UNITED STATESSECURITIES 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 SECURITIESEXCHANGE ACT OF 1934
Commission File Number: 1-16129
FLUOR CORPORATION
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 July 31, 2003, there were 81,645,165 shares of common stock outstanding.
TABLE OF CONTENTS
June 30, 2003
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FLUOR CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF EARNINGSThree Months Ended June 30, 2003 and 2002
UNAUDITED
See Accompanying Notes
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FLUOR CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF EARNINGSSix Months Ended June 30, 2003 and 2002
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FLUOR CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETJune 30, 2003 and December 31, 2002
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FLUOR CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSSix Months Ended June 30, 2003 and 2002
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FLUOR CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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FLUOR CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, the condensed consolidated financial statements and accompanying notes and the company’s December 31, 2002 annual report on Form 10-K. For purposes of reviewing this document, “operating profit” is calculated as revenues less cost of revenues excluding: corporate administrative and general expense; interest expense; interest income; domestic and foreign income taxes; other non-operating income and expense items; gain or loss on discontinued operations and cumulative effect of change in accounting principle.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made herein, including statements regarding the company’s 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 company’s 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 company’s 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-Other Matters-Company Business Risks” in the company’s Form 10-K filed March 31, 2003. These filings are available either publicly or upon request from Fluor’s 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.
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RESULTS OF CONTINUING OPERATIONS
Revenues from continuing operations for the three and six months ended June 30, 2003 were $2,243.4 million and $4,320.4 million, respectively, compared with $2,536.1 million and $5,042.7 million for the 2002 comparison periods. Earnings from continuing operations for the three and six months ended June 30, 2003 were $43.0 million and $83.9 million, respectively, compared with $43.0 million and $79.2 million for the three and six months ended June 30, 2002. Earnings from continuing operations in the three and six periods of 2003 compared with 2002 include various items that impact the comparability of the results. The 2003 periods include a pre-tax $7.4 million provision to recognize a permanent impairment in the value of an equity investment in an Australian magnesium smelter. For the same periods in 2002, pre-tax provisions totaling $26 million were recognized primarily for the unfavorable outcome of arbitration relating to the Verde Gold project in Chile. In addition, the three and six month periods of 2003 include earnings contributions from acquisitions completed in the first quarter of 2003.
Consolidated new awards for the three and six months ended June 30, 2003 increased 13 percent and 7 percent to $2.3 billion and $4.9 billion, respectively, compared with $2.0 billion and $4.6 billion in the 2002 comparison periods. Consolidated backlog at June 30, 2003 was $10.5 billion compared with $10.9 billion at June 30, 2002. Approximately 57 percent and 61 percent of consolidated new awards for the three and six months ended June 30, 2003 were for projects located outside of the United States. As of June 30, 2003, approximately 52 percent of consolidated backlog related 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.
OIL & GAS
Revenues and operating profit for the Oil & Gas segment are summarized as follows:
In the first quarter of 2003, the company made a change in this business segment. The newly named Oil & Gas segment, formerly Energy & Chemicals, will focus on oil and gas and larger petrochemical opportunities. Prospective downstream bulk and specialty chemicals projects will be executed by and reported in the Industrial & Infrastructure segment. All prior periods have been restated to reflect this change.
Revenues declined in the second quarter of 2003 compared with the 2002 period reflecting the lower volume of work performed on certain projects nearing completion which more than offset increases in work performed on recently awarded projects. Operating profit improved in the second quarter of 2003 compared with 2002 primarily due to recognition of profits on those projects nearing completion. Expressed as a percentage of revenues, the operating profit margin for the three and six months ended June 30, 2003 was 4.8 percent and 4.2 percent, respectively, compared with 3.4 percent and 3.7 percent in the 2002 comparable periods.
Total assets at June 30, 2003 were $421.7 million compared with $338.7 million at December 31, 2002. The increase is primarily attributable to the deferral of costs related to Hamaca. Following is a discussion of the matter.
