Document/Exhibit Description Pages Size
1: 10-K Form 10-K - for Period Ending 10/31/96 27 149K
2: EX-3.2 Restated By-Laws of Fluor Corporation 11 50K
3: EX-10.20 1996 Fluor Executive Stock Plan 15 51K
4: EX-13 1996 Annual Report to Stockholders 50 306K
5: EX-21 Fluor Corporation Subsidiaries 9 41K
6: EX-23 Consent of Independent Auditors 1 7K
7: EX-24.1 Power of Attorney 1 7K
8: EX-24.2 Power of Attorney 11 22K
9: EX-27 Financial Data Schedule 2 9K
Fluor Corporation
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Mission Statement
As Fluor Daniel employees, our mission is to assist clients in attaining a
competitive advantage by delivering quality services of unmatched value.
Company Description
Fluor Corporation is one of the world's largest international engineering,
construction, maintenance and diversified services companies, with an important
investment in low-sulfur coal. Fluor Daniel, the company's principal operating
business, provides a broader range of technical services to more clients in more
industries and geographic locations than any global competitor. Fluor Daniel
provides global capability from more than 80 offices worldwide. A. T. Massey,
Fluor's coal operation, ranks among the top five U.S. coal companies, producing
high-quality, low-sulfur steam coal for the electric generating industry, as
well as industrial customers, and metallurgical coal for the steel industry.
On the Cover
Fluor Corporation is dedicated to accelerated, consistent, long-term growth. We
hope you enjoy this year's annual report, which has taken a lighthearted
approach to conveying some serious messages about the company's strategy and
growth potential.
Table of Contents
1 Key Highlights
2 1996 Key Achievements
3 Letter to Stockholders
4 Accelerating Growth - No Borders, No Limits
7 Operations Report
21 Financials
22 Operating Statistics
23 Selected Financial Data
24 Management's Discussion and Analysis
28 Consolidated Financial Statements
44 Reports of Management and Independent Auditors
45 Quarterly Financial Data
45 Worldwide Offices
46 Directors
48 Officers
49 Stockholders' Reference
1996 Annual Report
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Key Highlights
Net earnings increased 16 percent to $268 million or $3.17 per share, a new
record.
Earnings from continuing operations have grown on average more than 15 percent
annually for the past nine years.
New awards increased 22 percent to a record $12.5 billion; backlog grew 7
percent to $15.8 billion.
Fluor Daniel reported operating profits up 12 percent to $320 million, the
highest in its history.
Diversified Services, the extension of core competencies, was a major
contributor to Fluor Daniel's growth and is enhancing future earnings potential.
A.T. Massey posted record operating profits of $135 million, up 21 percent.
Fluor Daniel and Massey further improved their excellent safety records. Fluor
Daniel remains the world's safest contractor.
Acquisition activity and capital spending to enhance the company's growth
potential increased significantly in 1996.
Quarterly cash dividends for 1997 were raised 12 percent to 19 cents per share,
representing a payout of approximately 24 percent of 1996 earnings.
Fluor stock increased 16 percent in fiscal 1996 from $56.50 to $65.50.
[GRAPH APPEARS HERE]
89 90 91 92 93 94 95 96
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84 119 153 135 167 192 232 268
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Earnings from
Continuing Operations
dollars in millions
[GRAPH APPEARS HERE]
89 90 91 92 93 94 95 96
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.14 .24 .32 .40 .48 .52 .60 .68
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Dividends
dollars
[GRAPH APPEARS HERE]
89 90 91 92 93 94 95 96
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.28 .23 .21 .18 .15 .11 .10 .07*
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Safety Performance
Lost Workday Incidence Rates for Fluor Daniel
*70 times better than the National Industry Average
[GRAPH APPEARS HERE]
89 90 91 92 93 94 95 96
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28 3/4 32 3/8 45 5/8 44 5/8 40 3/4 49 1/2 56 1/2 65 1/2
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Stock Price
dollars
Fluor Corporation 2
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[Enlarge/Download Table]
1996 Key Achievements
Percent
$ in thousands, except per share amounts 1996 1995 Change
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Fiscal Year
Revenues $ 11,015,192 $ 9,301,384 18
Net earnings 268,084 231,768 16
Earnings per share $ 3.17 $ 2.78 14
Return on average shareholders' equity 17.4% 17.6% --
Capital expenditures $ 392,436 $ 318,942 23
New awards $ 12,487,800 $ 10,257,100 22
Produced coal sold (thousands of short tons) 31,091 27,410 13
Cash dividends per common share $ .68 $ .60 13
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At Fiscal Year End
Working capital $ 151,255 $ 173,026 -13
Total assets 3,951,726 3,228,906 22
Backlog* 15,757,400 14,724,900 7
Capitalization
Long-term debt 2,967 2,873 3
Shareholders' equity 1,669,726 1,430,814 17
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Total capitalization $ 1,672,693 $ 1,433,687 17
Long-term debt as a percent of total capitalization .2% .2% --
Shareholders' equity per common share $ 19.93 $ 17.20 16
Closing stock price $ 65.50 $ 56.50 16
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Salaried employees 27,514 18,880 46
Craft/hourly employees 24,947 22,798 9
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Total employees 52,461 41,678 26
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The quarterly dividend was increased from $.15 per share to $.17 per share in
the first quarter of 1996 and to $.19 per share in the first quarter of 1997.
*Backlog does not reflect A.T. Massey Coal operations or certain Diversified
Services activities.
[GRAPH APPEARS HERE]
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Operating Profit by
Segment 1996
---------------------------------
. E&C 70%
. Coal 30%
[GRAPH APPEARS HERE]
89 90 91 92 93 94 95 96
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6.1 7.2 6.6 6.6 7.9 8.5 9.3 11.0
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Revenues from
Continuing Operations
dollars in billions
[GRAPH APPEARS HERE]
89 90 91 92 93 94 95 96
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130 126 107 273 172 237 319 392
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Capital Expenditures
Excludes discontinued operations
dollars in millions
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. E&C . Coal
1996 Annual Report 3
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Dear Fellow Stockholder
In reflecting on the past year, I'm struck by a number of strong beliefs. First,
there is a feeling of just how fortunate I am to be part of the Fluor Daniel and
Massey teams, both clear leaders in their respective industries. Second, there
is the constant reinforcement that those teams are made up of such outstanding
and dedicated members who are constantly challenging the status quo as they seek
to improve in all aspects. Third, there is the realization that we are
exceptionally well positioned to benefit from explosive global expansion of so
many industries. Each day we see the importance and power of liberalized trade
and investment policies.
Your company just completed the best year in its history. Records were
set in four key areas: earnings up 16 percent; revenues up 18 percent; new
awards up a strong 22 percent; and a safety performance which surpassed last
year's impressive results and reconfirms that Fluor Daniel is indeed the safest
contractor worldwide.
Most of our markets were highly active. In our Fluor Daniel operations,
demand for petroleum/petrochemical and chemical facilities; a number of mining,
electronics, telecommunication, consumer product projects and power
opportunities; along with important new projects from the U.S. Department of
Energy, all helped to improve performance.
Our Diversified Services Group recorded a particularly strong year,
including positive results from recent acquisitions. As reported to you in
previous annual reports, we are providing certain of our core competencies to
clients outside the typical project cycle, thereby increasing our growth and
profit potential.
In A.T. Massey's operations, demand for low-sulfur steam and
metallurgical coal also remained strong. This, together with our new longwall
mining installation, which dramatically reduces cost and increases output, and
our unique ability to rapidly shift production to meet customer needs, combined
to help give Massey its best year ever.
Results from continuing operations have now grown on average 15 percent
for the past nine years, ranking us among the best performing of all U.S.
industry. Yet we believe we can do better in both growth rate and return on
shareholders' equity. As we continually remind employees worldwide, this company
has only scratched the surface of its potential.
As we look ahead, we are very encouraged about our prospects. Global
economic expansion and capital spending appear to be on a sustainable, upward
trend, with Latin America, Asia Pacific, the Middle East, and Central and
Eastern Europe heading the list. But just as significant, the strategy we have
embraced--to provide more services to more clients in more locations than any
global competitor and to do so in a way which is BETTER, FASTER, CHEAPER and
SAFER--is facilitating accomplishment of the many stretch goals we have set for
ourselves.
In building upon last year's success, you should know that we contemplate
further actions designed to increase shareholder value. For the past three
years, we have made a number of strategic investments, both in acquisitions and
internal expansion with such moves as the opening of new offices, the relocation
of key executives to be closer to markets and clients, and development of
important new technologies and services. While many of these investments are
beginning to show results, we are mindful that initiatives of this kind tend to
bring along corresponding increases in operating expenses, causing pressure on
margins. Throughout 1997, we will take steps to strengthen our margins through
achievement of greater cost efficiencies in our operations and projects, and
continue to be highly selective in those projects we choose to pursue.
In the pages which follow, we discuss the vital importance that culture
continues to play in our ongoing success. We truly see no borders nor limits to
our market potential and what we can achieve when we fully focus our global
resources. Our core strengths are the envy of our industry, and the culture we
are creating assures their long-term viability.
In referencing our many successes, I would be remiss if I did not
acknowledge the contributions of our Board. You should know that your Board is
actively involved in overseeing company initiatives and last fall spent several
days with our Leadership Team reviewing overall company direction and strategy.
Through their knowledge of our businesses and
[PICTURE APPEARS HERE]
perspectives on our industry, many thoughtful observations were put forth which
have been key to firming up our plans for the future. It was with a great deal
of pleasure that we welcomed two new directors to our Board. Don L. Blankenship,
chairman and chief executive officer of A.T. Massey, was elected in September.
Thomas L. Gossage, retired chairman and former president and chief executive
officer of Hercules, Inc., was elected in January. Both bring very valuable
business perspectives and will be a strength for us in the future.
This is truly an exciting time for Fluor. On behalf of our employees
worldwide, I want to thank our many clients for their trust and confidence in
our work, and you-our owners-for your support in the past, and confidence in our
future. If you have questions or comments, don't hesitate to contact us.
/s/ Les McCraw
Les McCraw
Chairman and Chief Executive Officer
January 16, 1997
Fluor Corporation 4
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Accelerating Growth
[ART APPEARS HERE]
No Borders, No Limits
In today's business climate, most companies are devising strategies for growth
or scenarios to accelerate it. Many of these strategies are designed around an
organization's core strengths. Fortunately for us, we believe we have core
strengths which clearly separate us from our principal competitors--a strong
global presence, the most diverse array of services in the industry, a healthy
diversity of markets served, the flexibility to rapidly shift resources to
meet any client need, use of the most advanced technology, a low-sulfur coal
business positioned for growth, financial strength and a safety record second
to none.
But if our many years of success have taught us a single, fundamental
lesson, it's that the core strengths of any company have a way of being
transitory, sustained for periods of time but then gone for reasons which are
often difficult to grasp.
Sustaining and building upon core strengths as a strategy to achieve
and accelerate growth is, therefore, a challenging goal to attain. We believe
the answer, however, lies in something basic to every business
enterprise--culture.
For the most part, a company either has a culture which is designed to
consistently achieve excellence, or one which allows mediocrity or even under-
performance to routinely occur. The culture we're creating throughout our
company is, in many ways, our distinguishing characteristic and one of
continuous performance improvement. It gives us self-confidence and enables us
to set aggressive goals, guides our behavior and establishes how we act--how we
anticipate our clients'
1996 Annual Report 5
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needs, how we devise solutions, how we apply and focus our resources--in effect,
how we think about and approach our work.
The genesis of our new culture change began in 1994 when seven company
leaders carved out a plan designed to keep us competitive amid a quickly
changing world marketplace. Known as "Task Force A," the members of this group
knew the company possessed tremendous potential and was capable of creating a
far more powerful future! The key? Find a way to unleash this potential from
within.
The task required more than the traditional reengineering--it required
that we reinvent ourselves and embrace a full-scale cultural transformation.
This ongoing transformation is based upon the six characteristics below. These
words exemplify the workplace we're striving to create.
Client Focused
Growth Oriented
Empowering (Enabling)
Entrepreneurial
Cost Effective
Accountability Driven
By embracing these culture traits, the rewards for our clients,
shareholders and employees will be significant. The phrase most often used by
employees today to describe how we want to be perceived is BETTER, FASTER,
CHEAPER and SAFER than any global competitor. We intend to become the
unquestioned leading diversified services company in the world.
As we assess our efforts to date, we are encouraged by the progress we
have made. Earlier this year, we established the Chairman's Award to recognize
operations within the company whose performance in cultural transformation is
particularly noteworthy. We wanted to honor those organizations which
demonstrated and modeled superior levels of leadership. Three of our
operations were singled out among a number of candidates and received the
first-ever Chairman's Award for truly exemplifying our new culture:
The PACE operating company epitomizes client focus as it assists its sole
client, Procter & Gamble (P&G), in achieving its goals to meet worldwide
market demand. PACE, which is working in 11 countries for P&G, provided
cost-effective, value-added services and has been a critical element in
reducing client capital expenditures.
American Equipment Company's (AMEC) vision is to become one of the largest
and most profitable equipment services companies in the world. It is
accomplishing this through an entrepreneurial, empowered and quality-driven
culture. AMEC has demonstrated dramatic global growth as it has aggressively
marketed its services to new clients and expanded its distribution network in
the Latin America and Asia Pacific regions.
As one of Fluor Daniel's 80 offices worldwide, the Camberley operation in the
U.K. has transformed itself by dramatically expanding its business to a much
more diverse group of clients. It has broadened its geographic reach. By both
creating an empowered team and striking an optimum balance between risk-taking
and accountability, Camberley is succeeding in accelerating its growth
potential.
We are proud of these achievements and see these as role models for the
entire company. We are strongly bound to the belief that cultural
transformation will enable us to accelerate the impressive success we have
enjoyed in recent years. Evidence in this regard is apparent--our clients are
consistently rewarding us with record numbers of new projects; our
shareholders recognize our potential for accelerated growth, and our employees
are fully committed to achieving our vision for the future.
Our success is dependent upon the outstanding achievements of our
thousands of employees working together around the world. We thank them for
their efforts and dedication in making the company the best it can be. We are
fortunate to have added a great deal of new talent this past year. Most have
joined us through significant new projects and acquisitions. We welcome them
to our company, and look forward to the benefits that their diversity of
experience and capabilities will contribute.
As we see it, there are no boundaries, no barriers, no borders, no
limits. Our thinking, our strategies, our approach to the marketplace have no
constraints. This reflects our culture, our operating philosophy--a culture,
we believe, that will serve us well for many years to come!
Fluor Corporation 6
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Markets Served
Industrial
Automotive and General Manufacturing, Consumer Products, Commercial and
Institutional Facilities, Electronics, Food and Beverage, Infrastructure, Mining
and Metals, Pharmaceuticals and Biotechnology,
Pulp and Paper, Telecommunications
Power/Government
Power Generation, Power Services, Government Services
Process
Chemicals, Plastics and Fibers; Petroleum and Petrochemicals; Production and
Pipelines
Diversified Services
Construction Equipment Sales and Services, Environmental, Facility and Plant
Services, Procurement, Technology, TRS Staffing Solutions
A.T. Massey Coal
Electric Power Generation, General Industrial, Steel Production
[GRAPH APPEARS HERE]
89 90 91 92* 93 94 95 96
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7.1 7.6 8.5 10.9 8.0 8.1 10.3 12.5
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New Awards
dollars in billions
*Included $2.2 billion for a five-year contract with the U.S. Dept. of Energy
[GRAPH APPEARS HERE]
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Backlog by Industry
1996
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. Industrial 41%
. Power 10%
. Government 13%
. Process 31%
. Diversified Services 5%
[GRAPH APPEARS HERE]
89 90 91 92 93 94 95 96
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8.4 9.6 11.2 14.7 14.8 14.0 14.7 15.8
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Backlog -
International vs. U.S.
dollars in billions
-------------------------------------
. International . U.S.
[GRAPH APPEARS HERE]
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Backlog by Region
1996
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. Asia Pacific 22%
. Australia 6%
. Canada 1%
. Europe 9%
. Latin America 8%
. Middle East 8%
. United States 46%
[GRAPH APPEARS HERE]
89 90 91 92 93 94 95 96
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117 135 166 191 221 259 286 320
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E&C Operating Profit
dollars in millions
1996 Annual Report 7
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Operations
[ART APPEARS HERE]
Engineering and Construction
In 1996, Fluor Daniel's operating profit was $320 million, up 12 percent--the
highest in the company's history. Backlog at year end was $15.8 billion,
representing a broad diversity of markets, geographic locations and services.
New awards in 1996 were a record $12.5 billion, up 22 percent from 1995, and the
prospects for new business in an expanding international economy remain strong.
Fluor Daniel's commitment to continued growth is being achieved by
expanding our services, and broadening the markets and geographic locations we
serve. Our diversity provides a wide range of opportunities and allows us to be
selective in pursuing projects where we have a competitive advantage and which
offer the best return on our resources. Our offices and capabilities are linked
electronically, which provides flexibility to rapidly respond to client needs
anywhere in the world and allows for greater use of our high-value engineering
centers. The alignment of our organization along both industry and regional
lines gives us the ability to grow as the market demands.
To enhance future growth, strategic investments are being made to
strengthen and expand our capabilities in existing markets, as well as extend
our core competencies into new growth sectors and regions. The company's ability
to capitalize on opportunities is supported by our entrepreneurial culture, in
which accountability and client focus are key attributes.
Fluor Corporation 8
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Asia Pacific
From the infrastructure markets of emerging countries to the high-technology
industries of developed nations, the Asia Pacific region holds the most diverse
and rapidly expanding market opportunities. Activity is strong in the
hydrocarbon, chemical and mining industries, and needs in the region include
power, energy, industrial facilities, infrastructure, consumer products and
telecommunications.
