UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-16129
FLUOR CORPORATION
Delaware | 33-0927079 | |
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(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer I.D. No.) |
One Enterprise Drive, Aliso Viejo, CA 92656
(949) 349-2000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( )
As of October 31, 2004, there were 83,797,157 shares of common stock outstanding.
FLUOR CORPORATION
FORM 10-Q
September 30, 2004
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EXHIBIT 32.2 |
1
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
FLUOR CORPORATION
UNAUDITED
See Accompanying Notes
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See Accompanying Notes
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See Accompanying Notes
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FLUOR CORPORATION
Item 2. Managements Discussion and Analysis of
The following discussion and analysis is provided to increase understanding of,
and should be read in conjunction with, the condensed consolidated financial
statements and accompanying notes and the companys December 31, 2003 annual
report on Form 10-K. For purposes of reviewing this document, operating
profit is calculated as revenues less cost of revenues.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made herein, including statements regarding the companys
projected earnings levels, new awards and backlog levels and the implementation
of strategic initiatives and organizational changes are forward-looking in
nature. These forward-looking statements reflect current analysis of existing
information and are subject to various risks and uncertainties. As a result,
caution must be exercised in relying on forward-looking statements. Due to
known and unknown risks, the companys actual results may differ materially
from its expectations or projections. Factors potentially contributing to such
differences include, among others:
While most risks affect only future costs or revenues anticipated by the
company, some risks may relate to accruals that have already been reflected in
earnings. The companys failure to receive payments of accrued amounts or if
liabilities are incurred in excess of amounts previously recognized, a charge
against future earnings could result.
Additional information concerning these and other factors can be found in our
press releases as well as our periodic filings with the Securities and Exchange
Commission, including the discussion under the heading Item 1.
Business-Company Risk Factors in the companys Form 10-K filed March 15, 2004.
These filings are available publicly on the SECs website at
http://www.sec.gov, on Fluors website at
http://investor.fluor.com or upon request from Fluors Investor Relations
Department: (949) 349-3909.
The company disclaims any intent or obligation to update its forward-looking
statements, whether as a result of new information, future events or otherwise.
16
RESULTS OF OPERATIONS
Net earnings in the three and nine months ended September 30, 2004 were $47.3
million or $0.57 per diluted share and $138.8 million or $1.68 per diluted
share, respectively. These results compare with net earnings of $44.1 million
or $0.55 per diluted share and $106.0 million or $1.32 per diluted share for
the same periods of 2003. Results for the nine months ended September 30, 2003
include a loss of $11.6 million or $0.15 per diluted share from discontinued
operations relating to the disposal of an equipment dealership. In addition,
results for the nine months ended September 30, 2003 include a net charge of
$10.4 million or $0.13 per diluted share for the cumulative effect of a change
in accounting principle relating to the consolidation of variable interest
entities.
As discussed in Note 8 to the condensed consolidated financial statements,
during the third quarter of 2004, the Emerging Issues Task Force reached a
consensus on the treatment of contingently convertible debt in diluted earnings
per share computations. The provisions of this pronouncement are to be applied
in the fourth quarter of 2004, with restatements of all prior periods during
which the debt was outstanding. If the consensus had been applied during the
current period, diluted earnings per share for the third quarter and nine
months ended September 30, 2004 would have been reduced to $0.54 per diluted
share and $1.62 per diluted share, respectively. Previously reported amounts
for 2003 would not have changed, since the debt was issued in 2004.
Revenues from continuing operations for the three and nine months ended
September 30, 2004 were $2.4 billion and $6.6 billion, respectively, compared
with $2.1 billion and $6.4 billion for the 2003 comparison periods. Earnings
from continuing operations for the three and nine months ended September 30,
2004 include a $5.5 million pre-tax gain from the final settlement of a
residual interest in an asset sold by the company in 1985, combined with
several other accrual and foreign currency adjustments totaling $4.0 million
that resulted in a decline in general and administrative expense. Also
included in earnings from continuing operations for the first nine months of
2004 is a pre-tax gain amounting to $7.4 million from the sale of three real
estate assets. The nine months ended September 30, 2003 include a pre-tax
provision of $7.4 million for impairment of an equity investment earned in
exchange for consulting services provided on a magnesium project in Australia.
The company has continued to experience a trend away from power projects as
demand for new power plant construction remains at a low level resulting in
lower revenues and earnings from this market in the nine months ended September
30, 2004. Revenues and earnings from continuing operations were also
negatively impacted by the lower level of new project awards in the
economically sensitive mining, chemicals and manufacturing markets experienced
in 2003. In addition, the companys 2003 decision to suspend performance on a
mining project and withdraw from certain commercial projects had a negative
impact on third quarter 2003 backlog and the volume of work performed in the
first nine months of 2004. A partial offset to these impacts is the positive
trend for new awards in the Government segment resulting in a significant
increase in work performed in Iraq on projects for the U.S. Government in 2004.
Additionally, operating results of the Oil & Gas segment for the three months
ended September 30, 2004 were favorably impacted by increased work performed
associated with the transition to field activities on two major international
projects. The company also benefited from increased revenues beginning in the
first quarter of 2004 from business acquisitions completed in 2003 and early
2004.
Consolidated new awards for the three and nine months ended September 30, 2004
were $3.2 billion and $9.7 billion, up 18 percent and 27 percent, respectively,
compared with the same periods in 2003. New awards in the 2004 periods include
a broad diversity of projects in the Oil & Gas, Industrial & Infrastructure and
Government segments reflecting the continuing improvement in the global
economic environment. Consolidated backlog at September 30, 2004 increased 33
percent to $13.7 billion from $10.3 billion at September 30, 2003.
Approximately 63 percent of consolidated new awards for the nine months ended
September 30, 2004 were for projects located outside of the United States. As
of September 30, 2004, approximately 60 percent of consolidated backlog relates
to international projects. Although backlog reflects business which is
considered to be firm, cancellations or scope adjustments may occur. Backlog
is adjusted to reflect any known project cancellations, deferrals and revised
project scope and cost, both upward and downward.
17
OIL & GAS
Revenues and operating profit for the Oil & Gas segment are summarized as
follows:
As a result of a shift in the markets served by and the types of projects
awarded to ICA Fluor Daniel (ICA Fluor), commencing in the third quarter of
2004, its operating results, new awards and backlog are included in the Oil &
Gas segment. ICA Fluor was previously included in the Power segment.
Revenues were 74 percent higher in the third quarter of 2004 compared with the
same period in 2003 and were 17 percent higher for the nine months ended
September 30 2004 compared with the same period in 2003. The increases reflect
work performed on projects that have shifted from preliminary studies and
engineering work to the execution stage of procurement and construction during
the quarter. Revenue for the first six months of 2004 included a higher level
of front-end engineering services which do not generate significant revenue but
do result in higher operating margins. Operating profit margin in the three
and nine months ended September 30, 2004 was comparable with the same periods
in 2003.
A major project that has reached mechanical completion in the Oil & Gas segment
is the Hamaca Crude Upgrader Project (Hamaca) located in Jose, Venezuela.
Hamaca is a $1.1 billion lump sum project (including $92 million of approved
change orders) 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
Petroleos de Venezuela S.A., ChevronTexaco and ConocoPhillips.
The GA joint venture is pursuing the following three cost and schedule relief
issues:
The site soil conditions issue was the subject of arbitration hearings in
November 2002. There are no monetary cross-claims by PA in the arbitration.
The amount of the claim for site soil conditions of $159 million includes the
direct costs as well as significant delay-related and indirect costs. In April
2004, the arbitration panel awarded GA $36 million for direct cost of the site
soil conditions remediation work, virtually all of the amounts sought by GA for
this issue. The client had previously conditionally accepted responsibility
relating to the soil conditions matter and $28 million had been paid. The
balance of the $36 million award amount was received in April 2004. The award
confirmed GAs methodology for computing the amount of all change orders
arising under the contract. In addition, the award also granted GA
approximately 14 weeks of schedule relief. The delay and indirect costs were
the subject of hearings in June 2004 and a decision is expected shortly.
The hearings on the fundamental cost differences between the earlier 1998 labor
agreement and the 2000 Acta Convenio were held in April 2003 and a decision on
this issue is also expected shortly. The amount of the claim for Acta Convenio
is $210 million and no payments have been made by the client relating to this
matter.
18
In accordance with the contract, the joint venture is entitled to cost and
schedule relief for the impact of the national strike in Venezuela. A change
order relating to the national strike in the approximate amount of $340 million
was submitted by GA. This action was followed by the filing of an arbitration
claim relating to this issue in January 2004. The arbitration panel ordered
hearings on this issue in December 2004 and January 2005. Other force majeure
incidents occurring prior to the national strike also were the subject of
arbitration hearings in October 2003.
Incurred costs associated with delay and indirect costs related to the soil
conditions, Acta Convenio, the national strike and other claims are probable of
being recovered and thus are being deferred. These costs will be recognized in
revenue when a change order is approved or payment is received. As of
September 30, 2004, incurred costs amounting to $253.2 million have been
deferred. Subcontractor close-outs will result in additional costs as
contracts are settled. The company believes that schedule relief awarded in
connection with the direct costs of the site soil conditions, along with other
delay days requested on the other issues, will be sufficient to avoid the
imposition of liquidated damages. If costs relating to Acta Convenio, soil
conditions, the national strike or other claims are determined to be not
recoverable or liquidated damages are assessed, the company could face
materially reduced profits or losses on this project, along with lower levels
of cash and additional borrowings.
New awards for the three months ended September 30, 2004 were $612 million
compared with $398 million in the comparable period of 2003. New awards in the
2004 period included engineering, procurement and construction management for a
clean fuels project in the United States and a number of smaller projects
located in various foreign countries. Backlog at September 30, 2004 increased
43 percent to $4.8 billion compared with $3.3 billion at September 30, 2003.
INDUSTRIAL & INFRASTRUCTURE
Revenues and operating profit for the Industrial & Infrastructure segment are
summarized as follows:
Revenues for the three and nine months ended September 30, 2004 decreased 16
percent and 23 percent, respectively, compared with the same periods in 2003
primarily due to slow start-up progress on recently awarded projects and the
lower level of new awards in the latter half of 2003. In addition, as
discussed above, certain projects that were removed from backlog in the third
quarter of 2003 also had a negative impact on the volume of work performed in
the nine months ended September 30, 2004. Operating profit margin in the three
months ended September 30, 2004 was 3.0 percent compared with 2.8 percent in
the comparable period of the prior year. The current quarters operating
profit includes a $9.0 million negative impact from a provision recorded for an
estimated project loss, partially offset by a $7.2 million positive impact from
the favorable resolution of a project related dispute. In the second quarter
of 2003, a provision amounting to $7.4 million was recognized for the
impairment of an equity investment earned in connection with consulting work on
a magnesium project in Australia.
