Document k6wY9naYmLq6pZNKZLo5Ey5aD

DR 2801154 AbouttheCover Company Description ^ ; : w > i, Our'Window on Tomorrow" synrbolizes Ffuor's new beginning as.a restructured company. m m V . -. . . . . . . . . . . ........ ........ ----- - - *,ifr~~ T Ruo* Cai ^ration is The Doe Fo Com- tbfC'aftarp'ftNos! ' mt el the vmt'-c's pony; but!; a sab- procurer* nt, lend ' largest engineer- stsnfial cask , ` fiica* sen ct-o, mg, ecostnir^on amltechisrat aery- position shrotch asset sains; rah- . ( 'T.aistfnssiite anJ pknsbpo*''er!i. ' see companies and starstialf', reiiHequ kitespo.''.. in has hives tar,ut tutmeSi- :r C0c 1 ard lead. , in 1551 tbacempony ,'<i a debt, ad asm.. cctfm "i f..v ' once short to ref!i?ti;fg>>-vfkes throat,- * qw.< wgrketa.r'!' iJs, litfiocrmr* ions `0 >, Hu , isiiSeso'.'iH:,: 5 tlikdri a ,`o',,w, ma.wi* 'iCtk`jo:*,rSrt;j <,,rv ''iff 1 reoi^eiHic ,sr.;a., f f.Oui' -'as rhsis Prone.ns, tv; Iracn.haa w.i dev *r,- res:;n im.itr- tlkfnrno- at f,act tv^it Dan: - u f:' "<'ic .Oi,/';a|S ' ''at ' finer rv- 0 Wt,' |r fs.t., .a i* ' eiivLd, a .ed.jff';< eat:? j Vit Tut,-, ft hr- =' >> ' * V. .ft i ' - s'! t fit a filter k ?o >rvi:":- sifeiigw/ S0fi|pfiaf,v' ,rv n,,s ' t `'use/ t >( , * . u n 5 - *' p ,r,t a ' rLof 5 , .J ^ - d u > ' _m efss'.ur,d- fpgjifoabdit, stadia- c3co(r.di design, project ??* 'i .'uci't p .,f neefing.consirjc- toon (wish a kit! ||vt "MiiS nil;:: range nfla'jtr per* DR 2801155 Contents HigWtghts Fluor Corporation 1 Highlights 2 Chairman's Letter 6 Operations Report S Engineering and Construction 8 industrial Sector 10 Power Sector 12 Process Sector 14 Hydrocarbon Sector 16 Government Sector 18 Natural Resource Investments 18 Coal 18 Lead 20 Operating Statistics 22 Financials 22 Management's Discussion and Analysis 27 Consolidated Financial Statements 44 Report of independent Accountants 46 Information 46 Directors 47 Officers 47 Principal Subsidiaries and Divisions 48 Stockholders' Reference 5 in ircusanos. except per snare amounts Fiscal Year Revenues from continuing operations Loss from continuing operations Net earnings (loss) Earnings (loss) per share Continuing operations Net earnings (loss) Funds used by continuing operations Capital expenditures New awards Cash dividends per common share At Year End Working capital Total assets Backlog Capitalization Long-term debt Shareholders' equity*11 Total capitalization Percent of total capitalization Long-term debt Shareholders' equity Shareholders' equity percommon share Number of employees 1387 1986 1985 $3,924,480 (75,275) 26,592 $4,341,700 (18,617) (60,443) $3,776,442 (512,792) (633,324) (.95) .33 (42,589) 99,824 4,059,700 $ .10 (.23) (.76) (35,643) 91,619 2,992,200 $ .40 (6.48) (8.01) (266,240) 121,216 4,485,300 $ .40 $ 480,184 2,061,186 4,667,300 $ 265,341 2,565,393 4,291,400 $ 36,539 2,796,364 5,114,700 232,948 531,743 $ 764,691 519,439 950,240 $1,469,679 259,064 1,033,904 $1,292,968 30.5 35.3 20.0 69.5 64.7 80.0 $ 6.74 $ 11.99 $ 13.06 14,351 22,309 26,958 :: 11987 Tamnoiders equity was reduced by $438 million due to the revaluation of assets and liabilities in connection with a quasireoieim ::i on. See Notes to Consolidated Financial Statements. dr 2801156 Chairman's Letter Dear Fellow Shareholder: We are pleased to confirm the completion of ounrestructuring program and to report that after a two year lapse, Fluor Corporation showed a profit in 1987 and continues to operate profitably. In 1987 we focused on two major objectives: first, sell down our natural resource operations to concentrate on Floor's traditional profit center, engineering and construction (E&C), and second, reconfigure our E&C operations to compete successfully in today's business environment. Both of these objectives have been accomplished through the following actions: l We partitioned the assets of Massey Coal Company, for merly a 50/50 joint venture, between Fluor and Shell Oil. The agreement reduced debt by $40 million and made available over $100 million in cash. Massey, which now operates independently under Fluor's controlling ownership, is one of the ten largest coal companies in the U.S. l We formed a partnership with Homestake Mining to create The Doe Run Company, the largest lead producer in North America. Fluor owns 57.5 percent of Doe Run, with a management committee composed of Homestake and Fluor executives. a We sold our zinc operations for over $100 million, includ ing about $40 million in debt elimination. a We sold our remaining 90 percent interest in St. Joe Gold Corporation and other gold properties for $500 million in cash, a We reclassified the remainder of our natural resource operations, including international Minerals, Pea Ridge Iron Ore and Energy Resource Corporation, as discontinued operations. The combined effect of these restructuring actions gen erated $750 million, including debt elimination, resulting in a net after-tax gain of approximately $111 million. By executing our restructuring program in a period of rising commodity prices, we were able to maximize values. Net earnings for 1987 were $27 million, compared with a loss of $60 million in 1986. This dramatic shift was the result of gains from asset sales and improved operations. In line with our sharply altered asset base and shift in business focus to primarily E&C operations, we adjusted the company's balance sheet at year end. In accounting parlance, we effected a "quasi-reorganization" under which we adjusted our asset and liability accounts to fair values. Cash flow is not affected by the quasi- reorganization. Future amortization charges, however, will be lower. The reduction in share holders' equity to $532 million, or $6.74 a share, compared with $950 million, or $11.99 a share one year ago, was due largely to the quasi-reorganization. DR 3801157 1* Revenues by Segment from Continuing Operations 1987 Lead 2.4% SI Coal 14.8% ESC 82.8% 2 0 2 4 6 33 34 85 86 37 Net Earnings (Loss) Per Share dollars Long-Term Debt 800 dollars in millions 63 84 'id 45 Financial Condition and Future Strategy: Fiuor's cash position today is exceptionally strong. Following receipt in early November of the balance of the proceeds from the sale of St. Joe Gold, Fluor has more than $525 million in cash. And, in spite of the reduction in shareholders' equity, we were still able to lower our debt-to-capitalization ratio from 35 to 30 percent by paying down long-term debt to $233 million from $519 million a year ago. We will continue to reduce debt even further to something less than $100 million, with a resulting debt-to-capitalization ratio in the 15 to 20 percent range. Besides debt reduction, we are examining these other areas of use for cash: E&C acquisitions; investments in existing operations; repackaging of the Sugar Land, Texas, real estate; and share repurchase. We are not yet in a position to restore the dividend, since we believe that dividend payments should flow from operating results. As soon as operations can support a sustained dividend, it will be considered. Our overriding objective in the redeployment of cash will be to enhance the return on shareholders' equity. We intend to restore this corpo ration to superior returns and growth levels, and we will only consider cash investment opportunities that move Fluor in that direction. Operations: In Fluor Daniel, Inc. we have created an entirely new worldwide engineering and construction company--market-driven, client-sensitive and with value added to every service it provides. Results speak for themselves, with this year's new orders totaling just over $4 billion, up 36 percent over 1986. Improvement is marked in every sector, with Industrial as the leader in new orders, although down slightly from a year ago. The other sectors showed dramatic growth in new order performance: Power gained 48 percent; Process 65 percent; Hydrocarbon 98 percent; and Government 504 percent. Efforts to achieve broader diversification of our E&C mar kets have also shown remarkable results. Five years ago, industrial orders totaled only 10 percent of backlog, with hydrocarbon and power projects responsible for the remaining 90 percent. Today, in dramatic contrast, the Industrial Sector repre sents 36 percent of total backlog; Hydrocarbon, Power and Process are each responsible for 18 to 20 percent, and Government is moving up fast. Our main objective with Fluor Daniel now is to accelerate this forward thrust and realize the earnings potential of this new organization. Fluor Constructors experienced a loss over the year as a whole, but the problems plaguing this group were resolved by mid year. Coal operations met expectations and have clear growth and increased profit opportunities ahead. Doe Run showed improvement, but operating difficulties prevented the company from taking full advantage of higher lead prices. We expect better results in 1988. DR 2801158 3 ffeaif i"- Executive Committee (leftto right): Vincent L. Kontny, President and CEO, FluorOaniel; Gerald M. Glenn, Group President, Market ing and Sales, Fluor Daniel (ex officio); OavidS. Tappan, Jr., Chairman and CEO, Fluor Corporation; E. Morgan Massey, President, A. I Massey Coal Com pany; Leslie G. McCraw, President, Fluor Corporation; Hugh K. Coble, Group President, international Operations, Fluor Daniel; Robert L. Guyett, Senior Vice President and Chief Financial Officer, Fluor Corporation. 