Our 26-year presence in Indonesia positions us to capitalize on growth
opportunities, which are being enhanced by changes in investment and tax laws to
attract foreign investment. The Mining operating company is providing full-scope
services on the $1 billion Batu Hijau copper and gold project. We also have a
continuous presence on P.T. Freeport Indonesia's mine expansion in Irian Jaya
and are providing construction management services for Inco's smelter expansion
project in South Sulawesi. Increased power needs and emphasis on deregulation
and private enterprise are presenting several opportunities. Duke/Fluor Daniel
is providing engineering and construction services for the $2.5 billion Paiton
power plant and P.T. Freeport Indonesia's 3x65-megawatt coal-fired power plant,
and is operating its power generation assets in Irian Jaya. Requirements to
upgrade refineries to comply with the phase-out of lead in gasoline means a
continued strong market for our Petroleum & Petrochemicals operating company. It
is providing services for the debottlenecking of an existing refinery and the
addition of a new lube oil complex in Cilacap for Pertamina--Indonesia's
national oil company. Additionally, our Commercial & Institutional operating
company is working for Jakarta International Hotel Development on two projects:
renovating the Hotel Borobudur Inter-Continental--Jakarta's landmark five-star
hotel--and building the Conrad complex, a mixed-use hotel, office and retail
center.
Significant investment in Malaysia is creating opportunities,
particularly in electronics, chemicals and refining. Our Petroleum &
Petrochemicals operating company and Mitsubishi Heavy Industries agreed to
jointly pursue projects in the liquefied natural gas (LNG) market and won its
first engineering award for the Malaysia LNG TIGA project.
Singapore's open, entrepreneurial economy and excellent international
trading links are creating multiple opportunities in the electronics, chemical
and petrochemical industries. Our Chemicals, Plastics & Fibers operating company
is working on a vinyl acetate monomer plant for Hoechst Celanese.
The Philippines has an expanding economy, and growth can be seen in the
electronics, infrastructure, telecommunication and energy-related industries.
Commercial & Institutional is providing design and construction services for
Asian Appraisal Holdings' 21-story office building in Alabang, which will house
Fluor Daniel's high-value engineering center. Our electronics operating company,
ADP Fluor Daniel, is working on a wafer-testing facility for Analog Devices.
PACE--our operating company dedicated to Procter & Gamble--is working in 11
countries, including the Philippines, where it is building a grass-roots
consumer products plant.
[PICTURE APPEARS HERE]
Capitalizing on increased demand for electrical power throughout the Asia
Pacific region, Fluor Daniel is providing project management, engineering,
procurement, construction and start-up services for a 112-megawatt
combined-cycle cogeneration power plant in Thailand for Air Products and
Chemicals, Inc. as owner's engineer, on behalf of Bangkok Cogeneration Co.,
Ltd., a Thailand-based joint venture. Clockwise from top: Benito Lariosa, piping
engineer; John Antonovich, lead piping engineer; Somkiat Lertvittayatan,
mechanical/piping engineer; David Hunt, Air Products and Chemicals project
engineer; and Lou Chow, process engineer.
1996 Annual Report 9
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In Taiwan, Fluor Daniel reestablished its office in Taipei to take
advantage of increased opportunities in the electronics, power generation,
telecommunication, and petroleum and petrochemical industries. ADP Fluor Daniel
is providing architectural and engineering services for Mosel Vitelic's
semiconductor wafer fabrication facilities complex in Hsinchu.
Thailand's stability and pro-business policies are fostering strong
activity in the petrochemical, chemical, power, automotive, telecommunication,
electronics and maintenance industries. Duke/Fluor Daniel is providing
full-scope services for Air Products and Chemicals' 112-megawatt combined-cycle
cogeneration power plant. In 1996, we completed the $1.3 billion Rayong refinery
three months ahead of schedule, and we now are working on Chevron Far East's
benzene and paraxylene project. Our Telecommunications operating company has
growing wireline business activity in both Thailand and the Philippines.
Production, trade and investment reforms are creating opportunities in
India's power, hydrocarbon, petrochemical, steel and light industry markets, and
our high-value engineering center in New Delhi is well positioned to capitalize
on these prospects. Chemicals, Plastics & Fibers is working on a project for
DuPont, with which it has a strategic alliance, and Petroleum & Petrochemicals
is executing a detailed feasibility report for the Indian Oil Corporation's
planned refinery in Paradeep. In November 1996, Fluor Daniel signed a memorandum
of understanding with Tata Technodyne Ltd to jointly undertake engineering,
procurement and construction work in the country's core industrial sectors,
including steel, power, hydrocarbons, ports and cement.
China's long-term reforms continue to expand the market-oriented areas of
the economy, and there is award potential in the automotive, consumer product,
chemical, petrochemical, power and telecommunication industries. Our Beijing and
Shanghai offices are well positioned to capitalize on the many opportunities.
PACE is executing phase one of Procter & Gamble's Tidalwave multiproducts plant
in Tianjin, which will be its largest facility in the Asia Pacific region.
Petroleum & Petrochemicals is working on Shell's lube oil blending facility and
providing front-end engineering for Chevron's polystyrene plant. Full-scope
services are being provided by Chemicals, Plastics & Fibers for two expansion
projects: the DuPont nylon plant in Qingdao and the Cabot Carbon Black Facility
production unit in Shanghai.
Korea has embarked on a massive infrastructure program, and Fluor
Daniel's high-technology capabilities give us a competitive edge. Our
Infrastructure operating company and its consortium members were selected to
build a passenger terminal at Inchon International Airport in Seoul--Fluor
Daniel's first infrastructure project in Korea. Petroleum & Petrochemicals is
working on the billion-dollar Yukong refinery modernization and expansion
project.
Fluor Daniel continues to pursue public works projects in Japan,
leveraging our relationships with Japanese contractors. Teamed with Obayashi
Corporation, we're designing and constructing the Kyoto train station terminal.
[PHOTOGRAPH APPEARS HERE]
PACE, Fluor Daniel's operating company dedicated to serving
Procter & Gamble, supports that client's global expansion, which
includes a new consumer products plant in the Philippines. Fluor
Daniel's high-value engineering center in Manila is providing
engineering, procurement, construction management and start-up
services. From left: Bernadette Tuazon, PDS coordinator; Anthony
Gonzales, piping application specialist; Neil Abraham, country
manager; and Delfin Bumanglag, structural application
specialist.
Fluor Corporation 10
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In Australia, Fluor Daniel's volume of work has grown significantly, with
an emphasis on mining, as well as power plant operations and maintenance. The
acquisition of Signet Engineering Group--an Australian-based company with
expertise in gold, diamond and mineral processing--has strengthened our
capabilities to serve these active markets. We completed a feasibility study for
Mt. Isa Mines' Enterprise Mine, are providing services for its new copper
mine--which will be one of the world's largest mines--and are managing its
copper smelter upgrade. We also are providing full-scope services for Ernest
Henry Mining Pty Ltd's gold and copper mine in Cloncurry. In mining as well as
other industries, many Australian companies are outsourcing maintenance
services. Fluor Daniel has been awarded maintenance contracts by Argyle Diamond
Mine and for Westrail's standard gauge railway system. For nearly 30 years, we
also have been providing restoration and maintenance services for Hamersley Iron
Pty Ltd's railway in Western Australia.
Latin America
Improved political stability and growing, market-focused economies are fostering
a more favorable environment for capital investment in Latin America. While a
decline in copper pricing has dampened mining expenditures, significant activity
continues. Across a variety of industries, the greatest opportunities for Fluor
Daniel are expected in Venezuela, Chile, Brazil, Mexico, Argentina and Peru.
[PHOTOGRAPH APPEARS HERE]
Increased investment in Argentina's emerging mining industry has
expanded Fluor Daniel's opportunities in Latin America. Through
strategic partnering with SADE, one of Argentina's leading
engineering and construction firms, Fluor Daniel is providing
engineering, procurement and construction services for an 80,000
tons-per-day copper concentrator and associated facilities for
Minera Alumbrera Limited. From left: Chief Field Engineer David
Stayshich, Superintendents Joe Wells and Mickey Misetich, and
Field Engineers Jose Luis Papis and Jim Breuer.
Having the strongest free-market economy in the region, Chile's
participation in Mercosur--the trading block which includes Argentina, Brazil,
Paraguay and Uruguay--will help it and the southern region diversify its
markets. In the mining industry, Fluor Daniel continues to work for Escondida on
an oxide leach project and has been awarded a $350 million, three-year services
partnership contract to operate and maintain its camp facility in Antofagasta.
With rich natural resources, a diversified industrial base and a strong
privatization campaign, Argentina's expanding economy offers opportunities in
mining, hydrocarbons, power generation, automotive and other consumer products.
Partnered with SADE, one of Argentina's leading engineering and construction
firms, the Mining operating company is designing and building a copper
concentrator for Minera Alumbrera Limited--our first major project in Argentina.
We are providing a full complement of services to the Cerro Vanguardia gold mine
project.
The increasingly market-oriented Peruvian economy is creating
opportunities, predominantly in natural resources. Production & Pipelines is
leading one of the two consortium teams vying in a design competition for an
alliance contract for Shell and Mobil's $2 billion Camisea gas development
program in the Peruvian jungle. When complete, it will transport natural gas
across the Andes mountains to Lima.
Brazil's natural resources remain a major, long-term economic strength,
and its large population provides a strong consumer market. Power Services is
providing management and outage services on boilers in the Bahia state
1996 Annual Report 11
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for Copene. In the mining industry, we are providing services to the Samarco
Iron Pelletizing project.
In Venezuela, oil and energy-related investments continue to dominate.
Fluor Daniel's 25-year presence and its five-year equity investment in
Tecnofluor give us a strong position. Petroleum & Petrochemicals and Tecnofluor
are providing services to revamp a desulfurization complex at Lagoven's Amuay
refinery. In Trinidad and Tobago, Production & Pipelines is part of an alliance
which is providing full-scope services for Amoco's LNG Upstream development
project.
Mexico is gaining investors' confidence as the chemical, refining, power,
telecommunication, petrochemical, pharmaceutical and automotive markets expand.
ICA Fluor Daniel, jointly owned by Fluor Daniel and Grupo ICA, recently
installed a 5,300-kilometer fiber-optic network for Avantel, a joint venture
between MCI and Banamex. In the power industry, ICA Fluor Daniel successfully
completed construction of the 700-megawatt Tuxpan oil-fired plant and
200-megawatt Temescal hydro facility. Additionally, it began engineering and
construction on the 600-megawatt Samalayuca combined-cycle facility and
100-megawatt cogeneration facility at Altamira. ICA Fluor Daniel also is working
with Automotive & Manufacturing on Navistar's new truck assembly plant, and with
Chemicals, Plastics & Fibers on a silica plant. In Puerto Rico, our primary
opportunities are in the electronics, power, petrochemical and pharmaceutical
industries.
[PHOTOGRAPH APPEARS HERE]
Positioned to capitalize on renewed growth in the pharmaceutical
and biotechnology industries, the PharmBio & Chemicals operating
company formed a strategic alliance with Genentech, a leading
biotechnology company, to provide project-related engineering
services for its manufacturing and research and development
facilities in South San Francisco. Front row, from left: Ron
Keich, senior piping designer; K.K. Wong, senior electrical
engineer; Nancy Wong, process engineer; Annette Baird, senior
process engineer; James Panek, Genentech vice president,
Engineering and Facilities; Fred Nowbakh, senior HVAC engineer.
Back row, from left: Ramesh Kamath, Genentech director, Project
Engineering; Karen Brockwell, Genentech director, Process &
Automation Engineering; and Allan Wenzel, regional manager.
Middle East and Africa
As a leader in the refining and production industry, we are diversifying our
market participation across the Middle East, particularly in Saudi Arabia,
Kuwait, the United Arab Emirates, Qatar, Oman, as well as other countries on the
Mediterranean. Opportunities are arising in the petrochemical, chemical and
power markets, primarily in Saudi Arabia, Kuwait and Abu Dhabi. Gas-to-power
projects are developing throughout the region.
With more than 25 percent of the world's petroleum reserves, Saudi Arabia
offers significant opportunities. Petroleum & Petrochemicals is providing
initial engineering services for a proposed $2.1 billion petrochemical facility
in Yanbu. Additionally, we are providing full-scope services, including program
management, for Saudi Chevron Petrochemical's Aromax(R) project in Jubail.
In Kuwait, Chemicals, Plastics & Fibers is working on the $1.4 billion
Equate petrochemical plant. Front-end engineering and design work for Abu Dhabi
National Oil Company's planned $1.8 billion Ruwais oil refinery expansion
continues for Petroleum & Petrochemicals.
Reflecting the positive new democracies of the South African region,
Fluor Daniel re-acquired Fluor S.A. (Pty) Limited, a South African-based
engineering and construction company which was divested by Fluor 10 years ago.
The 35-year old company's strong reputation and experience provide it the entry
to serve a multitude of diverse markets. The Food & Beverage operating company
is providing diverse services to a variety of clients, such as
Fluor Corporation 12
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African Products and Pillsbury Brands Africa, as well as being part of an
alliance to investigate the feasibility of a grass-roots facility for South
African Breweries. Our Metals company has teamed with a local consulting firm to
expand Hulett's aluminum rolling mill. Power Services is performing maintenance
services at seven power plants for Eskom, which supplies more than half the
electrical power for the African continent and 97 percent of the power for the
Republic of South Africa. Carlton Paper selected our Pulp & Paper operating
company to provide services for its recycled paper deinking plant. Work in the
refining and synfuels sector continues, particularly with Sasol, Caltex, Shell
and British Petroleum. In Chad and Cameroon, Production & Pipelines is providing
preliminary project management services for a planned oil field development and
transportation project for an Exxon-led group. Mining studies are being
performed in Zambia, Zaire and Zimbabwe, and future work is anticipated.
North America
The U.S. market has opportunities across the infrastructure, government,
electronics, power, food, chemical, pharmaceutical and automotive industries. In
February, a consortium led by Fluor Daniel was chosen to begin development of
the first high-speed passenger rail system in the U.S. Subject to obtaining
financing, the Florida Overland EXpress--or FOX--rail system will cost
approximately $5 billion. Additionally, our work on Denver's E-470 toll road has
strengthened our reputation and experience to serve this market.
[PHOTOGRAPH APPEARS HERE]
Fluor Daniel is using its global resources and diverse strengths
to provide program management services to the U.S. Department of
Energy's Hanford project, one of the largest and most complex
environmental cleanup efforts in the country. From left: Jennifer
Curtis, general counsel; Larry Olguin, project director,
Facility Stabilization; Gus Mattsson, project director, Waste
Management; Mike Skriba, project director, Engineering &
Technology; Nancy Williams, project director, Spent Nuclear
Fuel; and Sal Marchetti, project director, Tank Waste
Remediation System.
Government Services is focusing on capturing a larger share of work from
the U.S. Department of Energy (DOE), Department of Defense and other government
agencies. In August, we won a $5 billion, five-year contract to lead a team
providing cleanup, management and integration services at the DOE's Hanford site
in Washington. At the DOE's Ohio site, Fluor Daniel Fernald developed an
innovative plan to accelerate cleanup of the site, which will result in project
completion more than a decade ahead of the original schedule. This approach is
being applied by the DOE at numerous sites.
Additionally, Government Services won the right to exclusively negotiate
for a seven-year contract to design and manage construction at the Los Alamos
National Laboratory in New Mexico. We also have been selected by the Federal
Emergency Management Agency to negotiate on a five-year Infrastructure Support
Services contract.
In October, Fluor Daniel acquired Marshall Contractors and integrated its
microelectronics business with ADP Fluor Daniel. This unit is providing services
for a wafer fabrication facility in Washington for WaferTech. Our PharmBio &
Chemicals operating company also will work closely with Marshall to leverage its
expertise and client relations in the pharmaceutical industry.
As U.S. utilities transition to a deregulated environment, they are
reducing expenditures and improving efficiency by outsourcing maintenance and
capital projects. Power Services has established a strategic alliance with
Southern California Edison to provide maintenance and technical services at all
of its fossil-fuel plants. In the nuclear power sector, we are supplying ongoing
support at Union
1996 Annual Report 13
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Electric sites, and are providing maintenance services to Baltimore Gas &
Electric in Maryland, as well as to 14 other nuclear units across the U.S. In an
alliance with Primary Energy, a subsidiary of NIPSCO Industries, we continue to
successfully build modern, environmentally sensitive, low-cost energy facilities
at major industrial sites.
Increased sales volume in the pharmaceutical industry is creating
opportunities for PharmBio & Chemicals. We are providing a variety of services
for MedImmune's vaccine facility. Strategic alliances were formed this year with
Eli Lilly to provide services for its biotechnology facilities worldwide, and
with Genentech to assist with its capital projects.
In the rapidly expanding wireless telecommunication market, we're working
with AT&T Wireless Services and Aerial Communication in the U.S., and are
supporting AT&T in Taiwan and other international locations. Additional
telecommunication, radio frequency and network engineering work has come from
the formation of a Fluor Daniel and Mobile Systems International joint-venture
company, Wireless Engineering Services Group. In the emergency communications
market, we have ongoing contracts with the cities of Chicago, San Francisco, San
Diego and Phoenix.
The automotive industry is expanding globally, and consumer demand is
fueling the manufacturing segment. Automotive & Manufacturing continues to work
with global automotive industry leaders on projects, such as the Mercedes Benz
assembly plant in Alabama and ongoing work with Honda in Ohio. On the
manufacturing side, we are building state-of-the-art, automated distribution
centers for Levi Strauss & Co. in the U.S. and the U.K.
[PHOTOGRAPH APPEARS HERE]
The growing demand for telecommunication services worldwide
is creating new growth opportunities for Fluor Daniel. The
Telecommunications operating company assisted AT&T in the
build-out of its state-of-the-art wireless communications
system in Chicago by providing engineering, procurement and
construction management services. Jim McLean, project
director, left, and Judith Hiatt-Rabb, project procurement
manager.
Marathon Architects/Engineers/Planners, a division of our Pulp & Paper
operating company, and Commercial & Institutional are working together on
Rayonier's new research and development facility in Georgia. Pulp & Paper has a
long-term presence doing both large- and small-scale projects for Mead
Corporation at its Ohio facility.