The Hamaca Crude Upgrader Project located in Jose, Venezuela is a $1 billion lump sum project of Grupo Alvica (“GA”), a joint venture including Fluor Daniel (80 percent) and Inelectra S.A.C.A. (20 percent), to
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design and build a petroleum upgrader for a consortium of owners called Petrolera Ameriven (“PA”) including Petroleos de Venezuela S.A. (“PDVSA”), ChevronTexaco and ConocoPhillips. The joint venture is continuing to actively pursue two issues that were referred to arbitration in December 2001: the first is responsibility for costs arising from the site labor agreement for 2000 called “Acta Convenio” and the second relates to modifications and extra work arising from differing site soil conditions. The hearings on the fundamental cost differences between the earlier 1998 labor agreement and the 2000 Acta Convenio were recently concluded. The site soil conditions issue was the subject of hearings in November 2002 on both schedule and cost issues. There are no cross-claims by PA in the arbitration. Recent events in Venezuela are having a significant impact on the progress of the project. In accordance with the contract, the joint venture is entitled to cost and schedule relief for the impact of the recent national strike.
The client has conditionally accepted responsibility relating to the soil conditions and certain incurred costs have been paid. Substantial additional costs are expected to be incurred as the project progresses and resolution of outstanding issues concerning the total costs to be reimbursed under the soil conditions change order are yet to be determined. The amount of the claim for site soil conditions is $159 million, $28 million of which has been conditionally paid by the client. The company is accounting for the additional costs incurred for the soil conditions matter as additional revenue as payments are received. The amount of the claim for Acta Convenio is $210 million and no payments have been made by the client relating to this matter. Incurred costs associated with Acta Convenio and soil conditions are being deferred and will be recognized in revenue when a change order is approved or payment is received. As of June 30, 2003, the company’s share of incurred costs amounting to $134.6 million has been deferred. If future costs relating to Acta Convenio, soil conditions or the recent national strike are determined to be not fully recoverable, the company could face reduced profits or losses on this project, along with lower levels of cash.
New awards increased significantly for the three and six months ended June 30, 2003 amounting to $1,112.5 million and $2,536.2 million, respectively, compared with $723.0 million and $1,155.5 million for the 2002 comparison periods. Included in new awards in the second quarter of 2003 is a program and construction management project lead by Exxon Mobil while the six months ended June 30, 2003 includes the Tengizchevroil (“TCO”) project, a major oil and gas development program in Kazakhstan previously announced in the first quarter.
Backlog at June 30, 2003 was $3,476.9 million compared with $3,187.8 million at June 30, 2002.
INDUSTRIAL & INFRASTRUCTURE
Revenues and operating profit for the Industrial & Infrastructure segment are summarized as follows:
Beginning in the first quarter of 2003, the Industrial & Infrastructure segment includes downstream bulk and specialty chemicals projects formerly reported in Energy & Chemicals. All prior periods have been restated to reflect this change.
Revenues for the second quarter increased 16 percent compared with the 2002 period reflecting the higher volume of work performed primarily on life sciences projects awarded in the latter half of 2002. Operating profit for both quarters included provisions in the results. In the second quarter of 2003, the company recorded an impairment provision of $7.4 million for an equity investment in a magnesium smelter to be built in Australia. The operating loss for the three months ended June 30, 2002 includes $26
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million in dispute resolution provisions. The major portion of this provision related to an unfavorable arbitration ruling on the Verde Gold project in Chile.
Operating margin for the second quarter of 2003 was negatively impacted compared with the second quarter of 2002 by continuing growth in construction management services. Construction management generally results in higher revenue recognition from material procurement but generally contributes lower operating margin due to the overall reduced risks assumed in the performance of these services.
New awards for the three and six months ended June 30, 2003 were $776.1 million and $1,379.1 million, respectively, compared with $771.7 million and $1,488.6 million for the 2002 comparison periods. Backlog increased 22 percent to $4,260.5 million from $3,506.0 million in the second quarter last year reflecting the high level of new awards in the latter half of 2002 mentioned above.