4 DR 2801 (59 Working Capital collars ir milions Corporate Administrative and General Expense dollars in millions Management Changes: In mid January 1988, Leslie G. McCraw was elected President of Fluor Corporation. Vincent L. Kontny, formerly Group President, U.S. Operations, Fluor Daniel, was promoted to President and CEO of Fluor Daniel, succeeding Mr. McCraw. Mr. Kontny was also elected to the board of directors and the Executive Committee. These key executive reassign ments are a part of Fluor's management succession program aimed at assembling the executive team which will lead the company through the 1990s. Also added to the board of directors were David P Gard ner, President, University of California, and E. Morgan Massey, President of A. T. Massey Coal Company. Mr. Massey also serves on the Executive Committee. Buck Mickel retired as Vice Chairman but continues to serve as a director. John Wright resigned as President, Chief Operating Officer and director. Ahmed Juffaii resigned as director, and Sibrand Jurriaans retired. The board's membership now stands at 15, with nine outside directors. Denis R Kalscheur, former Senior Vice President and Chief Financial Officer of AirCal, joined Fluor as Vice President and Treasurer. Larry W. Lineberger moved from Vice President, Corporate Controller and Treasurer of Daniel International Corporation, to Vice President and Controller of Fluor. Outlook: Fluor approaches the closing years of the 1980s with a sense of renewal and great pride in the creation of our streamlined and diversified E&C company--Fluor Daniel, Inc. Its management team is the strength of this organiza tion. Credit for the restructuring and the improvement in operating results goes to our line and staff executives, several of whom are pictured in this annual report. In sum, we are confident of Fluor's future success. E&C opportunities are expanding and profit margins are improving. We have recon figured our coal and lead investments. Our financial strength is outstanding and asset values are in line with fair values. The restructuring we have accomplished will mean long term benefits for Fluor extending well beyond the tenure of many of us. The guid ance of our distinguished board of directors has had a major impact on the success of these efforts, and we owe them a debt of gratitude, individually and collectively. Thanks, also, to the continued support of our employees, share holders and clients, the year 1987 has seen Fluor emerge from a long winter of adversity into the warmth of new beginnings. Today we have the potential to be among the top financial-performing companies. We are confident we can reach that goal. J/i / David S. Tappan, Jr. Chairman of the Board and Chief Executive Officer DR 2801160 January 15, 1988 Roor Daniel Senior Executives (left to right): Vincent L Kontny, President and CEO, Fluor Daniel; Leslie G. McCraw, President, Fluor Corporation; Gerald M, Glenn, Group President, Marketing and Sales, Fluor Daniel; Hugh K. Coble, Group President, International Operations, Fluor Daniel. 6 f DR 2801161 . . Vi' * . 'ten*** f J iv^-: m 7ies$M!SP fM;&*iy m\ sfeswwstei Hi --O. ir-ri> ' vf.'"-it!--;- I . i-. '.AV-r .A' ' ' ,, J .*''- - <*' ' --.tfatrJ'WM'iB-''**'--j.i.*' '-V. *i-.?- ,,.r X- -.-.i ,-?k ^ v -.j <*+'. * i _; * "V '<-7 i, .; *.. -:., \ ;,V; , >1 "*1 --rf-i. ^'"t vi ' `/.-V. -Hi 1 wm MM 2 Jewawar w. -A-%< mi'- Sfde-' in $4.14 ago. . ieSt^p i-ut. j- - t -. j - v --**? v - : *- . ' -r\- .:>*:? 188 i'JsS ^to< !:. mm I utrareas' " ` '*' &?/' DR 2801162 IB Jim Stein, left. President of Fluor Daniel's Industrial Sector, and Jim Barry, right, Presi dent of Fluor Daniel, Far East, at the General Motors Assembly Plant project in Georgia. Fluor Daniel began its diversification within the industrial market in the U.S., and is now actively moving this expertise abroad. DR 2801163 /$, ,.-&. .,-. -^VSsSfe ` v` - >, -` - ;"? .l:A'J'v-y - Photo at top " Palestine, Texas ' Maximum Security Correctional Facility *" Financing, Construction 'v"' . --v ' `f:ifDoravi,'er`Swife''??ft. General Motors a' j - ; "\4 ;. Engineering Design, -,-i- ConstaffitionManagement^>^;^^V^#C^v~ ; '.J. ;V' J=~ TrainirigfAumntattohj - . Start-up Assistance *= ' .A-rrv- " . m-' anrf Cow^nf Club $<, i. & ; v Desi^nstr^^i^ -' .. *^A ,- - Anderson; SouthCarolina1 `4 w w / >' RefdgbraterManu^J /'i-' '^%Vf^.......... .<;/^ factoring FtcllHjrs^V^S^ . - S. Design, Construction ^erv?c$^.'v -'; 8 -> ;.'%?..: .-> ' ' : / "`xgitttsL-- *>. * ^ Dallas,Texas. ,i; -I* Servicesto the ifidusta'ai'mi&s iesjjgn, engineering, pr training end technical services/ ' : ' A 'ifgk : - : V ' environ- It'S5*-' W w mi: - '. ihiZ.ZZf't? : >i' V 'Vf,^ 5 Perryi Georgia H W ivlortlrrop Manufacturing Construction Management Aslieboro, North Carolina Soup Production Facility Design, Procurement, Construction Management. Maintenance. Training ' ***'.' ' ^w*,- ' " r '?y - %w* ' ; , '' &.- -f ..'' '-V'S;/ '... >4 ',.assent for its manufacturing complex in Charleston, South Carolina. ' '' i '; : .'i \: - .- : DR 2801164 Ruor Daniel's Power Sector President. Peter Van Moil, right, and Rick Deart, left, Presi dent of Fluor Daniel's Eastern Operations, at one of the sites which Fluor Daniel is pro viding maintenance services for TU Electric. 10 Qpl pBOl 165 s- Y ' =' ' ... . ' .' iV.* V*?*',.v. * <&K; >*- -' ; has spurred growth *r. certain market segments which include gas cogeneration ; \! ;, V: f _^New orders in- /? andrescurce recovery'^ - Photo at left ' ". : 1 ' .5"' * - ^ "> '. ' 'rr- -y- l,i. ' '-'-'W- *\ '* ; : ' , Tatum, Texas - ; ii' ''creased nearly ar, ,i- ; ' W " Fluor Daniel's Power Sector delivered substantial irn- Lignite Ccai-Fired Power Piart -r v'Ar *; ^ ` < ; .*, a Vi'-. `v'", * '* /;;- f -. pwcetidespite no i.V pravemeritin 1987, despite generally lethargic conditions in the industry." New Maintenance Services. . " -> -m new oewer n!als. : ' nfriers totaled AG17 million iinAftnan'pnl frivnavpaf srn anrl Poiiimrriir-o--'th North Little Rock, Arkansas Hydroelectric Power Plant. Design, Cngiroering. . ' Procurement. Construction ' .. Management * J&fSraM Dothan, Alabama Nuclear Power Plant Maintenance Services jBBBgBmSKSgBESBBk '3sPs?A?'i i ..v. :' * V* v ,, . During 1SS7, the Power Sector has also made significar-* progress in widening its share of the power plant maintenance market, a continu ing field of business opportunity. Representative of this market is a joint venture contract with Fluor Daniel and British Electriciy international. Ltd., for operation, training and maintenance of the Hopewell power plant in China. Both 350- megawatt coai-firsd generators completed successful start-up in 1987 At the rsousst of clients, the sedoi moved into new ma *. kets last year, including mining and resource recovery maintenance. In addition, the sector became involved in telecommunications projects for the utiiity industry MMMMMH DR 2801166 11111 Paul Vareilo. right. :luor Daniel Proc ess Sector Presi dent, and Charlie Cox, left, President jf Fluor Daniel, Europe, Africa and Middle East, at the General Electric engineering plas tics facility in Ala bama. floor Daniel is also performing an expansion proj ect for GE in The iMetherlands. 12 OR 2801167 ^m nh'lnct nmi/t lif* ti*-tUrs Mf*k>U>r.A. Jr..-*--.`lj *fc Photoattop ' ' ' Biberacli, V/osi Gerrary i .i Pharmaceutical -j Pilot Plant and j - Main Production Facility ' ' Design, Engmse'ing, .I '.Procurement, Construction ^ Assistance - Wide spectrum of 5 markets served. the trend toward specialization created a market demand for lihechemicaism/er. ' hniirfhomir-ii* nnnnirr< a^avU 4n nnvAM .**/L..^! . 1 I ta ' s'* ieenr mm uiemieaiand hmr^. - :'i $'.. `-y^i.it .',> $\| { Producing Facility, V "'./ "' / ingoing Maintenam. , /'^ -: '' J'f. ppeerrffoorrmmeedd uunnddeerr PPaarrttnneerrsshhiipp 11~~ ^.'; X%''/?<&: 1<\.Y* ;..Agreement -; *'ft_ _ 'f 'Kf.^ ':$ ^nershipcuirrjnafed Ina&nfacti Thousand Oats. California' - " ;\t\. ;.' ' N .* ` > ... * Production Facility - ! ',,'V * "' 1 ... 1 -V1"* -^r^v .;$&>: '=;/'.- ' **'". ^ -L1 :^v~ -i-?'' r' 'V-\<M: fgp^w ?<; '*,^t,`j*. ^.`*<lii> `f'fti.l* ' M tho fiftlM nilMlttinif '4 !*/? *>*- , * ` Art^n^ilrtikA [Design.Constructi-on\.. .- ' x& '---V't.-. ",V. . Management f>SS4-^ hawpbe^i'aSiiSpd' rthet jirj Iantiiei Lpar& ' Newport, Delaware .-. Pigments Finishing Plant Expansion ' Design, Procurement, Construction Management *. ' . -'- . - . . - 3SE'i = . .'.- ;. ' .*: v ` . ?.\ :$*-. \-j` vaccine manufacturing and packaging plants in Belgium, %U `i,-: = Yl / ; In ar.o*.her example, Rohm & Haas, a chemical products V Barceloneta, Puerto Rico Finishing and Filling Facility Design. Construction company which uses F!uor Daniei on a Deer Park, Texas project, has now selected them to perform site and environmental evaluation studies In Shanghai. '. : ; As markets for the Process Sector expand rapidly world Rochester. No* vcr< Film Manufacturing Line Design, Procurement, Construction wide. Fluor Daniel's overseas offices are strategically located to lake rui! advan tage of these growing opportunities. , " \s DP 2801168 ',, Fluor Daniel Hydro carbon Sector 'resident. Charlie Oliver, left, and Sandy McArthur, right, President of FluorDaniel, Canada, at the heavy oil upgraderexpan sion and modern ization projectfor Mew Grade Energy in Saskatchewan, Canada. 14 DP 2801169 - * v'i'Hubr'D&nieCs- "' ,- .* ,*\`\* . .*4r *.' `tw '* ^'V'v - :A'ivV `V1^-'^ V --." 5- . ... .'... " -v, -. :-. ,.4;,, iV.T .> :#'lr'`-: shor* Photo at left Reg;na, Saskatchewan, ; Canaoa HeavyQU Upgrade: CEPnorognijsnetercuetcWritnioagn,.PMMro^ac^nuaarngee:mmeennt.t, '. - . " - - f- \ '. V..,- 1 'H? ." \7 .'.C^S^CGSatSS^^m.fl.-on. = - 3,. '; :" ' \>V >* PShtaontoloawtibUonttiotemdKl.n':gdoln - . 7" ;, 77 " Cas Tails Unit ,7 y,. ; . * .n9>nsering(shown on CADJ A ' . ' '* ). - '';^7 ' . . ,""- - ' ' Procurement, Construction 7 7V `; ' <v7'--.<'H'r ^.!M arisBt'sba^ijn-^' Management .^ : LaPpr^JexaTZrl;'.' ', ', : V-Polypropylene Plant ! ' ";. ", Expansion ; ... . ? Engineering,Pcocurefnenk . - y \L7.uy~' j: - y^*f 1 7 ' ' RRiidrigoeewwaayv, SSomuitthh CCaarroolliinnaa, -vA,.Wf Goid Ore Processing - : ]-; .. i^y, j$$r- $Jmfv& uopsinjciion v-nagemenc - j,Vw yv -y .'.ij ' Project Management-' . ` 7'*. ^**1 .- ' f - av-'.vc-.^ v 'c^sriiiSjfc-y ' Liaoning Province, Peopjes .-. " * RReeppuubblliiccooffCChhiinnaa' 7` ' '< t.-aw" ' !*W; m-mPm.. Natural Gas Liquids Plant Engineering, Procurement. ' . '.. .i:,' J Constrcct on Services .. ; ! i . v* Roxby Downs, South Australia Metallurgical Plants and Electrolytic Refinery Engineering, Procurement. Construction Management ;, ' - ' . . ' ,Saskatdiewan.'Responsibi[ities include enqinegi,mq> pm^reme^'i'ons^Hibn^ management and project managernent.'-^Riis/'s^te of tbe arth pirii'eGtis^et;|br^ -; , C\.*y :'-compielionin 1988. *[.? . - v -V- ?V v.'- Vi- >`Fr'frW*rv~r 1. v'4- .= ~ 6%-.i ` . * * v>; dr 23011to >/;; .. ..... Emil Parente, left, President of Fluor Daniel's Govern ment Sector, and Lam/ Hart, right. President of Fluor Daniel's Western Operations, beside the engineering design model for the Process Facility Modification Project for DOE's nuclear fuel reprocessing facility in Hanford, Washington. 16 -s'-. .. - * - ' - `' j - y ies tKroiighoat^ie"ca'untry.'v " ' ` '''TOssectorpMtessp&fel Photo at left ' ' Hanford, Washington. Process Facility Modifications . Design, Engineering : *,L-:-afiiO'anBeTengineermg,corstructiosi.ope^J-onandmain- Photo at bottom Ijf "- '. t'-V- e.-f' _ los Angeles County, California : , >';* Emergency Fire , J ' ' , ' ''. > _. **>* Commend Center and Communications System /> ^ar.lnsBNata.. ^____ v .:. Wlvte Sands, Nl-a Vexico ; / 1 New and Existing-^; : ; 'V p*tal.Facilities V:V ' > ' > Program Managemeitt,'-' - i ; ' V'Staffirln Cnnstmrtirm .. ..,, Office and Radar r; 1 -,; F.aci,lit,ies-Im-prorvem-ent s, i';*'- ij i- 'i>;;, - :".t> -&' XmxS* ' ' V Engineering, Architectural;^'-r Design'Construction ^;Jjj. fvldnagjmeni. Inspection V Jv * .