Our offices in Canada continue to serve a growing domestic market in
mining and hydrocarbons, while leveraging their presence to serve Canadian
clients in pursuit of export business worldwide. PharmBio & Chemicals is
performing design and construction services of an ethanol production plant for
Commercial Alcohols.
Europe
The drive for greater efficiency and cost competitiveness on a global scale is
causing Western European clients to consolidate and restructure. The chemical
industry continues to invest. Central and Eastern Europe are focused on
upgrading industrial facilities and infrastructure. Political and economic
uncertainty in Russia continues to slow near-term development, but Russia holds
significant market potential for the long-term.
In Western Europe, our Chemicals, Plastics & Fibers operating company is
working for Eastman Chemicals in Rotterdam, Imperial Chemical Industries in the
U.K. and DuPont in several locations. In March, Fluor Daniel and Bertrams formed
Chemgineering Holding Ltd, which strengthens our pharmaceutical,
Fluor Corporation 14
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biotechnology and fine chemical capabilities in this region. We were awarded
pharmaceutical projects in Ireland, Belgium and Germany, and continue to support
Procter & Gamble's European operations. In The Netherlands, Petroleum &
Petrochemicals is completing the multibillion-dollar Per+ refinery project for
Shell, and Production & Pipelines is designing and building a major underground
gas storage facility for NAM, a company jointly owned by Shell and Exxon.
In the Central European market, investment is being made in the Polish
refining industry to prepare it for market deregulation in 1998. Our ownership
of Prosynchem has opened doors for us in the hydrocarbon market, including the
revamp of a refinery's crude distillation plant in Plock. Fluor Daniel,
Prosynchem and Prochem--a Polish industrial engineering company in which we have
a 35 percent ownership interest--are serving as managing contractor for a
refinery modernization for Rafineria Gdanska S.A. In Slovakia, Fluor Daniel and
Mitsubishi Heavy Industries are working on Slovnaft A.S.' hydrocracking plant.
Prochem is working on a variety of projects in the chemical and consumer product
markets as well.
The Former Soviet Union, particularly the Caspian Sea area, holds
increasing opportunities, primarily in the upstream oil and gas market.
Production & Pipelines is providing full-scope services for the northern route
of Azerbaijan International Operating Company's Early Oil Transportation System
pipeline, and is working with several organizations on potential oil and gas
projects which may result from new emphasis in the Caspian and surrounding
fields.
[PHOTOGRAPH APPEARS HERE]
Fluor Daniel's strong client focus emphasizes building long-term
relationships to sustain continuing business opportunities.
Based on significant past project experience worldwide with both
Imperial Chemical Industries (ICI) and Union Carbide, the
Chemicals, Plastics & Fibers operating company is the managing
contractor for a joint project to expand an existing ethylene
oxide plant and build a new ethylene glycol facility in the U.K.
From left: Brian Dovner, safety officer; John Bartlett,
construction manager; John Norman, project manager; John
Wilkinson, ICI construction engineer; John Arrowsmith, piping
superintendent; Dave Proctor, civil superintendent; and Keith
Largue, instrument superintendent.
Diversified Services
The Diversified Services Group is furthering our diversification strategy to
capitalize on service industry opportunities by expanding existing businesses
and leveraging the market potential of our core competencies. This strategy
offers significant growth potential and minimizes the cyclical-nature effects of
the engineering and construction business.
In most cases, Diversified Services' operating companies carry profit
margins higher than our traditional engineering and construction business, and
because of their service nature, they generally do not generate significant
backlog. As one of the fastest growing parts of our company, Diversified
Services has been achieving rapid growth for the past several years, and the
prospects for future growth remain strong.
ACQUION
ACQUION, a global provider of supply chain management and related services,
brings companies together to buy, sell, trade and barter, emphasizing the use of
information technology.
It has developed several proprietary electronic commerce systems. Global
Electronic Trading Services (GETS) offers immediate access to electronic
catalogs and bid boards, on-line procurement applications, electronic data
interchange, and procurement card capabilities. BASE (Buyer and Seller Exchange)
serves as a central site for industrial electronic catalogs, helping buyers seek
out a special category of industrial commodity suppliers.
1996 Annual Report 15
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In June, ACQUION and Duke Power Company teamed to deliver all aspects of
supply chain management to the utility industry.
American Equipment Company
American Equipment Company (AMEC) sells, rents and maintains construction tools
and equipment worldwide. It is operating in 10 countries and is working to:
expand operations in existing territories; partner with companies to expand its
markets and customer base; target strategic acquisitions to improve its
distribution network; and use innovative marketing methods to market used
equipment via the Internet.
AMEC was ranked by Rental Equipment Register as the fifth largest
equipment rental company in the U.S. It is expanding in Latin America with the
establishment of new operations in Mexico and Chile. In the Asia Pacific region,
AMEC has offices in Jakarta, Singapore and Manila, where it has a joint venture
with a Philippine company to lease and supply construction equipment in the
Philippines and China. AMEC has a joint venture in Shanghai, China, to rent
large cranes on a fully operated basis. This year's acquisition of S&R
Equipment, with six locations in the Midwest U.S., allows AMEC to serve the
region's automotive and manufacturing industries.
[PICTURE APPEARS HERE]
American Equipment Company's equipment yard in Santiago, Chile, serves Fluor
Daniel projects and the broader equipment market in South America. The company
has demonstrated dramatic global growth as it has aggressively marketed its
services to new clients and expanded in Latin America and the Asia Pacific
region. From left: Victor Olivero, shop foreman; Guisella Echeverria, rental
coordinator; and Hector Duran, procurement specialist.
Environmental
In May, Fluor Daniel acquired 55 percent of Groundwater Technology, Inc., (GTI),
through a merger with Environmental Services to form Fluor Daniel GTI. GTI's
environmental technologies, and its remediation and site closure implementation
capabilities, combined with Fluor Daniel's project management expertise and
resources, create a uniquely competitive company in the commercial and
government arenas. By combining environmental expertise with industry-specific
process knowledge, Fluor Daniel GTI and Pulp & Paper are providing broad-based
environmental services to one of the largest U.S. paper, paperboard and
packaging companies at its 150 North American facilities.
Fluor Daniel retained certain environmental capabilities in the
Environmental Strategies operating company, which consists primarily of an
investment in Molten Metal Technology (MMT); engineering, procurement and
construction of water and wastewater treatment facilities; and Total Business
Solutions (TBS). TBS develops and implements integrated solutions for clients'
environmental challenges, including efficient downsizing, maximizing financial
returns from divestiture or redeployment of fixed assets. TBS reduces
environmental liabilities and optimizes financial returns for the divestiture of
environmentally impaired surplus properties. Environmental Strategies is
providing services to MMT on a catalytic extraction process (CEP) project for a
recycling plant in Texas, and also to M4 Environmental L.P., which utilizes
MMT's
Fluor Corporation 16
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proprietary CEP technology to process hazardous and radioactive waste for
the U.S. Departments of Energy and Defense and the U.S. Enrichment Corporation,
and mixed waste for commercial clients.
Facility & Plant Services
Facility & Plant Services (F&PS) sells optimized work process solutions for
clients' facilities and operating business problems. With projects underway
around the world, F&PS serves a range of process and manufacturing clients with
a client-focused, results-oriented strategy.
Expanding through acquisitions and partnerships, F&PS purchased the
U.K.'s T.A. Group Limited--a maintenance, consultancy and manpower services
company--and is integrating its operations to provide pan-European capabilities.
Partnerships in Asia are focused on serving Singapore, Indonesia, Malaysia and
Thailand. F&PS' presence in Latin America and Mexico continues to expand with
additional projects.
To provide total solutions to clients, the Consulting operating company
was integrated into several operating divisions of F&PS. Global Location
Strategies offers location analysis, and incentive and acquisition negotiations
on behalf of owners, as well as other services, such as systems integration,
material distribution and logistics, computer simulation, and alignment and
process consulting.
[PICTURE APPEARS HERE]
The growing trend toward outsourcing of services is creating a strong market for
the Facility & Plant Services (F&PS) operating company. F&PS is providing
operations, maintenance and facility engineering services to six of IBM's North
American facilities. At the Tucson, Arizona, facility are, from left: Pete
Garcia, Sr., operations technician; Jim Price, industrial hygienist; Heather
Keiser, security officer; David Dryburgh, engineering coordinator; Ruben Palma,
maintenance technician; Star McNally, security officer; Rodney Jeter, tool and
model maker; Pete Garcia, Jr., maintenance technican; and Don Garcia, tool and
model maker.
F&PS captured a significant share of operations and maintenance services
for Imperial Chemical Industries, working closely with the Chemicals, Plastics &
Fibers operating company. It teamed with Automotive & Manufacturing to provide
maintenance services to Volkswagen's production facility in Argentina. The
Operations and Maintenance Services division is working at six of IBM's North
American facilities--one of the largest total facilities management contracts to
be awarded in the private sector.
Technologies
Fluor Daniel Technologies (FDT) identifies profitable business opportunities in
technology-based ventures. It participates with partners to commercialize
ventures by supplying people and resources, and helping with marketing and
distribution.
During the past year, FDT has launched new businesses in the areas of
materials transfer, metals purification, accelerated battery recharging,
alternative explosive methods, process optimization solutions, close-range
photogrammetry and information management. One example is Soli-Flo, a joint
venture company of FDT and Xetex Corporation, which offers the dredging and
environmental remediation industries' first low-turbidity sediment removal
technology.
FDT has launched the Prometheus Alliance, linking together a number of
Fortune 500 companies to develop and leverage a portion of their intellectual
property and other resources. A member's unused technology could be
commercialized through the alliance, providing revenue from previously idle
assets.
1996 Annual Report 17
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TRS Staffing Solutions
TRS Staffing Solutions (TRS) is a global supplier of technical,
professional--and in certain markets--office and administrative support staffing
solutions. It provides premium engineering and design, information technology,
accounting, finance and administrative support personnel in temporary, contract
and direct-hire positions. In 1996, TRS opened 13 offices in the U.S., Canada,
Singapore, South Africa, Australia and the U.K.
TRS has become a significant force in the Australian and European
staffing markets. Acquisitions have provided entry into certain market niches
and provided management expertise in the specialist staffing sectors of
information technology and services, and accounting and finance. The 1995
acquisition of Management Resources Group in the U.K., the 1996 acquisitions of
Phoenix Contracting Pty Ltd in Australia and T.A. Group Limited in the U.K.,
along with TRS' January 1997 acquisition of the ConSol group in the U.S., are
broadening its global presence, expanding its information systems and technology
staffing capabilities and heightening its reputation in a fast-growing industry.
[PHOTOGRAPH APPEARS HERE]
ADP Fluor Daniel is teamed with Fluor Constructors, Duke/Fluor
Daniel, Fluor Daniel GTI and American Equipment Company to
provide engineering services and manage construction of
WaferTech's wafer fabrication facility in Camas, Washington. The
acquisition of Marshall Contractors further expands Fluor
Daniel's strong capabilities to serve the global electronics
market. From left: Ruben Sermeno, FCII general superintendent;
Chris Brown, AMEC project manager; Steve Martin, ADP Fluor
Daniel program manager; Arthur Chuang, WaferTech facilities
manager; and Frank Chen, ADP Fluor Daniel civil engineer.
Fluor Constructors International
Fluor Constructors International, Inc. (FCII) is the union arm of Fluor
Corporation. The company provides construction management and direct-hire
construction expertise to Fluor Daniel and others in North America. On
WaferTech's wafer fabrication facility project in Washington, FCII conducted the
largest concrete slab pour in U.S. history--a two-day, continuous pour of 16,000
cubic yards of concrete to form a vibration-free slab. Additionally, FCII staffs
international projects and has employees working at numerous projects around the
world.
FCII has executed projects in virtually every business sector, performing
stand-alone construction and providing maintenance services to clients in the
U.S. and Canada. The company has served a diverse range of government agencies
as well. FCII is one of only a few construction and maintenance contractors to
be ISO-9002 certified.
Fluor Corporation 18
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C o a l
[CARTOON APPEARS HERE]
Coal
A.T. Massey, through its operating subsidiaries, produces high-quality,
low-sulfur steam coal for the electric generating industry and industrial
customers, and metallurgical coal for the steel industry. Massey delivered
strong operating profit growth in 1996, up 21 percent to $135 million. Total
volume of coal sold increased 13 percent to 31 million tons.
Growth in operating profit was due to increased sales volume and lower
costs. Massey's strategy is to ensure that its production facilities, reserve
base and transportation options meet client needs, while providing maximum
flexibility to quickly shift production to the best market opportunities within
the steam, industrial and metallurgical coal markets, including increased sales
to export markets. This strategy has been enhanced by the success in further
reducing costs through productivity improvements and reserve selection, and it
allows Massey to focus on opportunities which provide the highest possible
profit margin.
Massey is now the fastest-growing coal company in the Eastern U.S. and
the leading coal producer in Central Appalachia. Massey has been investing in
its future, adding high-quality, low-sulfur coal reserves, and increasing its
production capacity and flexibility in order to deliver sustained growth.
Since 1991, Massey has doubled its reserve base of high-quality,
low-sulfur coal. These new reserves are located near existing Massey operations
and provide increased production on a highly cost-effective basis. Focusing
operations in a concentrated
1996 Annual Report 19
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[GRAPH OF COAL OPERATING PROFIT APPEARS HERE]
YEAR 89 90 91 92 93 94 95 96
--------------------------------------------------------------------------------
DOLLARS IN MILLIONS 51 60 61 80 81/*/ 95 111 135
================================================================================
/*/ Excludes nonrecurring charge of $10 million
[GRAPH OF COAL SOLD MILLIONS OF SHORT TONS APPEARS HERE]
YEAR 89 90 91 92 93 94 95 96
--------------------------------------------------------------------------------
PRODUCED/PURCHASED 17/9 19/8 17/7 18/4 21/2 24/1 27 31
================================================================================
[GRAPH OF COAL RESERVES APPEARS HERE]
YEAR 89 90 91 92 93 94 95 96
--------------------------------------------------------------------------------
MILLIONS OF
SHORT TONS 737 784 761 972 1,089 1,411 1,499 1,549
================================================================================
[PHOTOGRAPH APPEARS HERE]
Massey Coal's new longwall at the Upper Big Branch mine in West
Virginia is significantly improving both productivity and
safety. In April, crews started mining the longwall's first
panel, a block of coal 1,000 feet wide and three miles long. In
the foreground: Kevin Lovely, mechanic/computer specialist; and
Eugene Williams and J.D. Pettry, general laborers.
geographical area provides cost advantages which accrue from greater
utilization of production capacity and favorable distribution logistics. These
investments have positioned the company to capitalize on growth opportunities in
metallurgical and steam coal markets, as well as the export market. In 1996,
metallurgical coal sales volume increased 17 percent, while steam coal sales
volume increased 11 percent. Export coal sales volume increased 47 percent from
3.8 million tons in 1995 to 5.6 million tons in 1996.
Massey is now the largest coal shipper on both the Norfolk Southern and
the CSX railroads. Massey's diversity of transportation options--three rail
lines, the Ohio river barge system and truck delivery--adds to Massey's overall
cost competitiveness and market flexibility.
During 1996, two new mining operations --Eagle Energy and Green
Valley--were acquired. Utilizing Massey's exceptional capability to improve
productivity and reduce costs, Eagle Energy substantially improved its
performance and profitability. The Green Valley acquisition added to Massey's
high-quality reserves. At existing operations, Massey installed a longwall,
developed five new mines, expanded a coal preparation plant and constructed a
new railroad loadout.
Massey's productivity, already near the highest in the industry, is
improving further now that its first longwall is running at the Upper Big Branch
mine in Raleigh County, West Virginia. A longwall mining system greatly
increases productivity and reserve recovery in large coal seams. A second
longwall was acquired with the purchase of Eagle Energy.
Fluor Corporation 20
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Increased production from the new longwall is being processed at Massey's
state-of-the-art preparation plant at Marfork. The Marfork plant has been
expanded three times in the past two years to handle increasing shipments of
metallurgical coal and is a key element in Massey's strategy to expand market
share. Capacity at Marfork has increased 85 percent, and the plant now is
handling more than 7 million tons annually.
Massey's high-quality, low-sulfur reserve base and its ability to
increase production cost-effectively position it to capitalize on either volume
or price increases which may result from increased demand for low-sulfur coal by
electric utilities to meet clean air requirements, while fully capitalizing on
existing strength in the metallurgical coal market. Overall growth in U.S.
demand for electricity increased approximately 2.5 percent in 1996. A decline in
the contribution from nuclear-generated power for certain Massey customers
further enhanced demand for coal-fired power.
Opportunities in the export market are expanding as a result of
privatization and reduction or elimination of government subsidies for European
mines. To capitalize on this opportunity, Massey has expanded its sales coverage
of Western and Central Europe.
Massey is well positioned to take advantage of future opportunities which
may be created by deregulation of the utility industry. As deregulation forces
utilities to become more cost competitive, they will seek energy providers, such
as Massey, which can help them improve performance through superior product
quality, better service and lower cost. In a deregulated environment, coal ranks
among the lowest-cost energy sources, and may gain an increasing advantage as
nuclear plants age and face recommissioning and waste disposal problems.
[PICTURE APPEARS HERE]
Expansion of Massey's state-of-the-art Marfork Preparation Plant in West
Virginia was completed this year, increasing processing capacity by 85 percent
to 2,400 tons per hour. From left: Macey Biggers, manager, Quality Control;
Lance Compton, plant superintendent; and Randy Shrewsberry, plant maintenance
superintendent.
Worker safety is of paramount importance at Massey and is ensured by a
Safety First program, exceeding federal and state requirements. Safety
performance has been improved by more than 40 percent since 1989 with the
non-fatal days lost incidence rate dropping from 6.4 to 3.6 in 1996. Safety is
engineered into every phase of coal production and monitored by a safety audit
program, which reviews all aspects of the mining operation and weighs each
operation against the toughest safety standards in the coal industry.
