Fluor Corporation 2000 Annual Report

During 2000, Fluor Global Services (FGS) refined its longer term strategic plan for enhanced profitability and growth, and for achieving its goal to become the world’s premier assets solutions company by broadening participation across the entire life cycle of its clients’ capital asset base. FGS implemented several actions during the year to strengthen alignment of its portfolio of services to support its strategic direction and financial goals.

Three key actions were taken during the year. First, after extensive review of AMECO’s existing services, it was concluded that AMECO’s Site and Fleet Services had strong synergy with FGS’ strategic direction and financial objectives. Based on this review, the U.S. 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 strategic fit with Fluor Signature Services (FSS) and an organizational realignment to capitalize on the synergies between TRS’ staffing capabilities and FSS’ business and administrative services was implemented effective November 1, 2000.

Lastly, the strategic business units that provide complementary asset solution services will be managed under the leadership of a newly created chief operating officer position to capitalize on cross-selling opportunities and to integrate their respective sales and marketing strategies. These units include Operations & Maintenance, Fluor Federal Services, Property Services and AMECO Site & Fleet Management Services. Given their distinctive markets and services, Telecommunications and the new Asset Management Services business units will focus on maximizing their individual market opportunities.

FGS operating profit for fiscal 2000 was $121 million, excluding a nonrecurring charge of $19 million related to disposition of a European consulting business, and a $25 million charge to adjust the accounts receivable and equipment inventory to fair value of the dealership operations of AMECO, which are being divested. This compares to operating profits of $92 million last year, or an increase of 32 percent.

New awards for FGS increased 76 percent to $3.6 billion, up from $2.0 billion in 1999. FGS backlog rose 38 percent to $3.3 billion from $2.4 billion a year ago, with gross margin in backlog increasing to 6.3 percent from 6.1 percent last year.

Telecommunications
Following a solid turnaround in 1999, the Telecommunications unit delivered significant earnings growth in 2000. New awards were $1.1 billion, a 70 percent increase over the previous year’s strong performance.

Having established itself as a leading provider of program management services to the telecommunications industry, the unit took additional steps during the year to further enhance its prospects for long-term growth. The Telecommunications unit reconfigured its market focus along four distinct business lines: Wireline Networks; Wireless Networks, Enterprise Networks; and Installation and Maintenance. These business lines compliment recognized industry segments which collectively represent the full scope of the telecommunications market.

Building on its successful account management approach, the Telecommunications unit is focused on expanding its base of well capitalized target clients with long-term programs in each of its four business lines. The intent is to build a sustainable growth platform through creation of a business portfolio based on multiple markets in order to mitigate reactive market conditions and technology cycles.

Telecommunications’ newest market segment, Installation and Maintenance, leverages relationships in each of the other business lines and provides a recurring revenue stream for added growth and stability.

Spent Nuclear Fuel Project workers remove grating over the spent fuel pool at the Department of Energy’s Hanford K West Basin site in Washington, in order to install new equipment. Reflecting Fluor’s commitment to safety, since December 1999 Project Hanford has achieved more than10 million safe work hours without a Lost Workday Case.

The Operations & Maintenance group performs small capital project work for a primary aluminum producer. The Midwest facility was brought into new environmental regulation compliance once O&M defined the project, recommended a course of action, obtained funding on the clients behalf, and executed detailed engineering, procurement and construction management.

Fluor was awarded the program management contract to deploy a fiber-optic network in 13 western U.S. cities for Level 3 Communications. Through September 2000, Fluor Telecommunications completed 6.7 million linear feet of engineering, obtained 6.1 million linear feet of permits, and completed in excess of 5.5 million linear feet of construction for this project.

