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fluor annual reports 2000

  1. 1. Fluor Corporation 2000 Annual Report Selling knowledge, delivering value
  2. 2. Earnings from Revenues from Consolidated Backlog Continuing Operations* Continuing Operations by Region ($ in millions) ($ in billions) (percent) 136 12.4 11.3 10.0 100 Africa 1% Europe 8% Asia Pacific 2% Latin America 14% Australia 4% United States 57% Canada 14% 27 00 00 98 99 98 99 *Includes special provision of $101 million after tax recorded during 1999 and a $18 million after tax reversal recorded during 2000. Consolidated Backlog Consolidated Consolidated Gross Margin % Backlog New Awards (in percent) ($ in billions) ($ in billions) 6.2 12.6 10.0 9.6 5.0 10.0 4.4 9.1 6.8 00 00 00 98 99 98 99 98 99 Fluor Daniel Fluor Daniel Fluor Global Services Fluor Global Services Company Description Table of Contents 1 Financial Highlights 29 Consolidated Financial Statements Fluor Corporation is a global, knowledge-based services company offering a diverse range of value-added services from traditional engineering, procurement and construction (EPC) 2 Chairman’s Letter to Shareholders 45 Management’s and Independent to total asset management. The company is organized into three Auditors’ Reports Strategic Business Enterprises: Fluor Daniel, Fluor Global 4 Fluor At-A-Glance Services and Fluor Signature Services. 46 Quarterly Financial Data Fluor Daniel is one of the world’s largest consulting, engi- 6 Strategic Overview neering and construction services companies. Organized into four Strategic Business Units: Energy & Chemicals, Infra- 47 Board Committees 11 Fluor Daniel Review structure, Manufacturing & Life Sciences, and Mining, Fluor Daniel is a trusted global leader with a reputation for being 48 Board of Directors responsive to client needs, providing value-added services, exe- 15 Fluor Global Services Review cuting complex capital projects on schedule with excellence and 49 Officers delivering safety performance that sets the industry standard. 19 Fluor Signature Services Review Fluor Global Services (FGS) is a premier provider of 50 Shareholders’ Reference customized solutions to optimize the life cycle value of clients’ 21 Financial Overview capital assets and to allow clients to focus on their core business competencies. FGS provides consulting and state-of-the-art 22 Selected Financial Data services in telecommunications; operations and maintenance; program and asset management; industrial equipment and tools; property services; and federal services. 23 Management’s Discussion Fluor Signature Services (FSS) delivers administrative and and Analysis business services on a global basis within Fluor Corporation and to external clients. This Fluor Corporation enterprise maximizes Fluor’s investment in people, processes, and technology to deliver high-quality, cost-effective business services. FSS provides knowledge-based solutions through the following specialized professional service areas: finance, human resources, information technology, safety, publication services, real estate, contract and direct-hire personnel, and office services.
  3. 3. FLUOR CORPORATION 2000 ANNUAL REPORT Financial Highlights* Percent 2000 1999 Change (in thousands, except per share amounts) F i s c a l Ye a r Revenues $ 9,970,154 $ 11,334,355 -12 Earnings from continuing operations, net 99,846 26,683 274 Earnings from discontinued operations, net 24,103 77,504 -69 Net earnings 123,949 104,187 19 Basic earnings per share Continuing operations 1.33 .35 280 Discontinued operations .32 1.03 -69 Net earnings 1.65 1.38 20 Diluted earnings per share Continuing operations 1.31 .35 274 Discontinued operations .31 1.02 -70 Net earnings $ 1.62 $ 1.37 18 Return on average shareholders’ equity 7.7% 6.8% — Capital expenditures– continuing operations $ 284,079 $ 277,033 3 New awards $ 9,644,200 $ 6,789,400 42 Cash dividends per common share $ 1.00 $ .80 25 A t F i s c a l Ye a r - e n d Working capital $ (172,582) $ (294,139) NM Net assets of discontinued operations 866,199 — NM Total assets 3,652,734 4,886,117 -25 Backlog 10,012,200 9,142,000 10 Capitalization Short-term debt 253,512 247,911 2 Long-term debt 17,573 317,555 -94 Shareholders’ equity 1,609,257 1,581,372 2 Total capitalization $ 1,880,342 $ 2,146,838 -12 Total debt as a percent of total capitalization** 36.7% 26.3% — Shareholders’ equity per common share $ 21.24 $ 20.80 2 Closing stock price $ 35.00 $ 39.88 -12 Salaried employees 22,205 24,243 -8 Craft/hourly employees 24,908 26,315 -5 Total employees 47,113 50,558 -7 NM – Not meaningful *As discussed in the first note to the accompanying financial statements, on November 30, 2000 the shareholders approved a spin-off distribution that will separate the company into two publicly traded companies – a “new” Fluor and Massey Energy Company. The net assets of Massey Energy Company at October 31, 2000 and its results of operations for all periods presented have been reclassified and are presented as discontinued operations. **The percentage shown for 2000 is presented on a pro forma basis, as if the spin-off distribution had occurred on October 31, 2000. Note: The information contained in this annual report contains forward-looking statements regarding projected earning levels for fiscal year 2001, market outlook, new awards, backlog lev- els, competition, the adequacy of funds to service debt and the implementation of new strategic initiatives. These forward-looking statements reflect the company’s current analysis of existing information as of the date of this annual report. As a result, caution must be exercised in relying on forward-looking statements. Due to unknown risks, the company’s actual results may differ materially from its expectations or projections. The factors potentially contributing to such differences include, among others: • Changes in global business, economic, political and social conditions; • The company’s failure to receive anticipated new contract awards; • Customer cancellations of, or scope adjustments to, existing contracts; • Difficulties or delay incurred in the execution of construction contracts resulting in cost overruns or liabilities; • Customer delays or defaults in making payments; • Difficulties and delays incurred in the implementation of strategic initiatives; • Risks and impacts resulting from the company’s reverse spin-off transaction consummated November 30, 2000 involving Massey Energy Company; and • Competition in the global engineering, procurement and construction industry. The forward-looking statements are also based on various operating assumptions regarding, among other things, overhead costs and employment levels that may not be realized. In addition, while most risks affect only future costs or revenues that the company anticipates it will receive, some risks may relate to accruals that have already been reflected in earnings. The company’s failure to receive payments of these accrued earnings could result in charges against future earnings. Additional information concerning factors that may influence the company’s results can be found in its press releases and periodic filings with the Securities and Exchange Commission including the discussion under the heading “Item 1. Business-Other Matters-Company Business Risks” in the company’s 10-K filed January 29, 2001. These filings are available publicly and upon request from Fluor’s Investor Relations Department: (949) 349-3909. The company disclaims any intent or obligation to update its forward-looking statements. PAGE 1