Massey's strategy is to ensure that it meets client needs with its modern
production facilities, adequate reserve base and flexible transportation
options. Profitability growth is maintained by a combination of strategies,
productivity improvements, reserve selection, and focusing on markets providing
the highest profit margin. Massey is positioned to quickly shift production to
the best market opportunities within the steam, industrial and metallurgical
coal markets.
1996 Annual Report 21
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Financials
[CARTOON APPEARS HERE]
Financial Table of Contents
24 Management's Discussion and Analysis
28 Consolidated Balance Sheet
30 Consolidated Statement of Earnings
31 Consolidated Statement of Cash Flows
32 Consolidated Statement of Shareholders' Equity
33 Notes to Consolidated Financial Statements
42 Segment Information
44 Reports of Management and Independent Auditors
45 Quarterly Financial Data
Fluor Corporation 22
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Operating Statistics
[Enlarge/Download Table]
$ in millions / Year ended October 31, 1996 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------------
Engineering and Construction
Work performed $ 9,870 $ 8,379 $ 7,673 $ 7,110 $ 5,889 $ 5,792
Revenues 10,054 8,452 7,718 7,134 5,904 5,813
Operating profit 320 286 259 221 191 166
New awards 12,488 10,257 8,072 8,001 10,868 8,532
Backlog $ 15,757 $ 14,725 $ 14,022 $ 14,754 $ 14,706 $ 11,181
Salaried employees 26,568 18,090 16,433 17,215 17,443 17,602
----------------------------------------------------------------------------------------
$ in millions / Year ended October 31, 1990 1989 1988
-----------------------------------------------------------------------------------
Engineering and Construction
Work performed $ 6,353 $ 5,241 $ 4,268
Revenues 6,383 5,312 4,225
Operating profit 135 117 51
New awards 7,632 7,135 5,955
Backlog $ 9,558 $ 8,361 $ 6,659
Salaried employees 19,829 17,519 15,576
---------------------------------------
[Enlarge/Download Table]
$ in millions / At October 31, 1996 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------------
Backlog by Group and Location
Industrial $ 6,496 41% $ 4,516 31% $ 3,564 25% $ 3,449 23% $ 3,737 25% $ 4,127 37%
Process 4,903 31 6,671 45 7,668 55 7,430 50 6,305 43 5,043 45
Power/Government 3,621 23 3,275 22 2,369 17 3,212 22 3,804 26 1,445 13
Diversified Services 737 5 263 2 421 3 663 5 860 6 566 5
---------------------------------------------------------------------------------------------------------------
Total backlog $15,757 100% $14,725 100% $14,022 100% $14,754 100% $14,706 100% $11,181 100%
===============================================================================================================
United States $ 7,326 46% $ 6,666 45% $ 6,802 49% $ 9,045 61% $10,649 72% $ 7,915 71%
Asia Pacific 4,402 28 3,303 23 1,662 12 1,679 11 608 4 377 3
EAME* 2,677 17 3,088 21 4,387 31 3,178 22 2,389 17 2,174 20
Americas 1,352 9 1,668 11 1,171 8 852 6 1,060 7 715 6
---------------------------------------------------------------------------------------------------------------
Total backlog $15,757 100% $14,725 100% $14,022 100% $14,754 100% $14,706 100% $11,181 100%
===============================================================================================================
$ in millions / At October 31, 1990 1989 1988
---------------------------------------------------------------------------
Backlog by Group and Location
Industrial $3,592 38% $ 4,136 49% $ 3,100 47
Process 4,434 46 3,144 38 2,612 39
Power/Government 1,058 11 777 9 847 13
Diversified Services 474 5 304 4 100 1
-----------------------------------------------------
Total backlog $9,558 100% $ 8,361 100% $6,659 100%
=====================================================
United States $6,724 70% $ 6,404 77% $5,298 80
Asia Pacific 812 9 287 3 251 4
EAME* 1,345 14 634 8 494 7
Americas 677 7 1,036 12 616 9
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Total backlog $9,558 100% $ 8,361 100% $6,659 100%
=====================================================
* EAME represents Europe, Africa and the Middle East.
[Enlarge/Download Table]
$ in thousands / in thousands of short tons
Year ended October 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988
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Coal
Revenues $960,827 $849,758 $767,725 $716,591 $696,721 $758,481 $865,809 $815,558 $783,719
Operating profit $134,526 $111,033 $ 95,198 $ 70,680 $ 80,281 $ 60,709 $ 60,241 $ 51,007 $ 50,375
Produced coal sold
Steam coal 17,520 15,777 16,702 16,036 13,711 13,536 13,058 11,942 11,057
Metallurgical coal 13,571 11,633 7,133 5,156 3,827 3,446 5,538 4,640 3,968
------------------------------------------------------------------------------------------------------
Total produced coal sold 31,091 27,410 23,835 21,192 17,538 16,982 18,596 16,582 15,025
Purchased coal sold* -- -- 1,284 2,302 4,402 6,578 7,989 9,300 10,038
Total employees 2,809 2,479 1,954 1,431 1,252 1,133 1,214 1,435 1,232
------------------------------------------------------------------------------------------------------
* Purchased coal sales were immaterial in 1996 and 1995.
1996 Annual Report 23
================================================================================
Selected Financial Data
[Enlarge/Download Table]
In millions, except per share amounts 1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------------
Consolidated Operating Results
Revenues $ 11,015.2 $ 9,301.4 $ 8,485.3 $ 7,850.2 $ 6,600.7
Earnings from continuing operations before taxes 413.2 362.2 303.3 242.2 215.4
Earnings from continuing operations, net 268.1 231.8 192.4 166.8 135.3
Earnings (loss) from discontinued operations, net -- -- -- -- (96.6)
Cumulative effect of change in accounting principle, net -- -- -- -- (32.9)
Net earnings 268.1 231.8 192.4 166.8 5.8
Earnings per share
Continuing operations 3.17 2.78 2.32 2.03 1.65
Discontinued operations -- -- -- -- (1.18)
Cumulative effect of change in accounting principle -- -- -- -- (.40)
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 3.17 $ 2.78 $ 2.32 $ 2.03 $ .07
Return on average shareholders' equity 17.4% 17.6% 17.1% 17.4% .6%
Cash dividends per common share .68 $ .60 $ .52 $ .48 $ .40
Consolidated Financial Position
Current assets $ 1,796.8 $ 1,411.6 $ 1,258.4 $ 1,309.1 $ 1,138.6
Current liabilities 1,645.5 1,238.6 1,021.3 930.9 845.4
----------------------------------------------------------------------
Working capital 151.3 173.0 237.1 378.2 293.2
Property, plant and equipment, net 1,677.7 1,435.8 1,274.4 1,100.9 1,046.9
Total assets 3,951.7 3,228.9 2,824.8 2,588.9 2,365.5
Capitalization
Long-term debt 3.0 2.9 24.4 59.6 61.3
Shareholders' equity 1,669.7 1,430.8 1,220.5 1,044.1 880.8
----------------------------------------------------------------------
Total capitalization $ 1,672.7 $ 1,433.7 $ 1,244.9 $ 1,103.7 $ 942.1
Percent of total capitalization
Long-term debt .2% .2% 2.0% 5.4% 6.5%
Shareholders' equity 99.8% 99.8% 98.0% 94.6% 93.5%
Shareholders' equity per common share $ 19.93 $ 17.20 $ 14.79 $ 12.72 $ 10.81
Common shares outstanding at October 31 83.8 83.2 82.5 82.1 81.5
Other Data
New awards $ 12,487.8 $10,257.1 $ 8,071.5 $ 8,000.9 $10,867.7
Backlog at year end 15,757.4 14,724.9 14,021.9 14,753.5 14,706.0
Capital expenditures 392.4 318.9 236.6 171.5 287.0
Cash provided by operating activities $ 406.9 $ 366.4 $ 458.6 $ 188.7 $ 306.1
In millions, except per share amounts 1991 1990 1989 1988
-----------------------------------------------------------------------------------------------------------------------------------
Consolidated Operating Results
Revenues $ 6,572.0 $7,248.9 $ 6,127.2 $5,008.9
Earnings from continuing operations before taxes 228.4 153.6 135.6 62.0
Earnings from continuing operations, net 153.1 119.4 84.1 38.6
Earnings (loss) from discontinued operations, net 11.0 35.2 28.6 21.6
Cumulative effect of change in accounting principle, net -- -- -- --
Net earnings 164.1 154.6 112.7 60.2
Earnings per share
Continuing operations 1.87 1.47 1.04 .48
Discontinued operations .14 .43 .36 .27
Cumulative effect of change in accounting principle -- -- -- --
--------------------------------------------------------
Net earnings per share $ 2.01 $ 1.90 $ 1.40 $ .75
Return on average shareholders' equity 20.2% 23.3% 21.5% 14.2%
Cash dividends per common share .32 $ .24 $ .14 $ .02
Consolidated Financial Position
Current assets $ 1,159.5 $1,222.8 $ 1,036.4 $1,001.0
Current liabilities 848.2 984.0 797.7 786.1
-------------------------------------------------------
Working capital 311.3 238.8 238.7 214.9
Property, plant and equipment, net 1,092.7 925.3 775.3 729.8
Total assets 2,421.4 2,475.8 2,154.3 2,075.7
Capitalization
Long-term debt 75.7 57.6 62.5 95.0
Shareholders' equity 900.6 741.3 589.9 467.1
-------------------------------------------------------
Total capitalization $ 976.3 $ 798.9 $ 652.4 $ 562.1
Percent of total capitalization
Long-term debt 7.8% 7.2% 9.6% 16.9%
Shareholders' equity 92.2% 92.8% 90.4% 83.1%
Shareholders' equity per common share 11.10 $ 9.22 $ 7.39 $ 5.91
Common shares outstanding at October 31 81.1 80.4 79.8 79.1
Other Data
New awards $ 8,531.6 $7,632.3 $ 7,135.3 $ 5,955.2
Backlog at year end 11,181.3 9,557.8 8,360.9 6,658.6
Capital expenditures 159.7 155.7 139.2 86.3
Cash provided by operating activities $ 219.0 $ 353.1 $ 265.1 $ 17.7
See Management's Discussion and Analysis on pages 24 to 27 and Notes to
Consolidated Financial Statements on pages 33 to 43 for information relating to
significant items affecting the results of operations. The quarterly dividend
was increased from $.02 per share to $.04 per share in the second quarter of
1989, to $.06 per share in the first quarter of 1990, to $.08 per share in the
first quarter of 1991, to $.10 per share in the first quarter of 1992, to $.12
per share in the first quarter of 1993, to $.13 per share in the first quarter
of 1994, to $.15 per share in the first quarter of 1995, to $.17 per share in
the first quarter of 1996 and to $.19 per share in the first quarter of 1997.
Fluor Corporation 24
==============================================================================
Management's Discussion and Analysis
The following discussion and analysis is provided to increase understanding of,
and should be read in conjunction with, the consolidated financial statements
and accompanying notes.
Results of Operations
The company currently operates in two business segments: Engineering and
Construction and Coal. The Engineering and Construction segment provides design,
engineering, procurement, construction, maintenance and other diversified
services to clients in a broad range of industrial and geographic markets on a
worldwide basis. The Coal segment produces, processes and sells high-quality,
low-sulfur steam coal for the electric generating industry as well as industrial
customers, and metallurgical coal for the steel industry.
Engineering and Construction Segment
Total 1996 new awards were $12.5 billion compared with $10.3 billion in 1995 and
$8.1 billion in 1994. The following table sets forth new awards for each of the
segment's business groups:
[Enlarge/Download Table]
$ in millions / Year ended October 31, 1996 1995 1994
----------------------------------------------------------------------------------------------------------------
Process $ 4,061 33% $ 3,859 38% $ 4,432 55%
Industrial 6,182 49 4,313 42 2,948 37
Power/Government 1,428 11 1,873 18 516 6
Diversified Services 817 7 212 2 176 2
----------------------------------------------------------------------------------------------------------------
Total new awards $ 12,488 100% $ 10,257 100% $ 8,072 100%
================================================================================================================
U.S. $5,749 46% $ 4,495 44% $ 3,165 39%
Outside U.S. 6,739 54 5,762 56 4,907 61
----------------------------------------------------------------------------------------------------------------
Total new awards $ 12,488 100% $ 10,257 100% $ 8,072 100%
================================================================================================================
During 1996, 54 percent of new awards came from projects located outside
of the United States, compared with 56 percent and 61 percent in 1995 and 1994,
respectively. The company's future award prospects include several large-scale
international projects. The large size and uncertain timing of these projects
can create variability in the company's award pattern; consequently, future
award trends are difficult to predict with certainty. Process Group new awards
reflect this variability, as fewer large-scale project awards were received in
1996 compared with 1995 and 1994. In 1996, this was partially offset by smaller
to medium sized awards. Growth in the Industrial Group's new awards in 1996 is
due primarily to significant activity in the mining and metals sector, including
a $1 billion award for the procurement, construction and management services of
a copper and gold mine in Indonesia, in addition to increases in the
telecommunications and pharmaceuticals sectors. The growth in the Industrial
Group's new awards in 1995 compared with 1994 is due primarily to significant
new awards activity in the automotive and mining and metals operating sectors,
along with continued growth in demand for consumer products, particularly in
developing countries. The Power/Government Group's new awards in 1996 reflect
the company being selected to manage the environmental cleanup of the Department
of Energy's Hanford site, a former plutonium production facility located in
southeastern Washington state. The initial five-year contract is valued at $5
billion with potential contract extensions for an additional five years and $5
billion. This work is expected to be added to backlog on an annual basis as
congressional authority to expend the funds is received. The initial authorized
phase of $1 billion was recognized as a new award in the fourth quarter of 1996.
The growth in the Power/Government Group's new awards in 1995 compared with 1994
is due primarily to an award totaling over $1 billion relating to a power plant
to be constructed in Paiton, Indonesia. The increase in the Diversified Services
Group's new awards in 1996 was due primarily to the award of facility management
service contracts for IBM at various facilities located throughout the United
States.
Backlog at October 31, 1996, 1995 and 1994 was $15.8 billion, $14.7
billion and $14.0 billion, respectively. The Process Group's backlog continued
to decline in 1996, reflecting the work off of certain large-scale projects.
Backlog for the other engineering and construction business groups increased,
reflecting the higher new award
24
1996 Annual Report 25
================================================================================
activity as well as the impact of acquisitions. Although backlog reflects
business which is considered to be firm, cancellations or scope adjustments do
occur. Backlog has been adjusted to reflect project cancellations, deferrals,
and revised project scope and cost, both upwards and downwards. The net
reduction in backlog from project adjustments and cancellations during the year
ended October 31, 1996 was $1.6 billion, compared with $1.2 billion and $1.1
billion for the years ended October 31, 1995 and 1994, respectively.
Engineering and Construction revenues increased to $10.1 billion in 1996
compared with $8.5 billion in 1995 and $7.7 billion in 1994 due primarily to
increases in the volume of work performed. U.S. revenues increased in 1996,
reflecting both growth within the Diversified Services Group and an overall
improving U.S. economy. Export revenues increased in 1996 compared with 1995 and
1994 as the result of substantial engineering work performed in the U.S. for a
petrochemical complex in Kuwait. Excluding the Kuwait project, export revenues
continued to decline in 1996, reflecting the company's efforts to provide a
higher percentage of engineering services through its international offices.
Engineering and Construction operating profits increased 12 percent to $320
million in 1996, compared with $286 million in 1995 and $259 million in 1994 due
primarily to an increase in the volume of work performed, partially offset by
continued high levels of investment spending for strategic business development.
These expenditures are expensed as incurred and reflect the company's pursuit of
business opportunities across numerous global markets. Margins declined slightly
in 1996 from 1995 and 1994 levels due to the increased investment spending,
competitive market conditions and the mix of engineering and construction
projects. Margins were also adversely impacted by losses incurred in connection
with a mining project in South America. The majority of the company's
Engineering and Construction contracts provide for reimbursement of costs plus a
fixed or percentage fee. In the highly competitive markets served by this
segment, there is an increasing trend for cost-reimbursable contracts with
incentive-fee arrangements and fixed or unit price contracts. In certain
instances, the company has provided guaranteed completion dates and/or
achievement of other performance criteria. Failure to meet schedule or
performance guarantees can result in non-reimbursable costs which could exceed
project profit margins. The company continues to focus on improving operating
margins by lowering the cost of delivering services through its global network
of offices, allowing greater use of high-value engineering centers located in
lower cost areas of the world.
During 1996, the company continued to enhance its growth potential by
expanding existing businesses through both internal expansion and strategic
acquisitions, particularly within the Diversified Services Group. Diversified
Services continues to expand by marketing services directly to clients that
previously have been provided as support for engineering and construction
projects, while also capitalizing on emerging international markets. In most
cases, Diversified Services' operating companies typically carry profit margins
higher than traditional engineering and construction projects, and because of
their more purely service nature, they generally do not generate significant
backlog as a measure of their activity. Supplementing internal growth were the
following acquisitions: In May 1996, the company consummated a merger between
one of its subsidiaries, Fluor Daniel Environmental Services, Inc., and
Groundwater Technology, Inc., wherein the company acquired an approximate 55
percent interest in the newly named company, Fluor Daniel GTI, Inc.; in March
1996, American Equipment Company, Inc., the company's equipment rental and sales
subsidiary, acquired S&R Equipment Company, Inc.; and, in October 1996, the
company acquired Marshall Contractors, Inc.
In addition to the acquisitions noted above, during 1996 the company
finalized a number of smaller acquisitions, primarily in selected niche markets.
All acquisitions have been accounted for under the purchase method of accounting
and their results of operations have been included in the company's consolidated
financial statements from the respective acquisition dates. If these
acquisitions had been made at the beginning of 1996, results of operations would
not have differed materially from actual results.
Coal Segment
Revenues and operating profit from Coal operations in 1996 were
$961 million and $135 million, respectively, compared with $850 million and $111
million in 1995. Revenues and operating profit in 1994 were $768 million and $95
million.