POWER
Revenues and operating profit for the Power segment are summarized as follows:
Revenues declined in the second quarter compared with a year ago reflecting the continuing decrease in procurement and construction activity as projects are completed and not replaced with new awards. Operating profit margins remain strong as projects are completed. As a percent of revenues, operating profit margin for the three months ended June 30, 2003 was 9.2 percent compared with 7.5 percent in the three months ended June 30, 2002.
On July 9, 2003, the company jointly announced with Duke Energy Corporation their decision to terminate the Duke/Fluor Daniel partnership as a result of the significant decline in the construction of new power plants. A joint plan among the partners is being developed to dissolve the business over the next two years. The dissolution is not expected to have a material impact on results of operations or financial position of the company.
As anticipated, new project awards were modest for the second quarter of 2003. Awards for the three and six months ended June 30, 2003 decreased to $17.6 million and $105.4 million, respectively, from $124.2 million and $915.4 million for the comparable 2002 periods as demand for new power generation has declined as existing capacity is expected to meet anticipated demand. Backlog at June 30, 2003 was $594.8 million compared with $1,869.9 million at June 30, 2002.
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GLOBAL SERVICES
Revenues and operating profit for the Global Services segment are summarized as follows:
Revenues and operating profit for the second quarter of 2003 increased 34 percent and 15 percent compared with the comparable prior year period. Results for the second quarter of 2003 include the results for Plant Performance Services (“P2S”), which was acquired late in the first quarter. Revenues for P2S for the three months ended June 30, 2003 were $70.0 million.
New awards and backlog for Global Services reflects 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 for the three and six months ended June 30, 2003 were $217.9 million and $577.3 million, respectively, compared with $220.3 million and $835.7 million in the three and six months ended June 30, 2002. Project selectivity and depressed economic conditions in the manufacturing sector continue to affect new awards levels from period to period. Backlog at June 30, 2003 was $1,638.5 million compared with $1,927.9 million at June 30, 2002.
GOVERNMENT
Revenues and operating profit for the Government segment are summarized as follows:
Revenues and operating profit for the second quarter increased significantly from the second quarter a year ago. The increases are attributable to improved performance on major projects and a full quarter of results from Del-Jen, which was acquired in the first quarter of 2003. Revenues for Del-Jen for the three months ended June 30, 2003 were $33.7 million. Total assets at June 30, 2003 were $237.5 million compared with $128.6 million at December 31, 2002. The increase is primarily attributable to the acquisition of Del-Jen with total assets of $56.2 million as of June 30, 2003.
New awards for the three and six months ended June 30, 2003 were $143.7 million and $288.3 million, respectively, compared with $164.5 million and $179.0 million in the 2002 comparison periods. The second quarter of 2003 includes new awards for Del-Jen. New awards for the Government segment vary considerably from quarter to quarter and are typically higher in the third quarter when annual funding is renewed on two major DOE projects. Backlog at June 30, 2003 increased 25 percent to $492.4 million from $393.6 million in the second quarter of last year.
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OTHER
Corporate general and administrative expense for the three and six months ended June 30, 2003 was $31.4 million and $68.1 million, respectively, compared with $31.6 million and $65.1 million in the 2002 comparison periods. Net interest income for the three and six months ended June 30, 2003 was $0.4 million and $1.0 million, respectively, compared with $1.8 million and $2.4 million for the three and six months ended June 30, 2002. Interest expense in the three and six months ended June 30, 2003 includes interest on debt recognized as a result of the consolidation of entities that own certain engineering office facilities (see discussion of the Cumulative Effect of Change in Accounting Principle below.)
The effective tax rate on the company’s continuing operations for the three months ended June 30, 2003 was 35.0 percent. The rate is higher than that reported in the first quarter of 2003 due to the impairment provision taken on the equity investment in the Australian magnesium project for which a tax benefit was not recorded. The tax rate expected for the remainder of the year is projected to be 32.5 percent.