*? ' ` ' J|'^>`| T* x- n . ' Hanford, Washington -.- . Waste Vitrification Riant Design, Engineering WsBmKmmMRMSm Grand Island, Nebraska Soil Incineration Project Design, Engineering, Installation * ;> -,. *-- ---- uoMinjiu-i. me UUlillGuiyU-iSlilItJI U'Lillo {"i^\ . ;ass!gftjnentcvertDe next several years is substantial: '-> - * v'1 >.. >- .. v- . v-V'i pastyear Fitiar Oanie! cieariy established itself as l : , : ? 'y-. ;' ' 'yy. ', v<'; ptifttpetilor in the iaitje and diversified governnieht ancf \v- :r'^s>sppeacdaa!Hi^ieedd'tstecKcKhDriSobl^qsi^fisefliedisd:s:J''"/ '. y'Au~ ,5, -1 y : ' ' /' :; ' DR 2801172 .17 . Morgan Massey top photo), Presi dent of A. I. Massey Coal Company, inc. at the Elk Run coal orocessing facility in West Virginia. Jeff Zelms (bottom photo), President of The Doe Bun Com pany, at the Hercu laneum lead smelter in Missouri. DR 2801173 18 #;<; -&&. $ - .4 ' ;' ' i- /! Bwp'wi-sM`%Bsmr"mi^bH^^HBMHg^BBmgHggma^HaWwaa *&.;:^mfrimrf mmmI1`fS1*,."'t"^:ti4ISiRlfet batter/business, which affGrds a stable, long-term market base nificant marketopportunity In construction, load-leveling batter! agents In asphalt aavemenis and hazardous waste storage. During die year, pricing improved substantially, although . earnings were disappointing due to production difficulties at the Herculaneum smel' sn An aggressive maintenance program was launched at Herculaneum, with the Buick plant used to supplement production. Repairs at Herculaneum are now compos and tna facility is back m operation. Earnings are expected to improve in 1S88 from decreases in production costs. . DR 2801174 is Operating Statistics 3 in thousands/Year ended October 31, Engineering and Construction Work Performed Revenues Operating Profit (Loss) New Awards Backlog Employees 1937 $3,370,957 3,251,304 (49,473) 4,059,700 $4,667,300 11,993 '986 $3,817,200 3,727,764 (71,152) 2,992,200 $4,291,400 12,068 '985 $3,438,327 3,226,486 (106,528) 4,485,300 $5,114,700 14,530 1984 $4,458,238 3,315,398 84,220 4,151,300 $4,194,200 16,353 1983 $6,335,741 4,208,821 229,989 1,244,600 $5,610,700 18,998 $ in millions Backlog by Sector and Location Industrial Power Process Hydrocarbon Government Total Backlog United States Outside U.S. Total Backlog S in thousands/in thousands of short tons Year ended October 31, Coal* Revenues Operating Profit (Loss! Employees Steam Coal Produced Metallurgical Coal Produced Produced Coal Sold Purchased Coal Sold 51987 % S1986 u,o S1985 % S 1984 % S1983 % 1,661 927 836 940 303 4,667 MW--I- 4.039 628 4,667 36 20 18 20 6 100 87 13 100 1,865 1,032 610 690 94 4,291 3,587 704 4,291 44 24 14 16 2 100 MM*. 84 16 100 2,453 762 536 1,289 75 48 15 11 25 1 5,115 ...... .... 4,072 1,043 100 ---- 80 20 5,115 100 1,690 412 324 1,700 68 40 10 8 40 2 4,194 100 ------ 2,838 68 1,356 32 4,194 100 506 1,649 120 3,293 43 5,611 .. .. ' 2,520 3,091 5,611 9 29 2 59 1 100 45 55 100 1987 1986 1985 1984 1983 $580,123 $ 28,326 1,372 9,258 2,825 12,531 5,306 $516,943 $ 49,310 3,307 9,342 2,175 11,620 2,522 $ 475,051 $(223,038) 3,571 7,795 1,730 9,528 2,174 $489,634 $ 14,800 4,709 7,998 2,168 9,982 1,931 $437,455 $ (6,824) 5,145 7,102 2,084 9,192 1,461 `Amounts through June 1987 represent 50% or Mas'vt: mm UIOnS -XIret me "umbered employees which is 100c3. Commencing July 1987, amounts include 100% of the operations or Massey after reflect'1^ me iwt * n mi vath Cr-mi 3 ; _%e Notes to Consolidated Financial Statements. a in thousands/short tons Year ended October 31, Lead* Revenues Operating Profit (Loss) Employees Lead Content of Concentrates Produced Lead Metal Sold : 987 $93,053 $(5,511) 986 123,888 130,753 1986 $ 96,993 $(26,640) 855 186,975 193,849 1985 $ 74,905 $(187,105) 957 172,781 177,772 1984 $ 96,669 $(41,460) 1,526 137,618 169,080 198: $110,938 $ (35,40' 1,56 215,98 220,82 ' `mounts mroiiuh MOB mpiesoni i110" m >ir e tlomoanvt i-xamt :,he niimner ol i nr 1 ,wt 1 " ,n n rUK'r'S. Jr 'T -r | ''`'81 11 ni'M'ts1 mm u t1 Cjur s 57.5% in; crest :n tnn operation s o! me Oce P 1 ,-Uf Moton; i n i v! M i min ' m 'em m-''' m DR 2801175 20 Fluor Corporation New Awards by Business Sector 1987 Government 8% Process 17% Hydrocarbon 18% Power 22% Industrial 35% Backlog dollars in billions 83 34 85 36 87 New Awards 4.5 dollars in billions 36 7.7 0.9 Backlog by Business Sector 1983 Government 1% Process 2% Industrial 9% Power 29% Hydrocaroon 59% Backlog by Business Sector 1987 Government 6% Process 18% Industrial 36% Power 20% Hydrocarbon 20% Coal 300 i Revenues' 800 dollars in millions 400 700 700 no Total Coal Sold* m millions of soon tons Purchased Pmduceci Lead 120 Revenues' ?00 dollars in millions 30 70 10 70 Gmounis inflect Moor s pioportionate snare tot all periods. DR 2801176 21 Management's Discussion and Analysis 22 Management's Discussion and Analysis 26 Selected Financial Data 27 Consolidated Statement of Operations 28 Consolidated Balance Sheet 30 Consolidated Statement of Changes in Financial Position 31 Consolidated Statement of Shareholders' Equity 32 Notes to Consolidated Financial Statements 42 Segment Information 44 Management's Report 44 Report of Independent Accountants 45 Quarterly Financial Data 22 Results of Operations: The loss from continuing oper ations was $75 million in 1987 compared with losses of $19 million in 1986 and $513 million in 1985. The related loss per share was $.95 for 1987 compared with $.23 in 1986 and $6.48 in 1985. Revenues from continuing operations decreased 10% in 1987 following a 15% increase in 1986. At October 31,1987 the company adjusted its assets and liabilities to fair value in accordance with accounting principles applicable to quasi reorganizations. Such adjustments had no impact on 1987 results of operations. Engineering and Construction: Contract awards for Engi neering and Construction increased 36% in 1987 in spite of continued depressed business conditions and intense competition. New awards were $4.1 billion in 1987 compared with $3.0 billion in 1986 and $4.5 billion in 1985. Backlog at October 31,1987 was $4.7 billion compared with $4.3 billion and $5.1 billion at October 31,1986 and 1985, respectively. Engineering and Construction experienced an operating loss of $49 million in 1987 compared with losses of $71 million in 1986 and $107 million in 1985. Marketing effectiveness and operational efficiency have contin ued to improve as reorganization of the segment was finalized in 1987. Improved operating results reflect the continuing success of efforts to reduce indirect costs and strengthen market share. This improved performance has been attained despite continued severe competitive pressures due to industry overcapacity in certain sectors. The number of employees was reduced only slightly in 1987 compared with reductions of 17% in 1986 and 11% in 1985. Losses of $23 million in 1987 and $22 million in 1986 were incurred on several fixed price construction projects bid under extremely competitive conditions. Most of these projects are completed and the remainder are not expected to incur additional overruns. Coal: In the third quarter of 1987 the company completed the partitioning of the assets of Massey Coal Company (Massey). The partitioning resulted in no net gain or loss. Subsequent to the partitioning the company has fully consolidated the results of Massey. DR 2801177 Fluor Corpo! Revenues from Continuing Operations dollars in billions Earnings (Loss) 2 Per Share from Continuing Operations dollars 83 34 85 86 87 Revenues and operating profit from Coal operations ir 1987 were $580 million and $28 million, respectively, compared with revenues $517 million and operating profit of $49 million in 1986. Revenues and operatir loss in 1985 were $475 million and $223 million, respectively. In 1987, operating results were slightly lower compared with 1986 as a decline in realized prices of produced coal more than offset lower costs and higher volumes of produced coal sold and additional revenue from brokered coal sales. The operating loss for 1985 includes a nonrecurring charge of $212 million related to the reduction in the carrying value of certain of the company's coal properties. Coal operating results for 1986 included the reversal of $17 million of reserves no longer required as certain mines identified fordisposai in 1985 were retained due to improved operations. Operating results for 1986 also improved compared with 1985 due to settlement, in the first quarter of 1986, of a labor dispute that exist throughout 1985. Lead: In the first quarter of 1987 the company contribut the assets of its lead operations to a partnership called The Doe Run Company (Doe Run) in exchange for a 57.5% interest. Lead operations incurred an operating loss of $6 millic on revenues of $93 million in 1987, compared with an operating loss of $27 m i 11 i< on revenues of $97 million in 1986 and an operating loss of $187 million on rev enues of $75 million in 1985. Operations in 1987 improved significantly compan with 1986 due to an increase in realized prices which more than offset increase costs. Costs increased primarily due to operational inefficiencies and equipmer downtime at the Herculaneum smelter. The 1985 loss includes a nonrecurring charge of $138 million to write off the excess of cost over net assets acquired. Discontinued Operations: In the third quarter of 1987 1 company initiated a plan for the divestiture of the assets of its Metals segment except for the lead operations which were retained. As part of the divestiture tl company sold its 90% interest in St. Joe Gold Corporation and certain other prc erties resulting In an after tax gain of approximately $248 million. The company also completed the sale of its zinc operations resulting in an after tax loss of $1 million. Discussions regarding the disposition of the remaining Metals operatio DR 2801178 Management's Discussion and Analysis Continued are underway and are expected to be concluded in 1988. Remaining Metals oper ations have been written down to their net realizable value resulting in an after tax charge to discontinued operations of $122 million. Other: Reduced interest expense reflects lower average debt outstanding during 1987 as a result of the company's restructuring activities. Corporate administrative and general expense was re duced 26% in 1987 compared with 1986 primarily due to lower labor related costs resulting from personnel reductions. Fourth quarter 1987 results include a provision for the difference between contract rents and estimated fair market rents for office space which will be subleased in the future. In addition, certain investments were written down to net realizable value. In 1987 