25
Fluor Corporation 26
==============================================================================
Revenues increased in 1996 due primarily to increased sales volume of
both metallurgical and steam coal. Metallurgical coal revenues increased due
primarily to the continued strong demand by steel producers and the capturing of
a larger share of the metallurgical coal market. Steam coal sales benefited from
the severe winter in 1996 as electric utilities replenished their depleted
inventory levels. Gross profit and operating profit increased in 1996 compared
with 1995 due primarily to the increased sales volume and lower costs of both
metallurgical and steam coal combined with improved pricing of metallurgical
coal.
Revenues increased in 1995 compared with 1994 due primarily to increased
sales volume of metallurgical coal, which more than offset lower demand for
steam coal due to the prior year's mild winter weather conditions. Metallurgical
coal sales increased in 1995 due to the strong demand by steel producers.
Operating profit increased 17 percent in 1995 due primarily to the increased
sales volume of metallurgical coal which has a higher margin than steam coal.
Other
Net interest income for the year ended October 31, 1996 decreased $7.9 million
compared with the same period of 1995 due primarily to both lower interest
earning assets and higher interest bearing liabilities. Net interest income
increased in 1995 compared with 1994 due largely to higher rates of return on
short-term investments and the prepayment of a 13.5 percent note in the first
quarter of 1995.
Corporate administrative and general expense in 1996 was
level with 1995 as lower corporate overhead was offset by higher
performance-driven compensation plan expense. Corporate administrative and
general expense increased slightly in 1995 compared with 1994 due primarily to
higher performance-driven compensation plan expense partially offset by lower
corporate overhead.
Effective November 1, 1995, the company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). The adoption
of SFAS No. 121 had no impact on the company's consolidated results of
operations or financial position.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Adoption of the new accounting standards
prescribed by SFAS No. 123 is optional. The company intends to continue
accounting for its plans under previous accounting standards and beginning in
1997 will adopt the "disclosure only" alternative available under SFAS No. 123.
Discontinued Operations
On April 7, 1994, the company completed the sale of its Lead business for
initial cash proceeds of approximately $52 million plus deferred amounts to be
paid in installments over periods ranging from five to eight years.
The sale by the company of its Lead business included St. Joe Minerals
Corporation ("St. Joe") and its environmental liabilities for several different
lead mining, smelting and other lead related environmental sites. As a condition
of the St. Joe sale, however, the company retained responsibility for certain
non-lead related environmental liabilities, arising out of St. Joe's former zinc
mining and smelting division, but only to the extent that such liabilities are
not covered by St. Joe's comprehensive general liability insurance.
The zinc mining and smelting division of St. Joe was sold to Zinc
Corporation of America ("ZCA") in 1987. As part of the sale agreement, St. Joe
and the company agreed to indemnify ZCA in the event that certain environmental
liabilities arise from three Zinc facilities (the "Zinc Facilities"). During
1993, ZCA made claims under this indemnity as well as under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") against St.
Joe. In 1994, ZCA filed suit against St. Joe and the company, among others,
seeking compensation. In 1994, the company and St. Joe, among others, executed a
settlement agreement with ZCA, which among other things, cancels the indemnity
previously provided to ZCA and limits environmental expenditures at the Zinc
Facilities for which St. Joe
26
1996 Annual Report 27
===============================================================================
would be responsible to no more than approximately $10 million. This amount had
been previously reserved by the company. Expenses incurred and payments made
under the settlement agreement are expected to be made over a period of at least
five years from the date of settlement.
Financial Position and Liquidity
The increase in cash flows from operating activities in 1996 is due primarily to
higher earnings, partially offset by increases in operating assets and
liabilities. During 1996, increases in receivables and contract work in progress
were only partially offset by increases in certain project related short-term
liabilities. These increases were primarily the result of acquisitions and the
volume of work in progress. These changes in operating assets and liabilities
from year to year are affected by the mix, stage of completion and commercial
terms of engineering and construction projects. The increase in cash utilized by
investing activities in 1996 compared with 1995 and 1994 is primarily
attributable to increased capital expenditures and acquisitions by both the
Engineering and Construction and Coal operations, partially offset by increased
proceeds from the sales and maturities of marketable securities. Capital
expenditures and acquisitions by the Coal operations have been directed
primarily towards acquiring additional coal reserves. Engineering and
Construction capital expenditures and acquisitions were primarily for American
Equipment and directed towards expanding the machinery and equipment rental
business. Investing activity in 1994 included the initial pretax proceeds from
the sale of the Lead business. Cash utilized by financing activities consisted
primarily of dividend payments and the payment of certain long-term debt,
partially offset by an increase in short-term borrowings.
The long-term debt to capitalization ratio at October 31, 1996 and 1995
was less than 1.0 percent.
The company has on hand and access to sufficient sources of funds to
meet its anticipated operating, expansion and capital needs. Significant short-
and long-term lines of credit are maintained with banks which, along with cash
on hand and marketable securities, provide adequate operating liquidity.
Liquidity is also provided by the company's commercial paper program under which
there was $30 million outstanding at both October 31, 1996 and 1995.
Additionally, during December 1996 the company filed a shelf registration
statement with the Securities and Exchange Commission for the sale of up to $400
million of debt securities. The filing will enable the company to issue debt
from time to time during the next two years. Proceeds from any offering will be
used for general corporate purposes, which may include working capital
requirements, capital expenditures and possible acquisitions.
Cash dividends increased to $56.8 million ($.68 per share) in 1996 from
$49.7 million ($.60 per share) in 1995 and $42.8 million ($.52 per share) in
1994. Quarterly dividends have been increased in each of the past three years to
the current level of $.19 per share.
Although the company is affected by inflation and the cyclical nature of
the industry, its Engineering and Construction operations are generally
protected by the ability to recover cost increases in most contracts. Coal
operations produce a commodity which is internationally traded at prices
established by market factors outside the control of the company. However,
commodity prices generally tend over the long-term to correlate with
inflationary trends, and the company's substantial coal reserves provide a hedge
against the long-term effects of inflation. Although the company has taken
actions to reduce its dependence on external economic conditions, management is
unable to predict with certainty the amount and mix of future business.
27
Fluor Corporation 28
==============================================================================
[Enlarge/Download Table]
Consolidated Balance Sheet
$ in thousands / At October 31, 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 246,964 $ 292,934
Marketable securities 69,378 137,758
Accounts and notes receivable 742,547 470,104
Contract work in progress 561,490 362,910
Inventories 73,927 63,284
Deferred taxes 50,157 55,088
Other current assets 52,360 29,593
-----------------------------------
Total current assets 1,796,823 1,411,671
-----------------------------------
Property, Plant and Equipment
Land 63,969 62,309
Buildings and improvements 329,358 312,981
Machinery and equipment 1,424,999 1,063,547
Mining properties and mineral rights 644,415 590,145
Construction in progress 36,133 37,402
-----------------------------------
2,498,874 2,066,384
Less accumulated depreciation, depletion and amortization 821,212 630,573
-----------------------------------
Net property, plant and equipment 1,677,662 1,435,811
-----------------------------------
Other Assets
Goodwill, net of accumulated amortization of $18,589 and $11,778, respectively 84,772 33,303
Investments 108,107 88,488
Other 284,362 259,633
-----------------------------------
Total other assets 477,241 381,424
-----------------------------------
$ 3,951,726 $ 3,228,906
===================================
1996 Annual Report 29
================================================================================
[Enlarge/Download Table]
$ in thousands / At October 31, 1996 1995
----------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts and notes payable $ 704,186 $ 372,301
Commercial paper 29,916 29,937
Advance billings on contracts 445,807 393,438
Accrued salaries, wages and benefit plan liabilities 290,426 269,812
Other accrued liabilities 175,026 148,782
Current portion of long-term debt 207 24,375
-------------------------------
Total current liabilities 1,645,568 1,238,645
-------------------------------
Long-Term Debt Due After One Year 2,967 2,873
Noncurrent Liabilities
Deferred taxes 42,632 44,211
Other 590,833 512,363
-------------------------------
Total noncurrent liabilities 633,465 556,574
-------------------------------
Contingencies and Commitments
Shareholders' Equity
Capital stock
Preferred--authorized 20,000,000 shares without par value, none issued
Common--authorized 150,000,000 shares of $.625 par value; issued and
outstanding in 1996--83,791,197 shares and in 1995--83,164,866 shares 52,369 51,978
Additional capital 573,037 538,503
Retained earnings 1,077,559 866,305
Unamortized executive stock plan expense (32,538) (26,865)
Cumulative translation adjustment (701) 893
-------------------------------
Total shareholders' equity 1,669,726 1,430,814
-------------------------------
$3,951,726 $3,228,906
===============================
See Notes to Consolidated Financial Statements.
Fluor Corporation 30
================================================================================
Consolidated Statement of Earnings
[Enlarge/Download Table]
In thousands, except per share amounts / Year ended October 31, 1996 1995 1994
------------------------------------------------------------------------------------------------------------------------------------
Revenues
Engineering and construction services $10,054,365 $8,451,626 $7,717,542
Coal 960,827 849,758 767,725
-----------------------------------------------------
Total revenues 11,015,192 9,301,384 8,485,267
-----------------------------------------------------
Cost of Revenues
Engineering and construction services 9,739,148 8,171,351 7,466,274
Coal 826,301 738,725 672,527
-----------------------------------------------------
Total cost of revenues 10,565,449 8,910,076 8,138,801
Other (Income) and Expenses
Corporate administrative and general expense 48,120 48,636 47,855
Interest expense 16,051 13,385 16,861
Interest income (27,646) (32,927) (21,549)
-----------------------------------------------------
Total cost and expenses 10,601,974 8,939,170 8,181,968
-----------------------------------------------------
Earnings Before Taxes 413,218 362,214 303,299
Income Tax Expense 145,134 130,446 110,900
-----------------------------------------------------
Net Earnings $ 268,084 $ 231,768 $ 192,399
=====================================================
Earnings Per Share $ 3.17 $ 2.78 $ 2.32
====================================================
Shares Used to Calculate Earnings Per Share 84,566 83,428 82,796
=====================================================
See Notes to Consolidated Financial Statements.
1996 Annual Report 31
===============================================================================
Consolidated Statement of Cash Flows
[Enlarge/Download Table]
In thousands / Year ended October 31, 1996 1995
------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net earnings $ 268,084 $ 231,768
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation, depletion and amortization 194,129 146,957
Deferred taxes 12,631 1,709
Changes in operating assets and liabilities (60,353) 9,408
Other, net (7,632) (23,491)
-------------------------------------
Cash provided by operating activities 406,859 366,351
-------------------------------------
Cash Flows From Investing Activities
Capital expenditures (392,436) (318,942)
E&C businesses acquired (87,085) (16,230)
Coal companies acquired (5,010) --
Purchase of marketable securities (67,069) (132,934)
Proceeds from sales and maturities of marketable securities 134,496 115,553
Investments, net 3,991 (16,667)
Proceeds from sale of property, plant and equipment 29,486 17,406
Initial pretax cash proceeds from sale of discontinued operations -- --
Other, net (12,699) (29,221)
-------------------------------------
Cash utilized by investing activities (396,326) (381,035)
-------------------------------------
Cash Flows From Financing Activities
Cash dividends paid (56,830) (49,712)
Payments on debt (42,456) (35,604)
Increase (decrease) in short-term borrowings 26,109 9,980
Stock options exercised 17,351 9,757
Decrease in note payable to affiliate -- --
Other, net (677) (1,271)
-------------------------------------
Cash utilized by financing activities (56,503) (66,850)
-------------------------------------
(Decrease) increase in cash and cash equivalents (45,970) (81,534)
Cash and cash equivalents at beginning of year 292,934 374,468
-------------------------------------
Cash and cash equivalents at end of year $ 246,964 $ 292,934
=====================================
In thousands / Year ended October 31, 1994
----------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net earnings $ 192,399
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation, depletion and amortization 114,258
Deferred taxes 2,801
Changes in operating assets and liabilities 141,723
Other, net 7,428
---------
Cash provided by operating activities 458,609
---------
Cash Flows From Investing Activities
Capital expenditures (236,623)
E&C businesses acquired --
Coal companies acquired (38,164)
Purchase of marketable securities (60,213)
Proceeds from sales and maturities of marketable securities 39,930
Investments, net 214
Proceeds from sale of property, plant and equipment 18,271
Initial pretax cash proceeds from sale of discontinued operations 51,869
Other, net (1,172)
---------
Cash utilized by investing activities (225,888)
---------
Cash Flows From Financing Activities
Cash dividends paid (42,828)
Payments on debt (1,994)
Increase (decrease) in short-term borrowings (10,096)
Stock options exercised 11,946
Decrease in note payable to affiliate (30,000)
Other, net (125)
---------
Cash utilized by financing activities (73,097)
---------
(Decrease) increase in cash and cash equivalents 159,624
Cash and cash equivalents at beginning of year 214,844
---------
Cash and cash equivalents at end of year $ 374,468
=========
See Notes to Consolidated Financial Statements.
Fluor Corporation 32
================================================================================
Consolidated Statement of Shareholders' Equity
[Enlarge/Download Table]
Unamortized
Common Stock Executive Cumulative
In thousands, except per share amounts ------------------- Additional Retained Stock Plan Translation
Year ended October 31, 1994, 1995 and 1996 Shares Amount Capital Earnings Expense Adjustment Total
----------------------------------------------------------------------------------------------------------------------------------
Balance at October 31, 1993 82,093 $51,308 $478,204 $ 534,678 $(16,828) $(3,240) $ 1,044,122
----------------------------------------------------------------------------------
Net earnings 192,399 192,399
Cash dividends ($.52 per share) (42,828) (42,828)
Exercise of stock options, net 396 248 11,698 11,946
Stock option tax benefit 4,046 4,046
Amortization of executive stock plan expense 3,837 3,837
Issuance of restricted stock, net 19 11 1,128 (1,481) (342)
Tax benefit from reduction of valuation
allowance for deferred tax assets 3,728 3,728
Translation adjustment (net of deferred taxes
of $2,268) 3,548 3,548
----------------------------------------------------------------------------------
Balance at October 31, 1994 82,508 51,567 498,804 684,249 (14,472) 308 1,220,456
----------------------------------------------------------------------------------
Net earnings 231,768 231,768
Cash dividends ($.60 per share) (49,712) (49,712)
Exercise of stock options, net 264 165 9,592 9,757
Stock option tax benefit 2,460 2,460
Amortization of executive stock plan expense 3,684 3,684
Issuance of restricted stock, net 393 246 20,320 (16,077) 4,489
Tax benefit from reduction of valuation
allowance for deferred tax assets 7,327 7,327
Translation adjustment (net of deferred taxes
of $374) 585 585
----------------------------------------------------------------------------------
Balance at October 31, 1995 83,165 51,978 538,503 866,305 (26,865) 893 1,430,814
----------------------------------------------------------------------------------
Net earnings 268,084 268,084
Cash dividends ($.68 per share) (56,830) (56,830)
Exercise of stock options, net 466 291 17,060 17,351
Stock option tax benefit 3,977 3,977
Amortization of executive stock plan expense 5,723 5,723
Issuance of restricted stock, net 160 100 11,084 (11,396) (212)
Tax benefit from reduction of valuation
allowance for deferred tax assets 2,413 2,413
Translation adjustment (net of deferred taxes
of $1,019) (1,594) (1,594)
----------------------------------------------------------------------------------
Balance at October 31, 1996 83,791 $52,369 $573,037 $1,077,559 $(32,538) $ (701) $1,669,726
==================================================================================
See Notes to Consolidated Financial Statements.
1996 Annual Report 33
================================================================================
Notes to Consolidated Financial Statements
Major Accounting Policies
Principles of Consolidation
The financial statements include the accounts of the company and its
subsidiaries. The equity method of accounting is used for investment ownership
ranging from 20 percent to 50 percent. Investment ownership of less than 20
percent is accounted for on the cost method. All significant intercompany
transactions of consolidated subsidiaries are eliminated. Certain 1995 and 1994
amounts have been reclassified to conform with the 1996 presentation.
Use of Estimates
The preparation of the financial statements of the company requires management
to make estimates and assumptions that affect reported amounts. These estimates
are based on information available as of the date of the financial statements.
Therefore, actual results could differ from those estimates.
Engineering and Construction Contracts
The company recognizes engineering and construction contract revenues using the
percentage-of-completion method, based primarily on contract costs incurred to
date compared with total estimated contract costs. Customer-furnished materials,
labor and equipment, and in certain cases subcontractor materials, labor and
equipment, are included in revenues and cost of revenues when management
believes that the company is responsible for the ultimate acceptability of the
project. Contracts are segmented between types of services, such as engineering
and construction, and accordingly, gross margin related to each activity is
recognized as those separate services are rendered. Changes to total estimated
contract costs or losses, if any, are recognized in the period in which they are
determined. Revenues recognized in excess of amounts billed are classified as
current assets under contract work in progress. Amounts received from clients in
excess of revenues recognized to date are classified as current liabilities
under advance billings on contracts. The company anticipates that substantially
all incurred costs associated with contract work in progress at October 31, 1996
will be billed and collected in 1997.
Depreciation, Depletion and Amortization
Additions to property, plant and equipment are recorded at cost. Assets other
than mining properties and mineral rights are depreciated principally using the
straight-line method over the following estimated useful lives: buildings and
improvements--3 to 50 years and machinery and equipment--2 to 30 years. Mining
properties and mineral rights are depleted on the units-of-production method.
Leasehold improvements are amortized over the lives of the respective leases.
Goodwill is amortized on the straight-line method over periods not longer than
40 years.
Exploration, Development and Reclamation
Coal exploration costs are expensed as incurred. Development and acquisition
costs of coal properties, when expected to be significant, are capitalized in
mining properties and depleted. The company accrues for post-mining reclamation
costs as coal is mined. Reclamation of disturbed acreage is performed as a
normal part of the mining process.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the company's financial
statements or tax returns.