MATTERS IN DISPUTE RESOLUTION
As of June 30, 2003, several matters on certain completed projects are in the dispute resolution process. The following discussion provides a background and current status of these matters:
Murrin Murrin
Disputes between Fluor Australia and its client, Anaconda Nickel (“Anaconda”), over the Murrin Murrin Nickel Cobalt project located in Western Australia were partially resolved through arbitration during the third quarter of 2002. The first phase of the arbitration hearing was completed in May 2002 and a decision was rendered in September 2002 resulting in an award to Anaconda of A$147 million (subsequently amended to A$150 million [US$84.0 million at the time of the award]) and an award to Fluor of A$107 million [US$59.9 million at the time of the award] for amounts owing from Anaconda under the contract. The company has recovered a portion of the first phase award plus substantially all defense costs incurred to date from available insurance. On July 28, 2003, the Supreme Court of Victoria, Australia granted Anaconda’s appeal of an issue that had been decided in favor of Fluor by the arbitration panel in the first phase. This decision sends the arbitration panel’s denial of Anaconda’s claim for the cost of a fifth autoclave train back to the panel for further reconsideration. Fluor intends to appeal the Supreme Court’s decision to the State of Victoria Court of Appeal.
The second phase of the arbitration is currently scheduled to be heard in late 2003. The company does not anticipate that there will be any material impact to the company from proceedings under either the first or the second phase of arbitration regardless of the outcome of the appeal.
Fluor Daniel Intercontinental and Fluor Arabia Ltd. v. General Electric Company, et al
In October 1998, Fluor Daniel Intercontinental and Fluor Arabia Ltd. filed a complaint in the United States District Court for the Southern District of New York against General Electric Company and certain operating subsidiaries as well as Saudi American General Electric, a Saudi Arabian corporation. The complaint seeks damages in connection with the procurement, engineering and construction of the Rabigh Combined Cycle Power Plant in Saudi Arabia. Subsequent to a motion to compel arbitration of the matter the company initiated arbitration proceedings in New York under the American Arbitration Association international rules. The evidentiary phase of the arbitration has been concluded and a decision is expected in early 2004.
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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 to Duke/Fluor Daniel (“D/FD”) enlarging the scope of the project.
The Project has been severely delayed with completion of Phase II. DIG has unilaterally taken over completion and operation of Phase II and is commissioning that portion of the plant. Shortly thereafter, DIG drew upon a $30 million letter of credit, which D/FD expects to recover upon resolution of the dispute. D/FD retains lien rights (in fee) against the project. In October 2001, suit was commenced in Michigan State Court to foreclose on the lien interest.
On December 12, 2001, DIG filed a responsive pleading denying liability and simultaneously served a demand for arbitration to D/FD claiming, among other things, that D/FD is liable to DIG for alleged construction delays and defective engineering and construction work at the Dearborn plant. The court has ordered the matter to arbitration. However, the order to arbitration is now being appealed by D/FD and therefore the order to arbitration is uncertain.
Butinge Nafta Oil Terminal
On March 10, 2000, Butinge Nafta (“Nafta”) commenced arbitration proceedings against Fluor Daniel Intercontinental (“FDI”) concerning a bulk oil storage terminal (the “Facility”) located in Lithuania alleging, among other issues, that FDI represented costs in excess of actual estimates. FDI engineered, procured and managed the construction of the Facility on a lump sum basis. On June 21, 2000, Fluor filed a separate arbitration against Nafta to recover delay/disruption damages caused by Nafta, as well as compensation for out of scope services. The first hearing on the merits of the case was conducted in late May 2001 with an additional hearing in June 2002. Final legal submissions and arguments were completed in September 2002. In June 2003, FDI was issued a favorable award on its claims and Nafta’s major claims against FDI were dismissed with prejudice resulting in a net award to Fluor of $4.6 million. The resolution of this matter did not have a material effect on results of operations.