Operations & Maintenance
FGS’ Operations & Maintenance (O&M) business unit is a leading provider of innovative performance and cost reduction solutions to plants and facilities worldwide. Capitalizing on the strong trend toward client outsourcing of O&M services, the unit is executing a strategy to continually migrate up the value chain from supplemental maintenance to total maintenance and operational services. As clients embrace the outsourcing approach, they are increasingly looking for service providers that can take on greater responsibility and respond to their needs across multiple sites. Fluor’s size and global scope, along with the latest technologies, best practices and management expertise is creating greater value for customers through reduced operating costs and improved plant performance. By structuring compensation to be strongly performance based and sharing in the savings achieved, profitability is enhanced for both Fluor and its customers. New awards in FY 2000 totaled $1.7 billion, up from $772 million last year.

Fluor Federal Services
Fluor Federal Services (FFS) is a leading service provider to the U.S. Federal Government. Substantial success was achieved in fiscal 2000 with two key project awards for the Department of Energy (DOE) totaling more than $5.6 billion, which will be booked in annual installments over the course of each contract.

Having successfully performed on the first seven years of its initial contract with the DOE as prime contractor for remediation of the former nuclear weapons site in Fernald, Ohio, FFS was awarded a 10-year contract for the closure of the site, valued at approximately $2.4 billion. Additionally, FFS was awarded a $3.16 billion contract extension by the DOE for five additional years at the Hanford site in Washington state.

In addition to Fluor’s strong position in the DOE market, FFS is pursuing other identified government market opportunities, including the Department of Defense and other federal agencies, where its capabilities offer a competitive advantage and differentiated value.

AMECO
During the year, it was concluded that AMECO’s Site and Fleet Services had strong growth potential and business synergy with FGS’ strategic direction to provide total asset solutions. Focusing on this strategy and to improve our return on assets, AMECO’s U.S. dealership operations are being divested.

AMECO Site Services provides a comprehensive equipment, tool and service program for capital construction sites and maintenance projects. AMECO’s Fleet Services capitalizes on the growing trend toward outsourcing by providing equipment, tool and fleet management services to the heavy industrial, power and government markets.

Increased alignment of existing services to support FGS’ strategic direction and value proposition to clients, along with a more integrated approach to cross-selling its full complement of services, is providing good growth potential for the AMECO Site and Fleet Services unit.

Asset Management Services
FGS created a new strategic business unit during the year focused on providing a compelling value proposition to clients and moving towards its strategic vision to be a premier provider of asset management solutions. Competitive pressures and shareholder expectations are driving clients to refocus their resources on achieving improvements in their core competencies while seeking innovative solutions to outsourcing of non-strategic activities and the decapitalization of
their asset base.

FGS’ new Asset Management unit leverages Fluor’s world-class capabilities, along with strategic partners, to address a rapidly growing market for a comprehensive approach to asset management services.

Following extensive market assessment and target market identification, the new business unit is now executing its business development plan, receiving significant interest from targeted clients. Key target markets include consumer products, health care and technology-related manufacturing facilities where new product development, brand management and effective sales and marketing are the key drivers of their business success.

Asset Management’s value proposition to clients has three key elements. First, by structuring and facilitating off-balance sheet financing for non-core assets, significant client capital can be liberated for reinvestment in higher return core assets. Secondly, by combining FGS’ industry-leading operations and maintenance services, Fluor Daniel’s knowledge, and our various partners’ operating knowledge, operating efficiencies and asset productivity increases can be achieved, providing assurance to clients that their product is being produced with world-class manufacturing expertise in both cost and quality. Third, and of important value, is that a significant amount of the clients’ management time is freed and can be redirected to focus on the critical value drivers of their business.

Property Services
Property Services is a newly formed strategic business unit which combines FGS resources of Global Location, Site Acquisition, and Facilities Management Services into a single unit to achieve increased focus on developing synergies in these activities. Property Services assists clients in maximizing the value of their real estate holdings by providing professional advisory and management services in securing, managing and disposing of their real estate.

Fluor Corporation, One Enterprise Drive, Aliso Viejo, CA 92656-2606 U.S.A. Tel: 949.349.2000 Fax: 949.349.5271 © 2000 Fluor Corporation. All Rights Reserved. Fluor is a registered service mark of Fluor Corporation.