
2000
(in millions)
$
414
$
353
$
279
$
41
—
—
(18
)
—
—
—
19
—
160
167
99
43
(7
)
1
15
5
$
261
$
185
$
164
$
(7
)
December 31,
December 31,
2002
2001
(in millions)
$
3,092
$
2,933
50
209
$
3,142
$
3,142
Revenues from Continuing Operations
Total Assets
December 31,
December 31,
October 31,
December 31,
December 31,
2002
2001
2000
2002
2001
(in millions)
$
6,515
$
6,323
$
5,919
$
1,923
$
1,866
1,620
1,412
1,421
150
161
226
287
783
160
194
810
423
668
450
255
546
379
481
344
397
242
148
151
65
60
—
—
—
50
209
$
9,959
$
8,972
$
9,423
$
3,142
$
3,142
*
Includes export revenues to unaffiliated customers of $0.8 billion and $0.1
billion in the years ended December 31, 2002 and 2001, respectively, and $0.4
billion in the year ended October 31, 2000.
/s/ Alan L. Boeckmann
/s/ D. Michael Steuert
Alan L. Boeckmann
Chairman of the Board and
Chief Executive Officer
D. Michael Steuert
Senior Vice President and
Chief Financial Officer
Fluor Corporation
January 27, 2003
Information
Dividends
Price Range
Per Share
High
Low
$
0.16
43.91
29.59
0.16
44.57
35.46
0.16
37.66
24.00
0.16
28.42
20.94
$
0.64
$
0.16
46.84
31.82
0.16
62.65
40.97
0.16
45.49
35.30
0.16
46.98
35.40
$
0.64
A copy of the Form 10-K, which is filed with the Securities and Exchange
Commission, is available upon request. Write to:
Fluor Corporation
One Enterprise Drive
Aliso Viejo, California 92656
(949) 349-2000
Ernst & Young LLP
18111 Von Karman Avenue
Irvine, California 92612
Annual report and proxy statement are mailed about April 1. Fluor’s annual
meeting of shareholders will be held at 9:00 a.m. on May 7, 2003 at Soka
University.
1 University Drive, Aliso Viejo, California
Mellon Investor Services LLC
400 South Hope Street
Fourth Floor
Los Angeles, California 90071
85 Challenger Road
Ridgefield Park, NJ 07660
P.O. Box 3315
South Hackensack, NJ 07606-1915
Attn: Securityholder Relations
(877) 870-2366
www.melloninvestor.com
Shares owned by one person but held in different forms of the same name result
in duplicate mailing of shareholder information at added expense to the
company. Such duplication can be eliminated only at the direction of the
shareholder. Please notify Mellon Investor Services in order to eliminate
duplication.
The information contained in this annual report contains forward-looking
statements regarding projected earning levels for the calendar year 2003,
market outlook, new awards, backlog levels, competition, and the adequacy of
funds to service debt. These forward-looking statements reflect the company’s
current analysis of existing information as of the date of this annual report.
As a result, caution must be exercised in relying on forward-looking
statements. Due to unknown risks, the company’s actual results may differ
materially from our expectations or projections. The factors potentially
contributing to such differences include, among others:
•
Changes in global business, economic, political and social conditions;
•
The company’s failure to receive anticipated new contract awards;
•
Customer cancellations of, or scope adjustments to, existing contracts
including our government contracts that may be terminated at any time;
•
The cyclical nature of many of the markets we serve and their vulnerability
to downturns;
•
Difficulties or delays incurred in the execution of construction
contracts, including the performance by our joint venture partners,
resulting in cost overruns or liabilities;
•
Customer delays or defaults in making payments;
•
Risks and impacts resulting from the reverse spin-off transaction
consummated November 30, 2000 involving Massey Energy Company;
•
The impact of past and future environmental, health and safety regulations
and lawsuits;
•
Competition in the global engineering, procurement and construction
industry; and
•
The company’s ability to identify and successfully integrate acquisitions.
Register for this new online service! For your convenience, we are
now offering you, as a Fluor shareholder, the option of viewing
future Fluor Annual Reports and Proxy Statements on the Internet. You
can access them at your convenience and easily print them if you
wish. The best part is that you would receive the information earlier
than ever before. Please visit http://investor.fluor.com to register and learn more
about this new cost-effective feature.
Fluor’s stock is traded on the New York Stock Exchange. Common stock
domestic trading symbol: FLR.