  4. 4. FLUOR CORPORATION 2000 ANNUAL REPORT Letter to Shareholders Philip J. Carroll, Jr. Chairman and Chief Executive Officer Fluor Corporation It is an exciting time for our company as the “new” Fluor change in Fluor’s backlog in three years. Importantly, gross builds on its strategies and the positive momentum devel- margin in backlog improved to 6.2 percent from 5 percent a oped over the past two years. A number of significant year earlier. milestones have been reached in positioning the company As we enter 2001, we are confident that we have the to achieve its financial performance goals and growth in right strategy, financial structure, organizational focus and shareholder value. leadership to capitalize on significant opportunities in an increasingly favorable market. We are focused on achieving Major Accomplishments improved financial results in the key financial drivers of Major accomplishments were made in three key areas. First shareholder value — sustainable, profitable growth, strong was the creation of a new strategic direction, reinforced by cash flow and returns on investment well above our cost implementation of a business model process to help ensure of capital. our financial success. Second was the successful reverse spin- off of Massey Coal and the recapitalization of “new” Fluor. Implementation of New Strategic Direction Lastly was the appointment of Alan Boeckmann as president Implementation of our new strategic direction in 2000 was and chief operating officer of Fluor Corporation and an orga- concentrated on positioning the company as a global, knowl- nizational realignment that facilitates the leadership of Fluor edge-based services company and growing our participation as a single, highly focused company. These actions were taken in the engineering, procurement, construction, maintenance to ensure that we are optimally positioned to capitalize on and related fields. Key initiatives included full implementa- accelerating market opportunities. tion of a detailed business model process to set priorities, enhance accountability and provide performance metrics to Financial Performance measure quarterly progress against firmly established objec- The year was not without its disappointments. In the third tives. We also further deployed our strategy of project selec- quarter, a lump-sum power project being executed through tivity and client focus supported by the transition to a strong our partnership with Duke Energy Corporation experienced account management methodology that has produced an unanticipated cost overrun. Earnings were reduced by a encouraging results. $60 million loss on the project that represented our equal Significant progress also was achieved with the successful share of the overrun. This was especially disappointing in initial implementation of our Knowledge@Work SM project that view of the strong ongoing focus we have had to enhance revamps our work processes and information management project execution and deliver predictable financial results. systems. As we move toward full implementation, we will Additional actions to further strengthen operating proce- have access to more in-depth and real-time information dures, along with a strong focus on risk management, have on operational, financial and human resource data, which been implemented to minimize the prospects of such inci- will substantially enhance our decision-making processes. dents in the future. Additionally, we successfully implemented a shared-services As a result, our financial performance for 2000 was organization, Fluor Signature Services, which provides cost- mixed, with earnings from continuing operations, excluding effective business and administrative support services to all of unusual items, of $118.4 million, or $1.55 per share (includ- Fluor’s operating units. Importantly, this approach not only ing the project charge), compared with $127.2 million, or reduces overhead, but allows operating units to focus their $1.68 per share in 1999. entire energies on growing their core businesses. Encouragingly, consolidated new awards increased by During the year, we also made selected investments in 42 percent to $9.6 billion, compared with $6.8 billion a year three Internet-based ventures that, over time, will enhance ago. As a result, consolidated backlog grew 10 percent to our growth potential and increase the value we provide to $10.0 billion from $9.1 billion in 1999, the first positive PAGE 2
  5. 5. FLUOR CORPORATION 2000 ANNUAL REPORT clients. In March, Fluor and IBM formed an e-commerce Organizational Changes In an important move designed to capital goods procurement venture, TradeMC, designed to capitalize on growth market oppor- revolutionize the procurement process by concentrating pur- tunities, Alan Boeckmann was chases through Web-enabled strategic sourcing agreements. appointed president and chief oper- Additionally, we established an equity participation in ating officer of Fluor Corporation, Citadon, the leading Internet-based project management effective February 1, 2001. Alan’s platform service provider. GlobEquip, a third Web-based most recent assignment in his 25- venture, was launched in December and will act as an on-line year career at Fluor was as president agent for the sale of heavy equipment to high-demand and chief executive officer of Fluor Daniel. In his new posi- regions of the world. tion, he will be responsible for all business operations of the Massey Spin-Off corporation, as well as finance, human resources, and commu- No accomplishment during the year was of more historic nications. With the reverse spin-off of Massey Coal complete, importance, or of greater impact to the company, than the and our focus now on establishing predominance in our successful completion of the separation from Fluor of Massey global markets, Alan’s appointment is part of a logical pro- Coal. The tax-free spin-off to shareholders created two new gression in the development of the “new” Fluor. public companies, each a leader in its respective industry, As a result of the spin-off, Don Blankenship, chairman with strong growth opportunities. This action positioned the and chief executive officer of Massey Energy, no longer serves respective management teams of both companies to focus on as a director of Fluor Corporation. improving their strategic and operational performances and provide significantly enhanced flexibility for both to grow in Acknowledgements Congratulations are in order to Fluor’s employees for another a manner best suited for their businesses. outstanding year of safety performance. Safety continues to Financial Condition be a long-standing core value at Fluor, yielding a wide range Fluor’s financial condition remains strong, and the company of benefits to clients, employees and shareholders alike. It has retained its investment-grade credit rating. Our financial was also gratifying that Fluor was ranked the No.1 engineer- position is the strongest of any publicly traded company in ing and construction company by Fortune magazine through our industry, which continues to be an important differentia- a panel of objective, third-party experts in its prestigious tor to our clients by providing assurances that we can fund annual listing of “The World’s Most Admired Companies.” and complete large, complex projects. I would like to thank our board of directors and employees Importantly, the separation of Massey produces a recapi- for the tremendous effort made during the year in accomplish- talized