there is no significant difference between the effective income tax benefit rate on the loss from continuing operations and the statutory rate of 42%. The difference between the effective rate in 1986 and the statutory rate of 46% is primarily due to the recognition of a nontaxable gain on the sale of St. Joe Gold common stock and lower capital gain rates applied to the Irvine facility sale, partially offset by nondeductible amortization related to prop erty, plant and equipment. The difference between the effective rate in 1985 and the statutory rate of 46% is primarily due to amortization and writedowns of both property, plant and equipment and the excess of cost over net assets acquired, and losses with no tax benefit. Most of the provisions of the Tax Reform Act of 1986 are not applicable to the company until fiscal 1988 and are not expected to have a material effect on the consolidated financial position or results of operations of the company; further, the newly issued Statement of Financial Accounting Standard--"Accounting for Income Taxes" is not expected to have any material impact on the company. Future results will benefit from restructuring activities completed in 1987. Depreciation and amortization charges and lease expense wil be reduced as a result of the fair value adjustments effected through the October 31,1987 quasi-reorgaruzation. DR 2801179 Fluor Corporation Capital Expenditures Current Ratio percent DR 2801180 Financial Position and Liquidity: Working capital at Octo ber 31,1987 was $480 million compared with $265 million at October 31,1986. This increase is primarily due to the sale of gold and zinc operations which resulted in proceeds of $590 million, $102 million of which was received in cash in 1987. Proceeds from the sale of gold operations included a receivable of $450 million which was collected early in November 1987. In addition, $38 million of debt was assumed by the purchaser of the zinc operations. In connection with the partitioning of Massey, the com pany reduced debt by $40 million and gained access to $108 million in cash. Capital expenditures for 1987 were $100 million com pared with $92 million in 1986 and $121 million in 1985. In 1987, capital expendi tures include the repurchase of land in Sugar Land, Texas for $26 million. The long-term debt to capitalization ratio at October 31, 1987 was 30.5% compared with 35.3% and 20.0% at October 31,1986 and 1985, respectively. The 1987 ratio reflects both a reduction in long-term debt of $286 million, primarily due to restructuring activities and debt buyback, and a reduction in shareholders' equity of $438 million due to the quasi-reorganization. At October 31,1987, all long-term debt bears interest at fixed rates. The company has access to sufficient sources of funds to meet its operating and capital needs. Significant short and long-term lines of credit are maintained with banks which provide adequate operating liquidity. Cash dividends of $.10 per share were paid in the first quarter of 1987. The Board then suspended future dividend payments and will consider reinstatement when operating results can support a sustained dividend. Although the company is affected by inflation, certain factors serve to mitigate its impact. The company's position is generally protected within its Engineering and Construction operations due to its ability to recover cost increases as a result of price escalation provisions in most of its contracts. The company's Coal and Lead operations produce commodities which are inter nationally traded and prices for those products are established by factors which are beyond the control of the company. However, management believes the com pany's substantial position in coal and lead reserves provides a significant hedge against any adverse long-term effects of inflation. 25 Selected Financial Data Fluor Corporation in millions, oxceot per snare amount's Operating Results Revenues from continuing operations Earnings (loss) from continuing operations before income taxes Earnings (loss) from continuing operations Net earnings (loss) Earnings (loss) per share Continuing operations Net earnings (loss) Dividends per share Financial Position Current assets Current liabilities Working capital Property, plant and equipment, net Total assets Capitalization Long-term debt Shareholders' equity Total capitalization Percent of total capitalization Long-term debt Shareholders' equity Shareholders' equity per common share Common shares outstanding Other Data New awards received during year Backlog at end of year Capital expenditures Depreciation, depletion and amortization for continuing operations Funds provided from fused by) continuing operations Number of employees 'S7 'FF6 SOU IDS 4 ' -:73 $3,924.5 (126.1) (75.3) 26.6 (.95) .33 $ .10 $4,341.7 (55.0) (18.6) (60.4) (.23) (.76) $ .40 $3,776.4 (556.2) (512.8) (633.3) (6.48) (8.01) $ .40 $3,901.7 (34.7) (23.2) 1.0 (.29) .01 $ .60 $4,757.2 98.1 49.3 27.7 .62 .35 $ .80 $1,213.5 733.3 480.2 735.2 2,061.2 232.9 531.7 $ 764.6 30.5 69.5 $ 6.74 78.9 $ 922.1 656.8 265.3 1,301.8 2,565.4 519.4 950.2 $1,469.6 35.3 64.7 $ 11.99 79.3 $1,057.2 1,020.7 36.5 1,433.3 2,796.4 259.1 1,033.9 $1,293.0 20.0 80.0 $ 13.06 79.1 $1,025.9 1,016.4 9.5 2,338.2 3,891.6 724.8 1,696.4 $2,421.2 29.9 70.1 $ 21.49 78.9 $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 78.7 $4,059.7 4,667.3 99.8 85.2 $ (42.6) 14,351 $2,992.2 4,291.4 91.6 89.3 $ (35.6) 22,309 $4,485.3 5,114.7 121.2 114.6 $ (266.2) 26,958 $4,151.3 4,194.2 285.5 106.1 $ (58.4) 32,153 $1,244.6 5,610.7 301.8 109.7 $ 179.3 34,123 DR 2801181 Consolidated Statement of Operations Fluor Corporation in tnousanos, except per share amounts; aar ended Octooer 31, Revenues Engineering and construction services Natural resources Total revenues Cost of Revenues Engineering and construction services Natural resources Write-down of investment in certain coal and lead operations Total cost of revenues Other Income and Expense Corporate administrative and general expense Provision for estimated losses on facility subleases and certain investments Gain on sale of common stock of St Joe Gold Corporation Gain on sale of Irvine facility Interest expense Interest income Total costs and expenses Loss From Continuing Operations Before Income Taxes Income Tax Benefit Loss From Continuing Operations Discontinued Operations Loss from operations, net of income taxes Gain (loss) on disposal, net of income taxes Earnings (Loss) From Discontinued Operations Earnings (Loss) Before Extraordinary Items Extraordinary items Net Earnings (Loss) Earnings (Loss) Per Share Continuing operations Discontinued operations Extraordinary items Net Earnings (Loss) Per Share Shares Used to Calculate Earnings (Loss) Per Share '387 $3,251,304 673,176 3,924,480 3,298,628 650,886 -- 3,949,514 '386 $3,727,764 613,936 4,341,700 3,794,757 591,406 -- 4,386,163 '385 $3,226,486 549,956 3,776,442 3,338,654 610,197 349,567 4,298,418 24,131 36,845 -- -- 58,304 (18,231) 4,050,563 (126,083) 50,808 (75,275) 32,532 -- (24,102) (37,779) 63,185 (23,345) 4,396,654 (54,954) 36,337 (18,617) 34,652 -- -- (78,834) 103,861 (25,411) 4,332,686 (556,244) 43,452 (512,792) (16,544) 111,254 94,710 19,435 7,157 $ 26,592 (17,479) (24,347) (41,826) (60,443) -- $ (60,443) (53,304) (50,867) (104,171) (616,963) (16,361) $ (633,324) $ (.95) 1.19 .09 $ .33 79,484 $ (.23) (.53) -- $ (.76) 79,248 $ (6.48) (1.32) (.21) $ (8.01) 79,054 DR 2801182 27 Consolidated Balance Sheet $ m thousands . At tjctooer 31 Assets Current Assets Cash and short-term investments Receivable from sale of St. Joe Gold Accounts and notes receivable Income taxes receivable Contract work in progress Net assets held for sale Inventories Other current assets Total current assets Property, Plant and Equipment Land Bdildings and improvements Machinery and equipment Mining properties and mineral rights Construction in progress Less accumulated depreciation, depletion and amortization Net property, plant and equipment Other Assets Excess of cost over net assets of acquired businesses, net of accumulated amortization of $3,408 and $47,610, respectively Other Total other assets $ 74,642 450,000 332,996 20,650 253,742 6,824 61,232 13,372 1,213,458 $ 96,331 353,896 102,000 185,739 12,830 148,106 23,236 922,138 61,215 77,111 184,922 406,021 5,885 735,154 735,154 52,989 228,022 814,333 760,436 19,069 1,874,849 573,028 1,301,821 9,476 103,098 112,574 $2,061,186 230,632 110,802 341,434 $2,565,393 DR 2801183 Fluor Corporation Liabilities and Shaidwiders' Equity Current Liabilities Accounts and notes payable Advance billings on contracts Accrued salaries, wages and benefit plan liabilities Other accrued liabilities Current portion of long-term debt Income taxes currently payable Deferred income taxes Total current liabilities, Long-Term Debt Due After One Year Other Noncurrent Liabilities Deferred income taxes Deferred income Accrued lease costs Other Total other noncurrent liabilities Contingencies and Commitments Shareholders' Equity Capital Stock Preferred--authorized 20,000,000 shares without parvalue, none issued Common--authorized 150,000,000 shares of $.621/2 parvalue; issued and outstanding in 1987--78,939,846 shares and in 1986--79,271,954 shares Additional capital (1S87 reflects quasi-reorganization) Deficit (1987 reflects quasi-reorganization) Unamortized executive stock plan expense Cumulative translation,adjustments Total shareholders' equity '337 '936 $ 316,251 87,301 69,838 199,959 11,421 17,075 31,429 733,274 232,948 86,160 -- 178,798 298,263 563,221 $ 261,610 62,261 83,030 206,130 14,667 25,486 3,613 656,797 519,439 93,334 133,888 -- 211,695 438,917 49,337 487,435 -- (4,367) (662) 531,743 $2,061,186 49,545 1,070,845 (160,022) (6,736) (3,392) 950,240 $2,565,393 DR 2801184 29 Consolidated Statement of Changes in Financial Position Funds Provided From Operations Loss from continuing opemtions Depreciation, depletion and amortization Deferred income taxes Gain on sale of Irvine facility and St. Joe Gold common stock Amortization of deferred gain on asset sales Write-down of investments and provision for sublease losses Other, net Funds used by continuing operations Earnings (loss) from discontinued operations Depreciation, depletion and amortization Deferred income taxes Loss (gain) on disposal of discontinued operations Funds provided from discontinued operations Extraordinary items Funds provided from (used by) operations Net (increase) decrease in operating working capital Net funds provided from; (used by) operations Investment Activities Additions to property, plant and equipment Proceeds from sale of discontinued operations Receivable from