Shareholders May Call
(888) 432-1745
Lawrence N. Fisher
(949) 349-6961
Lila J. Churney
(949) 349-3909
www.fluor.com
FORTUNE is a registered trademark of the FORTUNE Magazine Division of Time Inc.
EXHIBIT 21
FLUOR CORPORATION SUBSIDIARIES(1)
[Note: Roman numerals below denote the level of the subsidiary. For example, “I”
represents a first tier subsidiary of Fluor Corporation; “II” represents a
second tier subsidiary, etc.]
PERCENT
ORGANIZED
SUBSIDIARY NAME
HOLDING
UNDER LAWS OF
100.0000
South Carolina
100.0000
Delaware
100.0000
France
72.6016
Mexico
100.0000
California
100.0000
California
100.0000
California
0.2000
Mexico
99.0000
Argentina
0.8357
Peru
100.0000
Philippines
100.0000
Australia
99.0000
Argentina
3.0992
Mexico
1.0000
Brazil
99.8000
Mexico
1.0000
Argentina
99.1643
Peru
1.0000
Argentina
24.2992
Mexico
99.0000
Brazil
100.0000
Delaware
100.0000
Virginia
100.0000
Ohio
100.0000
Delaware
100.0000
South Carolina
100.0000
Delaware
100.0000
California
100.0000
New Brunswick
25.0000
Alberta
1.0000
Indiana
100.0000
California
100.0000
California
99.0000
Indiana
100.0000
California
100.0000
Arizona
100.0000
Delaware
100.0000
Ireland
100.0000
Nevada
50.00
Oregon
49.0000
Delaware
100.0000
California
1.0000
Delaware
100.0000
South Carolina
100.0000
Spain
100.0000
Ohio
PERCENT
ORGANIZED
SUBSIDIARY NAME
HOLDING
UNDER LAWS OF
46.0676
Delaware
5.0000
Texas
49.9999
North Carolina
100.0000
Connecticut
100.0000
North Carolina
100.0000
Mississippi
100.0000
New York
100.0000
North Carolina
33.3333
Delaware
100.0000
England
100.0000
Nevada
100.0000
Rhode Island
50.0000
Colorado
100.0000
New Jersey
100.0000
Delaware
60.0000
Delaware
100.0000
California
100.0000
California
100.0000
Nigeria
100.0000
California
100.0000
Bermuda
100.0000
Alaska
40.0000
Delaware
100.0000
Bermuda
100.0000
Australia
100.0000
Australia
100.0000
Australia
100.0000
Australia
100.0000
Australia
100.0000
Australia
100.0000
Australia
100.0000
Australia
50.0000
Australia
100.0000
Australia
10.0000
Indonesia
100.0000
Australia
90.0000
Indonesia
100.0000
Australia
0.0100
Chile
100.0000
Chile
99.9900
Chile
100.0000
Chile
100.0000
Australia
100.0000
Australia
100.0000
Australia
100.0000
Australia
100.0000
New Brunswick
75.0000
Alberta
10.0000
Barbados
100.0000
New Brunswick
95.0000
Chile
35.0000
Peru
100.0000
Canada
5.0000
Chile
100.0000
California
99.0000
Chile
2
PERCENT
ORGANIZED
SUBSIDIARY NAME
HOLDING
UNDER LAWS OF
99.0000
Chile
75.0000
Chile
99.1000
Chile
100.0000
Delaware
100.0000
Bermuda
100.0000
Japan
100.0000
Malaysia
100.0000
Delaware
100.0000
Delaware
100.0000
California
99.9983
Brazil
100.0000
Delaware
100.0000
South Carolina
0.2500
Puerto Rico
100.0000
Delaware
100.0000
Malaysia
100.0000
Delaware
100.0000
Delaware
50.0000
Egypt
100.0000
South Carolina
100.0000
California
100.0000
California
100.0000
California
100.0000
Delaware
49.9999
Nevada
75.0000
Barbados
99.0000
Puerto Rico
49.9999
Nevada
50.0000
Australia
100.0000
California
100.0000
California
100.0000
New Jersey
100.0000
California
50.0000
California
100.0000
California
50.0000
Idaho
100.0000
California
50.0000
Idaho
100.0000
California
100.0000
California
3.9300
California
100.0000
California
100.0000
California
80.0000
Indonesia
99.0000
Indonesia
100.0000
Delaware
7.0700
Delaware
100.0000
Delaware
37.5000
Papua N. Guinea
100.0000
P.R.C.