DISCONTINUED OPERATIONS
During the second quarter of 2003, the company completed the disposal of discontinued operations with the sale of the last equipment dealership operation. The company received cash proceeds of $31.9 million, which approximated the carrying value of the dealership. In the first quarter of 2003, the company recorded an after-tax impairment provision of $13.5 million, which included adjustments to deferred taxes, to recognize deterioration in the fair value of the operation due to severely depressed conditions in the equipment rental industry.
Operating results for discontinued operations in the three and six months ended June 30, 2003 were after-tax earnings of $1.6 million and $1.5 million, respectively, compared with after-tax losses of $1.4 million and zero for the comparable 2002 periods. Operating results in the three months ended June 30, 2003 included revenues of $13.7 million and pretax earnings of $1.6 million from the equipment dealership operation up to the date of sale. Earnings of $0.6 million from the temporary staffing operations consisted primarily of favorable settlements of employment related tax and insurance matters that were not assumed by the buyers of those operations.
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CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” Pursuant to the requirements of this Interpretation, the company has consolidated two entities that own certain engineering office facilities, which are leased to the company. The company has no ownership interest in the companies that own the facilities but is deemed to be the primary beneficiary of the variable interests in these entities. The leases contain residual value guarantees, which totaled approximately $105 million at December 31, 2002. None of the terms of the leasing arrangements or the company’s obligations as a lessee will be impacted by this change in accounting. If the company defaults on the lease payments or were to fail to meet its obligation under the residual value guarantee, the lenders and owners of the entities could proceed with recourse actions against the company to enforce payment.
The company recognized an after-tax provision of $10.4 million for the cumulative effect of a change in accounting principle in the first quarter of 2003. The provision consists of the after-tax cumulative difference of rent expense previously recognized, compared with depreciation expense on the facilities and interest expense on the underlying financing, from inception of the leases through December 31, 2002. The impact to the company’s balance sheet at June 30, 2003 was an increase in Property, Plant and Equipment of $109.0 million and an increase in long-term debt of $126.8 million. The long-term debt provides for interest only payments at interest rates based on a reference rate (LIBOR for the Aliso Viejo facility and Canadian banker’s acceptance for the Calgary facility) plus a margin. Maturity on the debt coincides with the term of the leases, which expire in 2004 for facilities in Aliso Viejo and 2006 for facilities in Calgary. Rent payments are equal to the debt service on the underlying financing.
FINANCIAL POSITION AND LIQUIDITY
During the first six months of 2003, cash was reduced significantly primarily as a result of the use of cash to fund work performed on contracts and two niche acquisitions. This reduction was partially offset in the second quarter of 2003 by the receipt of cash proceeds from the sale of the last remaining equipment dealership operation and proceeds from insurance recoveries on the Murrin Murrin project.
In the first half of 2003, cash used by operating activities was $158.1 million and is primarily due to an increase in operating assets and liabilities. The Oil & Gas segment 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. A significant portion of these amounts resulted from incurred costs relating to change orders that are in the dispute resolution process. At June 30, 2003, the company has deferred its share of these costs amounting to $134.6 million. Also contributing to the use of cash was a reduction of $88.4 million in advances from Duke/Fluor Daniel as several power projects were completed and advance payments previously received from clients for those projects was fully expended. The work-off of power projects coupled with the significant reduction in new power industry awards is expected to continue in the near term future and could further reduce Duke/Fluor Daniel advances in the range of $100 million by the end of 2003. Cash was also utilized to provide operating liquidity, amounting to approximately $40 million, for Plant Performance Services from the date of acquisition to June 30, 2003. Contributing to cash provided from operating activities were proceeds from insurance recoveries relating to the Murrin Murrin project totaling $38.6 million that were received during the second quarter of 2003. 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.
