Document 2QpVakyZdkLg01zQ7pxGJ7kr

Fluor Corporation 1984 Annual Report ni} BRO 004 { '10 h!" *' 0 usr> O' tproo Highlights Fluor Corporation/$ in thousands, except per share amounts Periods ended October 31, Fiscal Year Revenues from continuing operations Earnings from continuing operations Net earnings Earnings per share Continuing operations Net earnings Funds provided from operations Capita! expenditures Cash dividends per common share At Year End Total assets Capitalization Long-term debt Shareholders' equity Total capitalization Percent of total capitalization Long-term debt Shareholders' equity Shareholders' equity per common share Number of employees - 1984 1983 1982 $4,401,130 1,008 1,008 .01 .01 123,814 285,514 $ .60 $3,891,618 724,777 1,696,363 $2,421,140 29.9 70.1 $ 21.49 32,153 $5,300,452 80,700 27,700 1.02 .35 339,130 301,835 $ .80 $6,740,551 160,976 152,799 2.05 1.94 488,075 525,932 $ .80 $4,084,920 $4,700,990 720,007 1,747,249 $2,467,256 1,009,858 1,776,419 .. $2,786,277 29.2 70.8 $ 22.19 34,123 36.2 63.8 $ 22.68 43,111 DR 2801006 Chairman's Letter Nineteen eighty-four was a tough year for Fluor, with management's actions concentrated in four areas: Coping with the downward and dis appointing earnings trend. Adjusting to the gradual recovery in business conditions. Updating our long-term strategic plan. Accelerating our management suc cession plans. Earnings from continuing oper ations in 1984 were $1 million, down from $81 million in 1983. Both the Engineering and Con struction (E&C) and Natural Re sources segments experienced earnings declines. The decrease in E&C is due primarily to the 1982/ 1983 downturn, one of the longest and most severe recessions on record for this industry. Lower earn ings from natural resources were the result of lower precious metals prices, reduced gold production at the El Indio mine in Chile, lower for eign exchange gains and a lengthy labor disruption in the domestic lead operations. Fluor's 50-percent owned coal operations experienced substantial earnings gains because of produc tivity improvements and increased volume. Oil and gas operations showed a gain in operating profits that reflects increased production from continuing ventures. Year-toyear comparisons were also im proved because write-downs in 1984 were considerably lower than in 1983. Floor's contract drilling services recorded a sight loss. Day rates remained depressed even though utilization levels improved slightly. Net interest expense, although reduced somewhat during 1984, continued to be a major cost factor. Long-term debt, largely associated with the St. Joe acquisition, has been reduced since 1981. but ended the year up sligntiy from 1983. Management wni continue to concentrate on debt reduction. In response to the earnings shortfall, all of cur eirclovees have been called upon to make sacri fices as part of an aggressive cost cutting program. Compensation for executive corporate officers as a group was cut 30 percent in 1984, and for other corporate officers an average of 14 percent. Time off with pay has been shortened one week; group insurance programs have been adjusted to reduce costs to the company; and contributions to retirement funds have been held to the minimum. Cost reduction will be an ongoing effort. Business conditions finally be gan to show signs of improvement this past year. New awards for the company's largest business seg ment, Engineering and Construc tion, were the highest in three years--$4.2 billion compared to $1.2 billion for 1983 and $2.9 billion for 1982. This recovery in new orders caused the E&C Group's backlog to stabilize after three years of decline. However. it is normal in the E&C business for earnings to decline wnile new orders are recovering, and we are experiencing that pattern. in Natural Resources, the price recovery in base metals and coal has been uneven. Average prices for zinc were strong, while lead prices, up from 1983 levels, were still relatively weak. Despite one of the worst recessions in the iron ore industry in decades, our results im proved because product enhance ments generated higher prices and increased demand. Coal demand improved, reflecting anticipation of an industry-wide strike which did not materialize. Flowever, precious metal prices showed no change in their downward trend. Market Ccncitions Chanae/ Strategy ..Ainersaed Important shifts are taking place in the markets we serve. The U.S. economic recovery has moder ated to what should be a sustain able pace; interest rates have be gun to decline; energy prices are relatively stable and inflation has been brought under control. Tech nological and environmental changes are also providing new opportunities, and geographic mar kets such as China are opening up. In response to these economic changes and emerging opportuni ties, we have completed a compre hensive review of all operations. The strategic plan has been amended accordingly. We are sat isfied that Fluor's engineering and construction services and natural resources management will con tribute to management's business and financial objectives. Historically, the E&C industry has offered high-growth and high-re turn opportunities in a growing list of industries. Today, the worldwide market potential for superior proj-- ect management services is still OR 2801007 largely untapped. Because the E&C Group's key strength lies in its ability to manage complex and highly technical projects, regard less of size or location, our capa bilities are now being offered to a broader range of industries, loca tions and project sizes. For example, Fluor has recently received awards in telecommuni cations, biotechnology, waste disposal and cleanup and water treatment, as well as for facilities that employ advanced electronic control systems. Also, projects are developing in revitalized industries, including transportation, infrastruc ture and cogeneration. Fluor's clients in energy-related and manufacturing industries con tinue to represent a valued market. Also, while mega-projects--com plex, billion-dollar-plus jobs--are fewer in number, they are important to our strategy. Our studies of the natural re sources industry reveal a world wide need for management skills that can successfully direct the ex ploration, development, financing, mining, processing, and marketing of high-grade minerals. These skills have made St. Joe a formidable competitor and low-cost industry leader. Accordingly, our natural resources strategy is to apply our proven management skills to a broader range of mineral products and locations, without necessarily owning 100 percent of the assets involved. This diversification will reduce our vulnerability to cyclical swings and will improve our return on investment. As part of the strategic review, non-operating assets were also examined to determine how they might contribute to improved per formance. In past years, Fluor has made extensive investments in real estate to house and support its engineering and construction activities. These investments now represent valuable, but in some cases financially under-utilized, as sets. In fiscal 1985, cash flow will be supplemented by the $50-mi!lion sale and leaseback of our Daniel Centre building in Greenville, South Carolina, and by completion of the proposed $340 million sale and leaseback of the Fluor headquar ters site in Irvine, California. Other Fluor real estate investments are also being considered for similar transactions. Elements of the amended strate gic plan have been evolving over the past few years, and actions have already been taken: Debt associated with the 1981 pur chase of St. Joe has been signifi cantly reduced. Businesses which did not fit the long-term direction of the company have been sold, including the Dis tribution Group and certain oil and gas properties. The E&C Group has expanded into new markets. The Natural Resources Group has maintained an active exploration program and continued cost reductions. Under-utilized assets have been identified for possible conversion into cash. For the coming year, additional steps are planned that will add mo mentum to management's redirec tion of the company. Financial Strategy Fluor's financial management phi losophy remains conservative. We maintained a strong balance sheet in 1984, which provides flexibility to take advantage of opportunities as they arise and aads stability during business downturns. The company enjoys investment-grade creait ratings, although lower earnings in 1984 caused the ratings to be reduced slightly. Also in response to lower earnings, the Board of Directors reduced the third auarter dividend to 10 cents per share and again paid 10 cents per share in the fourth quarter. Over the past four years, we have engaged in a heavy capital expenditure program to expand our capacity and to ensure that our operations are at their competitive best. Capital expenditures for 1984 totaled $286 million, bringing the four-year total to $1.6 billion. We can now comfortably reduce cap ital expenditures to between $100 million and $150 million in 1985 and still provide modern, cost-effective facilities for our operations. Management Succession Accelerated The loss of J. Robert Fluor on September 9 overshadowed all other events of the year. During his tenure as Chairman and CEO, Bob led Fluor Corporation through the period of its greatest growth. Per haps the most important legacy he left is a company where change is expected and individual initiative encouraged. The management succession program, which has been in prog ress for five years, was acceler ated. Several senior company executives who were also mem bers of the Board retired, making room for the next generation of management. Retiring were Charles W. Cox, Vice Chairman of Daniel International Corporation; Fluor Corporation Group Vice Presidents William I. McKay and Ar thur C. Sheffield and Senior Vice President Ross A. McCiintock. Also retiring from the Board were out side directors Charles Weiner, Chairman of Texas Crude, Inc., and Loren K. Olsen, Counsel, Morgan, Lewis & Bockius, attorneys. These .- directors served with distinction and have made a valued contribu tion to the company. Elected to the Board were: Dean K. Allen, Chairman--Engineering and Construction Group; Hugh K. Coble, President, Fluor Engineers, Inc.; and shortly after the end of the fiscal year, Leslie G. McCraw, Presi dent and CEO, Daniel International Corporation. Also elected to the Board was Peter J. Fluor, President of Texas Crude, Inc. and son of the late J. Robert Fluor. Ages of the new directors range from 37 to 50. Following my election as Chair man and CEO in September, Buck - Mickel was appointed President, Fluor Corporation. He and Vice Chairman Charles N. Cannon are members of the newly created Of fice of the Chief Executive Officer. The company is gradually emerging from a prolonged indus try-wide recession. The strategy now in place is responsive to the changing business environment and our clients' needs, and we have the people, the commitment and the financial strength to ex ecute it. Implementation of that strategy will be management's ma jor focus in 1985, and will set the stage for resumption of the com . pany's long-term growth. DR 2801009 Chairman of the Board and Chief Executive Officer January 14, 1985  .- Y?r. . ,:>\-y. * '? i*i'-"l-:- ih t >?%:,: -*. *V':" .SHaH .- .V; Rpb^tFluoc.Chaifman and.:;% * ^v:-' v ;%.& - * :': ''$. Chief ExecutiveOfficerofBuor' `i,;\, - --V.v ;55^VvV'ij * h ' ' : Corporation since 1968,'passed1'l&i*:{ ^.',^r':'- ': away Septembers, 1984, of lung cancer. He was 62_______ /%**% _ yea*rs o* f a` ge., .: *- V; * ... _* - ... .` _ ^ 'V; . Floor's new Chairman and CEO,- DavidS. lapoan, Jr., observed, - "3y any measure,. Bob Puor was' _. one of !he most outstanding busi ness ieaders of America. But beyond that, he was a real friend." Those thoughts are widely held. Under his insightful leadership, Fluor Corporation grew from a smaii business into a premier, wcrld- class engineering, construction and natural resources manage ment company. Yet, if a single qual ity characterized Bob Fluor, it was. ' his warmth. He loved life and illumi nated it for others. He was a fiercely . loyal friend and a devoted family man. Wm Bob feit the management role ^.. fflamm demands a long-termi.worl^rscale . commitment to profitable growth. * yA -.; MB He said,`Today's manager must ' , position his company for the long haul. He must make decisions vT os.. today on emerging,markets,`invest-. fmKBSStmB.mvBsyBBB.K.B< SSKm:. SS/m ments, research cpenditures;-1.' '-V- ' V 3 .', ' training and many other factors that 'r ' - will affect the company's,perform- -v y, 0*. ' S- < ' "v* ,j- ance years down thieerrooaad&:%" w. * ^ 1 i ' Tnose convictionis'wweerreedalfssoo;^ --v-:-^ fuii of compassion: Our job is to_ - ':$?* v,* v *, manage people and tc blend tthehir eiri.riv -r individuai skills to p'srforjjftchal-: ;.^v` ` '.. '?..'.$..... yV* J--'* -L_./ . lenging tasks,".he sajdl.Tmp'athyT-.':^ v;.\; l''\ J . with DpeeoopDleleisisaakeyvfanctrohrrfirnv?' f'';-" >. . that equation. Listening to people' , v,. , ' a*' *; /, ii . -r, , Understanding people.: Knowing how to work with people: Only by ' ' .>'* -f;1 *.7 - i - ::? 1? working together cah:we turn a.y ' ' great challenge into an even ' . J ' Mm greater opportunity."^'1..` . Waiter Lippman once said the final ! . ' " test of a leader is that he leaves be- : ` hind him in others the conviction and " ' the win to carry on. ; ' '. Bob Ruor met that test. 'V w. r t DR 2801010 Operations Fluor's two main businesses, engi neering and construction services and natural resources manage ment, operate worldwide. The Engi neering and Construction (E&C) Group is comprised of Fluor Engi neers, Fluor Constructors Interna tional and Daniel International Corporation. It provides project management, design, engineering, procurement, construction, mainte nance and technical services. The Natural Resources Group, which includes St. Joe Minerals Corporation and Fluor's 50 percent ownership of Massey Coal Com pany, conducts mining, milling, smelting, refining and exploration for new ore bodies. In addition to these two main businesses, Fluor has minority investments in oil and gas ventures through Fluor Oil and Gas, and operates an offshore con tract drilling business through Fluor Drilling Services. Engineering and Construction Engineering and construction ex perienced a new order turnaround in 1984, following one of the longest downturns in the industry's history. Stimulated by demand for in creased capacity from client com panies, the level of new orders increased for the first time in three years and totaled $4.2 billion by year end--more than three times the 1983 figure. Backlog, which re versed its decline in the third quar ter, appears to have stabilized, and ended the year at $4.2 billion. Op erating profit was $95 million in 1984 on revenues of $3.2 billion, compared to operating profit of $211 million and revenues of $4.1 billion sn 1983. The economic recovery that is under way has gradually impacted new orders in the engineering and construction industry. Fluor's new contracts in 1984 were mostly rep resented by industrial projects and first-phase awards from the energy industry. Work on these front-end assignments should give Fluor a competitive advantage in bidding for follow-on phases. Responding to changing mar kets, Fluor has enlarged its regional office network to bring its engineer ing and project management capa bilities closer to clients throughout the world. During 1984, additional engineering offices were estab lished in California, Alaska, Virginia, Ohio and Saudi Arabia, bringing the world-wide total to 21 engineer ing locations. In addition, two existing engi neering offices have been ex panded to provide the full range of Fluor's E&C services. The Mining and Metals office in Redwood City, California, has been reorganized as the Northern California Division, and the former Power Division's of fice has become the Chicago Divi sion. These changes reflect the broader expertise and expanded roles at these regional locations. Daniel, one of Fluor's largest E&C subsidiaries, opened a West Coast construction office, and satellite of fices in several other areas where Fluor s computer-aided design system generated this three dimensional electronic drawing of a refinery project. Shown are isomet rics of