New awards for the three months ended September 30, 2004 were $1.1 billion
compared with $0.7 billion for the 2003 comparison period. New awards in the
2004 period include construction management for a pharmaceuticals plant in
Puerto Rico, a full scope chemicals plant in the United Kingdom and added scope
on a LCD glass manufacturing plant in Taiwan. For the nine months ended
September 30, 2004 new awards amounted to $3.9 billion compared with $2.1
billion for the same period in 2003. Activity in new awards has strengthened
substantially in 2004 reflecting improvement in economically sensitive markets
such as mining, chemicals and manufacturing. Backlog increased to $5.2 billion
at September 30, 2004 compared with $3.5 billion at September 30, 2003.
19
GOVERNMENT
Revenues and operating profit for the Government segment are summarized as
follows:
The increase in revenues in the three and nine months ended September 30, 2004
is primarily due to the substantial increase in work performed on projects in
Iraq and revenue from entities acquired during 2003. Del-Jen was acquired late
in the first quarter of 2003 and J.A. Jones International was acquired in the
fourth quarter of 2003. In addition, Trend Western was acquired by Del-Jen in
the first quarter of 2004. In total, these acquired businesses contributed
$280 million of revenue in the nine months ended September 30, 2004 compared
with $95 million from acquired businesses in the same period of 2003. Work
performed in Iraq contributed approximately $145 million and $503 million in
revenue in the three and nine months ended September 30, 2004, respectively.
There was no work in Iraq in the comparable periods of 2003. Increased
operating profit in the three and nine months ended September 30, 2004 compared
with the same periods of 2003 is primarily due to earnings on the projects in
Iraq and also includes contributions from business acquisitions in 2003 and
2004.
New awards of $1.2 billion in the three months ended September 30, 2004 were
roughly equivalent to the amount reported in the same period a year ago. Both
quarters included the impact of the annual renewal of two major DOE projects.
New awards of $1.8 billion in the nine months ended September 30, 2004 exceeded
the amount reported for the 2003 comparison period of $1.5 billion primarily as
the result of new awards for work in Iraq, which are added to backlog as task
orders are received.
Backlog at September 30, 2004 increased to $1.7 billion from $1.3 billion at
the end of the third quarter last year.
GLOBAL SERVICES
Revenues and operating profit for the Global Services segment are summarized as
follows:
Revenue and operating profit increased 19 percent and 35 percent, respectively,
in the third quarter of 2004 compared with the same period in 2003. These
increases are primarily due to higher levels of procurement and increased
staffing services driven by overall growth in Fluors work performed.
Operating profit for the earlier part of 2004 was negatively impacted by
reduced construction-related site services activities for power and oil and gas
projects which have been completed.
New awards and backlog for Global Services reflect operations and maintenance
activities. 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. New awards
20
for the three and nine months ended September 30, 2004 were $274 million and
$920 million, respectively, compared with $267 million and $844 million,
respectively, for the 2003 comparison periods.
Backlog for Global Services at September 30, 2004 was $1.9 billion compared
with $1.6 billion at September 30, 2003.
POWER
Revenues and operating profit (loss) for the Power segment are summarized as
follows:
As a result of a shift in the markets served by and the types of projects
awarded to ICA Fluor, commencing in the third quarter of 2004, its operating
results, new awards and backlog are included in the Oil & Gas segment.
Revenues for 2004 reflect the expected decline, compared with the year ago
periods, associated with continued softness in power plant procurement and
construction activity. Operating margin in 2003 reflects performance on
projects that were either completed or nearing completion where profit
recognition is strongest. Operating profit in the first half of 2004 benefited
from settlements relating to projects completed in prior periods. Unexpected
costs associated with the start-up and commissioning of a waste-coal power plant
was the cause of the operating loss for the three months ended September 30,
2004.
New project awards in the third quarter and first nine months of 2004 were $9
million and $115 million, respectively, compared with $210 million and $316
million in the prior year comparison periods. Demand for new power generation
has declined significantly as existing industry capacity is currently meeting
demand. Backlog at September 30, 2004 was $78 million compared with $565
million at September 30, 2003.
In July 2003, the company jointly announced with Duke Energy Corporation the
decision to dissolve the Duke/Fluor Daniel partnership (D/FD) as a result of
the significant decline in the construction of new power plants. The
dissolution is not expected to have a material impact on results of operations
or financial position of the company. The dissolution is in progress and is
expected to be completed in 2005 as remaining project activities are concluded.
OTHER
Corporate general and administrative expense for the three months ended
September 30, 2004 was $23.7 million, reflecting a 29 percent decline compared
with $33.5 million in the same period of 2003. This decline was the result of
a $5.5 million pre-tax gain related to the final disposal of a residual
interest in a property that was sold by the company in 1985, combined with
several other accrual and foreign currency adjustments totaling $4.0 million.
Additionally, $7.4 million of other pre-tax gains from real estate sales during
the first six months of 2004 contributed to the $17.1 million decline in
corporate general and administrative expense for the nine months ended
September 30, 2004, compared with the corresponding period of 2003. Corporate
general and administrative expense in 2004 has been negatively impacted as a
result of higher audit fees and other costs of complying with the provisions of
the Sarbanes-Oxley Act of 2002. However, these increased costs have been
largely offset by the success of expense reduction programs.
21
During the third quarter of 2004, net interest income was $1.1 million,
consistent with the amount reported in the same period of 2003. For the nine
months ended September 30, 2004 net interest income of $1.0 million compares
with $2.1 million in the same period of 2003 reflecting the higher level of
outstanding borrowings in the 2004 period compared with 2003.
The effective tax rate on the companys continuing operations for the three and
nine months ended September 30, 2004 was 35.2 percent and 34.1 percent,
respectively, compared with 32.2 percent and 33.2 percent in the 2003
comparison periods. The effective tax rate for the remainder of the year is
projected to be approximately 33 to 34 percent compared with 33 percent for the
full year of 2003.
MATTERS IN DISPUTE RESOLUTION
As of September 30, 2004, several matters on certain completed and in progress
projects are in the dispute resolution process. The following discussion
provides a background and current status of these matters:
Murrin Murrin
On May 5, 2004, Fluor Australia and its client, Anaconda Nickel (Anaconda)
entered into a settlement agreement resolving all disputes related to the
Murrin Murrin Nickel Cobalt project located in Western Australia. Fluor
Australia paid the equivalent of approximately US$120 million to end all
remaining claims under both the first and second phases of arbitration,
including any appeals. The payment had no material effect on the companys
financial position or results of operations for the current year as the
amount was funded by the companys insurers.
In September 2002, the first phase of arbitration resulted in an award to
Anaconda of A$147 million (subsequently amended to A$150 million [US$84.0
million]) and an award to Fluor Australia of A$107 million [US$59.9 million]
for amounts owing from Anaconda under the contract. The company had previously
recovered the first phase award plus substantially all defense costs incurred
from available insurance.
Fluor Daniel International and Fluor Arabia Ltd. v. General Electric Company,
et al
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 shortly.
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 was severely delayed with completion of Phase II. DIG
unilaterally took over completion and operation of Phase II and commissioned
that portion of the plant. Shortly thereafter, DIG drew upon a $30 million
letter of credit which Duke/Fluor Daniel (D/FD) expects to recover upon
resolution of the dispute. D/FD retains lien rights (in fee) against the
project. In October 2001, D/FD commenced an action in Michigan State Court to
foreclose on the lien interest.
22
In December 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. The court
has ordered the matter to arbitration. The lien action remains stayed pending
completion of the arbitration of D/FDs claims against DIG and DIGs claims
against D/FD. An arbitration panel has been appointed and the arbitration will
likely proceed in late 2005.
Hamaca Crude Upgrader
Discussion of the status of the Hamaca project is included above under Oil &
Gas.
FINANCIAL POSITION AND LIQUIDITY
During the first nine months of 2004, cash was generated from operations,
issuance of debt in excess of debt reduction and sales of excess real estate.
In the first nine months of 2003, cash used by operating activities was the
primary reason for a substantial reduction in cash balances. In the first nine
months of both 2004 and 2003, niche acquisitions were made that will enhance
existing operations in the Government and Global Services segments.
In the first nine months of 2004, cash provided by operating activities of
$17.3 million was primarily attributable to earnings sources, substantially
offset by an increase in operating assets and liabilities. The Oil & Gas
segment has experienced a significant increase in contract work in progress and
reduction in client advances due in large part to costs incurred related to
contract performance on the Hamaca project in Venezuela that has reached
mechanical completion. A significant portion of these amounts result from
incurred costs relating to change orders that are in the dispute resolution
process. At September 30, 2004, the company has deferred its share of these
costs amounting to $253.2 million, of which $73.6 million was funded in the
first nine months of 2004. In addition, a number of projects are in the early
front-end engineering and design phase which resulted in greater working
capital requirements. Also contributing to the increase in operating assets
and liabilities was a net reduction of $27.8 million in advances from
Duke/Fluor Daniel partnership (D/FD) as power projects were completed and
advance payments previously received from clients for those projects was
expended. Cash utilized for operating activities in the first nine months of
2003 included approximately $275 million to fund progress on the Hamaca project
and to repay advances from D/FD. In July 2003, the company jointly announced
with Duke Energy Corporation the decision to dissolve the D/FD partnership as a
result of the significant decline in the construction of new power plants. The
dissolution is not expected to have a material impact on cash flows in 2004.
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 flows from investing activities in the first nine months of 2004 included
$59.7 million from the sale of three real estate assets and a residual property
interest and $16.7 million from the disposal of other property, plant and
equipment. Partially offsetting these transactions was $33.0 million used to
acquire Trend Western, a provider of logistics and operations services to
military bases in the United States and Guam. In the first nine months of 2003,
$54.5 million was used for two niche acquisitions. Del-Jen, a provider of
outsourcing services to the US Government, and Plant Performance Services, a
provider of specialty operations and maintenance services, were purchased for
$33.3 million and $21.2 million, respectively, in cash. The sale of the last
remaining AMECO dealership operation in the second quarter of 2003 resulted in
proceeds of $31.9 million. Capital expenditures for continuing operations,
primarily for on-going renewal and replacement in the construction equipment
operations, were $68.8 million in the first nine months of 2004 compared with
$47.6 million in the same period of 2003.