Earnings Per Share
Earnings per share is based on the weighted average number of common shares and,
when appropriate, common equivalent shares outstanding in each period. Common
equivalent shares, primarily stock options, are included when the effect of
exercise would be dilutive.
Fluor Corporation 34
================================================================================
Marketable Securities
All investment securities are considered to be available-for-sale and carried at
fair value. Management determines classification at the time of purchase and
reevaluates its appropriateness at each balance sheet date. The company's
investments primarily include short-term, highly liquid investment grade debt
securities. As of October 31, 1996 and 1995 there were no material gross
unrealized gains or losses as the carrying value of the security portfolio
approximated fair value. Gross realized gains and losses on sales of securities
for the years ended October 31, 1996 and 1995 were also not material. The cost
of securities sold is based on the specific identification method. As of
October 31, 1996 approximately $21 million of securities mature within one year,
$44 million mature in the next two to three years and approximately $4 million
mature after three years.
Inventories
Inventories are stated at the lower of cost or market using the average cost
method. Inventories comprise:
[Download Table]
$ in thousands / At October 31, 1996 1995
-------------------------------------------------------------------------------
Coal $28,809 $28,874
Supplies and other 45,118 34,410
--------------------
$73,927 $63,284
====================
Long-Lived Assets
Effective November 1, 1995, the company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). The adoption
of SFAS No. 121 had no impact on the company's consolidated results of
operations or financial position.
Foreign Currency
The company's utilization of derivative financial instruments is substantially
limited to the use of forward exchange contracts to hedge foreign currency
transactions entered into in the ordinary course of business and not to engage
in currency speculation. The company's forward exchange contracts do not subject
the company to risk from exchange rate movements because gains and losses on
such contracts offset losses and gains, respectively, on the assets, liabilities
or transactions being hedged. Accordingly, the unrealized gains and losses are
deferred and included in the measurement of the related foreign currency
transaction. At October 31, 1996, the company had approximately $68 million of
foreign exchange contracts outstanding relating to lease commitments and
contract obligations. The forward exchange contracts generally require the
company to exchange U.S. dollars for foreign currencies at maturity, at rates
agreed to at inception of the contracts. If the counterparties to the exchange
contracts (primarily AA rated international banks) do not fulfill their
obligations to deliver the contracted currencies, the company could be at risk
for any currency related fluctuations. The company limits exposure to foreign
currency fluctuations in most of its engineering and construction contracts
through provisions that require client payments in U.S. dollars or other
currencies corresponding to the currency in which costs are incurred. As a
result, the company generally does not need to hedge foreign currency cash flows
for contract work performed. The amount of any gain or loss on these contracts
in 1996 and 1995 was immaterial. The contracts are of varying duration, none of
which extend beyond December 1, 1999. The functional currency of all significant
foreign operations is the local currency.
Concentrations of Credit Risk
The company provides a variety of financing arrangements for its engineering and
construction clients. The majority of accounts receivable and all contract work
in progress are from engineering and construction clients in various industries
and locations throughout the world. Most contracts require payments as the
projects progress or in
1996 Annual Report 35
================================================================================
certain cases advance payments. The company generally does not require
collateral, but in most cases can place liens against the property, plant or
equipment constructed if a default occurs. Accounts receivable from customers of
the company's Coal operations are primarily concentrated in the steel and
utility industries. The company maintains adequate reserves for potential credit
losses and such losses have been minimal and within management's estimates.
Consolidated Statement of Cash Flows
Securities with maturities of 90 days or less at the date of purchase are
classified as cash equivalents. Securities with maturities beyond 90 days are
classified as marketable securities and are carried at fair market value. The
changes in operating assets and liabilities as shown in the Consolidated
Statement of Cash Flows comprise:
[Enlarge/Download Table]
$ in thousands / Year ended October 31, 1996 1995 1994
------------------------------------------------------------------------------------------
Decrease (increase) in:
Accounts and notes receivable $ (78,632) $(141,505) $ 73,905
Contract work in progress (176,137) (52,488) (2,626)
Inventories (8,743) (10,581) (18,042)
Other current assets (18,465) 6,292 (8,493)
Increase in:
Accounts payable 167,350 35,334 43,523
Advance billings on contracts 43,382 172,062 25,406
Accrued liabilities 10,892 294 28,050
--------------------------------------
Changes in operating assets and liabilities $ (60,353) $ 9,408 $141,723
======================================
Cash paid during the year for:
Interest expense $ 11,832 $ 7,672 $ 12,830
Income tax payments, net 120,570 121,508 81,306
Acquisitions and Disposition
During the last three years, the company completed certain business acquisitions
in connection with its strategic long-term growth goals. These acquisitions were
in both the Engineering and Construction and Coal segments. The Engineering and
Construction acquisitions were concentrated primarily within the Diversified
Services Group, consistent with the company's strategy of diversification to
strengthen its growth potential while mitigating the down cycles of individual
markets, segments or geographic regions.
The following summarizes major Engineering and Construction
acquisitions:
1996:
Groundwater Technology, Inc. ("GTI"), a publicly traded company headquartered in
Massachusetts, that provides detailed, scientific environmental assessment and
remediation programs, as well as other environmental support services. Under the
terms of the transaction, the company consummated a merger between one of its
subsidiaries, Fluor Daniel Environmental Services, Inc., and GTI wherein the
company acquired an approximate 55 percent interest in the newly named company,
Fluor Daniel GTI, Inc.
S&R Equipment Company, Inc., a privately held U.S. company based in Ohio, that
specializes in high-lift equipment rentals.
Marshall Contractors, Inc., a privately held U.S. company based in Rhode Island,
that provides specialized construction services to the microelectronics,
pharmaceuticals, biotechnology, foods and related industries.
These businesses and other smaller acquisitions were purchased for $87
million. The fair value of assets acquired, including goodwill of $50 million,
was $329 million, and liabilities assumed totaled $242 million.
1995:
Management Resources Group, plc, a privately held company headquartered in
London, England, that provides permanent and temporary placement services for
accounting, information technology and office personnel.
Anderson DeBartolo Pan, Inc., a privately held U.S. company based in Arizona,
that provides professional services in engineering, architectural and
construction management to the microelectronics market and the health care,
hospitality and sports facilities industries.
Fluor Corporation 36
================================================================================
A majority interest in Prosynchem S.A., a privately held company headquartered
in Gliwice, Poland, that provides engineering and construction services to
clients in the petroleum, petrochemicals, chemicals and environmental industries
in Poland and other Eastern European countries.
These businesses and other smaller acquisitions were purchased for $16
million. The fair value of assets acquired, including goodwill of $16 million,
was $30 million, and liabilities assumed totaled $14 million.
There were no significant Engineering and Construction acquisitions in 1994.
Massey Coal Company ("Massey") purchased five coal mining companies
during 1994 through 1996. The aggregate purchase price was $43 million and
included the fair value of assets acquired, consisting of $89 million of
property, plant and equipment, and mining rights, $5 million of working capital
and other assets, net of other liabilities assumed of $51 million. These
acquisitions, along with capital expenditures, have been directed primarily
towards acquiring additional coal reserves.
All of the above acquisitions have been accounted for under the purchase
method of accounting and their results of operations have been included in the
company's consolidated financial statements from the respective acquisition
dates. If these acquisitions had been made at the beginning of 1996, 1995 or
1994, pro forma results of operations would not have differed materially from
actual results.
From time to time, the company enters into investment arrangements,
including joint ventures, that are related to its Engineering and Construction
business. During 1996 and 1995, the majority of these expenditures related to
ongoing investments in an equity fund that focuses on energy related projects
and a number of smaller, diversified ventures. In 1994, the majority of joint
venture investment activity related to the acquisition of a minority interest in
Prochem S.A., one of Poland's largest engineering and construction companies.
On April 7, 1994, the company completed the sale of its Lead business
for initial cash proceeds of approximately $52 million plus deferred amounts to
be paid in installments over periods ranging from five to eight years. The
closing of the sale had no impact on the company's earnings beyond what was
originally recognized when the Lead business was discontinued in 1992. Revenues
from the Lead business were approximately $71 million for the five month period
through the date of sale in 1994.
Income Taxes
The income tax expense (benefit) included in the Consolidated Statement of
Earnings is as follows:
[Enlarge/Download Table]
$ in thousands / Year ended October 31, 1996 1995 1994
-----------------------------------------------------------------------------------------
Current:
Federal $ 94,864 $ 88,762 $ 58,420
Foreign 25,872 26,803 37,151
State and local 11,767 13,172 12,528
----------------------------------
Total current 132,503 128,737 108,099
----------------------------------
Deferred:
Federal 13,081 (10,776) (2,145)
Foreign 1,974 11,953 4,673
State and local (2,424) 532 273
----------------------------------
Total deferred 12,631 1,709 2,801
----------------------------------
Total income tax expense $145,134 $130,446 $110,900
==================================
A reconciliation of U.S. statutory federal income tax expense to the
company's income tax expense on earnings is as follows:
[Enlarge/Download Table]
$ in thousands / Year ended October 31, 1996 1995 1994
------------------------------------------------------------------------------------------
U.S. statutory federal income tax expense $144,626 $126,775 $106,155
Increases (decreases) in taxes resulting from:
State and local income taxes 9,542 9,288 8,498
Effect of non-U.S. tax rates 6,057 5,682 7,412
Depletion (11,054) (10,497) (9,560)
Other, net (4,037) (802) (1,605)
------------------------------------
Total income tax expense $145,134 $130,446 $110,900
====================================
1996 Annual Report 37
================================================================================
Deferred taxes reflect the tax effects of differences between the
amounts recorded as assets and liabilities for financial reporting purposes and
the amounts recorded for income tax purposes. The tax effects of significant
temporary differences giving rise to deferred tax assets and liabilities are as
follows:
[Enlarge/Download Table]
$ in thousands / At October 31, 1996 1995
------------------------------------------------------------------------------------------
Deferred tax assets:
Accrued liabilities not currently deductible $ 174,772 $ 156,925
Tax basis of building in excess of book basis 22,999 23,149
Other 69,375 79,120
-------------------------
Total deferred tax assets 267,146 259,194
Valuation allowance for deferred tax assets (38,655) (44,397)
-------------------------
Deferred tax assets, net 228,491 214,797
-------------------------
Deferred tax liabilities:
Coal mining property and equipment book
basis in excess of tax basis (147,550) (128,238)
Tax on unremitted non-U.S. earnings (27,715) (34,688)
Other (45,701) (40,994)
-------------------------
Total deferred tax liabilities (220,966) (203,920)
-------------------------
Net deferred tax assets $ 7,525 $ 10,877
=========================
The company established a valuation allowance to reduce certain deferred
tax assets to amounts that are more likely than not to be realized. Some of this
allowance relates to deferred tax assets existing at the date of the company's
1987 quasi-reorganization. Reductions in the valuation allowance relating to
these 1987 deferred tax assets are credited to additional capital.
Residual income taxes of approximately $12 million have not been
provided on approximately $30 million of undistributed earnings of certain
foreign subsidiaries at October 31, 1996, because the company intends to keep
those earnings reinvested indefinitely.
United States and foreign earnings before taxes are as follows:
[Enlarge/Download Table]
$ in thousands / Year ended October 31, 1996 1995 1994
------------------------------------------------------------------------------------------
United States $ 363,687 $ 249,776 $ 196,397
Foreign 49,531 112,438 106,902
---------------------------------------
Total $ 413,218 $ 362,214 $ 303,299
=======================================
Retirement Benefits
The company sponsors contributory and non-contributory defined contribution
retirement and defined benefit pension plans for eligible employees.
Contributions to defined contribution retirement plans are based on a percentage
of the employee's compensation. Expense recognized for these plans of
approximately $75 million in 1996, $69 million in 1995 and $67 million in 1994,
is primarily related to domestic engineering and construction operations.
Contributions to defined benefit pension plans are generally at the minimum
annual amount required by applicable regulations. Payments to retired employees
under these plans are generally based upon length of service and/or a percentage
of qualifying compensation. The defined benefit pension plans are primarily
related to international engineering and construction operations, U.S. craft
employees and coal operations.
Net periodic pension income for defined benefit pension plans includes
the following components:
[Enlarge/Download Table]
$ in thousands / Year ended October 31, 1996 1995 1994
------------------------------------------------------------------------------------------
Service cost incurred during the period $ 14,284 $ 12,385 $ 14,310
Interest cost on projected benefit obligation 22,248 21,578 20,275
Income and gains on assets invested (75,861) (50,776) (7,907)
Net amortization and deferral 33,868 11,198 (34,255)
-----------------------------------
Net periodic pension income $ (5,461) $ (5,615) $ (7,577)
===================================
The following assumptions were used in the determination of net periodic
cost:
[Enlarge/Download Table]
Year ended October 31, 1996 1995 1994
------------------------------------------------------------------------------------------------
Discount rates 6.75-8.5% 7.75-9.25% 7.0-8.0%
Rates of increase in compensation levels 3.25-5.5% 4.0-6.25% 3.5-5.0%
Expected long-term rates of return on assets 5.75-9.5% 6.75-10.25% 6.0-10.0%
Fluor Corporation 38
================================================================================
The following table sets forth the plans' funded status and the pension
assets which have been recognized in the company's Consolidated Balance Sheet:
[Enlarge/Download Table]
$ in thousands / At October 31, 1996 1995
-----------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $274,872 $253,444
Nonvested benefit obligation 9,590 9,708
-------------------
Accumulated benefit obligation $284,462 $263,152
===================
Plan assets at fair value (primarily listed stocks and bonds) $488,458 $427,145
Projected benefit obligation (319,066) (307,759)
-------------------
Plan assets in excess of projected benefit obligation 169,392 119,386
Unrecognized net loss (gain) (42,411) 1,962
Unrecognized net assets at implementation (15,191) (18,590)
-------------------
Pension assets $111,790 $102,758
===================
Amounts shown above at October 31, 1996 and 1995 exclude the projected benefit
obligation of approximately $114 million and $117 million, respectively, and an
equal amount of associated plan assets relating to discontinued operations.
In recognition of the current economic environment in each plan's
respective host country, as of November 1, 1996 the company will adjust the
discount rates used in the determination of its benefit obligations to 6.5--8.25
percent and the rates of salary increases to 3.0--5.25 percent.
Massey participates in multiemployer defined benefit pension plans for
its union employees. Pension expense was less than $1 million in each of the
years ended October 31, 1996, 1995 and 1994. Under the Coal Industry Retiree
Health Benefits Act of 1992, Massey is required to fund medical and death
benefits of certain beneficiaries. Massey's obligation under the Act is
estimated to aggregate approximately $49 million at October 31, 1996, which will
be recognized as expense as payments are assessed. The expense recorded for such
benefits was $2 million for each of the years ended October 31, 1996 and 1995
and $4 million for the year ended October 31, 1994.
In addition to the company's defined benefit pension plans, the company
and certain of its subsidiaries provide health care and life insurance benefits
for certain retired employees. The health care and life insurance plans are
generally contributory, with retiree contributions adjusted annually. Service
costs are accrued currently.
The accumulated postretirement benefit obligation at October 31, 1996
and 1995 was determined in accordance with the current terms of the company's
health care plans, together with relevant actuarial assumptions and health care
cost trend rates projected at annual rates ranging from 10.6 percent in 1997
down to 5 percent in 2005 and beyond. The effect of a one-percent annual
increase in these assumed cost trend rates would increase the accumulated
postretirement benefit obligation and the aggregate of the annual service and
interest costs by approximately 14 percent.
Net periodic postretirement benefit cost includes the following
components:
[Enlarge/Download Table]
$ in thousands / Year ended October 31, 1996 1995 1994
-----------------------------------------------------------------------------------------------
Service cost incurred during the period $1,672 $1,172 $1,352
Interest cost on accumulated
postretirement benefit obligation 5,755 4,899 4,153
-------------------------------
Net periodic postretirement benefit cost $7,427 $6,071 $5,505
===============================
The following table sets forth the plans' funded status and accumulated
postretirement benefit obligation which has been fully accrued in the company's
Consolidated Balance Sheet:
[Enlarge/Download Table]
$ in thousands / At October 31, 1996 1995
-----------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $49,912 $51,787
Fully eligible active participants 16,462 4,821
Other active plan participants 17,944 14,705
Unrecognized loss (8,545) (6,426)
------------------
Accrued postretirement benefit obligation $75,773 $64,887
==================
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.75 percent and 7.5 percent at October 31, 1996 and
1995, respectively.
1996 Annual Report 39
================================================================================
The preceding information does not include amounts related to benefit
plans applicable to employees associated with certain contracts with the U.S.
Department of Energy because the company is not responsible for the current or
future funded status of these plans.
Fair Value of Financial Instruments
The estimated fair value of the company's financial instruments are as follows:
[Enlarge/Download Table]
1996 1995
------------------------------------------------------
Carrying Carrying
$ in thousands / At October 31, Amount Fair Value Amount Fair Value
------------------------------------------------------------------------------------------------
Assets:
Cash and cash equivalents $246,964 $246,964 $292,934 $292,934
Marketable securities 69,378 69,378 137,758 137,758
Notes receivable including
noncurrent portion 116,809 120,463 83,515 86,769
Long-term investments 48,920 47,948 30,990 32,127
Liabilities:
Commercial paper
and notes payable 67,007 67,007 36,409 36,409
Long-term debt including
current portion 3,174 3,174 27,248 28,420
Other noncurrent
financial liabilities 2,556 2,556 2,572 2,572
Off-balance sheet
financial instruments:
Foreign currency
contract obligations -- (1,726) -- (2,146)
Letters of credit -- 700 -- 572
Lines of credit -- 747 -- 997
Fair values were determined as follows:
The carrying amounts of cash and cash equivalents, short-term notes
receivable, commercial paper and notes payable approximates fair value because
of the short-term maturity of these instruments.
Marketable securities and long-term investments are based on quoted
market prices for these or similar instruments. Long-term notes receivable are
estimated by discounting future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings.
The fair value of long-term debt, including current portion, is
estimated based on quoted market prices for the same or similar issues or on the
current rates offered to the company for debt of the same maturities.