100.0000
California
100.0000
Mauritius
80.0000
India
100.0000
Delaware
100.0000
California
50.0000
Saudi Arabia
50.0000
Saudi Arabia
100.0000
California
100.0000
Netherlands
3
PERCENT
ORGANIZED
SUBSIDIARY NAME
HOLDING
UNDER LAWS OF
5.0000
Netherlands
100.0000
England
100.0000
England
100.0000
Belgium
100.0000
Netherlands
100.0000
Netherlands
100.0000
Turkey
100.0000
Netherlands
7.1000
Netherlands
100.0000
Netherlands
11.0000
Netherlands
8.9000
Netherlands
19.0000
Poland
100.0000
Netherlands
100.0000
Russia
100.0000
Netherlands
3.9200
Spain
98.6562
Poland
100.0000
Delaware
100.0000
Guernsey
100.0000
Guernsey
100.0000
Guernsey
100.0000
Guernsey
100.0000
Guernsey
100.0000
Guernsey
100.0000
Guernsey
100.0000
Guernsey
100.0000
Germany
100.0000
California
100.0000
India
100.0000
Delaware
49.9999
Delaware
49.9999
Delaware
49.9999
Delaware
49.0000
California
49.9999
North Carolina
100.0000
Delaware
100.0000
Delaware
100.0000
Delaware
100.0000
Delaware
100.0000
Delaware
100.0000
Delaware
100.0000
Delaware
100.0000
Delaware
9.8000
Iran
100.0000
California
1.0000
Indiana
90.0000
Barbados
100.0000
California
80.0000
Delaware
80.0000
Venezuela
0.1000
Venezuela
80.0000
Venezuela
100.0000
California
49.0000
Mexico
0.0954
Mexico
4
PERCENT
ORGANIZED
SUBSIDIARY NAME
HOLDING
UNDER LAWS OF
100.0000
California
1.0000
Chile
1.0000
Chile
75.0000
Chile
0.9000
Chile
100.0000
Delaware
100.0000
California
50.0000
Delaware
50.0000
Delaware
100.0000
California
100.0000
California
50.0000
Philippines
100.0000
Netherlands
50.0000
Netherlands
100.0000
England
100.0000
California
99.0000
Indiana
100.0000
South Carolina
100.0000
Barbados
100.0000
California
100.0000
California
100.0000
Texas
100.0000
California
100.0000
California
9.8000
Iran
100.0000
California
100.0000
California
100.0000
California
49.9999
Nevada
25.0000
Barbados
100.0000
Brazil
0.5000
Puerto Rico
100.0000
Trinidad
20.0000
Indonesia
99.0000
Indonesia
40.0000
Indonesia
100.0000
California
100.0000
California
100.0000
California
25.0000
Delaware
100.0000
California
1.0000
California
1.0000
California
24.7500
California
24.7500
California
100.0000
Mass.
100.0000
Louisiana
100.0000
Philippines
96.0000
Spain
100.0000
California
50.0000
Egypt
100.0000
Michigan
100.0000
Delaware
100.0000
Delaware
100.0000
Washington
100.0000
Washington
5
PERCENT
ORGANIZED
SUBSIDIARY NAME
HOLDING
UNDER LAWS OF
100.0000
Delaware
49.0000
Alaska
49.0000
Alaska
10.0000
Hawaii
100.0000
Washington
100.0000
California
100.0000
Delaware
82.0000
Delaware
100.0000
Canada
100.0000
California
100.0000
Washington
100.0000
California
100.0000
Delaware
100.0000
California
49.0000
Delaware
0.0017
Brazil
60.0000
Nigeria
9.8000
Iran
79.9200
Venezuela
50.0000
Delaware
100.0000
Bermuda
100.0000
England
50.0000
Zimbabwe
50.0000
England
95.0000
Netherlands
100.0000
England
100.0000
England
18.0000
England
100.0000
England
100.0000
England
100.0000
England
100.0000
England
99.9999
England
99.9950
England
100.0000
England
0.0050
England
100.0000
England
100.0000
England
50.0000
England
50.0000
England
0.0001
England
99.9950
England
100.0000
England
100.0000
England
100.0000
England
100.0000
England
100.0000
England
100.0000
England
100.0000
England
100.0000
England
100.0000
England
100.0000
England
100.0000
England
100.0000
California
100.0000
California
70.6000
Iran
6
PERCENT
ORGANIZED
SUBSIDIARY NAME
HOLDING
UNDER LAWS OF
100.0000
Ireland
50.0000
Ireland
100.0000
California
100.0000
California
100.0000
Bermuda
100.0000
Ohio
100.0000
Bermuda
60.0000
Nigeria
100.0000
California
100.0000
Delaware
100.0000
Delaware
100.0000
Nevada
100.0000
California
100.0000
Texas
100.0000
Delaware
100.0000
Delaware
100.0000
Delaware
20.5277
Delaware
100.0000
Delaware
50.0000
Missouri
100.0000
Mauritius
20.0000
India
45.0000
Delaware
45.0000
Texas
100.0000
California
99.0000