Cash provided by financing activities in the first nine months of 2004 included
the issuance of convertible senior notes resulting in net proceeds of $322.5
million. The company utilized a portion of these proceeds
23
to repay $121.5 million in commercial paper and $100.0 million in outstanding
debt on its Aliso Viejo, California facilities. In addition, the company
retired $28.6 million in outstanding debt on its Calgary, Canada facilities
during the third quarter of 2004. The convertible notes are due February 15,
2024 and bear interest at 1.5 percent per annum. Interest is payable
semi-annually on February 15 and August 15 of each year. The companys
debt-to-capital ratio at September 30, 2004 is 22.1 percent compared with 19.7
percent at December 31, 2003. Also impacting cash flows in the first nine
months of 2004 was cash received from the exercise of stock options. Cash
utilized for the payment of dividends ($0.48 per share) in the nine months
ended September 30, 2004 and 2003 was $40.0 million and $39.2 million,
respectively.
Liquidity is provided by cash generated from operations, customer advances on
contracts in progress and access to financial markets. As customer advances are
reduced through use in project execution and if not replaced by advances on new
projects, the companys cash position would be reduced. Cash is also required
and is being provided from other sources to fund subcontractor close-outs on
the Hamaca project in Venezuela. This project has incurred significant costs
for work relating to change orders that are subject to arbitration proceedings.
The requirements for operating liquidity could result in the need for
short-term borrowings. For the next 12 months, cash generated from operations
supplemented by borrowings under credit facilities are expected to be
sufficient to fund operations.
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 $874 million in
short-term committed and uncommitted credit lines to support letters of credit.
Letters of credit are issued in the ordinary course of business to clients to
support advance payments, in lieu of retention, as performance guarantees for
projects and certain other corporate purposes. Primarily as a result of the
companys strong credit standing which provides the availability of letters of
credit capacity, retainage on engineering and construction contracts is
minimal. In certain limited circumstances, the company also posts surety bonds
to guarantee its performance on contracts.
In the first quarter of 2004, changes in the companys contractual obligations
included the issuance of $330 million of 1.5 percent convertible senior notes
and repayment of $129 million of lease financing. As of September 30, 2004, no
other material changes had occurred with regard to the companys commercial
commitments and contractual obligations as disclosed in the companys December
31, 2003 annual report on Form 10-K.
In July 2004, the company entered into a new, five-year, $800 million Senior
Credit Facility. The agreement replaced existing facilities totaling $700
million. Of the total capacity, $300 million is dedicated to commercial paper
back-up lines. The balance is available for letters of credit and funded loans.
The company may borrow up to $300 million under unsecured committed revolving
short- and long-term lines of credit and up to $500 million in committed lines
of credit to support letters of credit. Borrowings on committed lines bear
interest at rates based on the London Interbank Offered Rate (LIBOR) plus an
applicable borrowing margin, or the prime rate.
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 clients and other
third parties under engineering and construction contracts. In most cases any
amounts expended on behalf of a partner or joint venture participant pursuant
to performance guarantees would be recovered from the client or other third
party for work performed in the ordinary course of contract execution. As of
September 30, 2004, no material changes to financial or performance assurances
to clients have occurred since the filing of the companys December 31, 2003
annual report on Form 10-K.
24
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. The company was not obligated for any material
financial guarantees of the debt of third parties as of September 30, 2004.
Financial Instruments
The company utilizes forward exchange contracts to hedge foreign currency
transactions entered into in the ordinary course of business and not to engage
in currency speculation. At September 30, 2004, the company had forward
foreign exchange contracts of less than 36 months duration to exchange
principally; Euros, British pounds, Australian dollars and South African rand
for U.S. dollars. The total gross notional amount of these contracts at
September 30, 2004 was $58 million representing forward contracts to purchase
foreign currency.
OTHER MATTERS
The companys independent auditor, Ernst & Young LLP (E&Y), recently notified
the SEC, the Public Company Accounting Oversight Board (the PCAOB) and the
companys Audit Committee that certain foreign affiliates of E&Y performed
non-audit work in China, Taiwan and Brazil that has raised questions regarding
E&Ys independence with respect to its performance of audit services.
In connection with the preparation of local tax returns, prior to 2001 and
continuing until March 2004, E&Ys foreign affiliate in China made payments of
taxes to local tax authorities with respect to individual employee and
immaterial subsidiaries tax liabilities. As a result, E&Ys foreign
affiliates had temporary custody of insubstantial amounts of company tax
related funds. This E&Y affiliate also made payments of a rental deposit to a
Chinese landlord on behalf of the company which involved the handling of
immaterial amounts of company funds in 2002. The fees paid by the company to
E&Ys foreign affiliate for these services were $11,293, $8,581, $6,656 and
$1,383 during 2001, 2002, 2003 and 2004, respectively.
During 2001, E&Ys foreign affiliate in Taiwan made payments of the taxes to
local authorities in connection with providing tax return preparation services
for an employee of the company. Those payments involved the handling of
company funds. The fees paid by the company to E&Y Taiwan for these services
amounted to $1,653 during 2001. Similar services have not been provided by
E&Ys affiliate in Taiwan since 2001.
Prior to 2001 and continuing through March 2004 as part of its annual tax
filing and bookkeeping services, E&Ys foreign affiliate in Brazil had power of
attorney that allowed it to issue checks from a bank account of one of the
companys immaterial subsidiaries. Fees paid by the company to E&Ys foreign
affiliate for its tax filing and bookkeeping services (including the prohibited
check writing services and fees for the preparation of the power of attorney)
were $15,000 in each of 2001, 2002 and 2003 and $5,400 in 2004. The amounts
paid from or held in the checking account were inconsequential to the company.
The companys Audit Committee and E&Y have discussed E&Ys independence with
respect to its audit of the consolidated financial statements of the company in
light of the foregoing. E&Y has informed the Audit Committee that it does not
believe that the provision of the services described above has impaired E&Ys
independence with respect to the company as the services are administrative in
nature, immaterial in amount, and have been discontinued. The Audit Committee
is continuing to monitor developments at the SEC and PCAOB and will continue to
evaluate and review processes relevant to the maintenance of E&Ys
independence.
25
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
26
FLUOR CORPORATION
UNAUDITED
27
Three Months Ended September 30, 2004 and 2003
$ in thousands, except per share amounts
2004
2003
$
2,362,670
$
2,120,815
2,267,135
2,023,254
23,725
33,551
3,734
2,555
(4,809
)
(3,617
)
2,289,785
2,055,743
72,885
65,072
25,623
20,948
$
47,262
$
44,124
$
0.58
$
0.55
0.57
0.55
81,756
79,934
83,129
80,624
$
0.16
$
0.16
Table of Contents
Nine Months Ended September 30, 2004 and 2003
$ in thousands, except per share amounts
2004
2003
$
6,640,374
$
6,441,174
6,346,335
6,149,854
84,502
101,603
11,520
7,995
(12,485
)
(10,085
)
6,429,872
6,249,367
210,502
191,807
71,724
63,772
138,778
128,035
1,488
(13,104
)
(10,389
)
$
138,778
$
106,030
$
1.71
$
1.61
(0.15
)
(0.13
)
$
1.71
$
1.33
$
1.68
$
1.60
(0.15
)
(0.13
)
$
1.68
$
1.32
81,302
79,607
82,599
80,191
$
0.48
$
0.48
Table of Contents
September 30, 2004 and December 31, 2003
September 30,
December 31,
$ in thousands, except share amounts
2004
2003 *
$
561,549
$
496,502
724,715
636,162
1,078,206
827,091
95,153
118,550
114,044
135,339
2,573,667
2,213,644
511,992
569,480
149,631
152,363
84,297
66,051
153,548
173,613
295,254
274,331
$
3,768,389
$
3,449,482
$
753,655
$
571,535
221,469
16,752
44,548
473,105
489,057
286,971
306,786
176,697
195,743
1,707,180
1,829,138
347,645
44,652
485,198
494,158
838
821
473,963
415,078
(37,512
)
(24,412
)
(33,108
)
(35,335
)
824,185
725,382
1,228,366
1,081,534
$
3,768,389
$
3,449,482
*
Amounts at December 31, 2003 have been derived from audited financial
statements.
Table of Contents
Nine Months Ended September 30, 2004 and 2003
$ in thousands
2004
2003
$
138,778
$
106,030
63,507
59,901
10,389
4,330
17,466
20,065
27,150
(17,459
)
(15,502
)
29,331
(206,350
)
(432,109
)
(10,396
)
3,828
67,382
2,227
(149
)
18,749
(5,038
)
17,279
(135,149
)
(68,849
)
(47,610
)
(2,583
)
(33,000
)
(54,531
)
2,358
9,317
59,688
16,655
18,978
31,926
(2,600
)
(1,008
)
(25,748
)
(45,511
)
(39,975
)
(39,153
)
330,000
(128,581
)
(121,469
)
33,718
20,903
(7,490
)
(2,691
)
(506
)
(422
)
65,697
(21,363
)
7,819
27,430
65,047
(174,593
)
496,502
753,367
$
561,549
$
578,774
Table of Contents
(1)
The condensed consolidated financial statements do not include footnotes
and certain financial information normally presented annually under
accounting principles generally accepted in the United States, and
therefore should be read in conjunction with the companys December 31,
2003 annual report on Form 10-K. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The
results of operations for the three and nine months ended September 30,
2004 are not necessarily indicative of results that can be expected for
the full year.
The condensed consolidated financial statements included herein are
unaudited; however, they contain all adjustments (consisting of normal
recurring accruals and adjustments of certain accrued liabilities
balances during the 2004 periods) which, in the opinion of the company,
are necessary to present fairly its consolidated financial position at
September 30, 2004, its consolidated results of operations for the three
and nine months ended September 30, 2004 and 2003 and its cash flows for
the nine months ended September 30, 2004 and 2003.
Certain 2003 amounts have been reclassified to conform with the 2004
presentation.