sale of St. Joe Gold Proceeds from sale of other assets Partition of Massey assets Proceeds from facility sale leasebacks Proceeds from sale of common stock of St. Joe Gold Other, net Net funds provided by investment activities Financing Activities Issuance of long-term debt Reduction of long-term debt Net increase (decrease) in borrowings due currently Cash dividends paid Net funds provided (utilized) by financing activities Increase (decrease) cash and short-term investments Cash and short-term investments at beginning of period Cash and short-term investments at end of period Fluor Corporation 987 1985 $ (75,275) 85,199 (68,100) -- (20,570) 36,845 (688) $ (18,617) 89,386 (22,556) (61,881) (23,597) -- 1,622 $(512,792) 114,586 (134,515) (78,834) (7,822) 349,567 3,570 (42,589) (35,643) (266,240) 94,710 39,178 130,421 (215,737) (41,826) 39,864 (32,508) 44,997 (104,171) 85,650 (7,268) 77,917 48,572 10,527 52,128 7,157 -- (16,361) 13,140 93,990 (25,116) (230,473) (85,305) 72,909 107,130 (110,421) (157,564) (99,824) 590,035 (450,000) 21,738 108,148 ---- (43,811) 126,286 (91,619) 18,000 -- 24,338 -- 35,000 35,700 935 22,354 (121,216) 270,000 -- 104,973 -- 506.807 -- (50,073) 710,491 2,809 (253,241) 3,254 (7,927) 264,983 (4,608) (94,978) (31,701) 158,600 (679,313) (44,593) (31,561) (255,105) 133,696 (596,867) (21,689) 96,331 45,629 50,702 (43,940) 94,642 $ 74,642 $ 96,331 $ 50,702 DR 2801185 Consolidated Statement of Shareholders' Equity Fluor Corporation ,n a atm mm Taints -iff - < "o" 3 nr: 1987 Balances at October31,1984 Net loss Cash dividends ($.40 per share) Exercise of stock options, net Amortization of executive stock plan expense Issuance of restricted stock, net Translation adjustment for the period Balances at October 31,1985 Net loss Cash dividends ($.40 per share) Exercise of stock options, net Amortization of executive stock plan expense Issuance of restricted stock, net Translation adjustment for the period Balances at October 31,1986 Net earnings Cash dividends ($.10 per share) Exercise of stock options, net Amortization of executive stock plan expense Repurchase of restricted stock, net Repurchase of common stock Translation adjustment for the period Quasi-reorganization Revaluation adjustments, net Transfer to additional capital Balances at October 31,1987 Common StOCK $49,341 81 $1,067,549 1,182 : 'mcTii'ill $ 597,007 (633,324) (31,561) 40 893 49,462 1,069,624 67 991 16 230 (67,878) (60,443) (31,701) 49,545 105 1,070,845 2,260 (160,022) 26,592 (7,927) (20) (563) (293) (5,528) ! i nn 11 n $(10,310) 1,838 (957) (9,429) 3,003 (310) (6,736) 1,928 441 luOUItU' Fransiaricn .diusimenis -Ota 1 $(7,224) $1,696,363 (633,324) (31,561) 1,263 1,838 (24) (651) (651) (7,875) 1,033,904 4,483 (60,443) (31,701) 1,058 3,003 (64) 4,483 (3,392) 950,240 2,730 26,592 (7,927) 2,365 1,928 (142) (5,821) 2,730 $49,337 (438,222) (141,357) 141,357 $ 487,435 $ -- $ (4,367) (438,222) -- $ (662) $ 531,743 dr 2801186 31 Notes to Consolidated Financial Statements Major Accounting Policies Balance Sheet Revaluation The balance sheet at October 31,1987 has been adjusted to fair value in accordance with accounting principles applicable to quasi-reorganizations. See Restructuring Activities. Principles or Consolidation The financial statements include the accounts of the company and its subsidiaries. The equity method of accounting is used for investments where ownership ranges from 20% to 50%. All significant intercompany transactions are eliminated. Certain 1986 and 1985 amounts have been reclassified to conform with the 1987 presentation. Business Ownership Changes Coal--On July 10,1987, the company and two subsidiaries of Shell Oil Company (Shell) completed a partition of Massey Coal Company (Massey) whereby Shell relinquished 49.5% of its combined 50% interest in Massey for certain of Massey's operating subsidiaries. The partitioning resulted in no net gain or loss to the company. Prior to the partitioning the company had proportionally consolidated its 50% interest in Massey; subse quently, Massey's operations are fully consolidated to reflect the company's ownership interest. Lead--Effective November 1,1986 the company and Homestake Mining Company transferred all of the assets of their respective domestic lead businesses to The Doe Run Company partnership (Doe Run). Certain reclassifications were made to the historical carrying values of the company's lead operations to reflect the proportional consolidation of the company's 57.5% ownership interest in the partnership. Engineering and Construction Contracts The company recognizes engineering and construction contract revenues using the percentage-of-completion method, primarily based on contract costs incurred to date compared with total estimated contract costs, and using hours incurred to date compared with total estimated hours for the construction of certain power plants. Contracts are segmented between engineering and construction efforts and, accordingly, gross margin related to each activity is recognized as those separate services are rendera <, > i costs or hours 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 contract work in progress. It is anticipated that the incurred costs associated with contract work in progress at October 31,1987, will be billed and collected in 1988. Amounts received from clients in excess of revenues recognized to date are classified as current liabilities under advance billings on contracts. Exploration and Development Coal--Development costs of specific coal properties, when expected to be significant, are capitalized in min ing properties and depleted over the expected economic life of the mine on the units of production method. Lead--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 in mining properties and charged to expense over periods approximating the economic life of the mine on the units of production method. Subsequent maintenance and underground development expenditures are charged to expense as incurred. DR 2801187 32 Fluor Corporation Consolidated Statement of Changes In Financial Position Deoreciation ana Amortization Assets other than mining properties and mineral rights are depreciated principally using the straight-line method to amortize the cost of the assets over their estimated useful lives. Leasehold improvements are amor tized over the lives, of the respective leases. The excess of cost over net assets of acquired businesses is being amortized on the straight-line method, primarily over 40 years. income Taxes Deferred income taxes are provided for items recognized in different periods for financial and tax reporting purposes. Such timing differences include the use of the completed-contract method of accounting for certain contracts, accelerated depreciation and various accruals. Investment and other tax credits are applied as a reduction of the provision for federal income taxes under the flow-through method of accounting. Earnings (Loss) Per Share Earnings (loss) per share is based on the weighted average number of common and common equivalent shares outstanding in each period. Common equivalent shares include the potential dilution from the exercise of stock options when the effect of such options is dilutive. Foreign Currency Translation The effects of translating foreign subsidiaries' financial statements are recorded as a separate component of shareholders' equity. Changes in cumulative translation adjustments were as follows: $ in thousands/October 31, 1987 1986 Balance at beginning of year Translation adjustments Deferred income taxes on translation adjustments $(3,392) 4,712 (1,982) $(7,875) 8,301 (3,818) Balance at end of year $ (662) $(3,392) Changes in operating working capital as shown in the Consolidated Statement of Changes in Financial Position comprise: $ in thousands/Year ended October 31, 1987 1986 1985 Decrease (increase) in: Notes, accounts, and income taxes 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 $41,595 (51,480) (7,893) 90,687 25.040 (3,959) $ 46,256 108,379 1,822 (139,934) (16,260) (85,568) $(63,268) (37,323) 22,252 174,600 968 (24,320) Net decrease (increase! in operating, working capital $ 93,990 $ (85,305) $ 72,909 DR 2801188 33 Notes to Consolidated Financial Statements Continued Restructuring Activities Quasi-Reorganization In conjunction with the company's restructuring and refocus on its engineering and construction business, the company, with the approval of the Board of Directors, adjusted its October 31,1987 balance sheet to fair value and transferred the accumulated deficit of $141 million to Additional capital in accordance with quasi-reorga nization accounting principles. Management utilized the services of outside experts in conducting the revalu ation. The principal adjustments to fair value included a $267 million reduction in the carrying value of the company's 57.5% interest in Doe Run; reversal of $62 million of deferred gains on sale leaseback transactions; accrual of $125 million for certain lease costs; revaluation of intangibles resulting in the elimination of $151 million of excess of cost over net assets of acquired businesses; recognition of a $22 million net increase in the value of the company's investment in Massey Coal Company; and $21 million net increase in the value of other assets. Management has given consideration to the carrying values of the company's remaining assets and liabilities and believes they approximate fair value. The fair value adjustments to the balance sheet resulted in a net charge to Additional capital of $438 million. Discontinued Operations In the third quarter of fiscal 1987 the company initiated a plan for the divestiture of the assets in its Metals segment, except for its 57.5% interest in Doe Run, which has been retained and reported in continuing oper ations. The results of operations for the remainder of the Metals segment have been reported as discontinuec operations and prior periods have been restated. Revenues for the discontinued Metals segment were $309 million, $319 million and $321 million for 1987,1986 and 1985, respectively. In October 1987, the company completed the sale of its 90% interest in St. Joe Gold Corporation and other gold properties to Dallhold Investments Pty. Limited for $500 million, of which $50 million had been received a October 31,1987. The remaining $450 million was received in November 1987. The sale resulted in a pretax gain of approximately $377 million. In September 1987, the company sold its domestic zinc mining operation? to Horsehead Industries for approximately $100 million, including the elimination of $38 million in outstandin debt, resulting in a pretax