Delaware
100.0000
California
100.0000
California
49.0000
Ohio
27.0000
Delaware
100.0000
Colorado
25.0000
Delaware
100.0000
California
1.0000
California
1.0000
California
24.7500
California
24.7500
California
100.0000
England
100.0000
California
100.0000
Texas
100.0000
California
100.0000
B. Virgin Isles
100.0000
Switzerland
100.0000
Liechtenstein
50.0000
Mauritius
50.0000
R. South Africa
100.0000
Liechtenstein
100.0000
R. South Africa
100.0000
R. South Africa
100.0000
Netherlands
100.0000
R. South Africa
100.0000
B. Virgin Isles
100.0000
R. South Africa
30.0000
Colorado
40.0000
Delaware
100.0000
California
100.0000
Delaware
7
PERCENT
ORGANIZED
SUBSIDIARY NAME
HOLDING
UNDER LAWS OF
100.0000
Delaware
100.0000
England
100.0000
Australia
100.0000
Delaware
60.0000
Nigeria
100.0000
Delaware
99.0000
Peru
33.4047
Delaware
100.0000
Bermuda
100.0000
Delaware
1.0000
Peru
16.6667
Austria
0.0125
Brazil
100.0000
Hawaii
100.0000
Delaware
100.0000
Delaware
83.3333
Austria
100.0000
Delaware
100.0000
Delaware
99.9875
Brazil
100.0000
South Carolina
99.9046
Mexico
100.0000
Texas
| (1) | Does not include certain subsidiaries which if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary |
8
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K) of Fluor Corporation of our report dated January 27, 2003, included in the 2002 Annual Report to Shareholders of Fluor Corporation.
We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-52992) pertaining to the Fluor Corporation 2000 Executive Performance Incentive Plan and the Fluor Corporation 2000 Restricted Stock Plan for Non-Employee Directors, the Registration Statement (Form S-8 No. 333-63868) pertaining to the Fluor Daniel Craft Employees 401(k) Retirement Plan, the Registration Statement (Form S-8 No. 333-63870) pertaining to Fluor Corporation Salaried Employees' Savings Investment Plan, the Registration Statement (Form S-8 No. 333-63872) pertaining to TRS 401(k) Retirement Plan, the Registration Statement (Form S-8 No. 333-63858) pertaining to AMECO and Subsidiaries Salaried Employees 401(k) Retirement Plan, the Registration Statement (Form S-8 No. 333-63860) pertaining to DMIS, Inc. Nissan Maintenance Project Retirement & Savings Plan, the Registration Statement (Form S-8 No. 333-63862) pertaining to Fluor Corporation Employees' Performance Plan, the Registration Statement (Form S-8 No. 333-63864) pertaining to TRS Salaried Employees' 401(k) Retirement Plan, the Registration Statement (Form S-8 No. 333-67000) pertaining to 2001 Key Employee Performance Incentive Plan, the Registration Statement (Form S-8 No. 333-84790) pertaining to the Fluor Executive Deferred Compensation Program, and the Registration Statement and related prospectus (Form S-3 No. 333-63984) pertaining to the $300,000,000 offering of debt securities of Fluor Corporation of our report dated January 27, 2003, with respect to the consolidated financial statements of Fluor Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 2002.
/s/ Ernst & Young LLP
Orange County, California
March 24, 2003
|
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, in his capacity as an officer of Fluor Corporation (the "Company"), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
- the Annual Report of the Company on Form 10-K for the period ended December 31, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
- the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.
Dated: March 25, 2003 /s/ Alan L. Boeckmann ----------------------------------- Alan L. Boeckmann Chief Executive Officer /s/ D. Michael Steuert ----------------------------------- D. Michael Steuert Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Fluor Corporation and will be retained by Fluor Corporation and furnished to the Securities and Exchange Commission or its staff upon request.