(2)
Advances from affiliate relate to cash received by Duke/Fluor Daniel, a
joint venture entity further discussed in Note 6 below, from advance
billings on contracts, which are made available to the partners. Such
advances are classified as an operating liability of the company.
(3)
The components of comprehensive income, net of related tax, are as
follows:
(4)
Cash paid for interest was $10.9 million and $7.9 million for the nine
months ended September 30, 2004 and 2003, respectively. Income tax
payments, net of receipts, were $45.7 million and $14.2 million during the
nine-month periods ended September 30, 2004 and 2003, respectively.
(5)
The company accounts for stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations
(APB 25), as permitted by Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS 123).
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the companys stock at the
date of the grant over the amount an employee must pay to acquire the
stock. All unvested options outstanding under the companys option plans
have grant prices equal to the market price of the companys stock on the
date of grant. Compensation cost for stock appreciation rights and
performance equity units is recorded based on the quoted market price of
the companys stock at the end of the period.
Currently under APB 25, no compensation cost is recognized for unvested
stock options where the grant price is equal to the market price on the
date of grant and the vesting provisions are based only on the passage of
time. Had the company recorded compensation 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:
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Three Months Ended
Nine Months Ended
$ in thousands, except
September 30
September 30
per share amounts
2004
2003
2004
2003
$
47,262
$
44,124
$
138,778
$
106,030
(5,027
)
(2,260
)
(7,672
)
(6,713
)
$
42,235
$
41,864
$
131,106
$
99,317
$
0.58
$
0.55
$
1.71
$
1.33
$
0.52
$
0.52
$
1.62
$
1.24
$
0.57
$
0.55
$
1.68
$
1.32
$
0.51
$
0.52
$
1.59
$
1.23
In 2003, the company granted certain options providing for accelerated
vesting if specific market conditions are achieved. In the third quarter
of 2004, those options became 100 percent vested because the average
closing price of the companys common stock exceeded a specified price
for 20 consecutive trading days. As a result, the remaining compensation
cost for the now fully vested options has been treated as pro forma
compensation expense above for the three and nine months ended September
30, 2004.
(6)
Operations are organized in five industry segments: Oil & Gas, Industrial
& Infrastructure, Government, Global Services and Power. The Oil & Gas
segment provides engineering and construction professional services for
upstream oil and gas production and downstream refining. The Industrial &
Infrastructure segment provides engineering and construction professional
services for manufacturing and life sciences facilities, commercial and
institutional buildings, mining, chemicals, telecommunications and
transportation projects and other facilities. The Government segment
provides project management, engineering, construction, and contingency
response services to the United States government. The Global Services
segment includes operations and maintenance, equipment and temporary
staffing services and the companys global sourcing and procurement
services business. The Power segment provides professional services to
engineer, construct and maintain power generation facilities.
Prior to the third quarter of 2004, services provided by ICA Fluor Daniel
(ICA Fluor), 49 percent jointly owned companies with Grupo ICA, a
Mexican company, were included in the Power segment. As the result of a
shift in the markets served by and the types of projects awarded to ICA
Fluor, commencing in the third quarter of 2004, its operating results and
assets are included in the Oil & Gas segment.
On July 9, 2003, the company jointly announced with Duke Energy
Corporation the decision to dissolve the Duke/Fluor Daniel partnership
(D/FD) as a result of the significant decline in the construction of
new power plants. The dissolution is not expected to have a material
impact on results of operations or financial position of the company. The
dissolution is in progress and is expected to be completed in 2005 as
remaining project activities are concluded. Power segment operations now
include services provided by Fluor and the remaining project completion
activities conducted by D/FD.
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Operating information by segment for the companys continuing operations
are as follows for the three and nine months ended September 30, 2004 and
2003:
Three Months Ended
Nine Months Ended
September 30
September 30
$ in millions
2004
2003
2004
2003
$
965.1
$
555.0
$
2,274.0
$
1,938.4
556.7
663.7
1,519.3
1,985.5
529.7
403.3
1,698.7
1,088.7
279.5
235.1
896.9
824.2
31.7
263.7
251.5
604.4
$
2,362.7
$
2,120.8
$
6,640.4
$
6,441.2
$
45.1
$
27.7
$
102.6
$
85.1
16.8
18.4
42.3
44.9
18.2
11.8
63.5
32.4
25.5
18.9
68.8
69.1
(10.1
)
20.7
16.8
59.8
$
95.5
$
97.5
$
294.0
$
291.3
A reconciliation of the segment information to consolidated amounts for
the three and nine months ended September 30, 2004 and 2003 is as
follows:
Total assets for the Oil & Gas segment at September 30, 2004 were $701.7
million compared with $508.6 million at December 31, 2003. The current year
increase is the combined result of a $73.6 million increase in deferred costs
relating to the Hamaca project (Note 12), the inclusion of ICA Fluor in the Oil
& Gas segment ($38.2 million, with an offsetting decrease to the Power segment)
and a number of projects that have transitioned to field activities, which have
greater working capital requirements. Total assets for the Industrial &
Infrastructure segment at September 30,
2004 were $569.3 million compared with $447.2 million at December 31,
2003. This increase resulted principally from projects transitioning to
field activities, with the higher associated working capital
requirements.
(7)
In February 2004, Del-Jen, Inc., a subsidiary of the company, acquired
Trend Western Technical Corporation (Trend Western), a provider of
logistics and operations services to military bases in the United States
and Guam for $33.0 million in cash. This acquisition further enhances the
companys ability to serve the federal government marketplace and expands
the service offering and the international reach of Del-Jen. The company
recorded goodwill of $18.0 million and
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
intangible assets of $10.0 million.
Goodwill is no longer amortized but is reviewed periodically for
impairment in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142). The intangible assets are being amortized over
useful lives ranging from four to nine years.
The companys consolidated financial statements include the operating
results of Trend Western from the date of acquisition. Pro forma results
of operations have not been presented because the effect of this
acquisition was not material to the companys results.
In addition, during the first quarter of 2004, the company finalized the
purchase price allocation of the 2003 acquisition of five specialty
operations and maintenance (O&M) business groups from Philip Services
Corporation. The acquired businesses, which have been named Plant
Performance Services, have expanded and strengthened the O&M services
business component of the Global Services segment and complement the
companys core engineering, procurement, construction and maintenance
business. The business groups were acquired for $21.2 million in cash.
The seller retained the working capital for these businesses. Costs in
excess of tangible assets acquired amounted to $11.5 million (goodwill of
$8.7 million and intangible assets of $2.8 million). Goodwill is no
longer amortized but is reviewed periodically for impairment in
accordance with SFAS 142. The intangible assets are being amortized over
useful lives ranging from one to five years.
(8)
In February 2004, the company issued $330 million of convertible senior
notes due February 15, 2024 and received proceeds of $323 million, net of
underwriting discounts. The notes bear interest at a rate of 1.50 percent
per annum with interest payable semi-annually on February 15 and August 15
of each year. On or after February 17, 2005, the notes are convertible
into shares of the companys common stock at a conversion rate of 17.875
shares per each $1,000 principal amount of notes at an initial conversion
price of $55.94 per share, if (a) the closing price of the companys
common stock exceeds a specified price for a specified period of time, (b)
the company calls the notes for redemption or (c) upon the occurrence of
specified corporate transactions. Additionally, under the closing price
condition, conversion of the notes may occur only during the fiscal
quarter immediately following the quarter in which the closing price
condition is satisfied. Upon conversion, the company has the right to
deliver, in lieu of common stock, cash or a combination of cash and shares
of the companys stock. Shares of the companys common stock that would
be issued if the notes were converted are not included in diluted earnings
per share because the conversion price was above the market price on the
date of issue and conversion is contingent upon achieving a price target
for a specified period of time of 130 percent of the conversion price.
Neither the conversion price nor price target has been achieved since the
date of issue.
Holders of notes may require the company to purchase all or a portion of
their notes on February 15, 2009, February 15, 2014 and February 15, 2019
at 100 percent of the principal amount plus accrued and unpaid interest.
Any notes tendered in the first put on February 15, 2009, will be settled
in cash. Subsequent puts may be settled in cash, stock or a combination
thereof at the companys option. After February 16, 2009, the notes are
redeemable at the option of the company, in whole or in part, at 100
percent of the principal amount plus accrued and unpaid interest. In the
event of a change of control of Fluor, each holder may require the
company to repurchase the notes for cash, in whole or in part, at 100
percent of the principal amount plus accrued and unpaid interest.
In September 2004, the Emerging Issues Task Force (EITF) reached a
final consensus on Issue No. 04-8, The Effect of Contingently
Convertible Debt on Diluted Earnings per Share (the consensus).
Contingently convertible debt instruments (commonly referred to as
Co-Cos) are financial instruments that add a contingent feature to a
convertible debt instrument. The conversion feature is triggered when one
or more specified contingencies occur and at least one
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
of these contingencies is based on market price. Prior to the issuance of the
final consensus on Issue No. 04-8 by the EITF, SFAS 128, Earnings per
Share, had been widely interpreted to allow the exclusion of common
shares underlying contingently convertible debt instruments from the
calculation of diluted earnings per share (EPS) in instances where
conversion depends on the achievement of a specified market price of the
issuers shares. The consensus requires that these underlying common
shares be included in the diluted EPS computations, if dilutive,
regardless of whether the market price contingency or any other
contingent factor has been met.
The consensus is effective for the company in the fourth quarter of 2004
and must be applied by restating all periods during which the convertible
debt is outstanding. Had the company implemented the consensus on
September 30, 2004, diluted EPS for the first, second and third quarters
of 2004, and the nine months ended September 30, 2004, would have been
reduced to $0.56, $0.52, $0.54 and $1.62, respectively.
(9)
In December 2003, the FASB issued SFAS No. 132 (revised December 2003),
Employers Disclosures about Pensions and Other Postretirement Benefits
(SFAS 132-R). This statement amends the disclosure requirements of SFAS
132 to require more details about retirement plan assets, benefit
obligations, cash flows and other relevant information. SFAS 132-R is
effective for years ending after December 15, 2003, except certain benefit
payment and international plan disclosures that are effective for fiscal
years ending after June 15, 2004. Disclosures relating to international
plans are included in the accompanying information.
Net periodic pension expense for continuing operations defined benefit
pension plans includes the following components:
The company currently expects to fund approximately $30 to $50 million
for the calendar year 2004 compared with $52.5 million funded in calendar
2003. During the nine months ended September 30, 2004, approximately $8
million of contributions have been made to the companys non-U.S. pension
plans.