concrete (gray), electrical (green), piping (yellow), structural steel (red) ana equipment (blue). Area framed in white is enlarged on page 9. The computer nrccuoes an integrated 3-D engineemg model. But any segment of the deu,. in can automatically be isolated \qhliqnted or moved. Operations it is most active. Daniel continued the development of its technically strong engineering capability to provide its clients with an integrat ed design/build capacity. It also increased its regional plant engi neering services staff from 30 to over 200 in response to client needs. During the year, Fluor expanded its computer-aided design capabil ity into a state-of-the-art, three dimensional system. The Southern California Division (SCD) of Fluor Engineers has completed equip ment installation, user training, development of the data base and production testing. The new sys tem generates 3-D production drawings electronically, increasing productivity and quality. During 1985, SCD will further expand its capability. The system will also be used in the production mode at Fluor offices in London and at Daniel's Greenville, South Carolina, engineering offices. Fluor has long enjoyed a reputa tion for quality, and the company has enhanced this reputation and its competitive position over the past two years through a long-term quality improvement process (QIP) that will be ongoing at Fluor engi neering and construction locations. The QIP involves detailed planning, education, measurement, evalua tion and recognition. Its objectives: to reduce errors, improve quality, provide better client service at lower cost. Estimated savings to customers from the QIP were $2 million in 1983, and $5 million in 1984. Oii and Gas Production Offshore engineering and con struction received special market ing emphasis during 1984. Fluor will apply its E&C expertise on tension leg offshore production platforms through long-term agree ments with: Bethlehem Steel in the Gulf Coast and Atlantic areas; Mitsui and Samsung in the Far East; and Btohm and Voss in the North Sea. Important awards were received in the Norwegian, Dutch and Unit ed Kingdom sectors of the North Sea, one of the most-active off shore markets in the world. Fluor's experience on two Norwegian proj ects--Statpipe (the world's largest offshore gas production pipeline network, for Statoil) and the recently awarded project services contract for the Mongstad refinery on shore--positions Fluor for bidding on two other major Norwegian prospects in 1985. Activity in the U.K. sector is increasing, following tax changes there that make it attractive to develop oil and gas production facilities. In Alaska, Fluor was awarded contracts for engineering of 100,GOO-barrels-per-day facilities at the Lisburne oil field and for a 30,000-barrels-per-day develop ment at Milne Point. A secondphase contract for the manufacture of modular facilities at Lisburne was awarded to Daniel following the close of the fiscal year. The Alaskan market is expected to remain active well into the next century. The Middle East also remains an active market. During 1984, Fluor was awarded initial design of facili ties for the North Field offshore Qa tar, one of the world's largest natural gas reserves; gas gathering, trans mission and treatment for Khuff 4- gas, the first natural gas production in Saudi Arabia; water injection fa cilities at the Bu Hasa Field in Abu Dhabi; and a number of petroleum development projects in Oman. Current exploration and develop ment in California and the Gulf of Mexico is expected to lead to major capital programs for production, pipelines and refining. During 1984, Fluor received awards for a major enhanced oil recovery proj ect in California and for an offshore gas production platform in the Gulf. The company also continues work on the development of designs for deepwater and arctic production platforms and on new methods to produce oil and gas from marginal offshore fields. Process Plants U.S. refinery contract awards include revamps and modification projects at Toledo, Ohio; Lemont, Illinois; Texas City, Texas; and Wilmington, Carson and Santa Maria, California. Reduced lead in gasoline will result in additional domestic opportunities. Fluor was also awarded control system/ instrumentation upgrades at refineries in Texas and California. In Canada, prospects are im proving dramatically, particularly in heavy oil upgrading. During 1984, Fluor won front-end contracts for heavy oil upgraders planned by Syncrude Canada, Ltd., Husky Oil Co. and New Grade Energy, Inc. DR 2801013 A "zcomedun" view (right) of the "framed" section of the computer mode! on page 7 allows designers to check ail demiis ef worrriex structure. 7he crM :r w* showing oi .p \ ' i md structural steel < i " w hieden lines" removed - _ ''dip Urn to tual components of the c m f 'id- den hne remove1 * a ' i a m automatica/v it v /' " -j- Operations These projects present major op portunities, near term, for sizable follow-on work. In the petrochemical area, work continued on major petrochemical plants in Saudi Arabia, and the -- company was awarded a polypro pylene expansion contract in Texas. Fluor is well positioned on two large oil shale projects in Colorado, which may obtain funding in 1985 from the U.S. Synthetic Fuels Corporation. Fluor's joint venture agreement with SINOPEC, China's petroleum and petrochemical corporation, presents major opportunities for re vamps and new construction in that developing market area, as well. The China section of this report describes these opportunities in detail. ?5wer -- Cogeneration projects have been stimulated by federal legislation that permits industry to self excess power to utility companies. Fluor Engineers and construction serv ices of Daniel were utilized on an 18-megawatt cogeneration facility at a pharmaceutical plant in Puerto Rico. Fluor Engineers, in conjunc tion with Fluor Constructors, is performing engineering, procure ment and construction of a steam/ power plant near San Francisco-- a 50-megawatt facility. In addition, Fluor Constructors has started construction on a 300-megawatt co generation plant near Bakersfield, .- California. In all, Fluor is currently tracking more than two dozen projects in cogeneration. Following the close of fiscal 1984, the company entered into a joint venture agreement with MidCon Corp. of Lombard, Illinois, to design, construct, and possibly own and operate industrial cogen eration systems. MidCon is a diver sified energy company engaged in natural gas transmission. New order activity in the power industry has been concentrated on retrofits, plant life extension and maintenance of older plants, rather than on new construction. A twoyear contract with Florida Power Corp. calls for Fluor to maintain and modify equipment that has been in operation since 1977 at the Crystal River Unit 3 nuclear plant in Florida. Daniel also won a system-wide supplemental maintenance con tract for power generating stations in Texas, as well as multiple awards for quality, technical support and maintenance services to the power industry throughout the United States. Industrial and Commercial The general industrial /commercial sector led new order activity in 1984. Daniel, one of the largest in dustrial design/build contractors in the United States, received con tracts in automotive, food-process ing, fine chemicals, pulp and paper, electronics, pharmaceuticals and office construction. New projects included construc tion management services in Dela ware for a major U.S. automobile manufacturer; design, procure ment and construction manage ment for a corn wet-milling complex in Illinois; a chemicals plant in Iowa; construction jobs in Ohio and Ala bama for the pulp and paper in dustry; the design and construction . +. of a major plastics plant in Ala bama; construction on a 17-story office building in Dallas, Texas; and semiconductor fabrication facilities in Texas and North Carolina. Abroad, Daniel started work in South Korea on the design and construction management of an electronics assembly plant. In Puerto Rico it is providing the de sign and construction services to convert a synthetic fibers plant into a state-of-the-art pharmaceutical manufacturing facility. Daniel is also providing design and construction management, in cooperation with Fluor GmbH, of a catalytic con verter plant in West Germany, and design and construction manage ment of an electronics facility in Kuala Lumpur, Malaysia. Another new market is Japa nese-owned projects in the United States. Following its completion last year of the Nissan truck assembly plant in Tennessee, Daniel has con tinued to pursue work from Japa nese clients. Currently, Daniel is tracking more than 60 industrial projects involving Japanese firms. Masnsananca and Plant Services In response to client demand, Fluor has developed a long-term interna tional commitment to maintenance and plant services operations. Dur ing 1984, Fluor Plant Services Inter national obtained key maintenance and related plant services con tracts in England, Italy, the Gulf of Suez, and Saudi Arabia. The com pany, headquartered in London, is now active in most market areas DR 2801015 The segment at right shows pumps, valves, steel and pipe enlarged and shaded automatically by the computer. Images are shaded to provide a realistic ' D reoiesentation of the model b r revm by the client. The co; n, i tci sUi * ,m the model to any position ar id tl u m shade at the desired dispU angle. The same area (left) is shown in the "wire frame ' r >( a a. nc , ulv used during the design , < cams. -- Operations outside the North American conti nent and the Caribbean, including Australia, South Africa and Saudi Arabia. As certain large projects near completion, technical employees from these projects are being reas signed to work on maintenance and retrofit contracts. Some Daniel employees, for example, are work ing on maintenance and continuing service awards for large power projects in the East and Mid-West. Refinery maintenance work is being pursued from Daniel's new Long Beach, California, regional office. To assist clients further in reducing down time and maintenance costs, Daniel provides technical, quality assurance and environmental serv ices to both new construction and existing industry. Dbsa The market for E&C services in the People's Republic of China (PRC) has been improving steadily in line with that nation's modernization program. Since 1978, Fluor has directed a dual focus at that mar ket: One, to establish a track record of successful projects; and two, to develop relationships with the Chi nese business establishment as a foundation for future work in China. Just after the close of fiscal 1984, Fluor signed a 50/50 joint venture agreement with SINOPEC (the China Petrochemical International Company), one of the largest com panies in China, to identify and bid + on projects relating to the modern ization of that country's petrochemi cal industry. Prospects include design and construction manage ment of new petrochemical plants, technical upgrading of oil refineries and management services on petroleum-related projects. Also, during 1984, Fluor concluded a joint venture agreement with the China National Nonferrous Metals Industry Corporation, which will establish Fluor as a qualified con tractor for mining and milling proj ects throughout China. There were seven new awards to Fluor in the PRC during 1984. Among them, Fluor was selected to provide engineering and training services for the modernization of a 435-kilometer segment of the Tieling-to-Dalien crude oil pipeline. The project includes design work to re duce energy consumption and in crease efficiency of the system that currently transports 20 million tons of crude per year. Late in the year, the China Na tional Coal Development Corpora tion awarded Fluor the manage ment of the conceptual phase of the Jinging No. 2 coal mining proj ect. The mine is expected to begin producing four million tons of coal per year by 1990. Fluor is also responsible for an engineering study of part of the Daqing Oil Reservoir Development, a World Bank-funded project; for consulting project management for Kodak on a photographic paper and film plant; and for conceptual design of certain offshore gas and pipeline facilities. Fluor was also active in the first two phases of the contract to expand oil shale and coal production by 60 percent at the Fushun mine. Sovernmerw Projects Fluor is involved in several large contracts for the Department of En ergy (DOE), all associated with the nuclear fuel cycle. They include en gineering and construction support services for the country's first gas centrifuge uranium enrichment facility, begun in 1978; design and engineering for a nuclear-waste repository in an underground salt formation, begun in 1983 and scheduled to be operational by 1998; a 1983 award for modifica tions to the front end of a nuclear fuel reprocessing plant; and a new, three-year contract for modifica tions, upgrades and additions to existing nuclear fuel processing and support facilities. Fluor is currently under contract to four major offices of the DOE, and has performed, or is perform ing, projects for the Agency for International Development, the Department of Interior, the Army Corps of Engineers and NASA. Government and private-sector environmental expenditures are another market for Fluor with significant growth potential, par ticularly in hazardous and munici pal waste disposal. Developing Markets Floor's Telecommunications Serv ices Division offers consulting, de sign, engineering, procurement, DR 2801017 The data base stores graphic im ages and non-graphic data includ ing weight, material maiiufa' airer and dimension , of e < d i iter, r the modei. The 3-D -'or, -n - " H data to detect physics nm .1 ences in the dcsion anu m i msplay them by h>gr m-jniiS < hu conflict, as shown nero Dm u-signercan also i .ato ht a i eel to check clearances visually. project management, installation management, test and startup services to the rapidly growing tele communications industry. Because Fluor is not a manufacturer of tele communications equipment, the company can provide unbiased systems integration by specifying the most cost-effective and techni cally advanced equipment available. Telecommunications projects won by Fluor include: a 23,000-mile nationwide fiber optics digital tele communications system for which Fluor is providing management support services; engineering, pro curement and installation of a tele phone system for the United States Department of Defense; a cellular radio telecommunications system in the Gulf of Mexico in joint venture with U.S. West; engineering, pro curement, installation and project management services for a digital microwave communications sys tem in South Carolina. In transportation and infrastruc ture, a mature market, opportuni ties are increasing, particularly in airport construction. But rail transit projects have been limited due to the lack of federal funding. The Los Angeles to San Diego high-speed rail contract awarded to Fluor in 1983 was canceled because back ers were unable to raise capital funds. Water and wastewater proj ects have been increasing. New contracts awarded to Fluor include a wastewater treatment study in Iowa City, Iowa, and two projects for rehabilitation and new construc tion for the Port of Los Angeles. Operations Natural Resources. Natural Resources includes St, Joe's operations in domestic met als and in various minerals interna tionally and 50 percent ownership of Massey Coal Company. Operating profits from this group were mixed in fiscal 1984, primarily due to changing prices. Overall, the group recorded operating prof its of $11 million on revenues of $923 million in 1984, compared to 1983's operating profits of $26 million on revenues of $867 million. Domestic metals' performance -- improved while profits from interna tional minerals declined. Tons sold of zinc metal equivalent, iron ore pellets, and coal were all well ahead of last year. Coal posted a substantial increase in operating profit. Lead production was down, due to a prolonged labor disruption. The drop in precious metals prices, declining average ore grades, and a one-month closure of the El Indio mine in Chile resulted in substantially lower operating profits for international minerals. St. Joe's worldwide exploration effort aims at discovering, deline -- ating and acquiring rights to new, low-cost ore bodies. Current em phasis is on precious metals, which accounted for about 60 percent of the exploration budget in 1984. St. Joe's strategy on exploration projects involves joint ventures to provide financial leverage. In cur rent programs in North and South America, Europe and Australia, St. Joe generally participates as a managing partner with financial backing from one or more joint-ven ture partners. In South America, St. Joe is ex ploring several sites near the El In dio gold mine in Chile. Exploration of the Tambo property has con firmed that commercial quantities of gold and silver can be pro duced. In Brazil, the Mocambo tin mine has been under development throughout 1984. It will undergo pre-production testing during 1985, and is expected to begin full pro duction in fiscal 1986. Mocambo may become a base of operations for developing St. Joe's participa tion in tin mining in Brazil. Also in Brazil, a joint venture with British Petroleum Minerals is evaluating the potential for an alluvial diamond operation on the Rio Araguaia. In the U.S., two gold properties are being evaluated which appear eco nomically favorable for development. Domestic Metals St. Joe's Domestic Metals Corp. is the largest integrated producer of lead and zinc in the United States. (An integrated producer does min ing, milling and smelting.) The cor poration also produces iron ore pellets, gold and silver. Use of aenal/satellite remote sensing surveys and a computer helps geologists identify areas where minerals might be found. This image of a 90-square-mile section of southwest Nevada shows how the geological analysis often begins. The computer has translated scanner data into a color image that emphasizes selected features of the terrain. Framed sec tion is enlarged on page 17. Operations The average price of lead metal increased 26 percent in 1984 com pared to the previous year, but weakened in the second half. Pro duction was down 36 percent and sales declined 23 percent due to a labor disruption which began April 1 st at St. Joe's five lead mines in Missouri. Limited concentrate pro duction was continued with super visory and hourly employees until contract agreement was reached in mid-December of 1984. Sales have improved to the automobile battery market, the primary consumer of lead. However, demand for lead by the paint and gasoline industries has decreased. St. Joe's new Bixby lead facility in Missouri has started commercial production, increasing overall pro ductivity for the group. Develop ment will continue during 1985. The average zinc metal price in creased 23 percent in 1984 reach ing a record of almost 53 cents per pound, but ending the year at 45 cents per pound. St. Joe produced zinc metal equivalent at capacity to meet growing demand from the galvanizing industry. During 1984, St. Joe acquired the operating assets of National Zinc Company, increasing the com pany's zinc production capacity by 55 percent to 155,000 tons per year. The acquisition enhances the value of St. Joe's zinc properties while increasing profit potential through synergies in feed material, processing and product mix. Zinc demand for corrosion protection in highway construction and new automobiles is expected to in crease in 1985. St. Joe's Pea Ridge iron ore mine complex operated at near capacity during 1984, selling about 1.3 mil lion gross tons of iron ore pellets. This increase of 91 percent over 1983 sales reflects improved de mand from selected segments in the steel industry. In addition, St. Joe is the only North American pro ducer to add olivine to its iron ore pellets. Olivine decreases the cost of energy when producing iron from the pellets. Domestic gold production totaled more than 15,600 troy ounces in 1984, up from 11,000 in 1983. This increase is the result of safety and efficiency improvements at the Yuba River gold-mining venture in California. St. Joe owns a two-thirds interest in the venture. International Minerals St. Joe International's operations produce lead, silver, zinc and cop per products in Argentina, Peru and Australia; gold, silver and cop per in Chile; and tin in Brazil. Oper ating profits were down in 1984, because of lower gold and silver prices and reduced foreign ex change gains. Production of gold, silverand base metals declined -f- somewhat compared with last year. The El Indio mine in Chile sold 294.000 troy ounces of gold in 1984 and 1.0 million troy ounces of silver, compared to 362,000 troy ounces of gold and 926,000 troy ounces of silver in 1983. Gold production fell because of unusually severe weather that closed the mine for over a month and because of a decline in average gold content of the ore. In Argentina, St. Joe's Aguilar mine produced concentrates con taining 30,000 tons of lead, 36,000 tons of zinc and 1.4 million troy ounces of silver. By comparison, + 1983 production was 32,000 tons of lead, 37,000 tons of zinc and 1.6 million troy ounces of silver. A new tunnel connecting the mine to its nearby milling operations was inau gurated during 1984--an efficien cy improvement that will contribute to lower-cost production. St. Joe's Peruvian operations produced concentrates containing 29.000 tons of zinc from the min ing and milling operations at San tander, compared to 1983 produc tion of 35,000 tons. The mine at Madrigal produced concentrates containing 15,000 tons of zinc, . 7.000 tons of lead and 403,000 troy -j- ounces of silver. -T-- DR 2801021 A segment (right) of the aerial sur vey on page 15 has been enlarged by computer to show the individual picture elements--.pi\eh 1 color of each pixel meicams average geological room - t 900-square-meter am,! thd mu be considered for explorYrr -r jmer exploration tool, a digital urn ' contour map (left), wr > > m '' )y computer in a fraction a ho 11 <o requirec to do the job manually -f- Operations t Coal -- Massey Coal Company is a major domestic coal producer, owned and managed through a 50/50 joint venture between St. Joe and the Scallop Coal Corporation, a mem ber of the Royal Dutch/Shell group of companies. Massey's produc tion capacity from more than 25 mining complexes is greater than 20 million tons per year. Its coal re serves total more than one billion tons. Total sales of produced coal in 1984 were 20 million tons, up 2 mil lion tons from 1983. This production increase was brought about as a direct result of a combined pro- -r gram of cost reduction and safety that cut Massey's lost-time incident rate by 30 percent compared to last year. The unit cost of produc tion was reduced through produc tivity increases, process improve ments and the closure of several high-cost mines. Massey further benefited from higher-than-usual stockpiling by customers in antici pation of a major strike in October, which didn't occur. However, sev eral of Massey's union mines, repre senting a small percentage of pro duction, were struck at year end. During 1984, the company re negotiated four sales contracts for -r- providing steam coal to utilities. The renewed agreements increase tonnage to an aggregate of more than eight million tons per year at improved terms over a contract life of 20 years or more. In addition, Massey acquired two mapr, fully equipped, low-sulfur coal proper ties with production capacity of one million tons per year eacn. Oil and Gas Fluor Oil and Gas particicates solely as a minority investor in oil and gas ventures, primary in the United States. The sale of certain foreign properties caused revenues to decline to $99 million Horn last year's $136 million. However, be cause of the reduction of write downs which impacted profits last year, operating profits increased to $30 million in 1984 from $16 million in 1983. There was also an overall increase in production from con tinuing ventures. The Prinos Oil Field, offshore Greece, produced 26.500 barrels of oil per day--record annual pro duction for this field. Fluor has a 14 percent interest. In Argentina, the Centenario Field, in which Fluor holds a 49 percent interest, pro duced about 4,100 barrels per day, a 20 percent increase over last year. Additional development wells are expected to be drilled and completed in 1985 as part of a price renegotiation with me govern ment. The Ramos Gas Fesd (Fluor's .. interest is 25 percent) maintained its contract production rate of 50 million cubic feet of gas and 1,500 barrels of oil per day. In Indonesia, Fluor holds a 10 percent Interest in several oil fields in Irian Java that are producing a steady average of about 32,000 barrels per day, total. In line with Fluor's current emphasis on domestic investment, all foreign exploratory drilling commitments were completed during 1984. Domestic activities cover areas in the Gulf of Mexico and offshore California. On the Tricia blocks in the Santa Maria Basin, a discovery well tested at a combined rate of 2,400 barrels of low-gravity oil per day. A delineation well tested at a combined rate of 1,000 barrels per day of similar-quality crude. Additional drilling and testing are planned to determine the commer cial value of this project in which Fluor's interest is approximately 14 percent. Exploration continued in the Gulf of Mexico, with Shell Oil as opera tor. Development drilling also con tinued, as well as installation of platforms and production equip ment. Initial production of gas from at least two discoveries and contin ued exploratory drilling are planned for 1985. Capital investments of $30 million are designated for domestic projects during 1985, of which 65 DR 2801023 This aeromagnetic survey has been computer enhanced to re semble a photograph. Magnetic peaks and valleys have been snaded by computer for optimum emphasis of magnetic data. By this method, subtle features that would be difficult to recognize on a magnetic contour mao can be ac cented for rapid evaluation. . percent will be spent on tracts off the Gulf Coast. Fluor's interests in these wells range from seven to eleven percent. drilling Fluor Drilling Services provides contract drilling services to the off shore petroleum industry. For 1984, revenues were $62 million, down from $86 million in 1983; and oper ating profits which totaled $4 million in 1983, declined to a loss of $2 million in 1984. The loss re flects competitive conditions which kept day rates depressed. Fluor's fleet of six jackups, three platform rigs, one barge and two self-propelled drillships are active around the world. At the close of the fiscal year, there were two rigs contracted in the South China Sea, one offshore Nigeria and one off shore Indonesia. Fluor's Coral Divi sion ended the year with all seven of its rigs contracted in the Gulf of Mexico, bringing the utilization rate in the Gulf to an average of 91 per cent for the year. The industry aver age in the Gulf was 84 percent. Day rates firmed slightly, but re mained depressed. Nevertheless, more than 2,000 new exploration leases awarded in the Gulf since May 1983 have resulted in in creases of 400 to 600 percent in bidding opportunities, giving rea son for optimism that day rates will improve. Operations Statistics Engineering and Construction $ in thousands/Years ended October 31, Work Performed Revenues Operating Profit New Orders Backlog Manpower 1984 $4,458,238 3,205,98? 94,604 4,151,261 $4,194,247 16,353 1983 $6,335,741 4,105,172 210,676 1,244,553 $5,610,687 18,998 1952 $ 7,526,128 5,384,723 228,587 2,908,822 $10,711,815 24,498 1981 $ 7,295,853 4,812,191 227,980 7,100,552 $16,166,292 25,858 1980 1979 $ 6,557,957 4,129,766 184,382 9,113,746 $15,917,558 23,601 $ 4,803,000 3,112,311 154,750 5,876,721 $12,135,512 20,402 Backlog by industry and Location $ in millions $ 1984 % $ 1983 % $ 1982 % $ 1981 General Industrial Petroleum Paper Chemical/Petrochemical Oil and Gas Production Power Gas Processing Oil, Gas and Coal Transport Mining/Metals Synfuels Other 927 21.9 145 2.6 371 3.4 636 737 17.4 1,254 22.1 2,217 20.5 3,287 548 13.0 238 4.2 479 4.4 235 506 12,0 1,011 17.8 2,413 22.3 4,199 492 11.7 37 .7 124 1.1 95 370 8.8 1,310 23.1 1,760 16.3 2,728 133 3.1 738 13.0 1,634 15.1 1,945 89 2.1 -- -- ---- -- 67 1.6 279 4.9 761 7.0 1,406 -- -- 48 .9 215 2.0 831 325 7.7 551 9.7 738 6.8 804 Total Engineering and Construction 4,194 99.3 5,611 99.0 10,712 98.9 16,166 Drilling 30 .7 59 1.0 114 1.1 220 Total 4,224 100.0 5,670 100.0 10,826 100.0 16,386 United States Outside U.S. 2,868 67.9 2,579 45.5 4,695 43.4 7,075 1,356 32.1 3,091 54.5 6,131 56.6 9,311 Total 4,224 100.0 5,670 100.0 10,826 100.0 16,386 Backlog includes owners' cost of approximately 8% 34% 35% Fluor earns a fee on this portion of backlog which will not ultimately be recorded as revenues. 33% % 3.9 20.1 1.4 25.6 .6 16.6 11.9 -- 8.6 5.1 4.9 98.7 1.3 100.0 43.2 56.8 100.0 $ 1980 358 2,431 216 3,459 331 2,744 2,979 -- 1,062 1,922 415 15,917 177 16,094 6,423 9,671 16,094 28% % 2.2 15.1 1.3 21.5 2.1 17.1 18.5 -- 6.6 11.9 2.6 98.9 1.1 100.0 39.9 60.1 100.0 $ 1979 240 635 179 592 740 3,128 2,795 -- 582 2,935 310 12,136 56 12,192 4,375 7,817 12,192 45% % 2.0 5.2 1.5 4.9 6.1 25.7 22.9 -- 4.8 24.1 2.4 99.6 .4 100.0 35.9 64.1 100.0 Metals $ in thousands/Years ended October 31, 1984 1983 1982 1981 1980 1979 Revenues Operating Profit (Loss) Manpower $433,741 $429,000 $440,019 $108,839 * * $ (3,894) $ 32,664 $ 46,203 $ 19,716 * * - 9,236 8,000 8,232 8,045 7,462 7,269 International Operations** (in short tons except as noted) Lead Content of Concentrates Sold Zinc Content of Concentrates Sold Copper Content of Products Sold Gold Content of Products Sold (Troy Ounces) Silver Content of Products Sold (Troy Ounces) ... 28,725 49,875 23,784 293,514 2,462,124 35,576 52,140 20,848 361,588 2,732,631 40,184 62,819 12,509 368,081 2,677,057 32,933 52,554 2,503 171,023 1,819,314 32,570 66,369 2,171 130,586 2,014,737 32,527 48,951 -- 14,028 1, 649,539 Domestic Operations (in short tons except as noted) Lead Content of Concentrates Produced Lead Metal Sold Zinc Content of Concentrates Produced Zinc Metal Equivalent Sold Iron Pellets Sold (Gross Tons) Silver Content of Products Sold (Troy Ounces) Gold Content of Products Sold (Troy Ounces)*** 137,618 169,080 76,862 113,738 1,283,262 657,766 10,423 215,984 220,823 87,315 100,459 672,341 609,658 7,199 207,776 205,573 77,947 75,207 786,354 702,359 -- 168,317 170,638 59,592 46,212 970,682 751,459 ..- 239,171 199,573 58,162 50,172 780,041 330,992 -- 244,923 237,299 22,386 173,970 230,135 441,908 -- 'Financial data for St. Joe Minerals Corporation are included from the date of acquisition, August 3, 1981. Other information for St. Joe fui [1 et tods prior to August 3, 1981 is shown for comparative purposes only. `Does not include Peruvian production. `Represents 66%% ownership. Coal $ in thousands/in thousands of short tons Years ended October 31, Revenues Operating Profit (Loss) Manpower Steam Coal Produced Metallurgical Coal Produced Produced Coal Sold Purchased Coal Sold 1984 $489,634 $ 14,800 4,709 7,998 2,168 9,982 1,931 1983 $437,455 $ (6,824) 5,145 7,102 2,084 9,192 1,461 1982 $446,883 $ 2,624 5,959 6,873 2,155 8,837 1,741 1981 $130,974 $ 9,155 5,432 5,269 1,787 7,054 3,869 1980 * * 4,880 5,163 1,826 7,010 3,945 1979 * * 4,386 4,447 1,918 6,330 2,616 Represents 50% of Massey's operations for all periods, except manpower which is 100%. `Financial data for St. Joe Minerals Corporation are included from the date of acquisition, August 3, 1981. Other information for St. Joe for periods prior to August 3, 1981 is shown for comparative purposes only. Oil and Gas In thousands, except manpower Years ended October 31, Revenues Operating Profit Manpower Oil Sold, Barrels Gas Sold, Mcf Net Proved Reserves of Oil, Barrels Net Proved Reserves of Gas, Mcf 1984 $99,353 $29,485 47 3,439 10,883 18,284 141,858 1983 $135,785 $ 15,659 92 4,347 12,013 26,984 158,040 1982 $225,816 $ 69,651 274 4,932 26,451 30,669 163,879 1981 $99,379 $34,342 263 3,586 23,625 34,295 197,790 1980 $67,483 $34,483 190 2,357 23,605 28,171 164,575 1979 $37,335 $20,186 159 2,053 19,329 28,623 169,338 Drilling $ in thousands/Years ended October 31, Revenues Operating Profit (Loss) New Orders Backlog Average Rig Utilization Rate Manpower `Restated to exclude three obsolete rigs. Other* $ in thousands/Years ended October 31, Revenues Operating Profit (Loss) Manpower `Includes all Intercompany eliminations. 