financial structure for “new” Fluor with significantly ing significant progress toward our goal of improved financial reduced capital requirements. This allows Fluor’s balance performance and long-term creation of shareholder value. sheet to be optimized for its services business focus and will I would also like to acknowledge that the successes significantly enhance our ability to achieve much higher achieved during the year would not have been possible with- return on capital. As a result of these positive benefits, and out the support of our loyal customers. Their evolving needs the favorable business outlook, we have increased our long- and growing sophistication regarding the value we can bring term financial performance targets. We have now established to them provides strong motivation to maintain leading-edge 15 percent as a minimum objective for both return on capital capabilities and services which help them achieve their own and long-term average earnings growth. Additionally, business success. beginning 2001, Fluor will be changing to a December 31 I’d like to extend a special note of appreciation to our fiscal calendar year end. shareholders for their support and confidence in our company Recognizing that dividends represent an essential and its future. Evidence that the hard work and dedication of component in the creation of shareholder value, Fluor has Fluor’s global workforce is increasingly achieving our goals is targeted a 30-35 percent payout of prospective earnings. strengthening our conviction in our ability to realize our full Furthermore, we expect that improving earnings performance, potential and rebuild our record of consistent, predictable along with reduced capital requirements, will generate sub- growth. We are eager to capitalize on the growing opportuni- stantial cash flows over the next several years, enhancing our ties for increased, value-added service in our targeted markets. ability to fund growth initiatives that create additional share- holder value. During the year, 2.6 million “old” Fluor shares were repurchased, completing just over one-third of our targeted 10 percent buyback of outstanding shares. Philip J. Carroll, Jr. Chairman and Chief Executive Officer January 17, 2001 PAGE 3
  6. 6. FLUOR CORPORATION 2000 ANNUAL REPORT Fluor at a Glance Building on the great heritage and brand reputation of “old” Fluor, a “new” Fluor was created in 2000. With the reverse spin-off of Massey Coal, along with other important strategic actions, New Fluor has repositioned itself as a global, knowledge-based services company. As we enter 2001, we are well positioned to capitalize on significant growth opportunities ahead, and to begin delivering on our commitment for improved long-term financial performance and creation of shareholder value. STRATEGIC BUSINESS ENTERPRISE MISSION DESCRIPTION To assist clients in attaining a competitive Fluor Daniel is one of the world’s largest advantage by delivering quality services of engineering and construction services compa- unmatched value. nies. Organized into four Strategic Business Units –– Energy & Chemicals, Infrastructure, Manufacturing & Life Sciences, and Mining –– Fluor Daniel is a trusted global leader with a reputation for being responsive to client needs, providing value-added services, executing complex capital projects on schedule with excellence and delivering safety performance that sets the industry standard. To apply the knowledge and skills of Fluor Fluor Global Services (FGS) is a premier provider Global Services members, through the power of of customized solutions to optimize the life cycle technology, to optimize the life cycle value and value of clients’ capital assets and to allow clients productivity of our clients’ capital assets to grow to focus on their core business competencies. FGS our shareholders’ value. provides state-of-the-art services in telecommuni- cations; operations and maintenance; program and asset management; industrial equipment and tools; property services; and federal services. Deliver business effectiveness through quality, Fluor Signature Services (FSS) delivers adminis- timely, innovative and price/value competitive trative and business services on a global basis services. within Fluor Corporation and to external clients. This Fluor Corporation enterprise maximizes Fluor’s investment in people, processes, and tech- nology to deliver high-quality, cost-effective busi- ness services. Fluor Signature Services provides knowledge-based solutions through the following specialized professional service areas: finance, human resources, information technology, safety, publication services, real estate, contract and direct-hire personnel, and office services. PAGE 4
  7. 7. FLUOR CORPORATION 2000 ANNUAL REPORT F I N A N C I A L R E S U LT S KEY STRATEGIES To achieve its goals of dominating its target markets and achieving Revenues Operating Profit ($ in billions) ($ in millions) sustained profitable growth, strategic initiatives in the following areas have been implemented: • Global People Strategies – attract, retain, develop and motivate 9.7 161 160 highly skilled employees. 8.4 • Sales and Marketing Strategies – develop a world-class sales, 128 7.0 marketing and account management organization. • Project Execution/Risk Management Strategies – deliver consis- tent, high-quality results on all projects. • E-Commerce Strategies – develop new e-Business strategies to optimize existing business lines and redefine service offerings into new business lines to enhance profitability. 00 98 99 00 98 99 • Investment Strategies – deliver sustainable, consistent, premium returns on invested capital. Revenues To achieve its goal to be the premier assets solutions company, Operating Profit ($ in billions) ($ in millions) FGS is focused on three growth platforms: 3.0 • Align existing services to support FGS’ strategic direction and 2.9 92 financial goals. 2.6 81 77 • Penetrate explosive growth market opportunities within the business portfolio. • Create new profitable and complementary businesses. 00 98 99 00 98 99 2000 Revenues by Total Assets To achieve its vision of business professionals working collabo- Line of Business ($ in millions) ratively for customer success, FSS has implemented the following (in percent) key initiatives: 465 454 448 • Financial – Reduce real estate asset base. • Customer – Improve customer service. • Service Delivery – Apply a shared service model to enhance value of business services. • Employees – Enhance skills; align pay with market; introduce Financial Services 36% Performance Mktg. variable pay tied to performance. IT Services 31% and Corp. Relations 3% Office Services 12% Safety Services 6% SM • Growth & Innovation – Ensure success of Knowledge@Work ; People Services 12% enhance/create new value-added services. 00 98 99 PAGE 5
  8. 8. FLUOR CORPORATION 2000 ANNUAL REPORT Strategic Overview Selling Knowledge, Delivering Value Fluor entered the new millennium with a new strategic direction. Completion of the reverse spin-off of Massey Coal has now created a “new” Fluor, with a clear view for its future and well positioned to achieve its goal of improved profitability and enhanced shareholder value. Provide knowledge-based services q Business activities aligned with new strategic direction q q Separated Massey Coal through tax-free spin-off q Divesting AMECO dealerships Fundamentally changing our business profile and value proposition Selectivity achieving q Significant cost q improving gross reduction margins q Implemented business q Traditional EPC model process market strengthening Well FOCUSED q Employing account q Knowledge-based Fixing the positioned management services expanding platform ON VALUE philosophy for growth q Offering total asset q Initiated solutions Knowledge@WorkSM q Leveraging Web-based q Improved risk technologies for management increased growth potential Our people make the difference Tremendous intellectual capital q Employee development/engagement a key priority q q Pay for performance philosophy q Diversity of thought PAGE 6