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Net periodic postretirement benefit cost for continuing operations
includes the following components:
Three Months Ended
Nine Months Ended
September 30
September 30
$ in thousands
2004
2003
2004
2003
$
$
$
$
420
561
1,387
1,682
142
157
604
473
$
562
$
718
$
1,991
$
2,155
On December 8, 2003, the Medicare Prescription Drug Improvement and
Modernization Act of 2003 (the Act) was signed into law. The Act
introduced a prescription drug benefit under Medicare (Medicare Part D)
and a federal subsidy to sponsors of retirement health care plans that
provide a benefit that is at least actuarially equivalent to Medicare
Part D. In May 2004, the FASB issued Staff Position 106-2, Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (FSP 106-2) providing
guidance on accounting for the effects of the Act and specific disclosure
requirements. Detailed regulations necessary to implement the Act have
not been issued, including those that would specify the manner in which
actuarial equivalency must be determined, the evidence required to
demonstrate actuarial equivalency, and the documentation requirements
necessary to be entitled to the subsidy. Based on an analysis of the
Act, the company has formed a preliminary conclusion that its retiree
medical plans provide benefits that are at least actuarially equivalent
to Medicare Part D. The company adopted the provisions of FSP 106-2 as
of July 1, 2004 and recorded the effects of the subsidy in measuring net
periodic postretirement benefit cost during the quarter ended September
30, 2004. This resulted in a reduction in the accumulated postretirement
benefit obligation for the subsidy related to benefits attributed to past
service of $2.9 million and a pre-tax reduction in net periodic
postretirement benefit costs of $0.2 million for the quarter ended
September 30, 2004. However, since final regulations have not been
issued, the companys preliminary conclusion is subject to change.
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.
(10)
In December 2003, the FASB issued Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities (FIN 46-R). FIN 46-R
provides the principles 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 are not required to provide
sufficient financial resources for the entity to support its activities
without additional subordinated financial support. FIN 46-R 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
entitys activities or entitled to receive a majority of the entitys
residual returns or both. A company that consolidates a variable interest
entity is called the primary beneficiary of that entity.
The companys engineering office facilities in Aliso Viejo, California
(Aliso Viejo) and Calgary, Canada (Calgary) were leased through
arrangements involving variable interest entities. Beginning in the first
quarter of 2003, the company consolidated these entities in its financial
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
statements as prescribed by FIN 46-R. The cumulative impact of the
difference in earnings, amounting to a net charge of $10.4 million, was
reported in the first quarter of 2003 as the cumulative effect of a
change in accounting principle.
During 2004, the company exercised its options to purchase both the Aliso
Viejo ($100 million) and Calgary ($29 million) engineering and office
facilities. These amounts are reported as repayments of facilities
financing in the accompanying condensed consolidated statement of cash
flows.
The company executes certain contracts jointly through partnerships and
joint ventures with unrelated third parties that may be subject to the
requirements of FIN 46-R. The company has evaluated the applicability of
FIN 46-R to existing partnerships and joint ventures as of September 30,
2004 and determined that no material changes are required in the
accounting or financial reporting for these entities.
(11)
In September 2001, the Board of Directors approved a plan to dispose of
certain non-core operations of the companys construction equipment and
temporary staffing operations. The company completed the sale of its
discontinued operations in the second quarter of 2003. Prior to
completion of the sale, the company recorded an additional after-tax
impairment provision which included adjustments to deferred taxes, to
recognize further deterioration in its fair value due to continued
severely depressed conditions in the equipment rental industry.
The revenues and earnings (loss) from discontinued operations for the
nine months ended September 30, 2003 are as follows:
There have been no results of operations reported as discontinued
operations for any period subsequent to June 30, 2003.
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(12)
The company and certain of its subsidiaries are involved in litigation in
the ordinary course of business. In addition, the company and certain of
its subsidiaries are contingently liable for commitments and performance
guarantees arising in the ordinary course of business. 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 incurred in excess of the contract provisions. The
company recognizes 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. Claims
recognized in revenue in current and prior periods amounted to $47
million and $16 million at September 30, 2004 and December 31, 2003,
respectively. At September 30, 2004, the company has $13 million in
amounts due from insurance carriers that were recognized in previous
years. While 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.
The current status on matters in the dispute resolution process, none of
which are expected to have a material adverse effect on consolidated
financial position or results of operations, is as follows:
Murrin Murrin
On May 5, 2004, Fluor Australia and its client, Anaconda Nickel
(Anaconda) entered into a settlement agreement resolving all disputes
related to the Murrin Murrin Nickel Cobalt project located in Western
Australia. Fluor Australia paid the equivalent of approximately US$120
million to end all remaining claims under both the first and second
phases of arbitration, including any appeals. The payment had no
material effect on the companys financial position or results of
operations for the current year as the amount was funded by the
companys insurers.
In September 2002, the first phase of arbitration resulted in an award to
Anaconda of A$147 million (subsequently amended to A$150 million [US$84.0
million]) and an award to Fluor Australia of A$107 million [US$59.9
million] for amounts owing from Anaconda under the contract. The company
had previously recovered the first phase award plus substantially all
defense costs incurred from available insurance.
Fluor Daniel International and Fluor Arabia Ltd. v. General Electric
Company, et al
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 shortly.
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.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Project was severely delayed with completion of Phase II. DIG
unilaterally took over completion and operation of Phase II and
commissioned that portion of the plant. Shortly thereafter, DIG drew upon
a $30 million letter of credit which Duke/Fluor Daniel (D/FD) expects
to recover upon resolution of the dispute. D/FD retains lien rights (in
fee) against the project. In October 2001, D/FD commenced an action in
Michigan State Court to foreclose on the lien interest.
In December 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.
The court has ordered the matter to arbitration. The lien action remains
stayed pending completion of the arbitration of D/FDs claims against DIG
and DIGs claims against D/FD. An arbitration panel has been appointed
and the arbitration will likely proceed in late 2005.
Hamaca Crude Upgrader
A major project that has reached mechanical completion in the Oil & Gas
segment is the Hamaca Crude Upgrader Project (Hamaca) located in Jose,
Venezuela. Hamaca is a $1.1 billion lump sum project (including $92
million of approved change orders) 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 Petroleos de Venezuela
S.A., ChevronTexaco and ConocoPhillips.
The GA joint venture is pursuing the following three cost and schedule
relief issues:
modifications and extra work arising from differing site soil conditions,
costs arising from the site labor agreement for 2000 called Acta Convenio and
events in Venezuela in early 2003, including a national
strike and other force majeure incidents.
The site soil conditions issue was the subject of arbitration hearings in
November 2002. There are no monetary cross-claims by PA in the
arbitration. The amount of the claim for site soil conditions of $159
million includes the direct costs as well as significant delay-related
and indirect costs. In April 2004, the arbitration panel awarded GA $36
million for direct cost of the site soil conditions remediation work,
virtually all of the amounts sought by GA for this issue. The client had
previously conditionally accepted responsibility relating to the soil
conditions matter and $28 million had been paid. The balance of the $36
million award amount was received in April 2004. The award confirmed
GAs methodology for computing the amount of all change orders arising
under the contract. In addition, the award also granted GA approximately
14 weeks of schedule relief. The delay and indirect costs were the
subject of hearings in June 2004 and a decision is expected shortly.
The hearings on the fundamental cost differences between the earlier 1998
labor agreement and the 2000 Acta Convenio were held in April 2003 and a
decision on this issue is also expected shortly. The amount of the claim for Acta Convenio is $210 million and
no payments have been made by the client relating to this matter.
In accordance with the contract, the joint venture is entitled to cost
and schedule relief for the impact of the national strike in Venezuela.
A change order relating to the national strike in the approximate amount
of $340 million was submitted by GA. This action was followed by the
filing of an arbitration claim relating to this issue in January 2004.
The arbitration panel ordered
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
hearings on this issue in December 2004 and
January 2005. Other force majeure incidents occurring prior to the
national strike also were the subject of arbitration hearings in October
2003.
Incurred costs associated with delay and indirect costs related to the
soil conditions, Acta Convenio, the national strike and other claims are
probable of being recovered and thus are being deferred. These costs
will be recognized in revenue when a change order is approved or payment
is received. As of September 30, 2004, incurred costs amounting to
$253.2 million have been deferred. Subcontractor close-outs will result
in additional costs as contracts are settled. The company believes that
schedule relief awarded in connection with the direct costs of the site
soil conditions, along with other delay days requested on the other
issues, will be sufficient to avoid the imposition of liquidated damages.
If costs relating to Acta Convenio, soil conditions, the national strike
or other claims are determined to be not recoverable or liquidated
damages are assessed, the company could face materially reduced profits
or losses on this project, along with lower levels of cash and additional
borrowings.
(13)
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 clients and other third
parties under engineering and construction contracts. In most cases any
amounts expended on behalf of a partner or joint venture participant
pursuant to performance guarantees would be recovered from the client or
other third party for work performed in the ordinary course of contract
execution. As of September 30, 2004, no material changes to financial or
performance assurances to clients have occurred since the filing of the
companys December 31, 2003 annual report on Form 10-K.
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. The company was
not obligated for any material financial guarantees of the debt of third
parties as of September 30, 2004.
Table of Contents
Financial Condition and Results of Operations
Changes in global business, economic (including currency risk), political and social conditions;
The companys 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 the company serves and its vulnerability to downturns;
Difficulties or delays incurred in the execution of construction contracts, including performance by our joint venture
partners, resulting in cost overruns or liabilities;
Failure to meet timely completion or performance standards could result in higher costs and reduced profits or, in some
cases losses on projects;
A failure to obtain favorable results in existing or future litigation or dispute resolution proceedings;
Customer delays or defaults in making payments;
The potential impact of certain tax matters including, but not limited to, those resulting from the companys reverse
spin-off transaction consummated November 30, 2000 involving Massey Energy Company;
The impact of past and future environmental, health and safety regulations;
Competition in the global engineering, procurement and construction industry;
The companys ability to identify and successfully integrate acquisitions;
Conversion of outstanding convertible securities that would dilute ownership interests of existing stockholders and could
adversely affect the market price of the companys common stock;
and
The companys ability to recover amounts that are due as change orders to the Hamaca Crude Upgrader project.