1984 $61,914 (1,675) 37,942 $29,987 74% 550 1983 $85,682 4,132 35,571 $59,015 71 %* 581 1982 $127,499 60,400 7,986 $114,073 89% 756 1981 $109,203 39,687 147,185 $219,456 96% 731 1980 $ 85,374 25,197 203,602 $176,791 98% 670 1984 1983 1982 ' $110,501 $107,358 $115,611 $(16,136) $ 17,422 $ 20,788 1,258 1,307 1,285 1981 $97,007 $ 1,903 1,514 1980 $64,343 $ 7,618 1,029 1979 $73,161 11,991 83,454 $56,187 89% 650 1979 $50,792 $10,068 1,212 DR 2801026 Financial Contents Management s Discussion and Analysis Selected Financial Data Management's Report Auditors' Opinion Consolidated Statement of Earnings Consolidated Balance Sheet Consolidated Statement of Changes in Financial Position Consolidated Statement of Shareholders' Equity Notes to Consolidated Financial Statements Segment Information Oil and Gas Information Inflation Measurement Data Mineral Reserves and Operating Statistics Quarterly Financial Data 23 25 26 26 27 28 30 31 32 36 38 42 44 46 DR 2801027 , Management's Discussion and Analysis Fluor Corporation Results of Operations Consolidated earnings from continuing operations in 1984 were $1 million compared to $81 million in 1983 and $161 million in 1982. Related earnings per share were $.01 for 1984 compared to $1.02 and $2.05 in 1983 and 1982, respectively. Both earnings and earnings per share from continuing operations declined 99% in 1984 after decreasing 50% in 1983. Revenues from continuing operations declined 17% in 1984 following a 21% decline in 1983. Net earnings for 1983 and 1982 reflect net losses from discontinued operations of $53 million and $8 million, re spectively, relating to the company's former Distribution Group. The 1983 loss from discontinued operations con sisted of operating losses of $27 million and a provision of $26 million for expected losses from disposal. During 1984, the company completed divestiture of the Group with no significant variances in reserve estimates. The company's effective income tax rate increased from 53% in 1983 to 92% in 1984 primarily due to the de cline in earnings before income taxes and the increased effect of certain nondeductible expenses associated with the acquisition of St. Joe, which remained relatively stable. Partially offsetting these nondeductible items was statutory depletion which increased significantly over 1983. Engineering and Construction Contract awards for engineering and construction serv ices were the highest in three years. New awards in creased in 1984 to $4.2 billion from $1.2 billion in 1983 and $2.9 billion in 1982. However, backlog continued to decrease during the period from $10.7 billion at October 31, 1982 to a low of $3.7 billion in the second quarter of 1984, recovering to $4.2 billion at year-end. Revenues declined 22% to $3.2 billion in 1984 compared to a 24% decline in 1983 due to the depressed level of new awards in 1982 and 1983 and completion of several major contracts awarded in prior years. Operating profit decreased significantly to $95 million in 1984 compared to $211 million in 1983 and $229 mil lion in 1982. These operating results reflect the reduced level of business, price competition and higher relative indirect costs compared to the volume of work per formed. Manpower was 14% lower in 1984 compared to 1983 and 22% lower in 1983 compared to 1982. St. Joe Metals operations incurred an operating loss of $4 mil lion on revenues of $434 million in 1984 compared to operating profit and revenues of $33 million and $429 million and $46 million and $440 million in 1983 and 1982, respectively. Sales prices and volumes for base metal commodities increased over 1983 except lead volume which was significantly lower than the prior two years due to the strike at St. Joe's southeast Missouri mining operations, which began in April 1984 and was settled in December. Precious metals prices and vol umes were significantly lower during 1984 compared to 1983. The decline in gold volume was mainly due to the one month closure of the El Indio mine in Chile as a re sult of unusually severe weather conditions and reduced gold content of products sold. Foreign exchange gains in 1984 were significantly lower than 1983, which includ ed realized gains from retirement of debt at preferential exchange rates. Revenues and operating profit from coal operations in 1984 were $490 million and $15 million, respectively, compared to $438 million in revenues and an operating loss of $7 million in 1983. Revenues and operating profit in 1982 were $447 million and $3 million, respectively. Improved results in 1984 reflect higher volumes of coal sold and lower costs resulting from improved operating efficiencies and closure of several high cost mines. Sales volumes were higher in part because of customer stockpiling in anticipation of a major mine workers' strike that did not occur. Oil and Gas The decline in revenues for the Oil and Gas Group to $99 million in 1984 from $136 million in 1983 and $226 million in 1982 primarily reflects the absence of revenues from oil and gas properties sold during the three year period. Higher oil and gas volumes and prices in Argen tina and Greece during 1984 partially offset the effect of the sale of several foreign properties completed in March 1984. Operating profit increased from $16 million in 1983 to $30 million in 1984. Included in the 1983 re sults is a $33 million write-down for certain unsuccessful foreign oil and gas exploration while 1984 results include only $7 million of such write-downs. Excluding these write-downs, operating profit decreased $12 million from 1983 to 1984 mainly due to the effect of the sale of pro ducing properties in 1984. Decreases in revenues and operating profit of 40% and 77%, respectively in 1983 compared to 1982 re flects the sale of the producing oil and gas properties of Coquina Oil Corporation at the beginning of fiscal 1983. Operating profit was also lower in 1983 due to the pre viously mentioned $33 million write-down. Drilling Services Revenues declined to $62 million in 1984 from $86 mil lion in 1983 due to competitive conditions that have kept day rates at depressed levels. Although rig utilization increased from 71% in 1983 to 74% in 1984, day rates, after declining significantly in 1983, have remained de pressed in 1984. Operating profit declined from $4 mil lion in 1983 to an operating loss of $2 million in 1984 due to the same conditions affecting revenues. The 1983 results include an $11 million write-off of three obsolete rigs. Operating results for 1984 and 1983 are significantly lower than in 1982 due to the worldwide slowdown in drilling activity and the resultant price competition from an oversupply of offshore rigs. DR 2801028 Management's Discussion and Analysis continued Other Operations The operating loss in other operations was primarily the result of significantly lower operating profit for equipment sales and leasing and an operating loss in the com pany's residential and commercial construction oper ations. Equipment sales and leasing operating profit was down $16 million to nearly break-even in 1984 compared to 1983. This was primarily the result of earnings recog nized upon the closure of several significant projects on a completed-contract basis in 1983 compared to a lower level of business activity in 1984. Operating profit for the residential and commercial construction operations declined from $1 million in 1983 to an operating loss of $8 million in 1984. The 1984 loss includes a provision for estimated losses on disposal of this operation. Financial 'Position and Liquidity In 1984, the company adopted a new format for report ing changes in financial position. Previously, the com pany reported changes in working capital but now reports changes in cash and short-term investments. This new reporting format was selected because man agement believes it more clearly presents funds flow from operations, financing and investment activities. Funds provided from operations now consist of net earn ings, charges or credits to earnings that do not affect cash or short-term investments, and interest expense, net of tax, which management believes is more appropri ately classified as payments to investors. For 1984, funds provided from operations were $124 million compared to $339 million and $488 million in 1983 and 1982, respec tively. The decline in this amount primarily reflects the decline in earnings over the three year period in addition to the significant reduction in deferred income taxes in 1984. Deferred taxes have been reduced due to comple tion of several major contracts which have for tax pur poses been accounted for under the completed-contract method of accounting. In addition, the company has entered into a Closing Agreement with the Internal Revenue Service (IRS) whereby earnings previously deferred for income tax purposes on certain contracts in process at October 31, 1983 wilt be recognized for tax purposes at that date. Accordingly, tax payments will be substantially in excess of income tax expense over the next two to three years. (For additional discussion of the Closing Agreement with the IRS, see page 35.) In 1984 funds were used for payments to investors consisting of cash dividends on common stock of $47 million and interest expense, net of tax, of $52 million. The quarterly dividend was reduced midyear from $.20 per share to $.10 per share. Capital expenditures used $286 million of funds in 1984 compared to $302 million in 1983. Major expendi tures for 1984 were for completion of the company's of fice facilities in Sugar Land, Texas, and the acquisition of two coal mine operations and National Zinc Company's zinc smelter and related equipment. Asset dispositions included the sale of certain foreign oil and gas proper ties for $66 million. In addition, $127 million was pro vided by completion of the disposition of Distribution Group net assets. Funds provided from financing activities amounted to a total of $127 million in 1984. The net increase in long term debt including current maturities is primarily the result of the assumption of $49 million of debt in connection with the acquisition of certain coal mine op erations. In addition, $55 million was provided under nonrecourse oil and gas financing on certain producing properties. Financing activities in 1983 included a net reduction in current and long-term debt of $438 million. Funds for this purpose were gener ated by sales of assets and net funds available from op erations. The long-term debt to capitalization ratio at October 31, 1984 was 29.9% compared to 29.2% and 36.2% at October 31,1983 and 1982, respectively. The company has access to sufficient sources of funds to meet its operating needs. Short- and long-term lines of credit are maintained with banks and the com pany has an active commercial paper program which provides adequate operating liquidity. Under the terms of a joint venture agreement, the net assets of Massey Coal Company are restricted from distribution without the prior approval of the partners. As of October 31, 1984, Fiuor's proportionate 50 percent share of Massey's net assets, which are consolidated in the accompanying financial statements, is approximately $650 million of which $100 million is working capital. Distributions of funds to the company as approved by the partners amounted to $33 million in 1984. In October 1984, the company announced it had reached an agreement in principle to sell its Irvine com plex for $340 million. Upon completion of the sale, the company would continue to occupy the corporate head quarters and engineering buildings under a long-term lease. The financial statements and footnotes do not re flect the proposed sale of this property. Funds generated would be used to reduce debt and for general corporate purposes. The sale/leaseback under an operating lease of the company's engineering facility in Greenville, South Carolina was completed in December 1984; accordingly, the cost of the facility is classified in the October 31, 1984 balance sheet as assets held for sale. Proceeds were used to retire long-term debt. The executory agreement for the sale and leaseback of the company's new1/ con structed office facility in Sugar Land, Texas will not be consummated. For a discussion of the effects of inflation, see pages 42 and 43. DR 2801029 {Selected Financial Data Fluor Corporation/S in millions, except per share amounts 1984 1983 1982 1981 1980 1979 Operating Results Revenues from continuing operations Earnings from continuing oper ations before income taxes Earnings from continuing operations Net earnings Earnings per share Continuing operations Net earnings Dividends per share Series B preferred Common $ 4,401.1 12.4 1.0 1.0 .01 .01 -- $ .60 Financial Position Current assets Current liabilities $ 1,025.9 1,016.4 Working capital Property, plant and equipment, net Total assets Capitalization Long-term debt Shareholders' equity 9.5 2,338.2 3,891.6 724.8 1,696.4 Total capitalization Percent of total capitalization Long-term debt Shareholders' equity Shareholders' equity per common share Common shares outstanding $ 2,421.2 29.9 70.1 $ 21.49 78,945,585 Other Data New orders received during year Backlog at end of year Capital expenditures Depreciation, depletion and amortization for continuing operations Funds provided from operations Number of employees $ 4,189.2 4,224.2 285.5 195.2 $ 123.8 32,153 $ 5,300.5 171.8 80.7 27.7 1.02 .35 -- $ .80 $ 1,146.0 1,090.2 55.8 2,379.8 4,084.9 720.0 1,747.2 $ 2,467.2 29.2 70.8 $ 22.19 78,746,717 $ 1,280.1 5,669.7 301.8 233.7 $ 339.1 34,123 $ 6,740.6 . $ 5,357.6 301.4 265.1 161.0 152.8 144.0 158.9 2.05 1.94 2.56 2.82 -- -- $ .80 $ .80 $ 1,541.4 1,488.4 53.0 2,493.9 4,701.0 $ 1,460.9 1,296.1 164.8 2,527.0 4,491.3 1,009.9 1,776.4 $ 2,786.3 1,104.8 1,683.2 $ 2,788.0 36.2 63.8 39.6 60.4 $ 22.68 $ 21.55 78,327,685 78,092,814 $ 2,916.8 10,825.9 525.9 $ 7,247.7 16,385.7 448.1 215.0 $ 488.1 43,111 94.0 $ 417.5 44,170 $ 4,347.0 231.8 124.2 133.6 2.57 2.76 .75 $ .65 $ 956.2 775.2 181.0 622.7 1,726.6 79.3 567.5 $ 646.8 12.3 87.7 $ 11.89 47,718,300 $ 9,317.3 16,094.3 225.3 49.4 $ 275.3 27,304 $ 3,273.6 171.2 92.5 100.3 1.88 2.04 3.00 $ .49 $ 674.9 538.6 136.3 476.4 1,283.8 59.1. 460.8 $ 519.9 11.4 88.6 $ 9.70 46,597,646 $ 5,960.2 12,191.7 99.7 45.3 $ 218.2 23,506 DR 2801030 + Management's Report and Auditors' Opinion Fluor Corporation 4- Management's Report The accompanying consoiidated balance sheet and the related consolidated statements of earnings, sharehold ers' equity and changes in financial position have been prepared in conformity with generally accepted account ing principles, and we believe that they present fairly the company's 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 re sponsibility of management. To fulfill this responsibility, a system of internal controls, designed to protect the company's assets and properly record transactions and events as they take place, has been developed and main tained. This system of internal controls is supported by an extensive program of internal audits. The Board of Directors pursues its responsibility for financial information through its Audit Committee, which is composed of Directors who are not employees. Both the internal auditors and the independent auditors have free access to the Audit Committee and periodically the Committee meets with them and with management in order to monitor the accounting affairs of the company. At the recommendation of the Audit Committee, Arthur Young & Company has been selected by the Board of Directors, and approved by the Shareholders, to serve as independent certified public accountants for the com pany. Arthur Young & Company provides expert advice on the application of generally accepted accounting prin ciples and has the responsibility of examining and render ing an objective, independent opinion on management's financial statements. Auditors' Opinion Board of Directors and Shareholders Fluor Corporation We have examined the accompanying consolidated balance sheet of Fluor Corporation at October 31,1984 and 1983, and the related consolidated statements of earnings, shareholders' equity and changes in financial position for each of the three years in the period ended October 31,1984. Our examinations were made in ac cordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we con sidered necessary in the circumstances. In 1984 and 1983 the accounts of Massey Coal Company, a 50% owned joint venture, and in 1982 certain assets and operations of St. Joe Minerals Corporation, a consolidated subsid iary, were examined by other independent auditors; insofar as our opinion on the consolidated financial state ments relates to such assets and operations, which con stituted 14% and 11% in 1984,13% and 8% in 1983 and 34% and 14% in 1982 of consolidated assets and revenues respectively, it is based solely on their reports. In our opinion, based on our examinations and the re ports of other independent auditors, the accompanying consolidated financial statements present fairly the con soiidated financial position of Fluor Corporation at Octo ber 31, 1984 and 1983, and the consolidated results of operations and changes in financial position for each of the three years in the period ended October 31,1984, in conformity with generally accepted accounting principles applied on a consistent basis during the period. George W. Mefferd Group Vice President and Chief Financial Officer j "4VmC U / u Orange County, California December 7,1984 William M. Hofacre Vice President and Controller DR 2801031 Consolidated Statement of Earnings Fluor Corporation/In thousands, except per share amounts Years ended October 31, Revenues Engineering and construction services Natural resources Drilling and other Total revenues Cost of Revenues Engineering and construction services Natural resources Drilling and other Total cost of revenues Other Income and Expense Corporate administrative and general expense Interest expense (net of capitalized interest of $29,249, $30,877, and $45,808, respectively) Interest income Total costs and expenses Earnings from Continuing Operations Before income Taxes income Taxes Earnings from Continuing Operations Discontinued Operations Loss from operations of discontinued Distribution Group (net of income fax benefit of $22,952 in 1983 and $8,067 in 1982) Loss on disposal of Distribution Group, including provision for estimated operating losses during phase-out period (net of income tax benefit of $15,538) Loss from Discontinued Operations Met Earnings Earnings Per Share Continuing operations Net earnings Shares Used to Calculate Earnings Per Share See Notes to Consolidated Financial Statements. 