  9. 9. FLUOR CORPORATION 2000 ANNUAL REPORT This action was aggressively undertaken in 1999 to Fundamentally Changing Our Business Profile address both an industry downturn, as well as accom- and Value Proposition Nearly two years ago, Fluor embarked on its strategic modate a much tighter market focus on industries and objective to transform the company into a global, clients where differentiated value could be provided knowledge-based, diversified services company. Our and higher margins achieved. A detailed business intention was to create a portfolio of growth businesses model process was also implemented to set priorities, that sell our knowledge and deliver value. assure financial discipline, enhance accountability and In 1999, we realigned our business activities with provide performance metrics to measure progress specific market focus and clear lines of accountability. against established objectives. Fluor Daniel is focusing on its traditional engineering, We also significantly strengthened our sales and procurement and construction (EPC) business, with marketing work processes, with significantly greater specific strategies to position the company for enhanced emphasis on selectivity. Most important was the change long-term earnings growth. Fluor Global Services to an account management philosophy. A more formal- (FGS) was created to focus on growth opportunities for ized structure and methodology has been implemented expanded value-added services outside the traditional throughout the company which places greater empha- EPC value chain. FGS is focused on providing premier sis on in-depth analysis and understanding of clients’ asset solutions for clients across the entire life cycle of fundamental business drivers and their critical success their asset base. Additionally, Fluor Signature Services factors. A key criteria in the implementation of the (FSS) was formed, representing a new approach to pro- account management approach was to focus on clients viding increased quality and cost effective business and where we can bring differentiated value that will trans- administrative services to Fluor operating units, with late into rewards proportional to our performance. distinct profit and loss accountability. The objective of the account management process During 2000, we continued the process of assessing is to establish and maintain mutually beneficial long- and refining our business portfolio, resulting in addi- term relationships which extend from identifying busi- tional strategic actions and decisions. First, was the ness opportunities through delivery of value resulting separation of our Massey Coal operation through a in customer satisfaction. This approach is designed to tax-free reverse spin-off to shareholders, creating two achieve increased scope and depth of business activity publicly held companies. This action was taken to with targeted clients and to optimize the offering of enable the respective management teams to focus more Fluor’s entire range of capabilities and services, provid- closely on their businesses and to provide flexibility ing enhanced long-term growth potential. for each company to grow in a way best suited for its Another important action was initiation of a SM industry. Additionally, independent evaluation of multi-year implementation of Knowledge@Work , the separated companies offers the opportunity for a major revamping of our business work processes and improved market valuation. The decision was also information management systems. This new system made to divest the dealership operations of AMECO, will enhance our position through increased capabilities Fluor’s heavy equipment business. Actions to imple- and better leverage of our intellectual capital. These ment the sale are in progress. new work processes and systems will provide more timely and greater access to in-depth information. This will allow us to more effectively manage our business Fixing the Platform Our first priority in implementing the new strategic activities and enhance our decision making processes, direction was to significantly reduce our cost structure. ultimately enhancing our ability to deliver value to cus- tomers and achieving improved financial performance. PAGE 7
  10. 10. FLUOR CORPORATION 2000 ANNUAL REPORT Tremendous intellectual capital resides within explicitly measure, price and mitigate risk. We have Fluor. To enable Fluor to leverage its global experience increased our audit and control work processes to and knowledge for every customer, we are providing further strengthen our ability to profitably execute our people with state-of-the-art tools and information risk projects. SM systems. A key component of our Knowledge@Work During 2000, two specific actions were taken. First, we created a Change Management group to bring investment is the creation of on-line “knowledge com- best practices to our prime contract administration munities” which facilitate the systematic and effective activities. This will allow us to better manage changes sharing and application of our collective knowledge on risk projects which are an increasing opportunity and “know-how” to create value for clients. SM in several growth markets. Implementation of our A major milestone of the Knowledge@Work SM Knowledge@Work initiative will provide additional initiative was achieved in October with the first imple- mentation of Fluor’s new enterprise-wide management tools to better manage projects. We have begun creat- information system based on SAP technology. During ing a corporate-wide risk management initiative 2001, we will continue our phased implementation, which will allow us to more effectively measure, price with completion expected in 2002. Major business work and manage the risk across our entire portfolio. SM process and system changes such as Knowledge@Work Additionally, we have implemented a risk knowledge often involve risk. We have mitigated our risk by using community which makes our risk management infor- our project management approach, including regular mation accessible to all units of the company. management reviews, employing consultants experi- enced in major system projects and utilizing a custom Our People Make the Difference tailored implementation plan. A clear understanding of the company’s strategic With increasing opportunities for profitable direction and the performance metrics to measure its growth on risk projects, we have also taken significant success provides the critical framework to achieve steps to enhance our risk management processes our goal to enhance shareholder value. The primary through the application of a consistent business risk differentiator in the execution of our business plan is management framework. Nearly three years ago, we the quality and capabilities of our people around the began to strengthen and formalize our use of risk globe in which we take great pride. assessment and control mechanisms to more effectively Employee growth and development is a key manage and mitigate risk in the selection and execu- priority and is supported by a wide range of programs. tion of projects. We have placed a high priority on These include an extensive scope of on-line training continued improvement in our risk management courses as well as specific development processes to practices, working to raise risk awareness throughout match people with opportunities to gain valuable expe- the organization and to enhance our capabilities to rience. For example, the Global Leadership Forum and SAP Milestones 4Q00 1Q01 3Q01 3Q02 4Q02 U.S. Go Live International Conversion Shut Down Go Live • U.S. HR/Payroll Go Live of All Projects Legacy • Finance • New U.S. Projects Begins Complete Systems • Administration • Global Prospect Management PAGE 8