Table of Contents
Table of Contents
Three Months Ended
Nine Months Ended
September 30
September 30
$ in millions
2004
2003
2004
2003
$
965.1
$
555.0
$
2,274.0
$
1,938.4
45.1
27.7
102.6
85.1
modifications and extra work arising from differing site soil conditions,
costs arising from the site labor agreement for 2000 called Acta Convenio and
events in Venezuela in early 2003, including a national strike and other force majeure incidents.
Table of Contents
Three Months Ended
Nine Months Ended
September 30
September 30
$ in millions
2004
2003
2004
2003
$
556.7
$
663.7
$
1,519.3
$
1,985.5
16.8
18.4
42.3
44.9
Table of Contents
Three Months Ended
Nine Months Ended
September 30
September 30
$ in millions
2004
2003
2004
2003
$
529.7
$
403.3
$
1,698.7
$
1,088.7
18.2
11.8
63.5
32.4
Three Months Ended
Nine Months Ended
September 30
September 30
$ in millions
2004
2003
2004
2003
$
279.5
$
235.1
$
896.9
$
824.2
25.5
18.9
68.8
69.1
Table of Contents
Three Months Ended
Nine Months Ended
September 30
September 30
$ in millions
2004
2003
2004
2003
$
31.7
$
263.7
$
251.5
$
604.4
(10.1
)
20.7
16.8
59.8
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
There have been no material changes to the disclosure on this matter
made in the Annual Report on Form 10-K for the year ended December 31,
2003.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, 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. Based on this evaluation, our chief
executive officer and chief financial officer concluded that, as of the
end of the period covered by this report, our disclosure controls and
procedures were effective in alerting them on a timely basis to material
information relating to the company that is required to be included in
our periodic reports filed with the SEC.
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 managements 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 be no
assurance that any design will succeed in achieving its stated goals
under all future events, no matter how remote.
Changes in Internal Controls over Financial Reporting
There were no changes to our internal controls over financial reporting
that occurred during the three months ended on the date of this report
that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
Table of Contents
Three and Nine Months Ended September 30, 2004 and 2003
Three Months Ended
September 30
$ in millions
2004
2003
$
12,919.4
$
10,463.1
3,225.4
2,736.3
(86.3
)
(816.2
)
(2,312.6
)
(2,079.4
)
$
13,745.9
$
10,303.8
Table of Contents
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
28
Item 6. Exhibits
29
30
Fluor and its subsidiaries, incidental 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 are not expected to have a material adverse effect upon
the consolidated financial position, or the results of operations of
the company, after giving effect to provisions already recorded.
In addition to the matters described above, we are involved in
disputes with respect to the Hamaca Crude Upgrader project located in
Jose, Venezuela. We are part of a joint venture which is actively
proceeding on a number of issues under binding arbitration to recover
amounts that are due as change orders to the project. For additional
information on the Hamaca dispute, see the section entitled Results
of Operations Oil & Gas in Part I, Item 2 in Managements
Discussion and Analysis of Financial Condition and Results of
Operation, above.
(c)
The following table provides information about
purchases by the company during the quarter ended September 30,
2004 of equity securities that are registered by the company
pursuant to Section 12 of the Exchange Act:
(in thousands, except per share data)
Total
Number of
Maximum
Shares
Number of
Purchased
Shares that
as Part of
May Yet Be
Total
Average
Publicly
Purchased
Number of
Price
Announced
Under the
Shares
Paid per
Plans or
Plans or
Period
Purchased
(1)
Share
Programs
Program
(2)
0
N/A
N/A
4,141
0
N/A
N/A
4,141
24
$
43.82
N/A
4,141
Table of Contents
Exhibit
Description
3.1
Amended and Restated Certificate of Incorporation of the registrant
(1)
3.2
Amended and Restated Bylaws of the registrant
(2)
4.1
Indenture between Fluor Corporation and Bank of New York, as trustee
dated as of February 17, 2004
(3)
10.1
Distribution Agreement between the registrant and Fluor Corporation
(renamed Massey Energy Company)
(4)
10.2
Tax Sharing Agreement between Fluor Corporation and A.T. Massey Coal
Company, Inc.
(5)
10.3
Special Retention Program, dated March 7, 2000, between Fluor
Corporation and Alan L. Boeckmann
(1)
10.4
Special Retention Program, dated September 12, 2000, between Fluor
Corporation and Mark A. Stevens
(6)
10.5
Fluor Corporation 2000 Executive Performance Incentive Plan
(7)
10.6
Fluor Corporation 2000 Restricted Stock Plan for Non-Employee
Directors, as amended and restated effective April 28, 2004
(8)
10.7
Fluor Corporation Executive Deferred Compensation Plan, as amended and
restated effective January 1, 2002
(9)
10.8
Fluor Corporation Deferred Directors Fees Program, as amended and
restated effective January 1, 2002
(6)
10.9
Directors Life Insurance Summary
(1)
10.10
Fluor Executives Supplemental Benefit Plan
(1)
10.11
Fluor Corporation Retirement Plan for Outside Directors
(1)
10.12
Executive Severance Plan
(2)
10.13
2001 Key Employee Performance Incentive Plan
(9)
10.14
2001 Fluor Stock Appreciation Rights Plan
(9)
10.15
Fluor Corporation 2003 Executive Performance Incentive Plan
(6)
10.16
Form of Compensation Award Agreements for grants under the Fluor
Corporation 2003 Executive Performance Incentive Plan
*
10.17
Code of Ethics and Business Conduct, as amended and restated
(2)
10.18
Offer of Employment Letter dated May 7, 2001 from Fluor Corporation to
D. Michael Steuert
(2)
10.19
Credit Agreement dated as of July 28, 2004 among Fluor Corporation,
the lenders party thereto from time to time, BNP Paribas, as
Administrative Agent and an Issuing Lender, and Bank of America, N.A.
and Citicorp USA, Inc., as Co-Syndication Agents
(10)
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a) of the Securities Exchange Act of 1934
*
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a) of the Securities Exchange Act of 1934
*
Table of Contents
Exhibit
Description
Certification of Chief Executive Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350 *
Certification of Chief Financial Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350 *
New exhibit filed with this report.
Filed as the same numbered exhibit to the
Registrants Registration Statement on Form 10/A (Amendment
No. 1) filed on November 22, 2000 and incorporated herein by
reference.
Filed as an exhibit to the Registrants report on
Form 10-K filed on March 15, 2004 and incorporated herein by
reference.
Filed as an exhibit to the Registrants report on
Form 8-K filed on February 17, 2004 incorporated herein by
reference.
Filed as Exhibit 10.1 to the Registrants report
on Form 8-K dated December 7, 2000 and incorporated herein by
reference.
Filed as Exhibit 10.2 to the Registrants report
on Form 8-K dated December 7, 2000 and incorporated herein by
reference.
Filed as an exhibit to the Registrants report on
Form 10-K filed on March 31, 2003 and incorporated herein by
reference.
Filed as Exhibit 10.1 to the Registrants report
on Form 8-K dated December 29, 2000 and incorporated herein by
reference.
Filed as an exhibit to the Registrants
Registration Statement on Form S-8 filed on April 30, 2004 and
incorporated herein by reference.
Filed as an exhibit to the Registrants report on
Form 10-K filed on March 21, 2002 and incorporated herein by
reference.
Filed as Exhibit 10.18 to the Registrants report
on Form 10-Q dated August 9, 2004 and incorporated herein by
reference.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
31
FLUOR CORPORATION
/s/ D. Michael Steuert
D. Michael Steuert
Senior Vice President and Chief Financial Officer
/s/ V.L. Prechtl
V. L. Prechtl
Vice President and Controller
Table of Contents
EXHIBIT INDEX
32
33
Exhibit
Description
Amended and Restated Certificate of Incorporation of the registrant
(1)
Amended and Restated Bylaws of the registrant
(2)
Indenture between Fluor Corporation and Bank of New York, as trustee dated as of February
17, 2004
(3)
Distribution Agreement between the registrant and Fluor Corporation (renamed Massey Energy
Company)
(4)
Tax Sharing Agreement between Fluor Corporation and A.T. Massey Coal Company, Inc.
(5)
Special Retention Program, dated March 7, 2000, between Fluor Corporation and Alan L.
Boeckmann
(1)
Special Retention Program, dated September 12, 2000, between Fluor Corporation and Mark A.
Stevens
(6)
Fluor Corporation 2000 Executive Performance Incentive Plan
(7)
Fluor Corporation 2000 Restricted Stock Plan for Non-Employee Directors, as amended and
restated effective April 28, 2004
(8)
Fluor Corporation Executive Deferred Compensation Plan, as amended and restated effective
January 1, 2002
(9)
Fluor Corporation Deferred Directors Fees Program, as amended and restated effective
January 1, 2002
(6)
Directors Life Insurance Summary
(1)
Fluor Executives Supplemental Benefit Plan
(1)
Fluor Corporation Retirement Plan for Outside Directors
(1)
Executive Severance Plan
(2)
2001 Key Employee Performance Incentive Plan
(9)
2001 Fluor Stock Appreciation Rights Plan
(9)
Fluor Corporation 2003 Executive Performance Incentive Plan
(6)
Form of Compensation Award Agreements for grants under the Fluor Corporation 2003 Executive
Performance Incentive Plan *
Code of Ethics and Business Conduct, as amended and restated
(2)
Offer of Employment Letter dated May 7, 2001 from Fluor Corporation to D. Michael Steuert
(2)
Credit Agreement dated as of July 28, 2004 among Fluor Corporation, the lenders party
thereto from time to time, BNP Paribas, as Administrative Agent and an Issuing Lender, and
Bank of America, N.A. and Citicorp USA, Inc., as Co-Syndication Agents
(10)
Table of Contents
Exhibit
Description
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 *
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 *
Certification of Chief Executive Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350 *
Certification of Chief Financial Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350 *
*
New exhibit filed with this report.
(1)
Filed as the same numbered exhibit to the Registrants Registration
Statement on Form 10/A (Amendment No. 1) filed on November 22, 2000 and
incorporated herein by reference.
(2)
Filed as an exhibit to the Registrants report on Form 10-K filed on
March 15, 2004 and incorporated herein by reference.
(3)
Filed as an exhibit to the Registrants report on Form 8-K filed on
February 17, 2004 incorporated herein by reference.
(4)
Filed as Exhibit 10.1 to the Registrants report on Form 8-K dated
December 7, 2000 and incorporated herein by reference.
