Fluor 2001 Annual Report Download - page 30

FLUOR CORPORATION 2001 ANNUAL REPORT
The $24.2 million loss on disposal in 2000 relates to the cost
associated with the spin-off of Massey. These charges include legal,
audit and consulting fees, employment agreement settlement costs,
debt placement fees and other expenses. The results of operations for
Massey includes interest expense based on the actual interest for
debt obligations (including the 6.95% Senior Notes and up to $230
million of commercial paper).
FINANCIAL POSITION AND LIQUIDITY
The increase in cash provided by operating activities in 2001 compared
with 2000 is primarily due to cash provided by operating assets and
liabilities. The largest contributor to cash from operating assets and
liabilities in 2001 is the $374.8 million increase in advances from
affiliate. These advances represent the company’s proportional share
of excess cash from Duke/Fluor Daniel that was generated from client
advance payments on contracts in progress. The joint venture part-
ners manage all excess cash of Duke/Fluor Daniel through these pro-
portional advances. Such advances contributed $51 million in 2000
and $113 million in 1999 to cash provided by operating activities.
Client advances on Duke/Fluor Daniel projects is a normal condition
in contracts in the power industry where most of the projects are
negotiated on a fixed price basis. As these projects progress, the
expenditures for labor and materials will be partially funded from
these advance payments. Accordingly, the work-off of projects in
progress and the expected moderation in new power industry awards
in 2002 and beyond could reduce total advances available to the
company by as much as $200 million to $300 million (the company’s
proportional share) ratably over the next 12 months.
Excluding the impact of the advances from Duke/Fluor Daniel,
operating assets and liabilities contributed $66 million in 2001 and
used $340 million in 2000 and $23 million in 1999 of cash provided by
operating activities. The changes in cash provided by operating activ-
ities is primarily due to the changes in net operating assets and lia-
bilities associated with engineering and construction activities. The
levels of operating assets and liabilities vary from year to year and
are affected by the mix, stage of completion and commercial terms
of engineering and construction projects.
Cash utilized by investing activities in 2001 was substantially
reduced from the levels in 2000 and 1999 primarily as a result of
reduced capital expenditures. The spin-off of Massey and the deci-
sion to divest certain equipment operations substantially reduces
the company’s capital investment requirements. Capital expendi-
tures in 2001 includes expenditures for capital investments in con-
struction equipment of $60 million for continuing operations and $51
million for discontinued operations. Capital expenditure levels were
$339 million in 2000 and $364 million in 1999 for discontinued equip-
ment and coal operations. Coal operations were discontinued as a
result of the spin-off of Massey on November 30, 2000 so there were
no capital expenditures for coal in 2001. On-going investment in the
Knowledge@Work system, which is now largely completed, resulted in
capital expenditures of $62 million in 2001. Capital expenditures for
Knowledge@Work in 2000 was $67 million, compared with $29 million
in 1999. Capital expenditures in future periods will include equip-
ment purchases for the equipment operations of the Global Services
segment, facility renewal and refurbishment, and computer infra-
structure in support of the company’s substantial investment in auto-
mated systems.
Investing activities also includes a $63 million contribution to
the company’s defined retirement cash balance plan. This contribu-
tion was made to partially offset lower than expected investment
results due to depressed financial markets in 2001 and to maintain
full funding of benefits accumulated under the plan. Proceeds from
the sale of property, plant and equipment were lower in 2001 than in
2000 and 1999 as reduced turnover of construction equipment at the
AMECO dealerships reflected slowing economic conditions over the
last two years.
Cash flow from financing activities in 2001 includes significant
cash generated from a sale-leaseback transaction and the exercise
of stock options. The sale-leaseback of the company’s Sugar Land,
Texas engineering center generated $127 million in proceeds. Stock
option exercises generated $144.6 million in proceeds and resulted
in the issuance of 5.6 million shares of company stock. The cash
generated from the sale-leaseback, stock option exercises and
advances of excess cash from Duke/Fluor Daniel discussed above
all substantially contributed to the $550.8 million increase in cash
in 2001 and enabled the company to eliminate all outstanding
commercial paper borrowings.
Liquidity is currently being provided by substantial customer
advances on contracts in progress including the company’s propor-
tional share of excess cash that has been advanced to the company
by Duke/Fluor Daniel. The company’s outstanding debt consists of
only $38.4 million in short-term borrowings and long-term debt of $17.6
million. The company has access to the commercial paper market
from which it may borrow up to $350 million which is supported with
lines of credit from banks.
The company maintains a variety of commercial commitments
that are generally made available to provide support for various com-
mercial provisions in its engineering and construction contracts. The
company has $930 million in short-term committed and uncommit-
ted lines of credit to support letters of credit. In addition, the
company has $121 million in uncommitted lines for general cash man-
agement purposes. Letters of credit are provided to clients in the
ordinary course of the contracting business in lieu of retention or for
performance and completion guarantees on engineering and
construction contracts. The company also posts surety bonds to
guarantee its performance on contracts.
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