Fluor 2001 Annual Report Download - page 32

FLUOR CORPORATION 2001 ANNUAL REPORT
FINANCIAL INSTRUMENTS
The company’s investment securities carry a floating money market
rate of return. Debt instruments carry a fixed rate coupon on the
$17.6 million in long-term debt and floating LIBOR rates on the $38
million in bank debt. The company does not currently use derivatives,
such as swaps, to alter the interest characteristics of its investment
securities or its debt instruments. The company’s exposure to inter-
est rate risk on its long-term debt is not material.
The company utilizes forward exchange contracts to hedge
foreign currency transactions entered into in the ordinary course of
business and not to engage in currency speculation. At December 31,
2001 and October 31, 2000, the company had forward foreign exchange
contracts of less than eighteen months duration, to exchange major
world currencies for U.S. dollars. The total gross notional amount of
these contracts at December 31, 2001 was $10 million and at October
31, 2000 was $71 million.
In 2001, the company issued a warrant for the purchase of 460,000
shares, at $36.06 per share, of the company’s common stock to a
partner in the company’s e-commerce procurement venture. Any
compensation realized by the holder through exercise of the warrant
will offset royalties otherwise payable under a five-year coopera-
tion and services agreement. At December 31, 2001, no amounts were
accruable under the royalty agreement.
SUPPLEMENTAL DISCUSSION AND ANALYSIS OF TRANSITION
PERIOD RESULTS OF OPERATIONS
The company changed its fiscal year to December 31 from October 31
following the spin-off of Massey. As a requirement of the change in
fiscal period, the following discussion and analysis covers the two-
month transition period ended December 31, 2000 with the two months
ended December 31, 1999.
In September 2001, the Board of Directors approved a plan to dis-
pose of certain non-core operations of the company’s construction
equipment and temporary staffing businesses. Results of operations
for the discontinued businesses have been reclassified and are pre-
sented as discontinued operations.
Revenues for the two-month period ended December 31, 2000
increased 9 percent compared with the same period of 1999. Net loss
from continuing operations for the two-month period ended December
31, 2000 was $4.1 million compared with net earnings of $15.5 mil-
lion for the same period of 1999. Operating results for the two months
ended December 31, 2000 were impacted by an unusual compensa-
tion charge totaling $24.0 million after tax. In connection with the
reverse spin off of Massey Energy Company, all stock-based com-
pensation plans were adjusted to preserve the value of such plans
on the date of the distribution. The charge reflects the impact of the
increase in the “new” Fluor stock price from the date of conversion
to December 31, 2000.
DISCONTINUED OPERATIONS
The spin-off of Massey was consummated on November 30, 2000.
Actual operating results of Massey for the month of November 2000
was a loss of $0.7 million, which was in line with the amount accrued
as of October 31, 2000, the company’s former fiscal year-end. The
results of discontinued operations for the equipment and temporary
staffing businesses were essentially break-even in the 2000 period
compared with net earnings of $3.2 million in the 1999 period. The
decrease is primarily due to depressed economic conditions in the
markets served by those operations.
FINANCIAL POSITION AND LIQUIDITY
Cash used by operating activities was $66.6 million during the two-
month period ended December 31, 2000, compared with cash used by
operating activities of $0.9 million during the same period in 1999.
This change is primarily due to the lower level of earnings during the
2000 period, combined with reduced depreciation and amortization
following the spin-off of Massey and the payment of costs associated
with the transaction during the 2000 period.
Cash utilized by investing activities totaled $18.1 million dur-
ing the two-month period ended December 31, 2000 compared with
$102.1 million during the same period in 1999. The 1999 amount
includes $94.8 million of capital expenditures for discontinued
operations.
Cash provided by financing activities totaled $37.1 million dur-
ing the two-month period ended December 31, 2000 compared with
$109.0 million for the same period in 1999. During 2000, the com-
pany increased its short-term borrowings by $138.9 million, includ-
ing increases in commercial paper of $132.3 million and notes payable
to banks of $6.5 million. On November 30, 2000, prior to the spin-off
of Massey, the company settled a forward purchase contract for
1,850,000 shares of common stock entered into in connection with its
1997/1998 share repurchase program for cash of $101.2 million.
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