(5)
Filed as Exhibit 10.2 to the Registrants report on Form 8-K dated
December 7, 2000 and incorporated herein by reference.
(6)
Filed as an exhibit to the Registrants report on Form 10-K filed on
March 31, 2003 and incorporated herein by reference.
(7)
Filed as Exhibit 10.1 to the Registrants report on Form 8-K dated
December 29, 2000 and incorporated herein by reference.
(8)
Filed as an exhibit to the Registrants Registration Statement on Form
S-8 filed on April 30, 2004 and incorporated herein by reference.
(9)
Filed as an exhibit to the Registrants report on Form 10-K filed on
March 21, 2002 and incorporated herein by reference.
(10)
Filed as Exhibit 10.18 to the Registrants report on Form 10-Q dated
August 9, 2004 and incorporated herein by reference.
EXHIBIT 10.16
FORM OF STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") entered into as of [date of grant] and between Fluor Corporation, a Delaware corporation (the "Company"), and [name of recipient] ("Grantee" or "you") evidences the grant to Grantee of a Stock Option Award under the Fluor Corporation 2003 Executive Performance Incentive Plan ("Plan"). This Option is intended not to be an incentive stock option and therefore is not subject to the tax treatment provided for under Section 422 of the Internal Revenue Code.
Section 1 STOCK OPTION AWARD
The Company hereby awards Grantee an Option to purchase up to [number of shares]
shares of Company Common Stock pursuant to this Agreement at a purchase price
per share of [purchase price] (the "Option") (or an aggregate purchase price of
[aggregate purchase price] if this Option is exercised in full), subject to the
terms and conditions set forth herein and in the Plan. The Option may not be
exercised in whole or in part as of the Grant Date, and is exercisable only if
and to the extent provided in the following paragraphs and otherwise subject to
and in accordance with the Plan.
Section 2 VESTING AND EXPIRATION
[Vesting schedule to be determined by the Organization and Compensation Committee. Certain agreements provide for cliff vesting, time vesting, and/or acceleration upon the achievement of certain performance targets or maintenance of a certain stock price for a certain period of time.] Subject to the provisions below, the right to exercise the Option shall expire on [expiration date].
If your employment with the Company or any of its subsidiaries terminates for any reason other than death, Retirement or Disability, then as of the date of such termination this Option shall expire as to any portion which has not then become exercisable. If prior to the Option becoming exercisable in full pursuant to the foregoing paragraph, your employment with the Company or any of its subsidiaries terminates by reason of your death, Retirement or Disability, or if a Change of Control of the Company occurs as determined in accordance with the Plan, then any portion of this Option which has yet to become exercisable shall become exercisable as of such date. To the extent that this Option is exercisable immediately after your termination of employment, after taking into account the vesting provisions set forth in this paragraph, then following such termination of employment this Option will expire on the earlier of (A) the fifth (5th) anniversary of the Grant Date, (B) three (3) months following your termination of employment, if such termination occurred other than on account of death, Retirement or Disability, or your termination within two years after a Change of Control of the Company; or (C) the third anniversary of your termination of employment, if such termination occurred on account of your death, Retirement or Disability, or your termination within two years after a Change of Control of the Company. For purposes of this Agreement, "Retirement" shall mean retirement at or after normal retirement age and "Disability" shall mean permanent and total disability, all as determined in accordance with applicable Company personnel policies and the Plan.
SECTION 3 AWARD SUBJECT TO PLAN
This Stock Option Award is made subject to all of the terms and conditions of the Plan, a copy of which is provided to Grantee herewith, including any terms, rules or determinations made by the Committee (as defined in the Plan), pursuant to its administrative authority under the Plan and such further terms as are set forth in the Plan that are applicable to awards thereunder including, without limitation, provisions on adjustment of awards, non-transferability, satisfaction of tax requirements and compliance with other laws. Capitalized terms used in this Agreement and not defined herein have the meaning set forth in the Plan.
SECTION 4 RESALE AND TRANSFER RESTRICTIONS
The Company may impose such restrictions, conditions or limitations as it
determines appropriate as to the timing and manner of any resales by the Grantee
or other subsequent transfers by the Grantee of any shares of common stock
issued as a result of the exercise of this Option, including without limitation
(a) restrictions under an insider trading policy, (b) restrictions designed to
delay and/or coordinate the timing and manner of sales by Grantee and other
optionholders and (c) restrictions as to the use of a specified brokerage firm
for such resales or other transfers.
SECTION 5 CONFIDENTIALITY
The Agreement and the Option granted hereunder are conditioned upon Grantee not disclosing this Agreement or said Option to anyone than Grantee's spouse or confidential financial advisor or senior management of the Company or members of the Company's Legal Services, Tax and Human Resources departments during the period prior to the exercise of said Option. During said period, if disclosure is made by Grantee to any other person, this Agreement and said Option shall be null and void and all Options otherwise granted hereunder to Grantee shall terminate.
SECTION 6 ENFORCEMENT
This Agreement shall be construed, administered and enforced in accordance with the laws of the State of California.
SECTION 7 EXECUTION OF AWARD AGREEMENT
Please acknowledge your acceptance of the terms of this Agreement by signing the original of this Agreement and returning it to Executive Administration. If you have not signed and returned this Agreement within one month, the Company is not obligated to provide you any benefit hereunder and may refuse to issue shares to you under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first hereinabove written.
FLUOR CORPORATION
by ---------------------------------
[Name]
[Title]
FORM OF RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement ("Agreement") entered into as of [date of grant] (the "Grant Date"), by and between Fluor Corporation, a Delaware corporation (the "Company"), and [name of recipient] ("Grantee" or "you") evidences the grant to Grantee of a Restricted Stock Award under the Fluor Corporation 2003 Executive Performance Incentive Plan ("Plan").
Section 1. AWARD SUBJECT TO PLAN
This Restricted Stock Award is made subject to all of the terms and conditions of the Plan, a copy of which is provided to Grantee herewith, including any terms, rules or determinations made by the Committee (as defined in the Plan), pursuant to its administrative authority under the Plan and such further terms as are set forth in the Plan that are applicable to awards thereunder including, without limitation, provisions on adjustment of awards, non-transferability, satisfaction of tax requirements and compliance with other laws. Capitalized terms used in this Agreement and not defined herein have the meaning set forth in the Plan.
Section 2. RESTRICTED STOCK AWARD
The Company hereby awards Grantee a right to receive up to a total of [number]
Shares of Company common stock pursuant to this Restricted Stock Award, subject
to the terms and conditions set forth herein. Subject to the provisions of
Section 3 and Section 4 hereof, upon the issuance to Grantee of Restricted Stock
hereunder, Grantee shall have all the rights of a shareholder with respect to
the Shares, including the right to vote the Shares and receive all dividends and
other distributions paid or made with respect thereto.
Section 3. RESTRICTIONS ON SALE OR OTHER TRANSFER
Each share of stock awarded to Grantee pursuant to this Agreement shall be subject to forfeiture to the Company and each share may not be sold or otherwise transferred except pursuant to the following provisions:
(a) The Shares shall be held in book entry form with the Company's transfer agent until the restrictions set forth herein lapse in accordance with the provisions of Section 4 or until the Shares are forfeited pursuant to paragraph (c) of this Section 3.
(b) No such Shares may be sold, transferred or otherwise alienated or hypothecated so long as such Shares are subject to the restrictions provided for in this Agreement.
(c) Upon your termination of employment with the Company or its subsidiaries for any reason other than those which result in a lapse of restrictions pursuant to Section 4(b)(3), then any such Shares as to which the foregoing restrictions have yet to lapse pursuant to Section 4, shall be forfeited by you and acquired by the Company at no cost to the Company on the date of such termination of employment.
Section 4. LAPSE OF RESTRICTIONS
(a) [Performance criteria may be included for certain recipients at the discretion of the Organization and Compensation Committee.]
(b) Subject to satisfaction of the foregoing performance condition, the restrictions set forth in Section 3 hereof shall lapse (provided that such Shares have not previously been forfeited pursuant to the provisions of paragraph (c) of Section 3 hereof) with respect to the number of Shares determined as specified below upon the occurrence of any of the following events (any such event, a "Vest Date"):
(1) [Vesting schedule to be determined by the Organization and Compensation Committee. Certain agreements provide for cliff vesting, gradual vesting and/or long term "retirement" shares.]
(2) Notwithstanding the foregoing, the restrictions set forth in
Section 3 hereof shall lapse (provided that such Shares have
not previously been forfeited pursuant to the provisions of
paragraph (c) of Section 3 hereof) upon all Shares which remain
subject to the foregoing restrictions, if prior to [insert last
vesting date], the employment of the Grantee by the Company or
its subsidiaries is terminated on account of death, retirement
at or after normal retirement age or permanent and total
disability, as determined in accordance with applicable Company
personnel policies, or for any reason within two years
following a Change of Control of the Company.
(c) No stock certificate shall be delivered to Grantee or Grantee's legal representative as hereinabove provided unless and until the statutory amount of federal, state or local tax withholding or other employment tax obligations the Company determines is or may be required under applicable tax laws or regulations in connection with the taxable income resulting from the lapse of the restrictions set forth in Section 3 (the "Tax Withholding Obligation") has been withheld or paid pursuant to Section 5.
Section 5. TAX WITHHOLDING
(a) Unless you pay your Tax Withholding Obligation in accordance with
Section 5(b), your acceptance of this Award shall constitute your
instruction to the Company to withhold or sell on your behalf a
whole number of Shares of Restricted Stock from those Shares of
Restricted Stock with restrictions lapsing on a Vest Date as the
Company determines to be appropriate to equal an amount sufficient
to satisfy your Tax Withholding Obligation. If Shares are withheld
by the Company, the average of the highest and lowest price per
share at which Fluor's common stock is sold on the New York Stock
Exchange on the Vest Date (the "Fair Market Value") will be used to
calculate the amount of taxable income and the Tax Withholding
Obligation due to the lapse of the restrictions on the Vest Date.
The Tax Withholding Obligation on the Vest Date will be divided by
the Fair Market Value on the Vest Date and rounded up to the
nearest whole number to determine how many Shares of Restricted
Stock will be withheld by the Company to pay your Tax Withholding
Obligation. Certificates for the remaining Shares will be delivered
to you. To the extent that rounding causes the Fair Market Value of
the Shares of Restricted Stock withheld to exceed your Tax
Withholding Obligation, the Company agrees to pay any such excess
to your federal income tax withholding.