  11. 11. FLUOR CORPORATION 2000 ANNUAL REPORT the Fluor Leadership Institute were created to bring For example, during the year, Fluor teamed with Fluor’s people together to engage them in helping IBM to form a global business-to-business e-market the company chart its future course and to broaden named TradeMC, which will leverage our global their view of the company and its markets. Fluor is sourcing and supply activities for improved schedule committed to achieving its goal of creating growth in and cost efficiencies for our project procurement shareholder value which will further strengthen the needs. This new venture is also expected to increasingly company’s ability to provide greater opportunities for generate incremental revenue and earnings by provid- employee growth, career advancement and an attractive ing these services to others. This new venture is the environment for a diversified workforce. only e-commerce company serving the capital goods Continuing with its philosophy of pay for marketplace, by providing goods and services that performance, Fluor further refined its compensation are common to a variety of industries. The technology programs to improve alignment and incentives for platform to execute procurement transactions is in people to achieve business and individual goals. place and is operational. One additional equity partner has joined the new venture and discussions are continu- ing with other interested parties. Well Positioned for Growth With our major restructuring actions completed, Another initiative Consolidated Backlog and including the reverse spin-off of Massey Coal, we are undertaken during the year Backlog Gross Margin % now both strategically and financially well positioned was Fluor Daniel’s equity 6.2 to deliver on our growth objectives. Our strategy of participation in Citadon, the 14.4 selectivity to focus on added value to clients for recent combination of the two 12.6 5.0 margin improvement has achieved meaningful success. leading Web-based project 4.4 10.0 9.1 While consolidated backlog of $10 billion is below the management platform service 3.5 $14.4 billion level of three years ago, actual gross profit providers. Fluor Daniel is in backlog is 22 percent higher. In addition, market working with Citadon to conditions in our traditional EPC business are continu- develop a standardized ing to strengthen, as reflected by the resumption of industry model to drive effi- 00 97 98 99 growth in new awards and backlog. Further supporting ciencies across the EPC indus- Backlog ($ in billions) Backlog Gross Margin (in percent) our prospects for growth are encouraging gains in try. Fluor Daniel has already certain of our knowledge-based services offering. begun executing projects utilizing the system which Both our Telecommunications and our Operations & enhances the company’s ability to manage complex Maintenance businesses posted strong growth during projects, reduce risk and create accountability. the year with continuing favorable outlooks. Early Additionally, it increases adherence to established feedback from clients has been quite positive to our work processes for improved execution schedules, new Asset Management Services business unit. cost efficiency and greater value to clients. As we move forward to realize our potential and A third Web-based business was launched in achieve the financial performance that we have com- December 2000, called GlobEquip, designed to facili- mitted to delivering for our shareholders, we are also tate the sale of surplus heavy construction and mining leveraging new information technologies and Internet equipment to high-demand regions of the world. applications for additional growth opportunities. A Leveraging AMECO’s logistical support capabilities number of initiatives are underway or in development and linkage to the global equipment market, Fluor’s in this area. strategic partners in the new venture include Citibank, PAGE 9
  12. 12. FLUOR CORPORATION 2000 ANNUAL REPORT Fluor has contributed more which will provide global banking services, and Fluor Foundation Contributions than $85 million to education, Stukes-Atwood, which will provide commodity ($ in millions) community and cultural exchange services. 4.5 4.5 4.4 4.4 organizations throughout the world. Our people also annu- Commitment to Safety and ally add their contributions Social Responsibility through United Way and our Fluor’s dedication to value creation encompasses Matching Gifts Program. its long-standing commitment to safety and to being We take great pride in our a good corporate citizen. employees’ participation in Safety remains a core value at Fluor and is a clear their communities through competitive differentiator for the company. Long 00 97 98 99 the volunteering of their time recognized as the safest contractor in the world, Fluor and knowledge, a tradition which was strengthened met or exceeded expectations in all safety performance in 1976 with the formation of the Fluor Community measurement categories. Record lows were achieved Involvement Team. Additionally, Fluor has a number during the year in the number of lost workdays and of programs which actively support various education total recordable cases, as well as in the number of and human services initiatives. workers’ compensation claims. In addition to the dis- tinct value that providing a Fluor Safety safe working environment Performance Summary (lost workday incidence rates) represents for our employees, In 2000, Fluor made significant progress in implementing clients and subcontractors, its new strategic direction, strengthening the compa- .08 Fluor’s excellent safety ny’s execution platform and expanding into new service .06 .06* performance provides tangible markets that offer meaningful growth prospects. The .06 financial returns through new Fluor is well positioned to capitalize on diverse reduced workers’ compensa- opportunities in a favorable global marketplace. tion expenses and lower Initiatives that have been successfully completed or insurance rates. are currently underway should further enhance our Fluor’s commitment competitive position. 00 97 98 99 to safety excellence on its As we move forward, the knowledge and dedication *55 times better than the national industry average. projects around the world of our people will enable us to create increasing value continues to set the standard for global construction for clients. We will continually look for new ways to safety. We incorporate leading-edge approaches to leverage our extensive intellectual capital, creating new injury prevention and management. Every year, we businesses, capitalizing on opportunities in the new challenge ourselves to attain improving performance economy and delivering differentiated value to all of in all aspects of safety. Fluor’s stakeholders. Fluor also has a long tradition of charitable giving and service to the communities in which we work. Since the creation of the Fluor Foundation in 1952, PAGE 10