loss of $17 million. Discussions regarding the disposition of the company's remain ing metals businesses are currently underway. These businesses have been written down to their estimated net realizable value resulting in a pretax charge to discontinued operations of $143 million. In management'? opinion all remaining sales will be concluded in 1988. During the fourth quarter of 1986, the company adopted a plan to dispose of its Drilling Services segment The sale was completed in 1987 for an aggregate sales price of approximately $18 million. Revenues from drilling operations were $18 million and $71 million for 1986 and 1985, respectively. During 1985, the company adopted a plan to dispose of its Oil and Gas segment, which was completed during 1986 for an aggregate sales price of approximately $270 million. Revenues from oil and gas operations were $85 million for 1985. DR 2801189 34 Fluor Corporation The following table summarizes the results of discontinued operations and the respective gain or (loss) from disposition: $ in thousands/Year ended October 31, 1987 1986 1985 Earnings (loss) from operations: Metals (net of income tax (expense) benefit of $(4,988), $5,363 and $(5,645), respectively) Drilling services (net of income tax benefit of $11,160 and $15,693, respectively) Oil and gas (net of income tax expense of $11,750) $(16,544) -- -- $ (9,409) (8,070) -- $ (40,880) (19,611) 7,187 Gain (loss) on disposal: Metals (net of income tax expense of $104,483) Drilling services (net of income tax benefit of $20,650) Oil and gas (net of income tax benefit of $27,050) (16,544) (17,479) 111,254 -- -- -- (24,347) -- (53,304) -- -- (50,867) Earnings (loss) from discontinued operations $ 94,710 $(41,826) $(104,171) The following balances related to discontinued operations have been segregated in the Consolidated Balance Sheet as Net assets held for sale: $ in thousands/At October 31, 1987 1986 Working capital Property, plant and equipment, net Other assets Severance and shut down accruals Other liabilities $ 2,705 23,173 11,200 (22,966) (7,288) $ 1,388 13,442 -- (2,000) -- $ 6,824 $12,830 Sale Leaseback Transactions During 1985, the company completed sale and leaseback transactions of its office facilities in Irvine, California for $340 million, Sugar Land, Texas for $161 million, Greenville, South Carolina for $43 million and Melbourne, Australia for $11 million. The sale of the Irvine facility resulted in a pretax gain of $240 million, of which $38 million and $79 million were included in the results of operations for the years ended October 31,1986 and 1985, respectively. The remaining gain was being amortized over the leaseback period. In connection with the quasi-reorganization, the unamortized balance was credited to Additional capital. Write-Down of Investments Coal--In October 1985, the company wrote down its investment in certain Massey mines to net realizable value, resulting in a charge to operations of $212 million, consisting of reductions in property carrying values, provisions for disposal and a write-off of the allocated excess of cost over net assets of acquired businesses. Based upon further review of mines identified in 1985 for disposal, a decision was made in 1986 to retain certain of these mines and, accordingly, provisions for disposal of $17 million were reversed and are included in 1986 results of operations. Lead--During 1985, the company reviewed the long-term business prospects of the lead business. Based on the deterioration in lead sales, operating profits and prospects for the domestic lead business, the excess of cost over net assets acquired allocated to lead operations of $138 million was written off. DR 2801190 35 Notes to Consolidated Financial Statements Continued Retirement Benefits Certain subsidiaries of the company have noncontributory defined benefit plans. Under these plans payments to retired employees are generally based upon their length of service and a percentage of qualifying compen sation. These plans are generally funded at the minimum annual amount required by applicable regulations. Net periodic pension cost includes the following components: $ in thousands/Year ended October 31, 1987 1986 Service costs--benefits earned during the period Interest cost on projected benefit obligation Net amortization and deferral Less--income and gain on assets invested $ 5,801 14,898 (1,314) (17,900) $ 6,832 14,462 22,572 (39,777) Net periodic pension cost Early retirement program cost 1,485 523 4,089 2,812 Net pension expense $ 2,008 $ 6,901 The following assumptions were used in the determination of net periodic pension cost: Discount rates Rates of increase in compensation levels Expected long-term rate of return on assets The following table sets forth the status of defined benefit plans: $ in thousands/At October 31, 1987 Actuarial present value of benefit obligations: Vested benefit obligation Nonvested benefit obligation Accumulated benefit obligation $ 154,863 4,878 $ 159,741 Plan assets at fair values (primarily listed stocks and bonds) Projected benefit obligation* $219,708 (180,659) Plan assets in excess of projected benefit obligation Unrecognized net gain and asset at implementation* * 39,049 Pension asset (liability) recognized in the Consolidated Balance Sheet $ 39,049 8.0-9.0% 5.0-7.5% 8.0-9.0% 1986 $141,355 9,784 $ 151,139 $217,748 (184,125) 33,623 (40,631) $. (7,008) *At October 31,1987 the projected benefit obligation includes $111 million relating to present and former employees of discontinued operations. **The unrecognized net gain and asset at implementation were recognized in 1987 in connection with the quasi-reorganization and partitioning of Massey. Massey participates in multiemployer defined benefit pension plans for its union employees. Pension expense related to these plans was approximately $1 million for each of the years ended October 31,1987,1986 and 1985. The company also sponsors defined contribution retirement plans covering eligible employees. Any contri butions made are based on a percentage of employees' compensation. Expense recognized for these plans is primarily related to Engineering and Construction operations and totaled $33 million in 1987, $36 million in 1986 and $40 million in 1985. The company and certain of its subsidiaries provide health care and life insurance benefits for certain retired employees. The cost of retiree health care and life insurance benefits for continuing operations, which approximated $3 million, $3 million and $2 million in 1987,1986 and 1985, respectively, is recognized as expense when paid. 36 DR 2801191 Fluor Corporation Long-Term Debt Inventories Long-term debt comprises: $ in thousands /At October 31, Deutsche mark financing, with a currency exchange agreement fixing the repayments in U.S. dollars at an effective interest rate of 9.5%, due in 1996 Term loans, 9.3%, due in installments through 2000 Swiss Franc financing, with a currency exchange agreement fixing the repayments in U.S. dollars at an effective interest rate of 9.3%, due in 1993 Eurodollar zero coupon debentures, effective interest rate 14%, due in 1990 (net of unamortized discount of $13,802 and $18,988, respedive(y) Notes, effective interest rate 9.7%, due in 1993 Serial zero coupon notes, effective interest:rate 14.3%, due in installments through 1989 (net of unamortized discount of $3,515 and $6,815, respectively) Pollution control and industrial revenue bonds, 7% to 8,9% (net of unamortized discount of $7,290) Notes, effective interest rate 1214% (net of unamortized discount of $8,651) Other notes and mortgages Less: Current portion Long-term debt due after one year 1987 $ 46,879 46,800 36,173 35,934 32,210 20,437 _ -- 25,936 244,369 11,421 $232,948 1986 $ 74,019 25,100 90,964 32,471 100,000 25,680 114,289 51,349 20,234 534,106 14,667 $519,439 Maturities relating to long-term debt are as follows for the years ending October 31: 1989, $22 million; 1990, $41 million; 1991, $5 million; and 1832, $5 million. At October 31,1987, the company had unsecured committed three-year revolving long-term lines of credit with banks from which it may borrow for general corporate purposes up to a maximum of $270 million, of which $250 million can convert to four-year term loans. Commitment fees are paid on unused portions of these lines. In addition, at October 31,1987 the company had $140 million in unused short-term lines of credit. At October 31,1987, 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 certificates of deposit, or other rates which are mutually acceptable to the banks and the company. All long-term debt (including current portion) outstanding at October 31,1987 bears interest at fixed rates. Inventories comprise: $ in thousands/At October 31, Coal, metals and processed minerals Supplies and other 1987 $37,059 24,173 $61,232 1986 $ 77,33! 70,77 $148,101 Inventories are stated at the lower of cost using the last-in, first-out (LIFO) method or net realizable value, except for inventories of supplies and other which are on the average cost method. DR 2801192 Notes to Consolidated Financial Statements Continued Income Taxes The income tax benefit (expense) on the loss from continuing operations in the Consolidated Statement of Operations is as follows: $ in thousands/Year ended October 31, 1987 1986 1985 Current: Federal (1987 includes a $7,157 charge in lieu of taxes) Foreign State and local $ (8,069) (4,718) (4,505) $ 39,320 (17,283) (8,256) $ (74,842) (5,012) (11,209) Total current (17,292) 13,781 (91,063) Deferred: Federal Foreign State and local 65,744 271 2,085 16,679 3,208 2,669 134,112 (4,479) 4,882 Total deferred 68,100 22,556 134,515 Total inmate tax benefit $ 50,808 $ 36,337 $ 43,452 A reconciliation of statutory federal income tax to the income tax benefit on the loss from continuing oper- ations follows: $ in thousands/Year ended October 31, 1987 1986 1985 Statutory federal income tax benefit Reductions (increases) in taxes resulting from: Amortization and write-down of property, plant and equipment basis differences Depletion Accruals without tax effect Investment and other tax credits Earnings (losses) without tax effect Capital gam rate differential Amortization and write-off of excess of cost over net assets of acquired businesses State income taxes Nomaxable gain on sale of St. Joe Gold common stock Effect of foreign tax rates Indefinitely reinvested foreign earnings Other, net $52,955 $ 25,279 $255,872 (8,650) 7,783 (5,094) 2,631 2,459 2,247 (2,087) (1,259) -- -- -- (177) (10,762) 7,218 1,691 5,178 5,428 11,356 (2,284) (1,392) 11,087 (6,840) (7,000) (2,622) (49,587) -- (11,425) 1,724 (81,647) 18,022 (84,132) (1,901) -- (2,002) -- (1,472) Total income tax benefit $50,808 $ 36,337 $ 43,452 DR 2801190 Fluor Corporatic The difference between the statutory federal income tax rate and the actual tax rates applicable to discontin ued operations is primarily attributable to the effect of foreign taxes, losses without tax benefit and capital gain rates. The rate difference applicable to the disposal of discontinued operations is primarily attributable t capital gain rates and foreign tax credits. The deferred income tax benefit (expense) applicable to timing differences from continuing operations are as follows: $ in thousands/Year ended October 31, 1987 1986 191 Reduction of deferred tax credits Use of different methods of accounting for construction contracts Residual tax on undistributed foreign earnings Accruals not currently reportable for tax purposes Deferred gains on property sales Other, net $51,565 21,841 (13,477) 10,603 (5,699) 3,267 $- (4,033) 14,652 8,623 1,011 2,303 $ 91,6 (10,2 24,4 16,7 11,8 Total $68,100 $ 22,556 $134,5 Continuing operations in 1987 have been benefited by $52 million through reduction of deferred tax credits arising from deferral of the proceeds on disposal of discontinued operations. United States and foreign earnings (losses) from continuing operations before income taxes are as follow $ in thousands/Year ended October 31, 1987 1986 If United States Foreign $(157,812) 31,729 $(74,984) 20,030 $(554/ (1/ Total $(126,083) $(54,954) $(556, Residual income taxes have not been provided on approximately $42 million of undistributed earnings of certain foreign subsidiaries at October 31,1987 because the company intends to reinvest these earnings indefinitely. For federal income tax purposes foreign tax credit carryforwards of approximately $61 million are availal to reduce future income taxes. If not used, the credits will expire by 1992. A. T Massey Coal Company, Inc. r its subsidiaries file a separate consolidated tax return and have available net operating loss carryforwards $113 million which expire at varying dates through 2000. Utilization of these carryforwards may result in reduction of future tax payments. The Internal Revenue Service fIRS) has completed its examination of the company's federal income tax returns for the fiscal years 1977 through 1979 and those of St. Joe Minerals Corporation through 1981. The company is following the appropriate IRS appeals process in settling certain issues raised by the IRS. Exar nations of fiscal years 1980 through 1983 have commenced and no material adjustments have been propo* by the IRS. Management believes that the resolution of all tax issues will not have a material adverse effet the company's consolidated financial position or results of operations. DR 2801194 Notes to Consolidated Financial Statements Continued :.V Stock Plans The company has four executive stock plans, the 1971 Fluor Stock Option Plan, the 1977 and 1981 Fluor Execu tive Stock Plans and the 1982 Fluor Executive Stock Option Plan. These plans provide for grants of nonqualified or incentive options at prices equal to the fair market value of the company's common stock at date of grant. The 1977 and 1981 Plans also provide for rights to acquire shares under restricted stock agreements at $.331/3 per share under the 1977 Plan and at no charge under 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 31,1987, a total of 1,417,358 restricted shares had been awarded and a total of 49,665 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 market value are accounted for currently as compensation expense. Options and stock appreciation rights granted are generally exercisable one year after the date of grant or in installments of 25% per year commencing one year from date of grant. All options expire ten years after date of grant. The following table summarizes stock option and stock appreciation rights ("SAR") activity for the two years ended October 31,1987: Shares Price Per Share Value SAR Per Right Outstanding at October 31,1985 Granted Expired or cancelled Exercised 3,077,655 885,053 (1,198,723) (129,095) $11-37 13-16 11-37 11-22 846,988 584,515 (658,155) (4,549) $16-34 13 16-34 18 Outstanding at October 31,1986 2,634,890 11-34 768,799 13-34 Granted* Expired or cancelled* Exercised 1,655,369 (1,125,618) (285,609) 12-19 12-34 11-18 826 (41,151) (31,980) 12 12-22 13-18 Outstanding at October 31,1987 2,879,032 $11. 34 696,494 $12-34 Exercisable at: October 31,1986 October 31,. 1987 Available forgrant at: October 31,1986 October 31,1987 1,758,691 799,713 872,093 335,854 $11-34 $11-34 195,208 305,912 259,301 299,626 $13-34 $12-34 'Includes 867,410 shares cancelled in 1987 at prices ranging from $16 to $27, all of which were regranted at $12. DR 2801195 40 Fluor Corporation Extraordinary Items Lease Obligations On November 20,1987 the Board of Directors adopted a preferred shares purchase rights plan and declared a distribution payable on November 30,1987 of one preferred share purchase right ("Right") on each then out standing share of common stock. The Rights are exercisable only if a person or group acquires, or makes a tender offer for, 20% or more of the company's common stock. When exercisable, each Right entitles its holder to buy 1 /100th share of a newly issued preferred stock at an exercise price of $40, subject to certain anti dilution adjustments. Also, if at any time after the Rights become exercisable, the company is either involved in a merger or other business combination transaction, or 50% or more of its consolidated assets or earning power is sold, or a person or group acquires 20% or more of the company's common stock, then each Right will entitle its holder to purchase common stock of the company or the acquiring company having a market value of twice the exercise price of the Right. The Rights, which do not have voting privileges, may be redeemed by the company at a price of $.02 per Right at any time prior to public announcement that a person or group has acquired beneficially 20% or more of the company's common shares. The Rights will also be automatically redeemed under certain circumstances if a majority of shareholders approve the terms of a bid to acquire 100% of the company's common stock which is made by a person or group owning less than 1% of the company's common stock. The Rights expire on Novem ber 30,1997. The 1987 extraordinary item represents the benefit from utilizing U.S. federal income tax net operating loss carryforwards associated with Massey. The 1985 extraordinary item represents the premium, net of tax, paid to retire $305 million of long-term debt prior to its scheduled maturity. Total rental expense for continuing operations amounted to $84 million, $87 million, and $74 million in 1987, 1986 and 1985, respectively. The company's lease obligations relate primarily to office facilities, data process ing equipment, equipment used in connection with long-term construction contracts and other personal property. The company was obligated under noncancellable leases for minimum rentals as follows: $ in thousands/At October 31,1987 Gross Present Value* 1988 1989 1990 1931 1992 Thereafter $ 76,867 79,690 70,290 60,387 55,685 381,724 $ 76,867 72,445 58,091 45,370 38,033 166,277 $724,643 $457,083 `The present value of lease obligations is presented as supplementary information to reflect the impact on future lease commit ments of the time value of money, using a discount rate of 10%. OB 2801196 41 Notes to Consolidated Financial Statements Continued Contingencies, Commitments and Restrictions Operations by Business Segment and Geographic Area The company is contingently liable for commitments and performance guarantees arising in the ordinary course of business. Claims arising from engineering and construction contracts have been made against the company by clients, and the company has made certain claims against clients for costs incurred in excess of 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 31,1987, $152 million of net assets of consolidated entities, primarily Doe Run, including $35 million of working capital, have restrictions which affect the ability to transfer them to the parent company in the form of loans, advances, or dividends. The Engineering and Construction segment includes the subsidiaries engaged in the design, engineering, pro curement, construction, technical services and maintenance of facilities for industrial, commercial, utility, nat ural resource, energy and government clients. Coal segment amounts through June 1987 represent 50% of Massey's operations. Commencing July 1987 Coal segment amounts include the operations of Massey after reflecting the partitioning with Shell Oil. Through 1986, the Lead segment represents 100% of the company's domestic lead operations. Beginning in 1987 the Lead segment represents the company's 57.5% interest in the operations of Doe Run. Identifiable assets are those tangible and intangible assets used in the operation of each of the business segments and geographic areas. Corporate assets are principally cash, short-term investments and nontrade receivables. Sales to customers in foreign countries from domestic operations comprise less than 10% of total revenues in each of the last three years. In 1987 and 1985 no single customer accounted for more than 10% of revenues. Contracts with one major customer accounted for $574 million, or 15%, of Engineering and Construction revenues during 1986. The following table reconciles business segment operating profit (loss) with the loss from continuing operations before income taxes: $ in millions/Year ended October 31, 1987 1986 1985 Operating profit (ioss) from continuing operations Interest, net Gain on sale of Irvine facility and St. Joe Gold common stock Provision for future losses on facility subleases and certain investments Corporate administrative and general expense Other items, net $ (26.7) (40.1) -- (36.8) (24.1) 1.6 $(48.5) (39.8) 61.9 -- (32.5) 3.9 $(516.7) (78.4) 78.8 -- (34.7) (5.2) Loss from continuing operations before income taxes 5(126.1) $(55.0) $(556.2) DR 2801197 * - -- Fluor Corporation $ in millions Operations By Business Segment Engineering and Construction Coat Lead Continuing Operations 1987 $3,251.3 580.1 93.1 $3,924.5 Revenues 1986 1985 $3,727.8 516.9 97.0 $4,341.7 $3,226.4 475.1 74.9 $3,776.4 Operating Profit (Loss) 1987 1986 1985 $(49.5) 28.3 (5.5) $(26.7) $(71.2) 49.3 (26.6) $(48.5) $(106.6 (223.0 (187.1 $(516.7 $ in millions Engineering and Construction Coal Lead Corporate Continuing Operations Discontinued Operations 1987 $ 620.4 657.5 154.6 621.9 2054.4 6.8 $2,061.2 Identifiable Assets 1986 1985 $ 582.3 789.8 445.7 225.5 $ 679.6 803.5 464.3 92.7 2043.3 522.1 2040.1 756.3 $2,565,4 $2,796.4 Capital Expenditures 1987 1986 1985 $37.4 25.0 5.1 -- $25.6 26.9 3.8 .3 $ 14.1 27.4 3.8 6.8 67.5 56.6 32.3 35.0 52.1 69.1 $99.8 $91.6 $121.2 Depreciation, Depletior and Amortizatior 1987 1986 1981 $ 21.1 39.5 22.9 1.7 $ 21.3 37.3 29.0 1.7 $ 277 481 3i; Ik 85.2 89.3 114.1 39.2 40.0 85J $124.4 $129.3 $200.: $ in millions Operations By Geographic Area United States Canada Middle East Europe Other Revenues 1987 1986 1985 $3,461.9 220.1 70.7 99.2 72.6 $3,924.5 $3,756.0 79.0 91.6 304.9 110.2 $4,341.7 $3,194.7 56.4 106.5 269.3 149.5 $3,776.4 Operating Profit (Loss) 1987 1986 1985 $(29.0) 1.8 (1.6) (.1! 