Other noncurrent financial liabilities consist primarily of deferred
payments, for which cost approximates fair value.
Foreign currency contract obligations are estimated by obtaining quotes
from brokers.
Letters of credit and lines of credit amounts are based on fees
currently charged for similar agreements or on the estimated cost to terminate
or settle the obligations.
Long-Term Debt
Long-term debt comprises:
[Enlarge/Download Table]
$ in thousands / At October 31, 1996 1995
------------------------------------------------------------------------------------------
Deutsche mark financing, with a currency exchange
agreement fixing the repayments in U.S. dollars
at an effective interest rate of 9.5%, paid in 1996 $ -- $23,644
Other notes 3,174 3,604
--------------------
3,174 27,248
Less: Current portion 207 24,375
--------------------
Long-term debt due after one year $ 2,967 $ 2,873
====================
Long-term debt due after one year matures in 1998.
The company has unsecured committed revolving long-term lines of credit
with banks from which it may borrow for general corporate purposes up to a
maximum of $250 million. Commitment and facility fees are paid on these lines.
In addition, the company has $973 million in short-term uncommitted lines of
credit. Borrowings under lines of credit and revolving credit agreements bear
interest at prime or rates based on the London Interbank Offered Rate ("LIBOR"),
domestic certificates of deposit or other rates which are mutually acceptable to
the banks and the company. At October 31, 1996, no amounts were outstanding
under the committed lines of credit. As of that date, $268 million of the short-
term uncommitted lines of credit were used to support undrawn letters of credit
issued in the ordinary course of business.
The company had $30 million in unsecured commercial paper outstanding at
both October 31, 1996 and 1995. The commercial paper was issued at a discount
with an effective interest rate of 5.3 percent and 5.8 percent in 1996 and 1995,
respectively. Maturities of commercial paper ranged from 28 to 91 days in 1996
and 14 to 90 days in 1995.
Fluor Corporation 40
================================================================================
The weighted average maturities were 21 and 14 days at October 31, 1996 and
1995, respectively. The maximum and average balances outstanding for the years
ended October 31, 1996 and 1995 were $75 million and $38 million, respectively,
and $75 million and $21 million, respectively, with weighted average interest
rates of 5.5 percent and 5.9 percent, respectively.
Other Noncurrent Liabilities
The company maintains appropriate levels of insurance for business risks.
Insurance coverages contain various deductible amounts for which the company
provides accruals based on the aggregate of the liability for reported claims
and an actuarially determined estimated liability for claims incurred but not
reported. Other noncurrent liabilities include $92 million and $108 million at
October 31, 1996 and 1995, respectively, relating to these liabilities.
Stock Plans
The company's executive stock plans, approved by the shareholders, provide
for grants of nonqualified or incentive stock options, restricted stock awards
and stock appreciation rights ("SARS"). All executive stock plans are
administered by the Organization and Compensation Committee of the Board of
Directors ("Committee") comprised of outside directors, none of whom are
eligible to participate in the plans. Stock options may be granted with or
without SARS. Grant prices are determined by the Committee and are established
at the fair market value of the company's common stock at the date of grant.
Options and SARS normally extend for 10 years and become exercisable over a
vesting period determined by the Committee, which is presently in installments
of 25 percent per year commencing one year from the date of grant. The company
issued 66,860 options and 561,000 options in 1996 and 1995, respectively, that
will vest only if certain performance related conditions are met.
Restricted stock awards issued under the plans provide that shares awarded may
not be sold or otherwise transferred until restrictions as established by the
Committee have lapsed. Upon termination of employment, shares upon which
restrictions have not lapsed must be returned to the company. Restricted stock
issued under the plans totaled 172,770 and 405,089 shares in 1996 and 1995,
respectively.
The following table summarizes stock option activity:
[Enlarge/Download Table]
Price Per
Stock Options Share
-------------------------------------------------------------------------------------------
Outstanding at October 31, 1993 2,490,444 $ 12-44
Granted 59,480 51
Expired or canceled (82,374) 36-44
Exercised (396,044) 12-44
--------------------------
Outstanding at October 31, 1994 2,071,506 12-51
--------------------------
Granted 2,034,270 43-59
Expired or canceled (23,834) 35-51
Exercised (266,336) 12-51
--------------------------
Outstanding at October 31, 1995 3,815,606 12-59
--------------------------
Granted 1,046,700 56-68
Expired or canceled (56,010) 43-64
Exercised (466,918) 12-59
--------------------------
Outstanding at October 31, 1996 4,339,378 $ 12-68
==========================
Exercisable at:
October 31, 1995 1,406,583 $ 12-51
October 31, 1996 1,536,063 $ 12-59
--------------------------
Available for grant at:
October 31, 1995 230,992
October 31, 1996 3,130,927
----------
Available for grant includes shares which may be granted as either stock options
or restricted stock, as determined by the Committee under the 1996 and 1988
Fluor Executive Stock Plans.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Adoption of the new accounting standards
prescribed by SFAS No. 123 is optional. The company intends to continue
accounting for its plans under previous accounting standards and beginning in
1997 will adopt the "disclosure only" alternative available under SFAS N0. 123.
1996 Annual Report 41
================================================================================
Lease Obligations
Net rental expense amounted to approximately $77 million, $67 million, and $60
million in 1996, 1995, and 1994, respectively. The company's lease obligations
relate primarily to office facilities, equipment used in connection with
long-term construction contracts and other personal property.
The company's obligations for minimum rentals under noncancelable leases
are as follows:
[Download Table]
$ in thousands /At October 31, 1996
------------------------------------------------------------------------
1997 $37,644
1998 34,432
1999 22,135
2000 10,273
2001 7,327
Thereafter $36,958
At October 31, 1996 and 1995, obligations under capital leases of
approximately $4 million and $5 million, respectively, are included in other
noncurrent liabilities.
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 engineering and
construction subsidiaries are contingently liable for commitments and
performance 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 contract provisions. The company does
not expect that the foregoing matters will have a material adverse effect on its
consolidated financial position or results of operations.
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 October 31, 1996, the company had extended
financial guarantees on behalf of certain clients and other unrelated third
parties totaling approximately $42 million.
The company's operations are subject to and affected by federal, 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 sale by the company of its Lead business included St. Joe Minerals
Corporation ("St. Joe") and its environmental liabilities for several different
lead mining, smelting and other lead-related environmental sites. As a condition
of the St. Joe sale, however, the company retained responsibility for certain
non-lead-related environmental liabilities arising out of St. Joe's former zinc
mining and smelting division, but only to the extent that such liabilities are
not covered by St. Joe's comprehensive general liability insurance. These
liabilities arise out of three zinc facilities located in Bartlesville,
Oklahoma; Monaca, Pennsylvania; and Balmat, New York (the "Zinc Facilities").
In 1987 St. Joe sold its zinc mining and smelting division to Zinc
Corporation of America ("ZCA"). As part of the sale agreement, St. Joe and the
company agreed to indemnify ZCA for certain environmental liabilities arising
from operations conducted at the Zinc Facilities prior to the sale. During 1993
ZCA made claims under this indemnity as well as under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") against St.
Joe for past and future environmental expenditures at the Zinc Facilities. In
1994 ZCA filed suit against St. Joe and the company, among others, seeking
compensation for environmental expenditures at the Zinc Facilities. In 1994 the
company and St. Joe, among others, executed a settlement agreement with ZCA
which, among other things, cancels the indemnity previously provided to ZCA and
limits environmental expenditures at the Zinc Facilities for which St. Joe would
be responsible to no more than approximately $10 million, which was previously
fully reserved by the company. Expenses incurred and payments made under the
settlement agreement would be made over a period of at least five years from the
date of settlement.
Fluor Corporation 42
================================================================================
In fiscal 1996, the company and St. Joe prosecuted cost recovery claims
against another potentially responsible party for the Bartlesville facility. The
Federal District Court for Oklahoma rendered Judgment in favor of the company
and St. Joe, among others, which Judgment has become final and non-appealable.
The District Court's Judgment further reduces the company's and St. Joe's
liability with respect to the Bartlesville facility. In addition, St. Joe has
initiated legal proceedings against certain of its insurance carriers alleging
that the investigative and remediation costs for which St. Joe is or may be
responsible, including costs incurred prior to the sale of St. Joe and costs
related to the Zinc Facilities, are covered by insurance. A portion of any
recoveries received from the insurance carriers would be, pursuant to the St.
Joe sale agreement, for the benefit of the company. In January 1995, St. Joe
executed a settlement agreement with one of its primary insurance carriers that
provided coverage for a minor portion of the applicable coverage periods. In May
1995, St. Joe received a favorable ruling from the Orange County Superior Court
which ordered St. Joe's other primary insurance carrier to provide a defense to
St. Joe for certain environmental liabilities, including the Zinc Facilities.
This insurer has appealed the Superior Court's order. St. Joe continues to
pursue its other primary insurance carrier for additional payments. Inasmuch as
the insurance proceedings remain in the early stages of litigation, no credit or
offset (other than for amounts actually received in settlement or judgment) has
been taken into account by the company in establishing its reserves for future
environmental costs.
The company believes, based upon present information available 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.
Operations by Business Segment and Geographic Area
The Engineering and Construction segment, the company's principal operating
business, includes subsidiaries engaged in the design, engineering, procurement,
construction, technical services and maintenance of facilities for process,
industrial, power/government and diversified services clients. Coal segment
amounts include the operations of Massey.
In 1995, revenue included approximately $2 billion from subsidiaries of
Shell Oil Company related primarily to two projects that were awarded in 1993.
Identifiable assets are those tangible and intangible assets used in the
operation of each of the business segments and geographic areas. Corporate
assets are principally cash and cash equivalents, marketable securities and
nontrade receivables.
Engineering services for international projects are often performed
within the United States or a country other than where the project is located.
Revenues associated with these services have been classified within the
geographic area where the work was performed.
1996 Annual Report 43
===============================================================================
[Enlarge/Download Table]
Operations by Business Segment
Revenues
-----------------------------------------------------
$ in millions 1996 1995 1994
----------------------------------------------------------------------------------------------------------------------------------
Engineering and Construction $10,054.4 $8,451.6 $ 7,717.6
Coal 960.8 849.8 767.7
-----------------------------------------------------
$11,015.2 $9,301.4 $8,485.3
=====================================================
Identifiable Assets Capital Expenditures
----------------------------------------- ----------------------------------------------------
$ in millions 1996 1995 1994 1996 1995 1994
---------------------------------------------------------------------------- ----------------------------------------------------
Engineering and Construction $2,213.4 $ 1,572.6 $ 1,288.5 $ 171.6 $ 137.1 $ 72.5
Coal 1,384.0 1,191.2 1,076.5 220.8 181.8 164.1
Corporate 354.3 465.1 459.8 -- -- --
----------------------------------------- ----------------------------------------------------
$3,951.7 $3,228.9 $2,824.8 $392.4 $318.9 $236.6
========================================= ====================================================
Operations by Geographic Area
Revenues Operating Profit
----------------------------------------- ----------------------------------------------------
$ in millions 1996 1995 1994 1996 1995 1994
---------------------------------------------------------------------------- ----------------------------------------------------
United States $ 6,783.5 $5,814.5 $ 6,100.3 $396.5 $297.4 $284.9
Europe 1,426.6 1,637.2 1,166.4 23.6 27.7 23.5
Central and South America 1,210.0 801.2 197.8 (13.9) 9.6 14.9
Asia Pacific 1,042.8 780.0 673.2 36.5 49.4 12.8
Middle East and Africa 287.6 30.5 89.6 4.7 7.2 6.1
Canada 264.7 238.0 258.0 7.1 5.7 12.1
----------------------------------------- ----------------------------------------------------
$11,015.2 $9,301.4 $ 8,485.3 $454.5 $397.0 $354.3
========================================= ====================================================
Operations by Business Segment
Operating Profit
-----------------------------------------
$ in millions 1996 1995 1994
-----------------------------------------------------------------------------
Engineering and Construction $320.0 $286.0 $259.1
Coal 134.5 111.0 95.2
-----------------------------------------
$454.5 $397.0 $354.3
=========================================
Depreciation, Depletion and Amortization
-----------------------------------------
$ in millions 1996 1995 1994
-----------------------------------------------------------------------------
Engineering and Construction $ 88.7 $ 62.9 $ 47.1
Coal 105.4 83.7 66.8
Corporate -- .4 .4
-----------------------------------------
$194.1 $147.0 $114.3
=========================================
Operations by Geographic Area
Identifiable Assets
----------------------------------------
$ in millions 1996 1995 1994
----------------------------------------------------------------------------
United States $3,392.3 $2,764.2 $ 2,463.1
Europe 158.4 204.3 147.5
Central and South America 145.6 92.3 41.9
Asia Pacific 165.0 84.2 107.5
Middle East and Africa 30.8 21.4 20.2
Canada 59.6 62.5 44.6
----------------------------------------
$3,951.7 $3,228.9 $2,824.8
========================================
Included in United States revenues are export sales to unaffiliated customers of
approximately $1 billion in 1996, $680 million in 1995 and $857 million in 1994.
The following table reconciles business segment operating profit with the
earnings before taxes:
[Enlarge/Download Table]
$ in millions 1996 1995 1994
------------------------------------------------------------------------------------------------------------------------------
Operating profit $454.5 $397.0 $354.3
Interest income, net 11.6 19.5 4.7
Corporate administrative and general expense (48.1) (48.6) (47.9)
Other items, net (4.8) (5.7) (7.8)
-------------------------------------------------
Earnings before taxes $ 413.2 $362.2 $303.3
=================================================
Fluor Corporation 44
================================================================================
Reports of Management and Independent Auditors
Management
The company is responsible for preparation of the accompanying consolidated
balance sheet and the related consolidated statements of earnings, cash flows
and shareholders' equity. These statements have been prepared in conformity with
generally accepted accounting principles and management believes that they
present fairly the company's consolidated financial position and results of
operations. The integrity of the information presented in the financial
statements, including estimates and judgments relating to matters not concluded
by fiscal year end, is the responsibility of management. To fulfill this
responsibility, an internal control structure designed to protect the company's
assets and properly record transactions and events as they occur has been
developed, placed in operation and maintained. The internal control structure is
supported by an extensive program of internal audits and is tested and evaluated
by the independent auditors in connection with their annual audit. The Board of
Directors pursues its responsibility for financial information through an Audit
Committee of Directors who are not employees. The internal auditors and the
independent auditors have full and free access to the Committee. Periodically,
the Committee meets with the independent auditors without management present to
discuss the results of their audits, the adequacy of the internal control
structure and the quality of financial reporting.
/s/ Les McCraw /s/ J. Michal Conaway
Les McCraw J. Michal Conaway
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
Independent Auditors
Board of Directors and Shareholders
Fluor Corporation
We have audited the accompanying consolidated balance sheet of Fluor Corporation
as of October 31, 1996 and 1995, and the related consolidated statements of
earnings, cash flows, and shareholders' equity for each of the three years in
the period ended October 31, 1996. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Fluor
Corporation at October 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
October 31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Orange County, California
November 19, 1996
1996 Annual Report 45
===============================================================================
Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations:
[Enlarge/Download Table]
First Second Third Fourth
$ in thousands, except per share amounts Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------------------------------
1996
Revenues $ 2,402,414 $ 2,582,229 $ 2,702,821 $ 3,327,728
Gross margin 99,072 105,054 112,862 132,755
Earnings before taxes 89,763 97,082 104,866 121,507
Net earnings 57,448 63,700 68,077 78,859
Earnings per share $ .68 $ .75 $ .81 $ .93
1995
Revenues $ 2,059,626 $ 2,229,313 $ 2,436,831 $ 2,575,614
Gross margin 84,931 95,342 100,946 110,089
Earnings before taxes 79,124 86,984 94,579 101,527
Net earnings 50,323 55,322 60,152 65,971
Earnings per share $ .61 $ .66 $ .72 $ .79
Worldwide Offices
Abu Dhabi, United Arab Emirates Kuala Lumpur, Malaysia
Albuquerque, New Mexico Kuwait City, Kuwait
Anchorage, Alaska Leipzig, Germany
Appleton, Wisconsin Lima, Peru
Arlington, Virginia London, England
Asturias, Spain Manchester, England
Bakersfield, California Manila, Philippines
Baku, Azerbaijan Melbourne, Australia
Bangkok, Thailand Mexico City, Mexico
Basel, Switzerland Miami, Florida
Beijing, People's Republic of China Moscow, Russia
Bergen op Zoom, Netherlands Nashville, Tennessee
Bogota, Colombia New Delhi, India
Brisbane, Australia New York, New York
Buenos Aires, Argentina Norwood, Massachusetts
Calgary, Alberta, Canada Perth, Australia
Camberley, England Philadelphia, Pennsylvania
Caracas, Venezuela Phoenix, Arizona
Charlotte, North Carolina Richland, Washington
Chicago, Illinois Richmond, Virginia
Cincinnati, Ohio Rumford, Rhode Island
Corpus Christi, Texas Sacramento, California
Dallas, Texas San Francisco, California
Denver, Colorado San Juan, Puerto Rico
Detroit, Michigan Santa Clara, California
Dhahran, Saudi Arabia Santiago, Chile
Dubai, United Arab Emirates Sao Paulo, Brazil
Dusseldorf, Germany Seoul, Korea
Gliwice, Poland Shanghai, People's Republic of China
Greenville, South Carolina Singapore
Haarlem, Netherlands Sudbury, Ontario, Canada
Hanoi, Vietnam Taipei, Taiwan
Ho Chi Minh City, Vietnam Tokyo, Japan
Hong Kong Tucson, Arizona
Houston, Texas Tulsa, Oklahoma
Idaho Falls, Idaho Vancouver, British Columbia, Canada
Irvine, California Warsaw, Poland
Jakarta, Indonesia Washington, D.C.