  13. 13. FLUOR CORPORATION 2000 ANNUAL REPORT Fluor Daniel Alan L. Boeckmann President and Chief Executive Officer Fluor Daniel Fluor Daniel made significant progress during the with the Oil, Gas & Power unit. Renamed Energy & year toward achieving its goals for improved perfor- Chemicals, it serves the upstream production, refining, mance and profitability. Implementation of a rigorous power generation and chemical markets. This consoli- business model methodology, along with substantial dation increases efficiencies by leveraging resources and actions to enhance its project execution platform, has skill sets that are commonly needed to execute projects positioned the company for meaningful improvement. across these diverse industries. It also reduces vulnera- Importantly, while backlog remained essentially bility to business cycles through greater resource level with a year ago at $6.7 billion, increased selectiv- sharing across a broader scope of market opportunities. ity produced a 32 percent improvement in backlog Conditions strengthened in the traditional energy gross margin. New awards for the year increased 28 per- market in the second half of the year, with rising oil cent to $6.1 billion, and the outlook is for continued prices and improving global economic activity. The strengthening across Fluor Daniel’s target markets. domestic power market remained strong, and the However, Fluor Daniel’s financial performance was petrochemicals market is beginning to show signs of impacted by a cost overrun on a lump-sum power pro- renewed activity. Many new projects will be large, ject, which reduced earnings by $60 million. Despite complex and often in geographically challenging loca- this disappointment, selected risk projects offer signifi- tions. These are precisely the kinds of projects where cant opportunity for improved profitability. Fluor Fluor Daniel’s global reach, scale and historical execution Daniel has placed the highest priority on enhancing its experience provide differentiated capability and value. systems and capabilities to capitalize on these opportu- Recovery of the upstream market for new oil and nities, while mitigating the potential for negative gas production continued in 2000, with several signifi- surprises. For 2000, Fluor Daniel’s operating profit was cant projects emerging. Fluor Daniel has been active $128 million, compared with $160 million in 1999. on major pipeline projects and, more recently, has Market conditions are showing distinct improve- established an Offshore Services Division to expand ment. The global economic outlook continues to be participation in this growing market. favorable, and oil and commodity prices have strength- Environmental regulations, primarily in North ened, providing clients with increased cash flow for new America and Europe, are driving significant investment capital projects. The strengthening outlook for new in the downstream refining market, where Fluor awards, along with a sharp rise in front-end studies, is Daniel’s experience and technological expertise position providing a strong signal for future growth in backlog it as a leader in these clean fuels projects. The company and earnings. is providing these services at one of the largest oil refineries in Germany, enhancing its competitive posi- tion for additional work in Europe. In addition, Fluor Energy & Chemicals Daniel is a significant participant in the development During the year, Fluor Daniel took action to leverage of several oil sands projects in Canada and is the lead synergies across common clients and reduce its operat- ing cost structure by combining its chemicals business PAGE 11
  14. 14. FLUOR CORPORATION 2000 ANNUAL REPORT EPC contractor for a $1 billion crude oil upgrader beginning to stimulate early signs of recovery in the project in Venezuela. chemicals market. In particular, Fluor Daniel received Duke/Fluor Daniel, our joint venture company a project management award for a major petrochemical serving the power industry, has established clear project in China and was named managing contractor leadership in this rapidly growing market fueled by for another significant petrochemical project in the strong demand for new power generating capacity, Middle East, with additional project opportunities primarily in the U.S. The outlook for new awards continuing to develop. remains strong, with many projects being negotiated on a sole source basis. Infrastructure Robust economic growth during the past two Fiscal 2000 was an extremely active proposal and years, combined with the effect of rising oil prices, is development period for Fluor Daniel’s Infrastructure Fluor Daniel’s first project executed in Fluor Daniel, one of the nation’s leading Duke/Fluor Daniel provided complete the Czech Republic is expected to be developers of turnkey transportation turnkey engineering, procurement, complete two months ahead of schedule projects, is responsible for development, construction and commissioning services and has already achieved more than design, and construction of the 28-mile for a 500-megawatt combined-cycle 2 million safe manhours. Under a lump Conway Bypass. This is the first highway generating facility in Edinburg, Texas. sum contract, Fluor Daniel is construct- project in South Carolina to use a design- This state-of-the-art merchant facility, ing a hydroprocessing complex for build approach. The initial segment was operational on June 10, 2000, will play Ceska Rafinerska a.s. where integration opened 17 months ahead of schedule. a major role in helping meet the rapidly ➤ of multiple process technologies has growing Rio Grande Valley’s demand substantially reduced costs. for electricity. ➤ ➤ PAGE 12
  15. 15. FLUOR CORPORATION 2000 ANNUAL REPORT business unit. We are well positioned in the early A significant project during the year was the Pfizer stages of a long-term infrastructure expansion cycle Global Development Facility in New London, CT. in the U.S. and the U.K. When completed, this new world-class $270 million Two years ago, the U.S. Federal Government facility will be the center of Pfizer’s worldwide regula- enacted a $200+ billion transportation funding bill tory compliance activities. Leading-edge technology called TEA 21, which is now generating a high level will course through the entire building, facilitating of activity across the U.S., particularly in the area of a fast-paced, discovery-fueled environment. This large, complex design/build projects where the unit has business unit also selectively executes sophisticated proven so successful in recent years. In late June, Fluor commercial and institutional projects such as the Daniel completed the first segment of the Conway publicly celebrated Aladdin Hotel and Casino in Bypass project significantly ahead of schedule. Las Vegas –– a $1.4 billion rebuild which was com- Additionally, the U.K. is embarking on a major pleted on schedule in August. upgrade and expansion program for its national rail Establishing itself as one of the top three service network. As a result, our current contract to provide providers in the high-growth microelectronics market, program management services to Britain’s Railtrack is Fluor Daniel is now a preferred EPC contractor for the being expanded to further assist them in accelerating