(b) Notwithstanding the foregoing, you may elect to satisfy your Tax Withholding Obligation by notifying the Company's Executive Administration at least thirty (30) days prior to the applicable Vest Date that you intend to pay the Tax Withholding Obligation yourself and (i) by delivering to the Company on or before the Vest Date by wire transfer or certified check payable to the Company the amount that the Company determines is sufficient to satisfy your Tax Withholding Obligation, or (ii) by such other means as the Company may permit.
(c) Regardless of any action the Company takes with respect to any or all tax withholding obligations that arise with respect to the Restricted Stock Award, you shall remain ultimately liable and responsible for all such taxes.
Section 6. CONFIDENTIALITY; NO RIGHT TO CONTINUING EMPLOYMENT
This Agreement and the receipt of any Shares hereunder are conditioned upon Grantee not disclosing this Agreement or said receipt to anyone other than Grantee's spouse or confidential financial advisor or senior management of the Company or members of the Company's Legal Services, Tax and Human Resources departments during the period prior to the lapse of the restrictions hereunder. During said period, if disclosure is made by Grantee to any other person, Grantee hereby agrees to forfeit any Shares received hereunder and to surrender to the Company the certificates evidencing said Shares. Nothing in the Plan or this Agreement confers any right to continuing employment with the Company or its subsidiaries.
Section 7. ENFORCEMENT
This Agreement shall be construed, administered and enforced in accordance with the laws of the State of California.
Section 8. EXECUTION OF AWARD AGREEMENT
Please acknowledge your acceptance of the terms and conditions of this Agreement by signing the original of this Agreement and returning it to Executive Administration. If you have not signed and returned this Agreement within one month, the Company is not obligated to provide you any benefit hereunder and may refuse to issue Shares to you under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first hereinabove written.
FLUOR CORPORATION
by ---------------------------------
[Name}
[Title]
FORM OF VALUE DRIVER INCENTIVE AWARD AGREEMENT
This Value Driver Incentive Award Agreement ("Agreement") entered into as of
[date of grant], by and between Fluor Corporation, a Delaware corporation (the
"Company"), and [name of recipient] ("Grantee" or "you") evidences and confirms
the following Value Driver Incentive Award by the Committee under the Fluor
Corporation 2003 Executive Performance Incentive Plan (the "Plan").
Section 1. AWARD SUBJECT TO PLAN
Your Value Driver Incentive Award is made subject to all of the terms and conditions of this Agreement and the Plan, a copy of which is provided to Grantee herewith, including any terms, rules or determinations made by the Committee (as defined in the Plan), pursuant to its administrative authority under the Plan and such further terms as are set forth in the Plan that are applicable to awards thereunder including, without limitation, provisions on adjustment of awards, non-transferability, satisfaction of tax requirements and compliance with other laws. Capitalized terms used in this Agreement and not defined herein have the meaning set forth in the Plan.
Section 2. PERFORMANCE TARGET AND VALUE OF AWARD
Your Value Driver Incentive Award target amount is [dollar value] payable subject to Company performance over the [number of years] period ending [date] (the "Performance Period") with respect to [performance criteria to be determined by Organization and Compensation Committee. Certain agreements have net earnings, new awards (dollars), new awards (percentage) new awards gross margin (dollars) and/or new awards gross margin (percentage) as the performance criteria]. If [performance criteria] is:
(a) less than [insert value], you will not be eligible to receive any amount of your target amount.
[Additional ranges and amounts may be included]
(b) greater than [insert value], you will be eligible to receive 200% of your target amount.
Section 3. RETENTION PERIOD AND PAYOUT
The actual amount that you are eligible to receive, if any, will be paid to you:
(a) [may be paid in stock, cash, restricted shares or a combination thereof, immediately or over a period of time, as determined by the Organization and Compensation Committee.]
Section 4. CONTINUED EMPLOYMENT
This Value Driver Incentive Award is conditioned upon your remaining in the employment of the Company or its subsidiaries for the Retention Period. You forfeit your participation if your employment terminates for any reason (including retirement) at any time prior to the end of the Retention Period other than termination on account of death or permanent and total disability, as determined in accordance with applicable Company personnel policies, or termination within two years after a Change of Control of the Company. If your employment terminates during the Retention Period as a result of death or permanent and total disability or within two years after a Change of Control of the Company, the Value Driver Incentive Award shall become earned and payable in accordance with its terms, notwithstanding such termination. Nothing in the Plan or this Value Driver Incentive Award confers any right of continuing employment with the Company or its subsidiaries.
Section 5. CONFIDENTIALITY
This Agreement and the Value Driver Incentive Award granted hereunder are conditioned upon Grantee not disclosing this Agreement to anyone other than Grantee's spouse or confidential financial advisors, senior management of the Company or members of the Company's Legal Services, Tax and Human Resources departments. If disclosure is made to any other person, this Award shall be forfeited.
Section 6. ENFORCEMENT
This Agreement shall be construed, administered and enforced in accordance with the laws of the State of California.
Section 7. EXECUTION OF AWARD AGREEMENT
Please acknowledge your acceptance of the terms of this Agreement by signing the original of this Agreement and returning it to Executive Administration. If you have not signed and returned this Agreement within one month, the Company is not obligated to provide you any benefit hereunder and may refuse to make any payouts to you under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first hereinabove written.
FLUOR CORPORATION
by ---------------------------------
[Name]
[Title]
FORM OF RELATIVE PERFORMANCE AWARD AGREEMENT
This Relative Performance Award Agreement ("Agreement") entered into as of [date of grant], by and between Fluor Corporation, a Delaware corporation (the "Company"), and [name of recipient] ("Grantee" or "you") evidences and confirms the following Relative Performance Award by the Committee under the Fluor Corporation 2003 Executive Performance Incentive Plan (the "Plan").
Section 1. AWARD SUBJECT TO PLAN
Your Relative Performance Award is made subject to all of the terms and conditions of this Agreement and the Plan, a copy of which is provided to Grantee herewith, including any terms, rules or determinations made by the Committee (as defined in the Plan), pursuant to its administrative authority under the Plan and such further terms as are set forth in the Plan that are applicable to awards thereunder including, without limitation, provisions on adjustment of awards, non-transferability, satisfaction of tax requirements and compliance with other laws. Capitalized terms used in this Agreement and not defined herein have the meaning set forth in the Plan.
Section 2. PERFORMANCE TARGET AND VALUE OF AWARD
Your Relative Performance Award target amount is [dollar value] payable subject to Company performance over the [number of years] period ending [date] (the "Performance Period") with respect to [total shareholder return of the Company's common stock relative to the total shareholder return of peer group (generally, S&P 500, S&P 400 Mid-Cap, DJI Heavy Index, or selected peer group companies, as determined by Organization and Compensation Committee]. If the Company's Total Shareholder Return over the Performance Period is:
(a) less than [insert percentage] of the Total Shareholder Return of the [peer group], you will not be eligible to receive any amount of your target amount.
[Additional ranges and amounts may be included]
(b) greater than [insert percentage] of the Total Shareholder Return of the [peer group], you will be eligible to receive 200% of your target amount.
Section 3. RETENTION PERIOD AND PAYOUT
The actual amount that you are eligible to receive, if any, will be paid to you:
(a) [may be paid in stock, cash, restricted shares or a combination thereof immediately or over a period of time, as determined by the Organization and Compensation Committee]
Section 4. CONTINUED EMPLOYMENT
This Relative Performance Award is conditioned upon your remaining in the employment of the Company or its subsidiaries for the Retention Period. You forfeit your participation if your employment terminates for any reason (including retirement) at any time prior to the end of the Retention Period other than termination on account of death or permanent and total disability, as determined in accordance with applicable Company personnel policies, or termination within two years after a Change of Control of the Company. If your employment terminates during the Retention Period as a result of death or permanent and total disability or within two years after a Change of Control of the Company, the Relative Performance Award shall become earned and payable in accordance with its terms, notwithstanding such termination. Nothing in the Plan or this Relative Performance Award confers any right of continuing employment with the Company or its subsidiaries.
Section 5. CONFIDENTIALITY
This Agreement and the Relative Performance Award granted hereunder are conditioned upon Grantee not disclosing this Agreement to anyone other than Grantee's spouse or confidential financial advisors, senior management of the Company or
members of the Company's Legal Services, Tax and Human Resources departments. If disclosure is made to any other person, this Award shall be forfeited.
Section 6. ENFORCEMENT
This Agreement shall be construed, administered and enforced in accordance with the laws of the State of California.
Section 7. EXECUTION OF AWARD AGREEMENT
Please acknowledge your acceptance of the terms of this Agreement by signing the original of this Agreement and returning it to Executive Administration. If you have not signed and returned this Agreement within one month, the Company is not obligated to provide you any benefit hereunder and may refuse to make any payouts to you under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first hereinabove written.
FLUOR CORPORATION
by _________________________________
[Name]
[Title]
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Alan L. Boeckmann, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fluor
Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being
prepared;
b) Evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants most
recent fiscal quarter (the registrants fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control
over financial reporting.
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date: November 9, 2004
By:
/s/ Alan L. Boeckmann
Alan L. Boeckmann,
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, D. Michael Steuert, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fluor
Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being
prepared;
b) Evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants most
recent fiscal quarter (the registrants fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control
over financial reporting.
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date: November 9, 2004
By:
/s/ D. Michael Steuert
D. Michael Steuert,
Senior Vice President and
Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
In connection with the Quarterly Report of Fluor Corporation (the
Company) on Form 10-Q for the period ended September 30, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the Report), I,
Alan L. Boeckmann, Chairman and Chief Executive Officer of the Company,
certify, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
A signed original of this written statement required by 18 U.S.C. Section 1350
has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350
the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Date: November 9, 2004
By:
/s/ Alan L. Boeckmann
Alan L. Boeckmann,
Chairman of the Board and
Chief Executive Officer
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
In connection with the Quarterly Report of Fluor Corporation (the
Company) on Form 10-Q for the period ended September 30, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the Report), I, D.
Michael Steuert, Senior Vice President and Chief Financial Officer of the
Company, certify, for purposes of 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
A signed original of this written statement required by 18 U.S.C. Section 1350
has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350
the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Date: November 9, 2004
By:
/s/ D. Michael Steuert
D. Michael Steuert,
Senior Vice President and
Chief Financial Officer