1984 1983 1982 $3,205,987 1,022,728 172,415 4,401,130 3,103,202 982,050 197,501 4,282,753 46,361 96,908 (37,337) 4,388,685 12,445 11,437 1,008 $4,104,454 1,002,240 193,758 5,300,452 3,890,531 955,652 171,594 5,017,777 47,200 98,718 (35,043) 5,128,652 171,800 91,100 80,700 $5,383,755 1,116,541 240,255 6,740,551 5,158,087 1,000,788 146,391 6,305,266 53,738 131,829 (51,705) 6,439,128 301,423 140,447 160,976 (27,000) (8,177) -- -- $ 1,008 $ .01 $ .01 79,057 (26,000) (53,000) $ 27,700 -- (8,177) $ 152,799 $ 1.02 $ .35 78,956 $ 2.05 $ 1.94 78,589 DR 2801032 Consolidated Balance Sheet Fluor Corporation/$ in thousands/October 31, Assets Current Assets Cash and short-term investments Notes receivable Accounts receivable Contract work in progress Inventories Net assets held for sale Other current assets Total current assets Property, Plant and Equipment--at cost Land Buildings and improvements Machinery and equipment Drilling and marine equipment Mining properties and mineral rights Oil and gas properties Construction in progress Less accumulated depreciation, depletion and amortization Net property, plant and equipment Other Assets Excess of cost over net assets of acquired companies, net of accumulated amortization of $49,901 and $38,649, respectively Other Total other assets See Notes to Consolidated Financial Statements. 1984 1983 $ 94,642 86,653 352,231 211,840 193,061 40,143 47,310 1,025,880 $ 145,713 59,602 362,040 238,436 159,052 127,103 54,057 1,146.003 68,776 490,273 853,809 225,839 817,594 544,406 20,482 3,021,179 682,933 2,338,246 64,382 341,584 788,330 217,575 789,027 615,469 136,635 2,953,002 573,169 2,379,833 423,085 104,407 527,492 $3,891,618 434,337 124,747 559,084 $4,084,920 DR 2801033 + Liabilities and Shareholders' Equity + Current Liabilities Notes payable Accounts payable Advance billings on contracts Accrued salaries and wages Accrued benefit plan liabilities Other accrued liabilities Current portion of long-term debt Income taxes currently payable Deferred income taxes Total current liabilities T Long-Term Debt Due After One Year -4- Other Concurrent Liabilities Deferred income taxes Other Total other noncurrent liabilities Contingencies and Commitments -f Shareholders' Equity Capital Stock Preferred--authorized 20,000,000 shares without par value, none issued Common--authorized 150,000,000 shares of $.62V2 par value; issued and outstanding in 1984--78,945,585 shares and in 1983--78,746,717 shares Additional capital Retained earnings Unamortized executive stock plan expense Cumulative translation adjustments Total shareholders' equity 1984 1983 $ 48,611 215,311 77,553 53,591 50,331 164,231 138,267 135,374 133,121 1,016,390 724,777 $ 63,560 291,958 143,449 74,277 73,024 143,692 55,610 101,384 143,201 1,090,155 720,007 196,906 257,182 454,088 307,276 220,233 527,509 49,341 1,067,549 597,007 (10,310) (7,224) 1,696,363 $3,891,618 49,217 1,065,431 645,117 (12,516) -- 1,747,249 $4,084,920 DR 2801034 Consolidated Statement of Changes in Financial Position Fluor Corporation/S in thousands/Years ended October 31, Funds Provided from Operations Earnings from continuing operations Depreciation, depletion and amortization Interest expense, net of tax Deferred income taxes Other items, net Funds provided from continuing operations Funds provided (used) by discontinued operations Funds provided from operations Net decrease (increase) in operating working capital Net funds available from (used by) operations Payments to Investors Cash dividends paid Interest expense, net of tax Total payments to investors investment Activities Additions to property, plant and equipment Net book value of property, plant and equipment sold or retired Sale of investment in Peabody Holding Company Decrease (increase) in net assets held for sale Decrease in noncurrent notes receivable Other, net Net funds provided (utilized) by investment activities Financing Activities Issuance of long-term debt Reduction of long-term debt Net increase (decrease) in borrowings due currently Proceeds from nonrecourse oil and gas financing Net funds provided (utilized) by financing activities Increase (decrease) in cash and short-term investments Cash and short-term investments at beginning of period Cash and short-term investments at end of period See Notes to Consolidated Financial Statements. 1984 1983 1982 $ f ,008 195,243 52,330 (120,450) (4,317) 123,814 123.814 (149,301) (25,487) (47,281) (52,330) (99,611) (285,514) 131,179 86,960 21,500 (7,576) (53,451) 317,755 (312,985) 67,708 55,000 127,478 (51,071) 145,713 $ 94,642 $ 80,700 233,714 53,308 13,787 10,477 391,986 (52,856) 339,130 207,678 546,808 (62,868) (53,308) (116,176) (301,835) 181,595 44,787 40,797 47,527 59,739 72,610 82,167 (372,910) (147,718) (438,461) 64,781 80,932 $ 145,713 $ 160,976 214,988 71,188 49,796 (12,125) 484,823 3,252 488,075 (52,193) 435,882 (62,581) (71,188) (133,769) (525,932) 202,078 (167,900) 53,407 (64,033) (502,380) 838,026 (925,693) 182,276 94,609 (105,658) 186,590 $ 80,932 DR 2801035 Consolidated Statement of Shareholders5 Equity Fluor Corporation/$ in thousands, except per share amounts Years ended October 31, 1982,1983 and 1984 Common Stock Additional Capital Retained Earnings Unamortized Executive Stock Plan Expense Cumulative Translation Adjustments Total Balances at November 1, 1981 Net earnings Cash dividends ($.80 per share) Exercise of stock options--net Amortization of executive stock plan expense Issuance of restricted stock--net Balances at October 31,1982 Net earnings Cash dividends ($.80 per share) Exercise of stock options--net Amortization of executive slock plan expense Issuance of restricted stock--net Balances at October 31,1983 Net earnings Cash dividends ($.60 per share) Exercise of stock options--net Amortization of executive stock plan expense Issuance of restricted stock--net Cumulative translation and related deferred tax adjustments as of November 1, 1983 Translation adjustment for the period Balances at October 31, 1984 See Notes to Consolidated Financial' Statements. $48,808 84 $1,056,868 862 $590,067 152,799 (62,581) 63 48,955 173 1,750 1,059,480 2,980 680,285 27,700 (62,868) 89 49,217 88 2,971 1,065,431 1,343 645,117 1,008 (47,281) 36 775 $(12,544) 2,058 (1,815) (12,301) 3,021 (3,236) (12,516) 3,290 (1,084) (1,837) $49,341 $1,067,549 $597,007 $(10,310) $ -- $1,683,199 152,799 (62,581) 946 2,058 (2) 1,776,419 27,700 (62,868) 3,153 3,021 (176) 1,747,249 1,008 (47,281) 1,431 3,290 (273) (3,285) (3,939) (5,122) (3,939) $(7,224) $1,696,363 DR 2801036 -f- Notes to Consolidated Financial Statements Fluor Corporation Major Accounting Policies Principles of Consolidation The financial statements include the accounts of the com pany and its subsidiaries. The equity method of account ing is used for investments where ownership ranges from 20 percent to 50 percent and for corporate joint ventures. The company consolidates its 50 percent proportionate share of the accounts of Massey Coal Company. All sig nificant intercompany transactions are eliminated. Certain 1983 and 1982 amounts have been reclassified to conform with the 1984 presentation. Engineering and' Construction Contracts The company recognizes revenues on engineering and construction contracts on the percentage-of-completion method, primarily based on contract costs incurred to date compared with total estimated contract costs, and on manhours incurred to date compared with total esti mated manhours for the construction of certain power plants. Changes to total estimated contract costs or manhours and losses, if any, are recognized in the period they are determined. Revenues recognized in excess of amounts billed are classified as current assets under con tract work in progress. It is anticipated that the incurred costs associated with contract work in progress at Octo ber 31,1984, will be billed and collected in 1985. Amounts received from clients in excess of revenues recognized to date are classified as current liabilities under advance billings on contracts. During the fourth quarter of 1984, the company fully adopted the provisions of the "Construction Contractors Audit and Accounting Guide," issued by the American In stitute of Certified Public Accountants. As a result, qualify ing contracts awarded on or after November 1,1983 have been segmented between engineering and construction efforts. Accordingly, gross margin related to engineering or construction activity is recognized as those services are performed. Management believes that this change, with which the company's independent certified public accountants concur, will more clearly relate revenue and earnings recognized to the value of services provided and will provide improved reporting of engineering and construction activities. Prior periods have not been restated to reflect these changes as the effects on prior interim and annual periods are immaterial. Exploration and Development Oil and Gas--The company accounts for its oil and gas operations under the full cost method of accounting. De preciation, depletion and amortization is provided on the unit-of-production method based upon proved reserves. Metals--Costs incurred for exploration of minerals are generally expensed as incurred. Development expendi tures to bring new mineral properties into production, comprising substantially all surface mine development and initial underground installations, are capitalized and charged to expense on the straight-line method over peri ods approximating the life of the mine. Subsequent main tenance and underground development expenditures are charged to expense. Coal--Development costs of specific coal properties, when expected to be significant, are capitalized in mining properties and depleted on the unit-of-production method. Zvrft.'" I'jar'-c.'ad-oo ira T*-* Depreciation is provided using principally the straight line method to amortize the cost of the assets over their estimated useful lives. Leasehold improvements are amortized over the lives of the respective leases. The excess of cost over net assets of acquired companies is being amortized on the straight-line method, primarily over 40 years. Income Taxes Deferred income taxes are provided for items taken into account in different periods for financial and tax reporting purposes. A significant timing difference has been the use of the completed-contract method of accounting for U.S. income tax reporting, whereas the percentage-ofcompletion method is used for financial reporting pur poses. The portion of deferred income taxes relating to engineering and construction contracts estimated to be completed after one year from the date of the balance sheet is classified as noncurrent. Other significant timing differences are depreciation, depletion and amortization of natural resource properties, capitalized interest and accelerated depreciation. In December 1984, the company entered into a Closing Agreement with the Internal Revenue Service which pro vides, among other things, that certain engineering and construction subsidiaries of the company will no longer utilize the completed-contract method of accounting for income taxes. This change is effective for fiscal year 1984 and subsequent years. Consequently, the provision for in come taxes for the year ended October 31,1984 and the related income tax liability accounts reflect the terms of the Closing Agreement. Investment and other tax credits are applied as a re duction of the provision for federal income taxes under the flow-through method of accounting. Earnings per share are based on the weighted average number of common and common eqi it shares outstanding in each period. Common equivalent shares include the potential dilution from the exorcif.fi rh stock options. DR /801037 Foreign Currenc*/ Translation In 1984 the company adopted Statement of Financial Accounting Standards No. 52, "Foreign Currency Trans lation." Under the provisions of Statement No. 52, the effects of translating foreign subsidiaries' financial state ments are recorded in a separate component of share holders' equity. Previously, these translation effects were included in the determination of earnings in the period in which they occurred. The financial statements for prior periods have not been restated as the effects of this change are immaterial. Net foreign currency exchange gains included in the determination of earnings approximated $1,000,000 in 1984, $24,000,000 in 1983 and $7,000,000 in 1982. The changes in the cumulative translation adjustments for 1984 were as follows: $ in thousands Balance at November 1, 1983 Translation adjustments Deferred income taxes on translation adjustments $(3,285) (7,294) 3,355 Balance at October 31, 1984 $(7,224) Consolidated Statement of Changes in Financial Position During 1984 the company adopted a cash flow format for its consolidated statement of changes in financial posi tion. Prior years' statements have been reclassified to reflect this change. The major changes from the previous format are that funds provided from operations now include the effects of deferred taxes classified as current as well as noncurrent and short-term borrowings have been reflected as funds provided from financing activities. In addition, interest expense, net of tax, has been ex cluded from operating funds flows and is reflected as funds used for payments to investors. The changes in operating working capital as shown in the consolidated statement of changes in financial posi tion are comprised of the following: $ in thousands 1984 (Increase) decrease in: Notes and accounts receivable Contract work in progress and inventory Other current assets Increase (decrease) in: Accounts payable and accrued liabilities Advance billings on contracts Income taxes currently payable $ (17,242) (7,413) 6,747 (99,487) (65,896) 33,990 Net (increase) decrease in operating working capital $(149,301) 1983 $162,372 243,546 13,463 (124,305) (82,458) (4,940) $207,678 1982 $(45,725) 30,896 (3,404) (27,675) 2,450 (8,735) $(52,193) Inventories Inventories comprise the following: $ in thousands 1984 Coal, metals and processed minerals Supplies and other $102,366 90.695 $193,061 1983 $ 67,787 91,265 $159,052 Inventories are stated at the lower of cost (using the last in, first out (LIFO) method, except for inventories of sup plies and other which are on the average