world’s largest semiconductor manufacturers. In 2000, their £40+ billion program. In addition, a number of evergreen contracts for three key clients accounted for a significant rail projects in the U.K. and Europe, which significant increase in business volume, with services are using the public/private partnership model success- primarily focused on installing advanced toolsets for fully employed by Fluor Daniel are continuing to new, state-of-the-art manufacturing facilities. move ahead. The Infrastructure unit has expanded its A long-time leader in serving biotechnology presence in Europe to respond to these increasing customers, Fluor Daniel’s preeminent skill base also opportunities. provides a solid offering to its pharmaceutical clients In September 2000, Fluor Daniel completed who are increasingly moving into the biotechnology its assignment on the Inchon Airport in Korea and arena. Fluor Daniel successfully focused its efforts on began work on another major expansion of the establishing a firm base with three key pharmaceutical JFK International Arrivals Terminal in New York. clients during 2000. Particular emphasis was placed on Additional opportunities for airport terminal projects the secondary market for “fill and finish,” where a high in the U.S. and Asia are under evaluation. level of technological expertise is required. Manufacturing & Life Sciences Mining During the year, Fluor Daniel’s Life Sciences and Following a year of restructuring, downsizing and Manufacturing units were consolidated to leverage refocusing in 1999, Fluor Daniel’s Mining unit the resources of both organizations, achieve new achieved an impressive turnaround in 2000, with a efficiencies, and create a solid platform for future return to profitability and a solid increase in backlog. growth. This consolidation capitalizes on synergies with It successfully completed the world’s largest grassroots the unit’s specialized construction management exper- copper mining facility, located in Indonesia. tise for pharmaceutical and biotechnology facilities and Improving commodity prices and increasing global augments its EPC services to the microelectronic, foods economic growth is continuing to support a long-term and beverage, and consumer products industries. recovery in mining. Consolidation of mining companies Employing a new account management process, into fewer but larger organizations has dampened Manufacturing & Life Sciences focused on establishing near-term growth in new investment. However, it is strong key client relationships in targeted markets. also driving a new mindset in the industry aimed at The unit’s fundamental value proposition is the deliv- reducing cyclicality and closer partnering with ery of early certainty for function, cost and schedule. contractors, particularly as clients reduce the level of PAGE 13
  16. 16. FLUOR CORPORATION 2000 ANNUAL REPORT their in-house capabilities. Discussions are underway North America. Additionally, FCII staffs international with a number of clients regarding the formation of projects and has employees working around the world. strategic alliances. FCII has executed projects in virtually every busi- ness sector, performing stand-alone construction and providing maintenance services to clients in the United Fluor Constructors International Fluor Constructors International, Inc. (FCII) is the States and Canada. The company has served a diverse union craft arm of Fluor Corporation, providing con- range of government agencies as well. FCII is one of struction management and direct-hire construction only a few construction and maintenance contractors expertise to Fluor Daniel and other companies in to be ISO-9002 certified. Fluor Daniel Operating Statistics Year ended October 31, (in millions) 2000 1999 1998 Revenues $6,998 $8,403 $ 9,736 Customer-furnished material included in revenues 2,009 3,125 3,916 Work performed $6,998 $8,403 $ 9,736 Gross margin percent 5.1% 5.7% 4.8% Operating profit $ 128 $ 160 $ 161 New awards $6,075 $4,757 $ 8,173 New awards gross margin percent 6.9% 7.2% 6.0% Backlog $6,730 $6,770 $10,403 Backlog gross margin percent 6.1% 4.6% 4.0% Salaried employees 12,347 18,147 24,060 Backlog by Strategic Business Unit (SBU) 2000 1999 1998 Year ended October 31, (in millions) Dollars Percent Dollars Percent Dollars Percent Energy & Chemicals $4,356 65% $4,124 60% $ 5,752 55% Manufacturing & Life Sciences 1,078 16% 1,592 24% 2,261 22% Mining 964 14% 658 10% 1,890 18% Infrastructure 332 5% 396 6% 500 5% Total backlog $6,730 100% $6,770 100% $10,403 100% Backlog by Region 2000 1999 1998 Year ended October 31, (in millions) Dollars Percent Dollars Percent Dollars Percent United States $2,968 44% $2,870 42% $ 3,942 38% Asia Pacific (includes Australia) 526 8% 780 12% 2,018 19% EAME* 448 7% 1,062 16% 2,003 19% Americas 2,788 41% 2,058 30% 2,440 24% Total backlog $6,730 100% $6,770 100% $10,403 100% *EAME represents Europe, Africa and the Middle East. Fluor Daniel 2000 Fluor Daniel 2000 Fluor Daniel Fluor Daniel Backlog by SBU Backlog by Region New Awards Backlog & Backlog & New Awards Gross Margin % (percent) (percent) Gross Margin % 6.1 8.2 7.2 10.4 6.9 4.6 6.0 6.1 6.7 6.8 4.8 4.0 Energy & Chemicals 65% Mining 14% Africa 2% Europe 5% Manufacturing Infrastructure 5% Asia Pacific 4% Latin America 20% & Life Sciences 16% Australia 4% United States 44% Canada 21% 00 00 98 99 98 99 New Awards ($ in billions) Backlog ($ in billions) New Awards Gross Margin Backlog Gross Margin (in percent) (in percent) PAGE 14
  17. 17. FLUOR CORPORATION 2000 ANNUAL REPORT Fluor Global Services James C. Stein President and Chief Executive Officer Fluor Global Services Services business units will focus on maximizing their During 2000, Fluor Global Services (FGS) refined its individual market opportunities. longer term strategic plan for enhanced profitability FGS operating profit for fiscal 2000 was $121 mil- and growth, and for achieving its goal to become the lion, excluding a nonrecurring charge of $19 million world’s premier assets solutions company by broaden- related to disposition of a European consulting busi- ing participation across the entire life cycle of its ness, and a $25 million charge to adjust the accounts clients’ capital asset base. FGS implemented several receivable and equipment inventory to fair value of the actions during the year to strengthen alignment of its dealership operations of AMECO, which are being portfolio of services to support its strategic direction divested. This compares to operating profits of $92 mil- and financial goals. lion last year, or an increase of 32 percent. Three key actions were taken during the year. First, New awards for FGS increased 76 percent to after extensive review of AMECO’s existing services, $3.6 billion, up from $2.0 billion in 1999. FGS back- it was concluded that AMECO’s Site and Fleet Services log rose 38 percent to $3.3 billion from $2.4 billion a had strong synergy with FGS’ strategic direction and year ago, with gross margin in backlog increasing to financial objectives. Based on this review, the U.S. 6.3 percent from 6.1 percent last year. dealership operations of AMECO were separated and a decision was made to exit this business. Secondly, TRS Staffing Services was determined to have a better Telecommunications strategic fit with Fluor Signature Services (FSS) and Following a solid turnaround in 1999, the Telecom- an organizational realignment to capitalize on the munications unit delivered significant earnings growth synergies between TRS’ staffing