Johannesburg, South Africa Wiesbaden, Germany
Kingston, Ontario, Canada
Fluor Corporation 46
================================================================================
Directors
[PHOTO OF LES MCCRAW APPEARS HERE]
Les McCraw, 62, is Chairman of the Board and Chief Executive Officer. Joining
the company in 1975, he led the formation of Fluor Daniel in 1986. He was
elected President of Fluor Corporation in 1988, and Chief Executive Officer in
1990. Mr. McCraw also is a director of Allergan and New York Life, and is active
in a number of business and civic organizations at the local, state and national
levels. (1984) /(1)(3)/
[PHOTO OF DON L. BLANKENSHIP APPEARS HERE]
Don L. Blankenship, 46, is President, Chief Executive Officer and Chairman of
the Board of A.T. Massey. He brings important diversified business perspective
to the Board's deliberations, as well as valuable expertise in the coal
industry. Mr. Blankenship serves on the Board of Advisors of the Mary Babb
Randolph Cancer Center of West Virginia at West Virginia University, and is a
director of the World Coal Institute, and the West Virginia Mining and
Reclamation Association. (1996)
[PHOTO OF HUGH K. COBLE APPEARS HERE]
Hugh K. Coble, 62, is Vice Chairman of Fluor Corporation. He joined Fluor in
1966 and has served in numerous positions throughout his career, including
several posts overseas with responsibilities for both international marketing
and operations. As a recognized global executive, Mr. Coble was part of the team
that led the formation of Fluor Daniel. Mr. Coble is a director of The Duriron
Company and Beckman Instruments, Inc. (1984)
[PHOTO OF GOVERNOR CARROLL CAMPBELL, JR. APPEARS HERE]
Governor Carroll Campbell, Jr., 56, is President and Chief Executive Officer of
the American Council of Life Insurance. He is a former two-term Governor of
South Carolina and has demonstrated leadership in public policy pertaining to
job and business creation, and social and fiscal matters. From 1978 to 1986, he
served in the U.S. House of Representatives and was a member of the
Appropriations and Ways and Means committees. He was chairman of the National
Governor's Association 1993-94. Governor Campbell is a director of AVX
Corporation and Norfolk Southern Corporation. (1995) /(2)(3)/
[PHOTO OF PETER J. FLUOR APPEARS HERE]
Peter J. Fluor, 49, is President and Chief Executive Officer of Texas Crude
Energy, Inc. Mr. Fluor brings extensive knowledge of the oil and gas industry, a
key market for Fluor Daniel. He also serves as a director of Seagull Energy
Corporation and Texas Commerce Bank. (1984) /(2)(4)/
[PHOTO OF DAVID P. GARDNER APPEARS HERE]
Dr. David P. Gardner, 63, is President of the William and Flora Hewlett
Foundation and former President of both the University of California and the
University of Utah. His extensive career in education provides valuable
perspective on a topic of key importance to a professional services company like
Fluor. Dr. Gardner is also a director of John Alden Financial Corporation and
First Security Corporation. (1988) /(3)(4)/
[PHOTO OF WILLIAM R. GRANT APPEARS HERE]
William R. Grant, 72, is Chairman of the Board of Galen Associates, a healthcare
venture capital group, former Chairman of MacKay-Shield Financial Corporation
and President of Smith Barney. Mr. Grant adds extensive financial community
perspective to the Board. Additionally, he has taken a leading role in providing
counsel on current issues in corporate governance. He is also a director of
Allergan, New York Life, Seagull Energy, SmithKline Beecham, Witco Corporation
and several small, private companies in the Galen portfolio. (1982) /(1)(2)(4)/
[PHOTO OF THOMAS L. GOSSAGE APPEARS HERE]
Thomas L. Gossage, 62, is the retired Chairman and former President and Chief
Executive Officer of Hercules Incorporated. He brings global business operations
perspective, as well as valuable expertise in the chemical industry. Mr. Gossage
also serves as a director of The Dial Corporation and Alliant Techsystems Inc.,
and is Vice Chairman of the Georgia Tech Advisory Board and a member of the
Board of Trustees of the Georgia Tech Foundation, Inc. (1997) /(4)/
[PHOTO OF ADMIRAL BOBBY R. INMAN APPEARS HERE]
Admiral Bobby R. Inman, 65, retired U.S. Navy, served as Director of the
National Security Agency and Deputy Director of Central Intelligence. Admiral
Inman's depth of political insight, awareness of global changes and
understanding of technology serves Fluor Corporation well. He is also a director
of Science Applications International, SBC Communications, Temple-Inland and
Xerox. (1985) /(1)(3)(4)/
[PHOTO OF ROBERT V. LINDSAY APPEARS HERE]
Robert V. Lindsay, 71, is the retired former President of J.P. Morgan & Co.,
Incorporated. Mr. Lindsay's 38-year career at J.P. Morgan encompassed a broad
range of responsibilities which have provided extensive experience in
international banking and finance. He also serves as a director of Chubb, First
Hudson Valley Bank, Russell Reynolds Associates, Inc. and United Meridian, and
is senior advisor to Unibank Denmark A/S. (1982) /(1)(2)(4)/
[PHOTO OF VILMA S. MARTINEZ APPEARS HERE]
Vilma S. Martinez, 53, is a Partner at the law firm of Munger, Tolles & Olson,
and the former President and General Counsel for the Mexican-American Legal
Defense and Educational Fund (MALDEF). Her position of national prominence in
both the business and legal communities gives her key insights on workforce
issues. Ms. Martinez is also a director of Anheuser-Busch Companies, Inc. and
Sanwa Bank California, and serves on a variety of advisory boards and community
organizations. (1993) /(2)(3)/
[PHOTO OF BUCK MICKEL APPEARS HERE]
Buck Mickel, 71, is Fluor's retired Vice Chairman of the Board. Mr. Mickel has
served the company since 1948. Beginning his career at Daniel Construction
Company, which was acquired by Fluor in 1977, he later served in senior officer
positions for Fluor. His broad business connections and strong regional
associations continually contribute ideas and opportunities for the company. Mr.
Mickel also serves as a director of Delta Woodside Industries, Duke Power,
Emergent Group, Insignia Financial, Liberty Corporation and RSI Holdings. (1977)
/(3)/
[PHOTO OF DR. MARTHA R. SEGER APPEARS HERE]
Dr. Martha R. Seger, 64, is a Distinguished Visiting Professor of Finance at
Hillsdale College and former member of the Board of Governors of the Federal
Reserve System. Dr. Seger's career included numerous positions which have
yielded significant experience in the fields of finance, economics and
international banking. She is also a director of Amoco, Providian Corp., Johnson
Controls, Kroger, Tucson Electric and Xerox. (1991) /(2)(3)/
Years in parentheses indicate the year each director was elected to the Board.
Except as indicated, all positions are with the company.
1996 Annual Report 47
===============================================================================
Board Committees
Fluor Corporation's Board of Directors reflects many of the characteristics
which are key to a strong, thoughtful approach to corporate governance and
oversight. With 13 members comprised of three inside and 10 outside directors,
the Board possesses a good balance of both engineering and construction
expertise and overall business know-how.
There are four formal meetings a year with numerous telephone
discussions as necessary to handle matters requiring Board approval. Altogether
there are four standing committees--the Executive Committee, Audit Committee,
Corporate Governance Committee, and the Organization and Compensation Committee.
Through work on its committees and ongoing interactions with members of
executive management, the Board is involved in practically every activity
critical to the company's operating success, with a particular emphasis on
corporate direction and strategy.
Executive Committee/(1)/
Chairman: Les McCraw
The Executive Committee acts on behalf of the Board with its full authority on
matters which require resolution between regular Board meetings. The committee
is comprised of the Chairman of the Board and the chairmen of the Board's three
standing committees. This approach is in contrast to the committee's previous
mission and structure when it met monthly and was composed solely of inside
management. The committee changed to its current approach two years ago when the
company transitioned to a Board comprised primarily of outside directors.
Audit Committee/(2)/
Chairman: Robert V. Lindsay
The Audit Committee represents the Board in oversight of the company's financial
condition, its reporting procedures and financial controls. Among the
committee's many responsibilities are review of the company's annual report,
Form 10-K and Proxy statement. It also meets regularly with the company's
internal auditors and financial management team to review accounting controls
and practices. In addition, it meets both annually and quarterly with Ernst &
Young, the company's independent auditors, to review the scope of its work and
to assure that appropriate policies and procedures are in order. Finally, the
committee nominates the firm of independent auditors for appointment by the
Board and ratification by shareholders.
Governance Committee/(3)/
Chairman: Admiral Bobby R. Inman
The Governance Committee focuses on the membership, roles and responsibilities,
and performance of the Board of Directors. The committee recommends the
organizational structure of the Board and the assignment of members to
committees where much of the Board's work is conducted. All outside directors
serve on at least two committees. In its search for new members, the committee
looks for diversity of gender and race, as well diversity in experience to help
ensure the strongest capability possible in providing oversight and perspective.
In addition, the committee facilitates participation by all directors in the
affairs of the corporation. The accessibility between the Board and company
management not only provides better insight to the directors on company
activities but also facilitates the experience of the Board being readily
available to company management whenever and wherever it can be most useful.
Organization and Compensation Committee/(4)/
Chairman: William R. Grant
The Organization and Compensation Committee provides guidance and oversight
regarding the company's organizational structure; the quality, diversity and
depth of the executive management team; and the effectiveness of the company's
compensation programs for senior employees. The primary focus and philosophy of
all company compensation programs is to ensure that they are linked directly to
initiatives which will yield increasing levels of shareholder value. Currently,
for example, 76 percent of Chairman Les McCraw's annual compensation is at risk
and dependent upon the achievement of specified objectives, financial results
and the Board's evaluation of his total performance. For other members of senior
management, approximately 68 percent of the total compensation is at risk. As
the company heads into 1997, the committee believes that management compensation
is properly aligned and incentivised for further enhancement of shareholder
value.
Senior International Advisors
Chester A. Crocker, 55, is the Landegger Distinguished Research Professor of
Diplomacy at the School of Foreign Service of Georgetown University. Mr. Crocker
also serves as Chairman of the Board of the United States Institute of Peace.
Sir Robin Renwick, 58, is a Director of the merchant bank, Robert Fleming, and
British Airways. During his distinguished 30-year career in the British Foreign
Service, he served in senior posts in New Delhi, Paris and London, including
advising Prime Minister Margaret Thatcher in the negotiations to end the
Rhodesian War and negotiations with the European Community. Sir Robin was
British Ambassador to South Africa (1987-91) and British Ambassador to the
United States of America (1991-95).
Fluor Corporation 48
===============================================================================
Executive Leadership Team
Les McCraw
Chairman and Chief Executive Officer (1975)
Hugh K. Coble
Vice Chairman (1966)
Dennis W. Benner
Vice President and Chief Information Officer
(1994)
Dennis G. Bernhart
Group President--Americas (1968)
Fluor Daniel
Don L. Blankenship
Chairman, President and Chief Executive Officer
A. T. Massey Coal Company, Inc. (1982)
Alan L. Boeckmann
Group President--Chemical Processes and
Industrial (1979)
Fluor Daniel
Chuck Bradley
Vice President--Human Resources and
Administration (1958)
Richard D. Carano
Group President--Asia Pacific (1970)
Fluor Daniel
E. David Cole, Jr.
Group President--Petroleum/Petrochemical
Processes and Project Services (1965)
Fluor Daniel
J. Michal Conaway
Senior Vice President and Chief Financial Officer
(1993)
Charles R. Cox
Group President--Industrial (1969)
Fluor Daniel
================================================================================
Lawrence N. Fisher
Senior Vice President--Law and Secretary
(1974)
Richard A. Flinton
Chairman
Fluor Constructors International, Inc. (1960)
Thomas P. Merrick
Vice President--Strategic Planning (1984)
Fluor Daniel
Charles R. Oliver, Jr.
Group President--Global Sales, Project Finance,
and Middle East and India (1970)
Fluor Daniel
James O. Rollans
Senior Vice President and Chief Administrative
Officer (1982)
Carel J. C. Smeets
Group President--Europe, Former Soviet Union
and Africa (1969)
Fluor Daniel
Jim Stein
Group President--Diversified Services (1964)
Fluor Daniel
R. M. (Dick) Teater
Group President--Power and Government (1980)
Fluor Daniel
Other Senior Executives
Betty H. Bowers
Vice President--Government Relations (1974)
Lila J. Churney
Vice President--Investor Relations (1980)
Jan L. Donovan
Assistant Secretary (1983)
J. Robert Fluor II
Vice President--Community Relations (1967)
Stephen F. Hull
Vice President and Treasurer (1996)
================================================================================
Thomas H. Morrow
Vice President--Tax (1984)
Victor L. Prechtl
Vice President and Controller (1981)
Lee C. Tashjian, Jr.
Vice President--Corporate Relations (1995)
W. Mack Torrence
Vice President--Project Finance (1989)
A. T. Massey Coal Company, Inc.
Don L. Blankenship
Chairman, President and Chief Executive Officer
(1982)
Madeleine M. Curle
Vice President--Benefits (1993)
Jerry M. Eyster
Vice President--Corporate Development (1987)
James L. Gardner
Senior Vice President and General Counsel
(1993)
Bennett K. Hatfield
Vice President--Planning (1983)
Richard M. Hendrick
Senior Vice President--Mining and Preparation
(1992)
Wynston D. Holbrook
Executive Vice President--Sales (1972)
Baxter F. Phillips, Jr.
Vice President--Administration (1981)
H. Drexel Short
Senior Vice President--Group Operations (1981)
Stanley C. Suboleski
Vice President of Operations--Strategy (1993)
James S. Twigg
Vice President and Chief Financial Officer and
Treasurer (1981)
================================================================================
Fluor Constructors International, Inc.
Richard A. Flinton
Chairman (1960)
Lawrence R. Copeland
President (1969)
Years in parentheses indicate the year each officer or executive joined the
company.
Company Contacts
Shareholders may call
(800) 854-0141
Stockholder Services
Lawrence N. Fisher
(714) 975-6961
Investor Relations [PICTURE APPEARS HERE]
Lila J. Churney
(714) 975-3909
Fluor's investor relations activities are dedicated to providing investors with
complete and timely information. All investor questions are welcome.
1996 Annual Report
================================================================================
Stockholders' Reference
Common Stock Information
At December 31, 1996, there were 83,904,038 shares outstanding and approximately
13,400 stockholders of record of Fluor's common stock.
The following table sets forth for the periods indicated the cash dividends
paid per share of common stock and the high and low sales prices of such common
stock as reported in the Consolidated Transactions Reporting System.
Common Stock and Dividend Information
Price Range
Dividends ------------------------
Per Share High Low
Fiscal 1996
First Quarter $.17 $ 68 $ 54 3/4
Second Quarter .17 71 7/8 61 7/8
Third Quarter .17 67 3/8 57 3/4
Fourth Quarter .17 67 3/8 59 1/2
-----
$.68
Fiscal 1995
First Quarter $.15 $ 50 3/4 $ 41 1/4
Second Quarter .15 52 45 1/2
Third Quarter .15 59 1/2 49 1/8
Fourth Quarter .15 59 3/8 54
-----
$.60
Form 10-K
A copy of the Form 10-K, which is filed with the Securities and Exchange
Commission, is available upon request.
Write to:
Senior Vice President-Law
Fluor Corporation
3353 Michelson Drive
Irvine, California 92698
(714) 975-2000
Registrar and Transfer Agent
ChaseMellon Shareholder Services, L.L.C.
400 South Hope Street
Fourth Floor
Los Angeles, California 90071
and
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
For change of address, lost dividends, or lost
stock certificates, write or telephone:
ChaseMellon Shareholder Services, L.L.C.
469 Washington Bridge Station
New York, NY 10033
Attn: Securityholder Relations
(800) 813-2847
Independent Auditors
Ernst & Young LLP
18400 Von Karman Avenue
Irvine, California 92612
Annual Stockholders' Meeting
Annual report and proxy statement are mailed
about February 1. Fluor's annual meeting of
stockholders will be held at 9:00 a.m. on
March 11, 1997, at the
Fluor Daniel Houston Complex
One Fluor Daniel Drive
Sugar Land, Texas
Stock Trading
Fluor's stock is traded on the New York, Midwest,
Pacific, Amsterdam, London and Swiss Stock
Exchanges. Common stock domestic trading
symbol: FLR.
Dividend Reinvestment Plan
Fluor's Dividend Reinvestment Plan provides stockholders of record with the
opportunity to conveniently and economically increase their ownership in Fluor.
Through the Plan, stockholders can automatically reinvest their cash dividends
in shares of Fluor common stock. Optional cash investments may also be made in
additional Fluor shares ranging from a minimum of $100 per month to a maximum of
$10,000 per quarter. For details on the Plan, contact Fluor's agent, ChaseMellon
Shareholder Services (800) 813-2847.
Duplicate Mailings
Shares owned by one person but held in different forms of the same name result
in duplicate mailing of stockholder information at added expense to the company.
Such duplication can be eliminated only at the direction of the stockholder.
Please notify ChaseMellon Shareholder Services in order to eliminate
duplication.
History of Stock Dividends and Splits Since Going Public in 1950
08/23/57 20% Stock Dividend
12/15/61 5% Stock Dividend
03/11/63 5% Stock Dividend
03/09/64 5% Stock Dividend
03/08/65 5% Stock Dividend
02/14/66 5% Stock Dividend
03/24/66 2 for 1 Stock Split
03/27/67 5% Stock Dividend
02/09/68 5% Stock Dividend
03/22/68 2 for 1 Stock Split
05/16/69 5% Stock Dividend
03/06/70 5% Stock Dividend
03/05/71 5% Stock Dividend
03/10/72 5% Stock Dividend
03/12/73 5% Stock Dividend
03/11/74 3 for 2 Stock Split
08/13/79 3 for 2 Stock Split
07/18/80 2 for 1 Stock Split
Web page address:
www.fluor.com
Design: Baker Design Associates
Photography: Jim Sims, Various
Illustration: Danny Shanahan, Kevin Sprouls
Printing: George Rice & Sons.
Dates Referenced Herein and Documents Incorporated by Reference
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