cost method) or net realizable value. The current replacement cost of LIFO inventories at October 31,1984 and 1983 exceeded the related LIFO value by $4,766,000 and $2,530,000, respectively. Retirement Plans The company and certain of its subsidiaries have con tributory and noncontributory profit-sharing and pension plans covering substantially all of their employees. Expense for these plans, including amortization of prior service costs over 10 to 40 years, was $54,804,000 in 1984, $78,869,000 in 1983 and $102,338,000 in 1982. As of the dates indicated below, accumulated plan benefits and plan net assets for the defined benefit retire ment plans of certain subsidiaries and the proportionate share of a corporate joint venture are as follows: $ in thousands/November 1, Actuarial present value of accumulated plan benefits Vested Nonvested 1983 $119,535 12,014 $131,549 1982 $103,479 10,208 $113,687 Net assets available for benefits $152,528 $123,364 The actuarial present value of accumulated plan benefits was determined using assumed rates of return ranging from 5 to 9 percent. Discontinued Operations During the fourth quarter of fiscal 1983, the company adopted a plan to dispose of the Distribution Group through sale or liquidation. At October 31,1983, the net assets of the Group, consisting primarily of inventories, trade receivables and warehouse facilities were classified as current assets under assets held for sale at estimated net realizable value. As of October 31,1984 the company had completed the disposition of the Distribution Group. DR 2801038 4- Notes to Consolidated Financial Statements continued Fluor Corporation Long-Term Debt Long-term debt consisted of the following: $ in thousands Commercial paper and promissory notes, average interest rate 9.6% at October 31, 1984 Pollution control and industrial revenue bonds, 6% to 8.9%, due in varying amounts from 1988 through 2013 (net of unamortized discount of $8,194 and $8,601, respectively) Promissory note, effective interest rate 15.6%, due in installments from 1985 through 1987 Eurodollar notes, 14% coupon rate, effective interest rate 13.5%, due in 1989 Eurodollar zero coupon debentures, effective interest rate 14%, due in 1990 (net of unamortized discount of $76,229, and $7,702, respectively) Serial zero coupon notes, effective interest rate 14.3%, due in installments through 1989 (net of unamortized discount of $31,443 and $38,768, respectively) Term loan, effective interest rate 11.7%, due in 1988 Notes, effective interest rate 12V4%, due in installments from 1987 through 1998 (net of unamortized discount of $10,504 and $11,282, respectively) Secured credit agreement, 1'/s% above LIBOR, due in installments through 1986 Term loans, 9.3%, due in installments through 2000 Term loans, average interest rate of 11.2%, due in installments through 1987 Notes, Vz% to 1 V2% above LIBOR, due in installments through 1987 Export credit agreement, 10Ve%, due in installments through 1990 Eurodollar notes, 13V4% coupon rate, effective interest rate 13%, due in 1984 (net of unamortized discount of $54) Other notes and mortgages Less: Current portion 1984 $130,876 113,385 100,000 100,000 70,748 53,557 50,000 49,496 42,500 28,500 19,269 15,562 12,521 -- 76,630 863,044 138,267 $724,777 1983 $ 41,974 112,159 100,000 100,000 5,588 53,732 50,000 48,718 63,750 _ 28,527 28,524 14,608 49,946 78.091 775,617 55,610 $720,007 Maturities relating to long-term debt are as follows for the years ending October 31:1986, $108,356,000; 1987, $60,793,000; 1988, $81,392,000; and 1989, $180,639,000. Maturities of commercial paper are based on maximum terms of committed credit lines, except for $42 million that was retired with the net cash proceeds from the sale/ leaseback of the Daniel Centre and, accordingly, has been classified as current portion of long-term debt. See Sales of Assets for additional information. The company has committed long-term lines of credit with banks from which it may borrow up to a maximum of $315,000,000 under revolving lines of credit which con vert to four-year term loans. The company may use these lines of credit to support commercial paper borrowings and unsecured promissory notes. Commitment fees of 1/4 percent are paid on unused portions of the company's long-term lines of credit. At October 31, 1984, no amounts were outstanding under these lines. Borrowings under lines of credit and revolving credit agreements bear interest at prime, rates based on the London Interbank Offered Rate (LIBOR), domestic certifi cates of deposit, or other rates which are mutually accept able to the banks and the company. At October 31,1984, the company had $136,000,000 in unused short-term uncommitted lines of credit. Pollution control bonds of $37,210,000 are subject to sinking fund installments commencing in 1989. $73,075,000 of the industrial revenue bonds represent the company's portion of such bonds issued for facilities of Massey Coal Company. All of the industrial revenue bonds are subject to mandatory redemption if certain tax exemption features of the bonds are disallowed. The 13V4 percent Eurodollar notes were issued in 1982 together with warrants for the purchase of zero coupon debentures with a face value of $150,000,000 which ma ture March 31,1990. Warrants with a face value of $146,977,000 were exercised by the expiration date of September 30,1984. These zero coupon debentures pro vide an effective yield of 14 percent. The net book value of assets securing long-term debt of $154,000,000 was approximately $337,000,000 at October 31,1984. The company has entered into agreements under which $63,718,000 is outstanding in connection with cer tain oil and gas producing properties. These nonrecourse loans are secured solely by future revenues from the pro ducing properties. Accordingly, $58,235,000 has been in cluded in other noncurrent liabilities and $5,483,000 in other accrued liabilities at October 31,1984. Income Taxes . The provision for income taxes on earnings from continu ing operations in the consolidated statement of earnings is composed of: $ in thousands Current Federal Foreign State and local Total current Deferred Federal Foreign State and local Total deferred 1984 $ 98,555 22,4 75 9,756 130,486 (134,255) 19,371 (4,165) (119,049) $ 11,437 1983 1982 $ (4,586) 63,654 6,326 65,394 $ 48.493 36,822 4,479 89,794 10,258 14,152 1,296 25,706 $91,100 43,069 5,003 2,581 50,653 $140,447 DR 2801039 A reconciliation of income tax expense on earnings from continuing operations to the statutory federal income tax rate follows: $ in thousands Statutory federal income tax expense Increases (reductions) in taxes resulting from: Amortization of property, plant and equipment bases differences Losses without tax benefit Amortization of excess of cost over net assets of acquired companies Effect of foreign tax rates State income taxes Depletion Indefinitely reinvested foreign earnings Investment and other tax credits Accruals without tax effect Safe harbor tax leases Capital gain benefit Other 1984 % 1983 % 1982 % $ 5.725 46.0 $79,028 46.0 $138,655 46.0 8,798 5,718 5,167 3,891 3,019 (8,183) (5,267) (4,574) (1,947) (1,260) (661) 1,011 $11,437 70.7 45.9 41.5 31.3 24.3 (65.8) (42,3) (36.8) (15.7) (10.1) (5.3) 8.2 91.9 10,170 18,064 6,651 470 4,116 (99) (9,469) (11,002) (163) (2,663) (1,036) (2,967) $91,100 5.9 10.5 3.9 0.3 2.4 (0.1) (5.5) (6.4) (0.1) (1-6) (0.6) (1.7) 53.0 7,779 8,507 5,976 722 3,812 (7,050) (1,748) (10,250) (535) -- (2,292) (3,129) $140,447 2.6 2.8 2.0 0.2 1.3 (2.3) (0.6) (3.4) (0.2) -- (0.8) (1.0) 46.6 The difference between the statutory federal income tax rate and the actual tax rates applicable to discontinued operations is primarily attributable to capital gains rates in 1983 and investment tax credits in 1982. Deferred income taxes have been provided for the follow ing timing differences: $ in thousands 1984 1983 1982 Use of different methods of accounting for construction contracts Capitalized interest Depreciation, depletion and amortization of natural resource properties Accelerated depreciation Accruals not currently reportable for tax purposes Deferred gains on property sales Residual tax on undistri buted foreign earnings Deferred gains and losses from metal sales contracts Other--net $(152,321) 10,193 9,125 11,729 (1,972) 1,514 3,635 (952) $(22,517) 14,203 23,451 8,104 (1,344) (3,697) _ (5,253) 12,759 $16,194 16,367 14,228 7,981 (2,984) 1,135 _ 8,094 (10,362) $(119,049) $ 25,706 $50,653 United States and foreign earnings from continuing operations before income taxes are as follows: $ in thousands 1984 1983 1982 Domestic Foreign $(54,535) 66,980 $ 10,400 161,400 $157,848 143,575 $ 12,445 $171,800 $301,423 The company is currently under audit by the Internal Revenue Service (IRS) for the fiscal years 1977 through 1979. The IRS has raised several issues, including objec tions to the use of the completed-contract method of tax accounting by certain engineering and construction sub sidiaries. In December 1984, the company entered into a Closing Agreement with the IRS with respect to Fluor Engineers, Inc., Fluor Constructors, Inc. and certain of their domestic subsidiaries whereby deferred earnings on certain contracts in process at October 31,1983 will be recognized for tax purposes at that date. Also pursuant to the Closing Agreement, commencing with fiscal year 1984, these entities, which formerly reported earnings from contracts on the completed-contract method of accounting for tax purposes, will report such earnings on an accrual accounting method. At October 31,1984 the income tax liability accounts reflect these changes. Deferred federal and state income taxes were provided in prior years on all earnings deferred for tax purposes. St. Joe Minerals Corporation and its subsidiaries are under audit by the IRS through August 3,1981, the date of acquisition by the company. Several issues have been asserted by the IRS which the company is contesting. Various other tax authorities are also auditing the com pany's state and local tax returns. Management believes that the resolution of all tax issues will not have a material adverse effect on the com pany's consolidated financial position or results of operations. Residual income taxes have not been provided on ap proximately $57,450,000 of undistributed earnings of cer tain foreign subsidiaries at October 31,1984 because the company intends to reinvest these earnings indefinitely. DR PB01040 Notes to Consolidated Financial Statements continued Fluor Corporation Lease Obligations Options and stock appreciation rights granted prior to Iota! rental expense amounted to $61,135,000 in 1984, $66,518,000 in 1983 and $70,171,000 in 1982. The com pany's lease obligations relate primarily to office and warehouse space, engineering facilities, data processing equipment, equipment used in connection with long-term construction contracts and other personal property. In December 1984 the company consummated the sale/leaseback of its Daniel Centre engineering facility. The leaseback provisions of the transaction provide for an initial term of 10 years with renewal options for an additional 30 years. Aggregate payments for the initial lease term have been included in the minimum rentals presented below. The company was obligated at October 31,1984 under June 7,1981 are generally exercisable one year after the date of grant. Options granted on or after that date and all of the assumed St. Joe stock options become exercisable in installments of twenty-five percent per year commenc ing one year from date of grant. All options expire ten years after date of grant. With respect to grants under St. Joe's 1972 Plan, the optionee can elect to receive, in lieu of any or all shares, any combination of cash and shares having an aggregate value equal to the excess of market value of the underly ing shares over the option price thereof. The following table summarizes stock option and Stock Appreciation Rights ("SAR") activity for the two years ended October 31,1984: noncancellable leases for minimum rentals as follows: $ in thousands 1985 1986 1987 1988 1989 Thereafter $ 40,323 37,404 32,341 28,129 24,842 274,178 October 31, 1982 Outstanding Granted* Expired or cancelled* Exercised Shares 2,600,030 209,313 (78,273) (437,728) Price Per Share $ 6-37 10-22 6-37 6-18 Value SAR Per Right 375,775 138,740 (34,817) (5,021) $18-37 18-22 18-37 18 $437,217 October 31, 1983 Outstanding 2,293,342 6-37 474,677 18-37 Granted* 319,036 17-21 21,895 17 Stock Plans Expired or cancelled* (98,316) 17-37 (41,448) 18-37 The company has five executive stock plans, the 1971 Exercised (170,171) 6-22 (6,205) 18 Fluor Stock Option Plan, the 1977 and 1981 Fluor Execu tive Stock Plans, the 1982 Fluor Incentive Stock Option Plan, and the St. Joe 1972 Non-Qualified Stock Option October 31, 1984 Outstanding 2,343,891 448,919 Plan, assumed on the date of St. Joe's acquisition. These Exercisable at: plans provide for grants of nonqualified or incentive options October 31, 1983 1,713,943 6-37 92,895 18-37 at prices equal to the fair market value of the company's October 31, 1984 1,791,212 $ 6-37 188,451 $18-34 common stock at date of grant. The 1977 and 1981 Plans also provide for rights to ac quire shares under restricted stock agreements at $.62V2 per share under the 1977 Plan and at no charge under Available for grant at: October 31, 1983 October 31, 1984 1,823,581 1,602,861 566,002 585,555 the 1981 Plan. Upon termination other than for reason of retirement, death or permanent disability of the recipient, the stock must be returned to the company for the amount originally paid, if any. At October 31,1984, a total of Includes 5,891 and 12,782 shares and 6,150 and 7,450 SARs can celled in 1984 and 1983, respectively, at prices ranging from $26 to $64 per share and $26 to $36 per SAR, all of which were regranted at $18. 1,285,225 restricted shares had been awarded and a total of 108,585 shares were available for award as restricted stock. In addition, the company has the 1979 and 1980 Fluor Stock Appreciation Rights Plans. On exercise, the holder of the rights receives the excess of market value of the rights on exercise date over the market value of the rights on grant date. Such market values are equal to the market value of the company's common stock. Changes in mar ket value are accounted for currently as compensation expense. -- Operations by Business Segment and Geographic Area The engineering and construction business segment includes the subsidiaries engaged in process-plant, mining and metals, power-plant, and offshore engineering and construction and commercial construction. The metals business segment includes the subsidiaries engaged in the mining and processing of lead, zinc, gold and other metals. Grouped in other arr iho' r h ;siness segments that comprise less than 10% . f l! c avenues, operating profits and identifiable asseis of all business segments combined. DR 2801041 Intersegment and interarea revenues are accounted for on a cost-plus-fee basis. Identifiable assets are those tangible and intangible as sets used in operations in each of the business segments and geographic areas. Corporate assets are principally cash, short-term investments and property, plant and equipment. Sales to customers in foreign countries from domestic operations comprise less than 10% of total revenues. Contracts with a major customer accounted for $668,140,000 of 1983 engineering and construction revenues. During 1984 and 1982 no single customer accounted for more than 10 percent of revenues. The following table reconciles operating profit with earnings from continuing operations before income tax: $ in millions Operating profit from continuing operations Minority interests Interest--net Equity in earnings and gain on sale of Peabody Holding Company Corporate items Earnings from continuing operations before income tax 1984 $117.2 (7.1) (59.6) (38.1) 1983 $273.7 (17.0) (63.7) 1982 $428.2 (9.6) (80.1) 18.0 (39.2) 12.4 (49.5) $ 12.4 $171.8 $301.4 Operations 3y Business Segment $ in millions 1984 Engineering and Construction Coal Metals Oil and Gas Drilling Services Other Eliminations $3,206.0 489.6 433.7 99.4 61.9 111.3 (.8) Continuing Operations $4,401.1 1983 $4,105.2 437.5 429.0 135.8 85.7 108.0 (.7) $5,300.5 $ in millions Engineering and Construction Coal Metals Oil and Gas Drilling Services Corporate and Other Continuing Operations Distribution 1984 $ 