capabilities and FSS’ in 2000. New awards were $1.1 billion, a 70 percent business and administrative services was implemented increase over the previous year’s strong performance. effective November 1, 2000. Having established itself as a leading provider of Lastly, the strategic business units that provide program management services to the telecommunica- complementary asset solution services will be managed tions industry, the unit took additional steps during under the leadership of a newly created chief operating the year to further enhance its prospects for long-term officer position to capitalize on cross-selling opport- growth. The Telecommunications unit reconfigured unities and to integrate their respective sales and its market focus along four distinct business lines: marketing strategies. These units include Operations Wireline Networks; Wireless Networks, Enterprise & Maintenance, Fluor Federal Services, Property Networks; and Installation and Maintenance. These Services and AMECO Site & Fleet Management business lines compliment recognized industry Services. Given their distinctive markets and services, segments which collectively represent the full scope Telecommunications and the new Asset Management of the telecommunications market. Building on its successful account management approach, the Telecommunications unit is focused on PAGE 15
  18. 18. FLUOR CORPORATION 2000 ANNUAL REPORT expanding its base of well capitalized target clients Operations & Maintenance FGS’ Operations & Maintenance (O&M) business unit is with long-term programs in each of its four business a leading provider of innovative performance and cost lines. The intent is to build a sustainable growth reduction solutions to plants and facilities worldwide. platform through creation of a business portfolio based Capitalizing on the strong trend toward client out- on multiple markets in order to mitigate reactive mar- sourcing of O&M services, the unit is executing a strat- ket conditions and technology cycles. egy to continually migrate up the value chain from Telecommunications’ newest market segment, supplemental maintenance to total maintenance and Installation and Maintenance, leverages relationships operational services. As clients embrace the outsourc- in each of the other business lines and provides a recur- ing approach, they are increasingly looking for service ring revenue stream for added growth and stability. providers that can take on greater responsibility and The Operations & Maintenance group Fluor was awarded the program manage- Spent Nuclear Fuel Project workers performs small capital project work for a ment contract to deploy a fiber-optic remove grating over the spent fuel pool primary aluminum producer. The Midwest network in 13 western U.S. cities for Level at the Department of Energy’s Hanford K facility was brought into new environ- 3 Communications. Through September West Basin site in Washington, in order to mental regulation compliance once O&M 2000, Fluor Telecommunications com- install new equipment. Reflecting Fluor’s defined the project, recommended a pleted 6.7 million linear feet of engin- commitment to safety, since December course of action, obtained funding on the eering, obtained 6.1 million linear feet 1999 Project Hanford has achieved more clients behalf, and executed detailed of permits, and completed in excess of than 10 million safe work hours without a engineering, procurement and construc- 5.5 million linear feet of construction Lost Workday Case. ➤ tion management. for this project. ➤ ➤ PAGE 16
  19. 19. FLUOR CORPORATION 2000 ANNUAL REPORT respond to their needs across multiple sites. Fluor’s size outsourcing by providing equipment, tool and fleet and global scope, along with the latest technologies, best management services to the heavy industrial, power practices and management expertise is creating greater and government markets. value for customers through reduced operating costs and Increased alignment of existing services to improved plant performance. By structuring compensa- support FGS’ strategic direction and value proposition tion to be strongly performance based and sharing in the to clients, along with a more integrated approach to savings achieved, profitability is enhanced for both Fluor cross-selling its full complement of services, is provid- and its customers. New awards in FY 2000 totaled $1.7 ing good growth potential for the AMECO Site and billion, up from $772 million last year. Fleet Services unit. Fluor Federal Services Asset Management Services Fluor Federal Services (FFS) is a leading service provider FGS created a new strategic business unit during the to the U.S. Federal Government. Substantial success year focused on providing a compelling value proposi- was achieved in fiscal 2000 with two key project awards tion to clients and moving towards its strategic vision for the Department of Energy (DOE) totaling more to be a premier provider of asset management solu- than $5.6 billion, which will be booked in annual tions. Competitive pressures and shareholder expecta- installments over the course of each contract. tions are driving clients to refocus their resources on Having successfully performed on the first seven achieving improvements in their core competencies years of its initial contract with the DOE as prime con- while seeking innovative solutions to outsourcing of tractor for remediation of the former nuclear weapons non-strategic activities and the decapitalization of site in Fernald, Ohio, FFS was awarded a 10-year con- their asset base. tract for the closure of the site, valued at approximately FGS’ new Asset Management unit leverages Fluor’s $2.4 billion. Additionally, FFS was awarded a $3.16 bil- world-class capabilities, along with strategic partners, lion contract extension by the DOE for five additional to address a rapidly growing market for a comprehen- years at the Hanford site in Washington state. sive approach to asset management services. In addition to Fluor’s strong position in the DOE Following extensive market assessment and target market, FFS is pursuing other identified government market identification, the new business unit is now market opportunities, including the Department of executing its business development plan, and is Defense and other federal agencies, where its capabilities receiving significant interest from targeted clients. offer a competitive advantage and differentiated value. Key target markets include consumer products, health care and technology-related manufacturing facilities where new product development, brand management AMECO and effective sales and marketing are the key drivers of During the year, it was concluded that AMECO’s Site their business success. and Fleet Services had strong growth potential and Asset Management’s value proposition to clients business synergy with FGS’ strategic direction to pro- has three key elements. First, by structuring and facili- vide total asset solutions. Focusing on this strategy and tating off-balance sheet financing for non-core assets, to improve our return on assets, AMECO’s U.S. dealer- significant client capital can be liberated for reinvest- ship operations are being divested. ment in higher return core assets. Secondly, by combin- AMECO Site Services provides a comprehensive ing FGS’ industry-leading operations and maintenance equipment, tool and service program for capital con- struction sites and maintenance projects. AMECO’s Fleet Services capitalizes on the growing trend toward PAGE 17