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It is an exciting time for our company as the
“new” Fluor builds on its strategies and the positive
momentum developed over the past two years. A number of significant
milestones have been reached in positioning the company to achieve
its financial performance goals and growth in shareholder value.
Major Accomplishments
Major accomplishments were made in three key areas. First was the
creation of a new strategic direction, reinforced by implementation
of a business model process to help ensure our financial success.
Second was the successful reverse spin-off of Massey Coal and the
recapitalization of “new” Fluor. Lastly was the appointment
of Alan Boeckmann as president and chief operating officer of Fluor
Corporation and an organizational realignment that facilitates the
leadership of Fluor as a single, highly focused company. These actions
were taken to ensure that we are optimally positioned to capitalize
on accelerating market opportunities.
Financial Performance
The year was not without its disappointments. In the third quarter,
a lump-sum power project being executed through our partnership
with Duke Energy Corporation experienced an unanticipated cost overrun.
Earnings were reduced by a $60 million loss on the project that
represented our equal share of the overrun. This was especially
disappointing in view of the strong ongoing focus we have had to
enhance project execution and deliver predictable financial results.
Additional actions to further strengthen operating procedures, along
with a strong focus on risk management, have been implemented to
minimize the prospects of such incidents in the future.
As a result, our financial performance for 2000
was mixed, with earnings from continuing operations, excluding unusual
items, of $118.4 million, or $1.55 per share (including the project
charge), compared with $127.2 million, or $1.68 per share in 1999.
Encouragingly, consolidated new awards increased
by 42 percent to $9.6 billion, compared with $6.8 billion a year
ago. As a result, consolidated backlog grew 10 percent to $10.0
billion from $9.1 billion in 1999, the first positive change in
Fluor’s backlog in three years. Importantly, gross margin in
backlog improved to 6.2 percent from 5 percent a year earlier.
As we enter 2001, we are confident that we have
the right strategy, financial structure, organizational focus and
leadership to capitalize on significant opportunities in an increasingly
favorable market. We are focused on achieving improved financial
results in the key financial drivers of shareholder value —
sustainable, profitable growth, strong cash flow and returns on
investment well above our cost of capital.
Implementation of New Strategic Direction
Implementation of our new strategic direction in 2000 was concentrated
on positioning the company as a global, knowledge-based services
company and growing our participation in the engineering, procurement,
construction, maintenance and related fields. Key initiatives included
full implementation of a detailed business model process to set
priorities, enhance accountability and provide performance metrics
to measure quarterly progress against firmly established objectives.
We also further deployed our strategy of project selectivity and
client focus supported by the transition to a strong account management
methodology that has produced encouraging results.
Significant progress also was achieved with the
successful initial implementation of our Knowledge@WorkSM
project that revamps our work processes and information management
systems. As we move toward full implementation, we will have access
to more in-depth and real-time information on operational, financial
and human resource data, which will substantially enhance our decision-making
processes. Additionally, we successfully implemented a shared-services
organization, Fluor Signature Services, which provides cost-effective
business and administrative support services to all of Fluor’s
operating units. Importantly, this approach not only reduces overhead,
but allows operating units to focus their entire energies on growing
their core businesses.
During the year, we also made selected investments
in three Internet-based ventures that, over time, will enhance our
growth potential and increase the value we provide to clients. In
March, Fluor and IBM formed an e-commerce capital goods procurement
venture, TradeMC, designed to revolutionize the procurement process
by concentrating purchases through Web-enabled strategic sourcing
agreements. Additionally, we established an equity participation
in Citadon, the leading Internet-based project management platform
service provider. GlobEquip, a third Web-based venture, was launched
in December and will act as an on-line agent for the sale of heavy
equipment to high-demand regions of the world.
Massey Spin-Off
No accomplishment during the year was of more historic importance,
or of greater impact to the company, than the successful completion
of the separation from Fluor of Massey Coal. The tax-free spin-off
to shareholders created two new public companies, each a leader
in its respective industry, with strong growth opportunities. This
action positioned the respective management teams of both companies
to focus on improving their strategic and operational performances
and provide significantly enhanced flexibility for both to grow
in a manner best suited for their businesses.
Financial Condition
Fluor’s financial condition remains strong, and the company
has retained its investment grade credit rating. Our financial position
is the strongest of any publicly traded company in our industry,
which continues to be an important differentiator to our clients
by providing assurances that we can fund and complete large, complex
projects.
Importantly, the separation of Massey produces a recapitalized financial
structure for “new” Fluor with significantly reduced capital
requirements. This allows Fluor’s balance sheet to be optimized
for its services business focus and will significantly enhance our
ability to achieve much higher return on capital. As a result of
these positive benefits, and the favorable business outlook, we
have increased our long-term financial performance targets. We have
now established 15 percent as a minimum objective for both return
on capital and long-term average earnings growth. Additionally,
beginning 2001, Fluor will be changing to a December 31 fiscal calendar
year end.
Recognizing that dividends represent an essential
component in the creation of shareholder value, Fluor has targeted
a 30-35 percent payout of prospective earnings. Furthermore, we
expect that improving earnings performance, along with reduced capital
requirements, will generate substantial cash flows over the next
several years, enhancing our ability to fund growth initiatives
that create additional shareholder 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.
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Organizational Changes
In an important move designed to capitalize on growth market opportunities,
Alan Boeckmann was appointed president and chief operating officer
of Fluor Corporation, effective February 1, 2001. Alan’s most
recent assignment in his 25-year career at Fluor was as president
and chief executive officer of Fluor Daniel. In his new position,
he will be responsible for all business operations of the corporation,
as well as finance, human resources, and communications. With the
reverse spin-off of Massey Coal complete, and our focus now on establishing
predominance in our global markets, Alan’s appointment is part
of a logical progression in the development of the “new”
Fluor.
As a result of the spin-off, Don Blankenship,
chairman and chief executive officer of Massey Energy, no longer
serves as a director of Fluor Corporation.
Acknowledgements
Congratulations are in order to Fluor’s employees for another
outstanding year of safety performance. Safety continues to be a
long-standing core value at Fluor, yielding a wide range of benefits
to clients, employees and shareholders alike. It was also gratifying
that Fluor was ranked the No. 1 engineering and construction company
by Fortune magazine through a panel of objective, third-party
experts in its prestigious annual listing of “The World’s
Most Admired Companies.”
I would like to thank our board of directors and
employees for the tremendous effort made during the year in accomplishing
significant progress toward our goal of improved financial performance
and long-term creation of shareholder value.
I would also like to acknowledge that the successes
achieved during the year would not have been possible without the
support of our loyal customers. Their evolving needs and growing
sophistication regarding the value we can bring to them provides
strong motivation to maintain leading-edge capabilities and services
which help them achieve their own business success.
I’d like to extend a special note of appreciation
to our shareholders for their support and confidence in our company
and its future. Evidence that the hard work and dedication of Fluor’s
global workforce is increasingly achieving our goals is strengthening
our conviction in our ability to realize our full potential and
rebuild our record of consistent, predictable growth. We are eager
to capitalize on the growing opportunities for increased, value-added
service in our targeted markets.
Philip J. Carroll, Jr.
Chairman and Chief Executive Officer
January 17, 2001
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