In the first half of 2002, cash provided by operating activities was $218.6 million. In addition to cash generated from earnings sources, cash was provided from changes in operating assets and liabilities through reduction of accounts receivable and work in progress, and increases in accounts payable, partially offset by a reduction in advance billings on contracts including $34.4 million in advances from Duke/Fluor Daniel.
Cash used in investing activities in the six months ended June 30, 2003 included $54.5 million for two niche acquisitions. Del-Jen, a provider of outsourcing services to the US Government was purchased for
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$33.3 million in cash and Plant Performance Services, a provider of specialty operations and maintenance services was purchased for $21.2 million in cash during the first quarter of 2003. The sale in the second quarter of 2003 of the last remaining AMECO dealership operation resulted in proceeds of $31.9 million. During the first half of 2002, $51.0 million in proceeds was generated from the sale of discontinued equipment operations. In addition, proceeds from disposal of property, plant and equipment for the six months ended June 30, 2002 included $32.4 million from the liquidation sale of equipment at one dealership and the AMECO operations in Argentina and Peru.
Cash utilized by financing activities primarily relates to payment of dividends ($0.32 per share) in both the first half of 2003 and 2002. In 2002, cash of $24.7 million was utilized to pay off short-term debt.
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 not replaced by advances on new projects, the company’s cash position will be reduced. Cash is also required to fund work performed on the Hamaca project in Venezuela. This project is incurring 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. The company has $290 million in unutilized commercial paper back-up lines of credit. In addition, the company has a shelf registration statement for the offering of up to $300 million in long-term debt. The company has access to sufficient liquidity to fund its operations for the foreseeable future.
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 $441 million in short-term committed and $254 million in 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 project contracts and certain corporate purposes. Primarily as a result of the company’s strong credit standing which provides the availability of letters of credit capacity, retainage on engineering and construction contracts is minimal. The company also posts surety bonds to guarantee its performance on contracts.
As of June 30, 2003, no material changes have occurred with regard to the company’s commercial commitments and contractual obligations as disclosed in the company’s December 31, 2002 annual report on Form 10-K.
The company has agreed to make available certain letter of credit capacity to ICA Fluor Daniel for their projects. Additional Fluor support may be required as a result of the financial condition of Fluor’s partner.
In the ordinary course of business, the company enters into various agreements providing financial or performance assurances to clients on behalf of certain unconsolidated subsidiaries, joint ventures and other jointly executed contracts. These agreements are entered into primarily to support the project execution commitments of these entities. The guarantees have various expiration dates ranging from mechanical completion of the facilities being constructed to a period extending beyond contract completion in certain circumstances. The maximum potential payment amount of an outstanding performance guarantee is the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts.
Financial guarantees, made in the ordinary course of business on behalf of clients and others in certain limited circumstances, are entered into with financial institutions and other credit grantors and generally obligate the company to make payment in the event of a default by the borrower. Most arrangements require the borrower to pledge collateral in the form of property, plant and equipment which is deemed adequate to recover amounts the company might be required to pay.
As of June 30, 2003, no material changes to financial or performance assurances to clients have occurred since the filing of the company’s December 31, 2002 annual report on Form 10-K.
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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 June 30, 2003, the company had forward foreign exchange contracts of less than 18 months duration to exchange principally; Euros, British pounds, Canadian dollars and South African rand for U.S. dollars. The total gross notional amount of these contracts at June 30, 2003 was $15.6 million representing forward contracts to purchase foreign currency.
In the three and six months ended June 30, 2003, exchange rates for functional currencies for most of the company’s international operations strengthened against the U.S. dollar resulting in unrealized translation gains that are reflected in the cumulative translation component of other comprehensive income. Most of these unrealized gains relate to cash balances held in currencies other than the U.S. dollar.
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Item 4. Controls and Procedures
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FLUOR CORPORATIONCHANGES IN CONSOLIDATED BACKLOGThree and Six Months Ended June 30, 2003 and 2002
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders.
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Item 6. Exhibits and Reports on Form 8-K.
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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.
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EXHIBIT INDEX
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