949.0 999.7 1,208.5 391.0 174.6 168.8 3,891.6 -- $3,891.6 Identifiable Assets 1983 1982 $ 894.4 991.6 1,195.8 509.5 181.5 185.0 3,957.8 127.1 $4,084.9 $1,023.1 997.5 1,238.9 714.6 206.3 211.9 4,392.3 308.7 $4,701.0 Revenues 1982 $5,384.7 446.9 440.0 225.8 127.5 116.6 (.9) $6,740.6 1984 $ 94.6 14.8 (3.9) 29.5 (1.7) (16.6) .5 $117.2 Capital Expenditures 1984 1983 1982 1984 Operating Profit 1983 1982 $210.7 (6.8) 32.6 15.7 4.1 17.0 .4 $228.6 2.6 46,2 69.7 60.4 20.5 .2 $273.7 $428.2 Depreciation, Depletion and Amortization 1983 1982 $ 84.4 83.6 56.2 44.9 10.9 5.5 285.5 -- $285.5 $ 97.1 41.5 32.3 111.2 5.3 12.9 300.3 1.5 $301.8 $ 77.8 123.6 65.2 184.9 45.8 19.7 517.0 8.9 $525.9 $ 30.4 42.8 63.1 45.8 9.7 3.4 $ 28.2 42.3 55.4 84.0 12.9 10.9 195.2 -- 233.7 5.7 $195.2 ".. $239.4 $ 28.7 33.2 48.8 83.3 9.6 11.4 215.0 10.2 $225.2 Operations By Geographic Area $ in millions 1984 1983 United States Middle East South America Africa Europe Other Interarea eliminations $3,321.8 293.1 166.5 119.1 274.1 227.0 (-5) $3,467.1 721.5 256.9 192.4 181.8 498.8 (18.0) $4,401.1 $5,300.5 Revenues 1982 $4,773.2 584.8 395.7 398.9 192.6 422.7 (27.3) $6,740.6 1984 $ 56.4 8.7 33.9 7.5 22.3 (11.6) -- $117.2 Operating Profit 1983 1982 $103.1 26.9 84.1 17.1 13.2 29.3 -- $270.8 26.0 86.9 21.3 (.5) 23.7 -- $273.7 $428.2 1984 $3,141.4 98.9 304.4 61.6 141.4 143.9 -- $3,891.6 Identifiable Assets 1983 1982 $3,183.3 112.3 375.4 57.2 239.4 117.3 -- $3,691.6 90.7 461.0 69.4 273.4 114.9 -- $4,084,9 $4,701.0 DR P801042 Notes to Consoiidatei Financial Statements continued Fluor Corporation Oil and Gas Operations Oil and gas operations are accounted for under the fuil cost method of accounting. Selected financial information relating to oil and gas operations follows: $ in millions, except per equivalent barrel amounts 1334 Capitalized costs at October 31 Proved properties Unproved properties Accumulated depletion, depreciation and amortization at October 31 Property acquisition costs*3) Exploration costs*3) Development costs*3) Depletion, depreciation and amortization per equivalent barrel of oil produced*13) 1383 Capitalized costs at October 31 Proved properties Unproved properties Accumulated depletion, depreciation and amortization at October 31 Property acquisition costs*3) Exploration costs*3) Development costs*3) Depletion, depreciation and amortization per equivalent barrel of oil produced*13) 1382 Capitalized costs at October 31 Proved properties Unproved properties Accumulated depletion, depreciation and amortization at October 31 Property acquisition costs*3) Exploration costs*3) Development costs*3) Depletion, depreciation and amortization per equivalent barrel of oil produced*b) Total $523.5 20.9 (185.1) .7 18.4 9.3 $ 7.29 $600.6 14.9 (183.5) 52.5 40.4 16.9 $ 7.78 $551.8 26.4 (140.3) 52.0 64.3 66.0 $ 7.81 United States United Kingdom Argentina Greece Other Foreign $341.5*) -- (71.7) .7 11.1 3.8 $ 7.72 $-- -- _ -- .1 .2 $11.33 $45.0 -- (20.4) -- -- 1.1 $ 3.76 $ 92.9 -- (30.1) -- .3 -- $11.06 $44.1 20.9 (62.9) -- 6.9 4.2 N/A $326.2 -- (64.6) 51,3 19.3 6.8 $ 6.34 $ 67.7 -- (26.4) .1 1.0 1.0 $15.89 $44.3 -- (14.5) -- -- .4 $3.01 $ 93.4 -- (16.5) -- 1.4 2.6 $10.14 $69.0 14,9 (61.5) 1.1 18.7 6.1 N/A $303.8 -- (62.6) 47.8 43.7 53.3 $ 8.50 $ 65.6 -- (14.8) -- 1.2 1.9 $10.06 $43.9 -- (10.5) -- -- .5 $2.42 $ 89.4 -- (5.8) -- 1.9 6.4 $ 6.59 $49.1 26.4 (46.6) 4.2 17.5 3.9 N/A (a) Capitalized. (b) Includes the production of oil and natural gas. Natural gas is converted to equivalent barrels of oil at a rate of 6 thousand cubic feet of gas to one barrel of oil. (c) Exploratory drilling will extend over several years on certain projects whose costs are not being amortized as of October 31, 1984. Costs excluded from amortization are as follows: Costs incurred in the year ended October 31, Property Acquisition Exploration Capitalized Interest Total 1984 1983 1982 Through 1981 $ .4 24.2 8.5 30.6 $63.7 $ 7.5 3.8 1.1 -- $12.4 $15.2 7.4 7.7 2.8 $33.1 $ 23.1 35.4 17.3 33.4 $109.2 DR 2801043 Estimated Proved Reserves of Oil and Gas unaudited The following tables present the company's estimates of its proved oil and gas reserves. The company empha sizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accord ingly, the estimates are expected to change as future information becomes available. Oil reserves, which include condensate and natural gas liquids, are stated in millions of barrels, and gas reserves are stated in billions of cubic feet. Balance, November 1, 1981 Revisions of previous estimates Extensions, discoveries and other additions Sale of reserves-in-place Production Balance, October 31, 1982 Revisions of previous estimates Extensions, discoveries and other additions Sale of reserves-in-place Production Balance, October 31, 1983 Revisions of previous estimates Extensions, discoveries and other additions Sale of reserves-in-place Production Balance, October 31, 1984 Net proved developed oil and gas reserves Balance, October 31, 1981 Balance, October 31, 1982 Balance, October 31, 1983 Balance, October 31, 1984 Total Oil Gas 34.3 197.8 3.1 31.2 .9 (2.7) (4.9) 30.7 33.3 (72.0) (26.4) 163.9 (1.1) 13.7 2.3 (.6) (4.3) 27.0 4.3 (11.8) (12.0) 158.1 .2 (1.5) .5 (6.0) (3.4) 18.3 8.2 (12.0) (10.9) 141.9 32.2 151.3 28.8 135.1 22.5 138.0 17.7 123.0 United States Oil Gas 9.5 137.0 2.2 4.1 .9 33.3 (2.7) (72.0) (1-5) (21.6) 8.4 80.8 .6 2.2 .2 3.6 (.6) (11.8) (.9) (7.0) 7.7 67.8 .1 (1-0) .4 8.2 ---- (-8) (5.8) 7.4 69.2 United Kingdom Oil 5.8 .9 -- -- (1-2) 5.5 (.1) -- -- (1.3) 4.1 __ -- (4.0) (-1) -- Argentina Oil Gas 11,6 45.8 (4.1) 25.4 _ -- (-7) 6.8 (1.6) -- -- (4.7) 66.5 10.0 -- -- -- -- (-5) (4.9) 4.7 71.6 ---- -- -- ---- (-8) (4.9) 3.9 66.7 9.0 129.4 7.9 64.8 7.3 58.9 7.3 60.3 5.0 10.8 18.7 4.2 6.8 66.5 2.3 4.4 61.5 -- 3.4 56.7 Greece Oil Gas 6.0 2.4 2.9 (.1) ---- ---- (-9) -- 8.0 2.3 (.3) 1.2 -- -- (1.0) 6.7 -- (1) 3.4 (-4) (.9) -- -- (1.3) 5.0 -- -- (-2) 2.3 6.0 2.4 8.0 2.3 6.7 3.4 5.0 2.3 Other Foreign Oil Gas 1.4 12.6 1.2 1.8 -- -- -- -- (.6) (1) 2.0 14,3 .3 .3 2.1 .7 ---- (.6) -- 3.8 15.3 .5 .4 .1 (2.0) (4) 2.0 -- (12.0) -- 3.7 1.4 .8 1.9 1.5 1.8 14.2 2.0 3.7 DR 2801044 Notes to Consolidated Financial Statements continued Fluor Corporation Results of Operations for Oil and Gas Producing Activities The following summarizes the operating results of oil and gas producing activities: $ in millions 1984 Revenues from the sale of oil, gas and natural gas liquids Less: Production (lifting) costs Depletion, depreciation and amortization and valuation provisions Income taxes Total $ 99.4 (21.7) (45.2) 32.5 (8.6) United States $ 34.2 (8.4) (13.9) 11.9 (3.7) United Kingdom $ 4.3 (1.0) (1.7) 1.6 (.7) Results of operations from oil and gas producing activities, excluding corporate overhead and interest costs $ 23.9 $ 8.2 $ .9 1983 Revenues from the sale of oil, gas and natural gas liquids Less: Production (lifting) costs Depletion, depreciation and amortization and valuation provisions Income taxes $135.8 (33.7) (82.2) 19.9 (12.2) $ 43.8 (12.1) (11.8) 19.9 (7.3) $37.8 (7.2) (20.9) 9.7 (3.9) Results of operations from oil and gas producing activities, excluding corporate overhead and interest costs $ 7.7 $ 12.6 $ 5.8 1982 Revenues from the sale of oil, gas and natural gas liquids Less: Production (lifting) costs Depletion, depreciation and amortization and valuation provisions Income taxes $225.8 (52.3) (79.0) 94.5 (39.5) $129.8 (30.2) (43.7) 55.9 (22.7) $43.4 (7.3) (12.9) 23.2 (9.5) Results of operations from oil and gas producing activities, excluding corporate overhead and interest costs $ 55.0 $ 33.2 $13.7 Argentina $ 11.2 (2.2) (5.9) 3.1 -- $ 3.1 $ 6.2 (1.9) (4.0) .3 -- $ .3 $ 6.5 (3.0) (3.6) (1) $ (.1) Greece $35.8 (5.5) (13.6) 16.7 (4.1) $12.6 $30.7 (6.9) (10.8) 13.0 (3.8) $ 9.2 $25.8 (6.1) (5.9) 13.8 (3.1) $10.7 Other Foreign $ 13.9 (4.6) (10.1) (.8) (.1) $ (.9) $ 17.3 (5.6) (34.7) (23.0) 2.8 $(20.2) $ 20.3 (5.7) (12.9) 1.7 (4.2) $ (2.5) Standardized Measure of Discounted Future Net Cash Flows Relating t Proved Reserves unaudirea The following standardized measure of discounted future net cash flows and changes therein are presented in compliance with Statement of Financial Accounting Standards No. 69. The information is computed by applying current prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to esti mated future production of proved oil and gas reserves as of October 31,1984, less estimated future expendi tures (based on current costs) to be incurred in develop ing and producing the proved reserves, and assuming continuation of existing economic conditions, income taxes are based on year-end statutory rates adjusted for permanent differences. Amounts are discounted by ten percent per annum. It is management's view that the standardized measure data does not present an appropriate measure of the results of the company's oil and gas producing activities. As such, the following factors should be considered in interpreting the results: The estimated discounted future net cash flows will not be realized in cash until, if and when, production and sales occur. Thus, they do not currently provide additional funds for use in the company's business. Reported results can fluctuate significantly since actual prices and costs can change erratically, For example, increases due to sharply rising prices are included entirely in the year in which they occur. Furthermore, estimates of reserves are inherently imprecise, as are projections of future production. While the disclosures required by Statement No. 69 at tempt to show the results of exploration and development activities as they occur, exploration programs require many years to evaluate. Costs incuricd in one year may lead to significant discoveries in the luiuru P icre fore, a single year is not necessarily indicative oi the long-term results of exploration and development activities. DR 2801045 Standardized Measure of Discounted Future Met Cash flows -Heiatlnq to Proved Reserves una'udaea $ in millions As of October 31, 1984 Future cash inflows based on year-end prices Future production and development costs based on year-end costs Future income tax expenses based on year-end effective tax rates Future net cash flows Ten percent annual discount for estimated timing of cash flows Standardized measure of discounted future net cash flows relating to proved reserves Total $ 651.7 184.0 467.7 88.7 379.0 128.1 $ 250.9 United States $370.5 71.1 299.4 50.2 249.2 95.8 $153.4 United Kingdom Argentina $-- -- -- _ -- __ $-- $ 63.1 25.5 37.6 _ 37.6 12.3 $ 25.3 Greece $151.6 49.3 102.3 28.8 73.5 12.1 $ 61.4 As of October 31, 1983 Future cash inflows based on year-end prices Future production and development costs based on year-end costs Future income tax expenses based on year-end effective tax rates Future net cash flows Ten percent annual discount for estimated timing of cash flows Standardized measure of discounted future net cash flows relating to proved reserves $ 998.5 273.6 724.9 194.5 530.4 184.9 $ 345.5 $400.2 80.8 319.4 68.5 250.9 99.0 $151.9 $108.7 40.6 68.1 19.8 48.3 11.4 $ 36.9 $ 73.7 22.4 51.3 8.5 42.8 14.7 $ 28.1 $236.2 66.9 169.3 48.5 120.8 30.3 $ 90.5 As of October 31, 1982 Future cash inflows based on year-end prices Future production and development costs based on year-end costs Future income tax expenses based on year-end effective tax rates Future net cash flows Ten percent annual discount for estimated timing of cash flows Standardized measure of discounted future net cash flows relating to proved reserves $1,119.6 313.7 805.9 222.5 583.4 175.2 $ 408.2 $467.3 132.2 335.1 74.1 261.0 79.2 $181.8 $174.5 57.2 117.3 39.8 77.5 10.9 $ 66.6 $101.4 13.5 87.9 19.0 68.9 25.0 $247.7 58.9 188.8 56.0 132.8 43.1 $ 43.9 ..... $ 89.7 Other Foreign $ 66.5 38.1 28.4 9.7 18.7 7.9 $ 10.8 $179.7 62.9 116.8 49.2 67.6 29.5 $ 38.1 $128.7 51.9 76.8 33.6 43.2 17.0 $ 26.2 DR 2801046 Notes to Consolidated Financial Statements eomni.ed Fluor Corporation ,-uifnsr-' j? Shanqes n St onnnraized Measure of 1e: Caj.' ;; )ws ^eiadng -c ?-oued $ in millions Years ended October 31, Discounted future net cash flows at beginning of year Discoveries, extensions and other additions, and improved recovery, net of future production and development costs Sales and transfers of oil and gas produced, net of production costs Net changes in prices and development and produc tion costs Development costs in curred during the period Revision of previous quantity estimates Changes resulting from sales of reserves-in-place Increase in present value due to passage of one year Net change in income taxes Other, including the effect of changes in estimated rates of production Balance at end of year 1984 $345.5 14.0 (77.7) (39.2) 8.2 (-7) (60.6) 47.2 29.4 (15.2) $250.9 1983 $408.2 22.3 (102.3) 1.5 5.7 12.6 (25.8) 55.8 21.3 (53.8) $345.5 1982 $499.1 111.4 (173.5) (50.6) 28.5 68.6 (167.3) 71.0 65.4 (44.4) $408.2 Sales of Assets In the second quarter of 1984, the company sold several foreign oil and gas holdings for approximately $66 million. Properties sold included the company's interests in the United Kingdom, the Netherlands and certain of its Egyptian properties. In December 1984, the company sold and leased back its Daniel Centre engineering facility in Greenville, South Carolina. The cost of the facility has been included in net assets held for sale at October 31,1984. The cash pro ceeds of $42 million were used to retire long-term debt and, accordingly, that amount has been included in current portion of long-term debt at October 31,1984. Contingencies, Commitments and Restrictions The company is contingently liable for commitments and performance guarantees arising in the ordinary course of business. Claims arising from engineering and construc tion contracts have been made against the company by clients, and the company has made certain claims against clients for costs incurred in excess of contract coverage. In the opinion of management, finalization of these matters will not have a material adverse effect on the company's consolidated financial position or results of operations. At October 31,1984, $750 million of net assets of sub sidiaries, including $100 million of working capital, have restrictions which affect the ability to transfer them to the parent company in the form of loans, advances or divi dends. A substantial portion of these restricted net assets relate to the requirement of the Massey Coal Company joint venture agreement to obtain approval of all parties prior to the transfer of joint venture assets. Supplemental Financial Information on Changing Prices ; , .m: The company's financial statements are prepared in ac cordance with generally accepted accounting principles, which include the concept of historical cost. Under this concept, inventories and property, plant and equipment generally are recorded and reported at the amounts ori ginally paid and do not reflect subsequent changes in (1) the general purchasing power of the dollar, (2) the current cost of replacing the asset, or (3) the amount for which the asset could be sold--its market value. In conformity with the Statement of Financial Account ing Standards No. 33, the company is presenting selected supplemental information adjusted for changes in specific prices (current cost). Information for general inflation (constant dollar) which has been disclosed in prior years, is not being presented as the company has elected to early comply with Statement of Financial Accounting Standards No. 82 which deleted this requirement. The company is affected by inflation but certain factors serve to mitigate its impact. The company's position is protected within its engineering and construction and contract drilling operations due to its ability to recover cost increases as a result of price escalation provisions in many of its contracts. Most of the company's natural re source products are internationally traded commodities and prices for those products are established by factors which are beyond the control of management. However, management believes the company's substantial position in natural resources provides a significant hedge against any adverse long-term effects of inflation. Inflat ion also affects the company in other ways, particularly through increases in the cost of property, plant and equipment. DR 2801047 Current cost estimates are necessarily based upon numerous assumptions and subjective judgments. Although management believes that the estimates have been developed in a reasonable manner and are in com pliance with the requirements of Statement No. 33, it should be recognized that the data should be viewed as experimental and partial and may be of only limited value because of the high degree of imprecision inherent in the estimation process. It aiso does not include ail of the effects of inflation or other economic, competitive, social or regulatory factors that influence the decisions and oper ations of a worldwide company. The current cost method assumes that existing assets can be replaced in kind, which is not necessarily true with respect to the company's mining assets. Management cautions against the use of this information for estimating the total inflationary effect on future costs. Current cost information reflects assets and expenses associated with the use or sale of assets at their current cost at the balance sheet date or at the date of use or sale. Information on a current cost basis was determined for each class of goods being measured using a combi nation of externally generated indices and direct pricing. The statement of earnings adjusted for changing prices compares the results of operations as reported in the financial statements with the results restated on a current cost basis. Only cost of sales and depreciation, depletion and amortization have been adjusted. Sales and all other operating expenses are considered to reflect the average price levels for the year and, accordingly, have not been adjusted. The provisions for income taxes remain un changed because present tax laws do not allow deduc tions related to inflation adjustments. The gain from decline in the purchasing power of net amounts owed measures the gain from holding monetary liabilities in excess of monetary assets. Since a gain in purchasing power does not represent the receipt of cash, it should not be considered as providing funds for rein vestment or dividend distribution. -* 3ir ..