Fluor 2001 Annual Report Download - page 48

FLUOR CORPORATION 2001 ANNUAL REPORT
CONTINGENCIES AND COMMITMENTS
The company and certain of its subsidiaries are involved in litigation
in the ordinary course of business. The company and certain of its
subsidiaries are contingently liable for commitments and perfor-
mance guarantees arising in the ordinary course of business. Claims
arising from engineering and construction contracts have been made
against the company by clients, and the company has made certain
claims against clients for costs incurred in excess of the current con-
tract provisions. Recognized claims against clients amounted to $84
million and $73 million at December 31, 2001 and 2000, respectively.
Amounts ultimately realized from claims could differ materially from
the balances included in the financial statements. The company does
not expect that claim recoveries will have a material effect on its
consolidated financial position or results of operations.
Disputes have arisen between a Fluor Daniel subsidiary and its
client, Anaconda Nickel, which primarily relate to the process design
of the Murrin Murrin Nickel Cobalt project located in Western Australia.
Both parties have initiated the dispute resolution process under the
contract. Results for the year ended October 31, 1999 include a pro-
vision totaling $84 million for the alleged process design problems.
If and to the extent that these problems are ultimately determined
to be the responsibility of the company, the company anticipates
recovering a substantial portion of this amount from available insur-
ance and, accordingly, has also recorded $64 million, plus applica-
ble legal fees, in expected insurance recoveries. The company
vigorously disputes and denies Anaconda’s allegations of inadequate
process design.
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 December 31, 2001, the company had extended
financial guarantees on behalf of certain clients and other unrelated
third parties totaling approximately $27 million.
In connection with its 1997/1998 share repurchase program, the
company entered into a forward purchase contract for 1,850,000
shares of its common stock at a price of $49 per share. The contract
matured on November 30, 2000 in connection with the spin-off and
was settled for cash of $101.2 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 part-
ner in the company’s e-commerce procurement venture. Any com-
pensation realized by the holder through exercise of the warrant will
offset royalties otherwise payable under a five-year cooperation and
services agreement.
The company’s operations are subject to and affected by fed-
eral, state and local laws and regulations regarding the protection
of the environment. The company maintains reserves for potential
future environmental costs where such obligations are either known
or considered probable, and can be reasonably estimated.
The company believes, based upon present information avail-
able to it, that its reserves with respect to future environmental costs
are adequate and such future costs will not have a material effect on
the company’s consolidated financial position, results of operations
or liquidity. However, the imposition of more stringent requirements
under environmental laws or regulations, new developments or changes
regarding site cleanup costs or the allocation of such costs among
potentially responsible parties, or a determination that the company
is potentially responsible for the release of hazardous substances at
sites other than those currently identified, could result in additional
expenditures, or the provision of additional reserves in expectation
of such expenditures.
In connection with the Massey spin-off, Massey retained
all contingent liabilities related to its business, including environ-
mental matters.
OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA
The company provides professional services on a global basis in the
fields of engineering, procurement, construction and maintenance.
In 2002, the company reorganized the alignment of its operations
into five industry segments: Energy and Chemicals, Industrial and
Infrastructure, Power, Global Services and Government Services. The
Energy and Chemicals segment provides engineering, procurement,
construction and project management to energy-related industries
including upstream oil and gas production and processing in refin-
ery, and petrochemical and chemical markets. The Industrial and
Infrastructure segment provides engineering, procurement and con-
struction for the manufacturing and life sciences, commercial and
institutional, telecommunications, mining and transportation mar-
kets. The Power segment includes the company’s 50 percent proportional
interest in Duke/Fluor Daniel and its 49 percent in the ICA/Fluor joint
venture. The Global Services segment includes operations and main-
tenance, equipment and temporary staffing services. The Government
Services segment provides project management services to the
federal government primarily in environmental restoration at two
former nuclear processing facilities for the Department of Energy.
All segments except Global Services and Government Services
provide design, engineering, procurement and construction services
on a world-wide basis to an extensive range of industrial, commer-
cial, utility, natural resources and energy clients. Services provided
by these segments include: feasibility studies, conceptual design,
detail engineering, procurement, project and construction manage-
ment and construction.
The Global Services segment provides a variety of services includ-
ing: equipment services and outsourcing for construction and
industrial needs; repair, renovation, replacement, predictive and
preventative services to commercial and industrial facilities; and
productivity consulting services and maintenance management to
the manufacturing and process industries. In addition, Global Services
provides temporary staffing specializing in technical, professional
and administrative personnel for projects in all segments.
The reportable segments follow the same accounting policies
as those described in the summary of major accounting policies.
Management evaluates a segment’s performance based upon
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