(ms *o,n X mm C'.OfJS ..j'ur:;: or I ,.r Adjusted for Changes in Specific As Reported Prices $ in millions in Primary (October 31. Year ended October 31, 1984 Statements 1984 dollars) Revenues Depreciation, depletion and amortization Other costs of revenues, net $4,401.1 184.0 4,204.7 $4,401.1 240.2 4,204.7 Earnings (loss) before income taxes Income taxes 12.4 (43.8) 11.4 11.4 Earnings (loss) from continuing operations $ 1.0 $ (55.2) Gain from decline in purchasing power of net amounts owed $ 56.7 Inventories and property, plant and equipment $3,132.7 Increase in specific prices of inventories and property, plant and equipment Effect of increase in general inflation Excess of increase in specific prices over increase in general inflation $ 225.4 126.6 $ 98.8 Selected Data Adjusted for -Effect of Inflation in aver age `984 ao: $ in millions, except per share amounts Years ended October 31, 1984 Revenues from continuing operations $4,401.1 Amounts adjusted for changes in specific prices Earnings (loss) from continuing operations Earnings (loss) per share from continuing operations Net assets at end of year Gain from decline in purchasing power of net amounts owed Cash dividends declared per share Market price per share at end of year (55.2) (.70) 2,280.1 56.7 $ .60 163/16 1983 $5,522.0 43.3 .55 2.305.3 44.6 $ .83 l7!/2 1982 $7,257.1 110.6 1.41 2,574.0 85.7 $ .86 228/, 6 1981 $6,170.0 148.9 2.65 2,491.6 63.1 $ .93 31 3/4 1980 $5,550.0 120.5 2.49 1,208.3 40.4 $ .83 77 DR 2801048 Notes to Consolidated Financial Statements continued Fluor Corporation ________________________________________________________________ Mineral Reserves and Operating Statistics unaudited Information relating to mineral reserves and milling, production and realized product prices follows: 1984 1983 Short tons and troy ounces in thousands Reserves (tons) Lead Zinc Iron Ore Metallurgical Coal Steam Coal Foreign Milling Ore Direct Shipping Ore Average Grade of Ore Reserves^) Lead Zinc Iron Ore Copper Direct Shipping Ore--Silver Direct Shipping Ore--Gold Foreign Milling Ore--Silver Foreign Milling Ore--Gold Ore Milled (tons) Lead Zinc Iron Ore Foreign Milling Ore Metal Content of Concentrates Produced (tons)C Lead Zinc Iron Ore Copper Direct Shipping Ore--Silver Direct Shipping Ore--Gold Foreign Milling Ore--Silver Foreign Milling Ore--Gold Coal Produced (tons)(c) Metallurgical Steam Average Realized Prices (per ton) Lead Metal Zinc Metal Zinc Concentrates Iron Ore Pellets Lead Concentrates Copper Concentrates Metallurgical Coal Steam Coal Gold/Silver Bearing Copper Concentrates Dearsenified Gold/Silver Bearing Copper Concentrates Dore Bullion (per kilogram) Direct Shipping Ore Unfed Slates Argentina Australia Chile 63,188<a> 7,861 (b> 186.174^ 15G,952<b/c> 38G,897<b/c> 5,794(b) 5.0 6.0 11.1 6.9 55.5 2.936 739 2,191 3.6 634 808(a/d) 4,984(b) 53(b) 2.8 7.8 2.0 5.0 4.3 5.9 1.0 3.4 0.3 334 577 United States Argentina Australia 62,056(a) 8,378(b) 187,888(a) 99,083(b/c) 420,253lb/) 6,221 (fa) 1,296(^9) 5.0 5,8 2.9 11.3 6.9 8.8 55.5 1.8 3.5 1.2 4,599 765 1,230 668 344 138 30 5 77 36 18 955 4 1,422 305 2,168 7,998 $494 950 427(9) - 33 40 $ 40 $208 $5700) $177 52 $132 .. 19 57 119 936 161 $ 589 1,178 3,795 $1,660 216 32 6 88 37 22 530 4 1,564 342 2,084 7,102 . $391 772 357(9) 25 43 $ 39 $197 .... $580(9) $142 36 $185 Chile 5,048(b) 66(b) 5.0 3.8 6.8 3.6 0.3 544 16 60 206 855 170 $1,096 1,939 2,905 $2,930 (a) Proven. (b) Proven and Probable. (c) Represents proportionate share of reserves and production of Massey Coal Company. Does not include proportionate share of reserves related to the company's 10 percent interest in Peabody Holding Company, which was sold in 1983. (d) Represents proportionate share of reserves of joint venture. (e) Stated as % except silver and gold which are stated in troy ounces per ton. (f) Stated in tons except silver and gold which are stated in troy ounces. (g) Price reflects silver content in concentrates. (h) Reflects only three months of operations. DR 2801049 United States 1982 Argentina Australia Chile 62.294<a> 10.063(b) 196,484<a) 142,836<b/c) 386,188<b/c> 5,0 10.9 56.0 4,590 684 1,487 6,494(b) 6.0 6.9 3.6 668 2,094(b/d> 4.694(b) 69(b) 3.2 9.5 1.9 5.1 3.3 7.3 1.4 3.6 0.3 392 423 United States 1981 <h> Argentina Australia Chile 64,067(a) 10,678(b) 100,182(a) 146,321 341,415(b/c> 5.1 10.8 56.1 1,205 142 459 6.558(b) 6.2 7.6 3.7 167 2t494(b/d) 3.433(b) 77(b) 3.1 9.0 1.9 3.5 3.4 8.2 1.4 4.3 0.4 88 208 78 643 2,155 6,873 $520 746 313(9) 32 48 $ 40 34 37 1,695 8 26 4 464 $232 $501(9) $171 81 $184 8 61 236 455 145 $1,427 2,607 3,668 $2,546 57 8 2 16 9 6 195 1 458 149 602 1,697 $764 909 366(9) 35 48 $ 37 $192 $562(9) $195 186 $224 24 42 $3,356 DR 2801050 Notes to Consolidated Financial Statements continued Fluor Corporation Quarterly Financial Data . m ted The following is a summary of the quarterly results of operations: $ in thousands, except per share amounts 1984 Revenues from continuing operations Gross margin (loss) Net earnings (loss) Net earnings (loss) per share First Quarter $1,140,893 61,193 16,445 $ .21 Second Quarter $1,153,600 45,978 4,487 $ .05 1988 Revenues from continuing operations Gross margin Earnings (loss) from continuing operations Earnings (loss) from discontinued operations Operations Disposal Net earnings (loss) Earnings (loss) per share Continuing operations Net earnings (loss) First Quarter $1,399,172 103,401 38,854 (6,775) -- 32,079 .49 $ .41 Second Quarter $1,377,315 91,629 31,144 (3,411) -- 27,733 .39 $ .35 `Includes a $21 million ($.27 per share) net write-down of certain foreign oil and gas properties. Third Quarter $1,072,608 27,387 1,921 $ .03 Third Quarter $1,265,700 64,147 18,463 (9,604) -- 8,859 .23 $ .11 Fourth Quarter $1,034,029 (16,181) (21,845) $ (.28) Fourth Quarter $1,258,265 23.498 (7,761)' (7,210) (26,000) (40,971)' (.09)' $ (.52) Principal Subsidiaries and Divisions Engineering and Construction Fluor Engineering and Construction Group, Inc. Irvine, California c" ;cr E,i> ;:n.; 2.-= r r, Irvine. California -re lac 3,'?' Irvine, California 7 'so,i io Ec - Chicago, Illinois - o-4-- nc ?. Sugar Land, Texas *'' oe- > : r ** -i Redwood City, California < c, . ; Sugar Land, Texas ' j'i c : ,- : * Irvine, California - s? .. -: ,,.,v **,. AI-Khobar, Saudi Arabia r -u - ,!. > .z - Melbourne, Victoria, Australia " -<:f Z c . Calgary, Aiberta, Canada r -".r * ,, j London England ` : ,,,, London, England " '-r : Dusse'dorf, West Germany * j 3 ./.Haarlem The Netherlands 3 3 -- r" 3 3. Cd. London, England "i 3. Co, i i : - -i Johannesburg, South Africa - :' , , Irvine, California ; , i : -* u Calgary, Alberta, Canada hv',; <' irvine, California " i .v A 1 : " : n c Irvine, California C' : 3 1 . ` Z ' Greenville, South Carolina Natural Resources St. Joe Minerals Corporation Clayton, Missouri A. T. Massey Coal Company, Inc. Richmond, Virginia St. Joe Domestic Metals Corporation "Clayton, Missouri St. Joe international Corporation New York, New York Oil and Gas Fluor Oil and Gas Corporation Denver, Colorado Drilling Services Fluor Drilling Services, Inc. Irvine, California Z.y'-is ;rid Jfvtu'on New Orleans, Louisiana i? I'Cuoo.'i "'rhion jr,/j z i-um assort Co. Irvine, California dr 2801051 Directors'1' 4* Officers'1' + Key Operating Executives 1' 2 3 Oavid S. Tappan, Jr.(2)(5) Chairman of the Board and Chief Executive Officer (1952) Dean . Alien Chairman-Engineering and Construction Group; Chairman of the Board of Fluor Engineers, Inc. (1962) Charles M. 3annon(2) Vice Chairman of the Board (1961) Leslie G. McCraw President and Chief Executive Officer of Daniel International Corporation (1977) Joseprt `/. McsCee, Jr,(4) Retired, former Chairman of the Board of National Union Electric (1982) George W. .Uerfsrd Group Vice President and Chief Financial Officer (1974) Hugh X. Dooie President of Fluor Engineers, Inc. (1966) Cohn C. Duncan(3) Retired, former Chairman of the Board and Chief Executive Officer of St. Joe Minerals Corporation (1981) Peter J. FIuor(3)(5) President of Texas Crude, Inc., oil and gas production (1984) William H. Grant(3)(4)(5) Chairman of the Board of MacKay-Shieids Financial Corporation (1982) 3ucx .Hicxei President; Chairman of the Board of Daniel International Corporation (1977) Louis H. Wilson(3)(4)(5) General, U.S. Marine Corps (Retired) and former Commandant of the Marine Corps (1979) John A. Wright Chairman-Natural Resources Group; Chairman of the Board and Chief Executive Officer of St. Joe Minerals Corporation (1981) Sibrand Jurriaans(3)(4)(5) Retired, former partner of Pierson, Heldring & Pierson, investment and commercial bankers (1964) Robert V. Landsay(4)5(5) Director and President of J. P. Morgan & Co. Incorporated and Morgan Guaranty Trust Company of New York (1982) (1) Years in parentheses indicate the year each director was elected to the Board or the year each officer or executive joined the company. Except as otherwise indicated, all offices are of the company. (2) Member of Executive Committee. (3) Member of Audit Committee. (4) Member of Compensation Committee. (5) Member of Nominating Committee. I;i3cutive Officers Dtfica 3? -he Chief 'Ltac^ir./e Offsea? levies 3. "acnan r. Chairman of the Board and Chief Executive Officer (1952) VCC X 4s 3 tO! President; Chairman of the Board of Daniel International Corporation (1977) Charles M. Cannon Vice Chairman of the Board (1961) Executive Dean X. Allen Chairman-Engineering and Construction Group; Chairman of the Board of Fluor Engineers, Inc. (1962) David R. Copley President-Venture Group (1975) Mad A. Peterson Senior Staff Vice President and Corporate Secretary (1967) John A. Wright Chairman-Natural Resources Group; Chairman of the Board and Chief Executive Officer of St. Joe Minerals Corporation (1981) Financial George W. Meifera Group Vice President and Chief Financial Officer (1974) William .VI. Hofacre Vice President and Controller (1984) William D. Trammed Treasurer (1968) L,3W ?. Jos eon Trimoie Senior Vice PresidentLaw and Tax (1972) Other Officers Charles J. 3radiey Vice President-Human Resources (1958) Lawrence M. Flsfter Vice President - Corporate Law (1974) J. Robert Fluor l! Vice President-Corporate Relations (1967) Robert 2. Harrigar* Senior Vice President (1956) Gunther 2. Bering Vice President-Corporate Development and Strategic Planning (1975) Wilbur J. Holleman Vice President-Tax (1975) William . Meison Vice President-Security and Administration (1977) Richard D. Paul Vice President-Financial and Operational Evaluation (1968) James G. Roilans Vice President-Corporate Communications (1982) Gerald 3. Sinykin Vice President-Medical Services (1979) C. Patrick 3eaford President, Fluor Constructors International, Inc. (1978) Joseph 5. Bowman President, Fluor Oil and Gas Corporation (1973) Hugh X. Coble President, Fluor Engineers, Inc. (1966) Feier DerVlay Group Vice President, Fluor Engineers, Inc. (1980) Howeil T. Hunt President, Fluor Drilling Services, Inc. (1978) Vincant L. Xontny Executive Vice President, Fluor Engineers, Inc. (1965) Leslie G. IVleCraw President and Chief ' Executive Officer, Daniel International Corporation (1977) Peter J. .Meff Vice President, St. Joe Minerals Corporation and President, St. Joe International Corporation (1981) Ronald Olivier Group Vice President, Fluor Engineers, Inc. and Chairman, Fluor Europe Limited (1961) Douglas D. Templeman Group Vice President Marketing, Fluor Engineers, Inc. (1962) .Xenneth 3. Werneburg Vice President, St. Joe Minerals Corporation and President, St. Joe Domestic Metals . Corporation (1981) La Roy X. Wheeiock President and Chief Operating Officer, St. Joe Minerals Corporation (1981) dr 2801052 Stockholders' Reference Form 10-IC A copy of the Form 10-K, which is fiied with the Securities and Exchange Commission, is available upon request. Write to: Vice President and Controller, Fluor Cor poration, 3333 Michelson Drive, Irvine, California 92730, (714) 975-2000. Security Pacific National Bank, Corporate Services Division, 701 South West ern Avenue, Glendale, California 91201, and Se curity Pacific Clearing & Services Corp. New York, 2 Recoter Street, 2nd Floor, New York, New York 10006. For change of address, lost dividends, or lost stock certificates, write or telephone: Secu rity Pacific National Bank, Stock Transfer Division, Box 3546, Terminal Annex, Los Angeles, California 90051, Attn: Shareholder Relations (818) 507-2958. Auditors Arthur Young & Company 3200 Park Center Drive Costa Mesa, California 92626 Annual Stocictioide?si Meeting Annual report and proxy statement are mailed about February 1. Fluor's annual meeting of stock holders will be held at 9:00 a.m. on March 12, 1985 at the Fluor Corporation Irvine Complex. 3333 Michelson. Irvine, California 92730. Fluor's stock is traded on the New York. Midwest, Pacific, Amsterdam, Lon don and Swiss Stock Ex changes. Common stock domestic trading symbol: FLR. iuiomaiic Shitdencj .3esc v esxmeni :?* a m The Automatic Dividend Reinvestment Plan offered through Security Pacific National Bank affords any stockholder of record of Fluor's common stock the opportunity to buy addi tional Fluor shares auto matically with cash dividends. In addition, the Plan permits stockholders to purchase additional Fluor shares each quarter through voluntary cash payments. A brochure de scribing the Plan is avail able upon request. Write to: Security Pacific National Bank, Dividend Reinvestment Unit, Box 3546, Terminal Annex, Los Angeles, California 90051 Somoany Contacts Stockholders may call collect. Stockholder information: Lawrence N. Fisher (714) 975-6961 Investor relations: Frederick J. Fajardo (714) 975-7250 Common Stock and Dividend information At December 31. 1984 there were 79,007,404 shares outstanding and approximately 37,000 stockholders of record of Fluor's common stock. Dividends are traditionally paid the first Monday following the 15th day of January, April, July and October. The following table sets forth for the periods indi cated the cash dividends paid per share of common stock and the high and low sales prices of such com mon stock as reported in the Consolidated Transac ts Reporting System. Dividends Per Share Price Range High Low First Quarter Second Quarter Tbsra Quarter Fourth Quarter Fiscal "'983 first Quarter Second Quarter Third Quarter Fourth Quarter $.20 $20 % $16% .20 23% 17% .10 22 % 15% .10 19 Vs 14% $.60 $.20 $25% $19 .20 23% 19V4 .20 24% 19% .20 22 y4 17% $.80 Common -Stock History Sines Comg Public in 1950 GB/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