2.2 $(48.7) 3.2 .3 .9 (4.2) $(497.0) (6.0) 1.2 (9.0) (5.9) $(26.7) $(48.5) $(516.7) Identifiable Asset 1987 1986 198 $1,830.7 61.9 39.9 89.5 39.2 $2,061.2 $2,062.2 31.5 59.6 73.8 338.3 $2,565.4 $2,284. 14. 54 93. 349 $2,796 <a| Includes a charge of $212 million consisting of reductions in property carrying values, a provision for disposal of certain coal properties and a write-off of the allocated excess of cost over net assets acquired. (bl Includes a charge of $138 million relating to the write-off of the excess of cost over net assets acquired. DR 2801198 Reports of Management and Independent Accountants Fiuor Corporation Management Independent Accountants The company is responsible for preparation of the accompanying consolidated balance sheet and the related consolidated statements of operations, changes in financial position and shareholders' equity. They have been prepared in conformity with generally accepted accounting principles, which have been applied on a consis tent basis, and management believes that they present fairly the company's consolidated financial position and results of operations. The integrity of the information presented in the financial statements, including esti mates and judgments relating to matters not concluded by fiscal year end, is the responsibility of manage ment. To fulfill this responsibility, an accounting system and related systems of internal controls, designed to protect the company's assets and properly record transactions and events as they take place, has been devel oped and maintained. This system of internal controls is supported by an extensive program of internal audits and tested and evaluated by the independent accountants in connection with their annual audit. The Board of Directors pursues its responsibility for financial information and review through an Audit Com mittee of Directors who are not employees. The internal auditors and the independent accountants have full and free access to the Committee. Periodically the Committee meets with them without management present to discuss the results of their examinations, the adequacy of internal accounting controls and the quality of financial reporting. Board of Directors and Shareholders Fluor Corporation We have examined the accompanying consolidated balance sheet of Fluor Corporation at October 31,1987 and 1986, and the related consolidated statements of operations, changes in financial position and shareholders' equity for each of the three years in the period ended October 31,1987. Our examinations were made in accord ance with generally accepted auditing standards and, accordingly, included such tests of the accounting rec ords and such other auditing procedures as we considered necessary in the circumstances. In 1986 and 1985 the accounts of Massey Coal Company, a 50% owned joint venture, were examined by other independent audi tors; insofar as our opinion on the consolidated financial statements related to such assets and operations, which constituted 19% and 11% in 1986, and 17% and 11% in 1985 of consolidated assets and revenues, respectively, it is based solely on their reports. In our opinion, based on our examinations and the reports of other independent auditors, the accompanying consolidated financial statements present fairly the consolidated financial position of Fluor Corporation at October 31,1987 and 1986, and the consolidated results of operations and changes in financial position for each of the three years in the period ended October 31,1987, in conformity with generally accepted accounting principles applied on a consistent basis during the period. Orange County, California December 4,1987 44 DR 2801199- Quarterly Financial Data Fluor Corp unaudited The following is a summary of the quarterly results of operations: $ thousands, except per share amounts First Quarter 1917 Revenues from continuing operations Gross margin (loss) loss from continuing operations before income taxes Earnings (loss! from continuing operations Earnings (loss) from discontinued operations: Operations Disposal Extraordinary item Met earnings (loss) Earnings (loss) per share: Continuing operations Discontinued operations Extraordinary item Met earnings (loss) $ 903,158 (6,175) (23,384) (28,564) (4,754) -- -- (33,318) (.36) (.06) -- $ (.42) Second Quarter $ 898,563 (19,913) (36,824) (42,944) (9,681) -- -- (52,625) (.54) (.12) -- $ (.66) Sin thousands, except per share amounts First Quarter Second Quarter Third Quarter $909,235 (5,144) (21,841) (27,941) (4,981) -- -- (32,922) (.35) (.07) -- $ (.42) Third Quarter C $1,2' G ; ii V $ i Q Revenues from continuing operations Grass margin (loss) Less from continuing operations before income taxes Earnings (loss) from continuing operations Earnings (loss) from discontinued operations: Operations Disposal Met.earnings (loss) Earnings (loss) per share: Continuing operations Discontinued operations Met earnings (loss) $1,099,876 (8,581) (2,416) 6,718 (82) -- 6,636 .08 -- $ .08 $1,290,201 1,358 (13,784) (6,302) (5,318) -- (11,620) (.08) (.07) $ (.15) $973,282 (20,838) (2,543) 4,055 (2,958) -- 1,097 .05 (.03) $ .02 $ 97 (1 (3 (2 ( (2 (5 $ lai Fourth quarter 1987 results include an income tax benefit of $52 million related to cumulative year-to-date operating losses v, was recognized in the fourth quarter due to the gain on disposal of discontinued operations. DR 2801200 Directors DavidS. Tappan, .k Chairman of the Board and Chief Executive Officer (1965) Caroline L. Ahmaason Chairman of the Board of Caroline Leonetti, Ltd. (1985) HughK. Coble Group President, international Operations, Fluor Daniel, Inc. (1984) Peter J. Fluor President of Texas Crude, Inc. (1984) David R Gardner President, University of California (1988) William R. Grant Chairman of New York Life International Investment, Inc. (1982) Robert L. Guyett Senior Vice President and Chief Financial Officer (1987) Bobby R. Inman Chairman and CEO of Westmark Systems, Inc., Admiral U.S. Navy (Retired) (1985) Vincent L. Kontny President and CEO', Fluor Daniel, Inc. (1988) Robert V. Lindsay Retired, former President of J. R Morgan & Co. Incorporated and Morgan Guaranty Trust Company of New York (1982) E. Morgan Massey President, A. T. Massey Coal Company, Inc. (1987) Leslie G. McCraw President (1984) BuckMickel Retired, former Vice Chairman of the Board (1977) Allen E. Puckett Retired, former Chairman and CEO of Hughes Aircraft Company (1987} Louis H. Wilson General, U.S. Marine Corps (Retired) and former Commandant of the Marine Corps (1979) Executive Committee David S. Tappan, Jr., Chairman Hugh K. Coble Robert L. Guyett VncentL. Kontny E. Morgan Massey Leslie G. McCraw Gerald M. Glenn (nonvoting ex officio) Audit Committee William R. Grant, Chairman Caroline L. Ahmanson Peter J. Fluor Bobby R. Inman Louis H. Wlson Compensation Committee Louis H. Wlson, Chairman Wiliam R. Grant Robert V. Lindsay Allen E. Puckett Nominating Committee David S. Tappan, Jr., Chairman Peter J. Fluor William R. Grant Bobby R. Inman Robert V. Lindsay Louis H. Wlson Officers Principal Subsidiaries and Divisions Corporate Executive Officers David S. Tappan, Jr. Chairman of the Board and Chief Executive Officer (1952) Leslie G. McCraw President (1977) Robert 1. Guyett Senior Vice President and Chief Financial Officer (1987) Nad A. Peterson Senior Vice President and Secretary (1967) R Joseph Trimble Senior Vice President-Law (1972) Executive Operating Officers Vincent L. Kontny President and CEO, Fluor Daniel, Inc. (1965) Hugh K. Coble Group President, International Operations (1966) Gerald M. Glenn Group President, Marketing and Sales (1977) E. Morgan Massey President, A. I Massey Coal Company, Inc. (1981) Jan R Powell President and CEO, Fluor Constructors International, Inc. (1967) Other Officers CharlesJ. Bradley Vice President-Human Resources and Administration (1958) James 8. Byron Vice President-Government Relations (1963) Lawrence N. Fisher Vice President-Corporate Law (1974) J. Robert Fluor II Vice President-Corporate Relations (1967) WilliaetM. Hofacre Vice President-Financial Planning & Analysis (1984) Denis RKaischeur Vice President and Treasurer (1987) Larry W. litteberger Vtce President and Controller (1977) RichardD. Paul Vice President-Financial and Operational Evaluation 11968) James 0. Italians Vice President-Corporate Communications (1982) WiiliantB. Trammell Vice President-Project Finance (1968) Key Fluor Daniel Operating Executives James E Barry President-Far East (1977) Charles R. Cox President-Europe, Africa and Middle East (1977) RichardW. Dean President-Eastern Operations (1977) Larry M. Hart President-Western Operations (1977) A.B. McArthur Presiderrt-Canada (1975) Charles It Oliver President-Hydrocarbon Sector (1970) Emil J. Parente President-Government Sector (1978) James C. Stein President-Industrial Sector (1977) Peter Van Nort President-Power Sector (1980) Paul J.Varello President-Process Sector (1977) Engineering and Construction Fluor Daniel, Inc. Industrial Sector, Greenville, South Carolina Power Sector, Greenville, South Carolina Process Sector, Greenville, South Carolina Hydrocarbon Sector, Irvine, California Government Sector, Irvine, California Western Operations Center, Irvine, California Houston Office Redwood City Office Eastern Operations Center, Greenville, South Carolina Chicago Office Fluor Daniel Facility Services Corporation, Greenville, South Carolina Fluor Daniel Services Corporation, Greenville, South Carolina Fluor Daniel Venture Group lnc,, Irvine, California International Operations Daniel International (Saudi Arabia) Ltd., Jeddah, Saudi Arabia Fluor Arabia Limited, Al-Khobar, Saudi Arabia Fluor Daniel Australia Limited, Melbourne, Victoria, Australia Fluor Daniel Canada Ltd., Calgary, Alberta, Canada Fluor Daniel B.V, Haarlem, The Netherlands Fluor Daniel GmbH, Dusseldorf, West Germany Fluor Daniel Limited, London, England Daniel International Corporation, Greenville, South Carolina Fluor Constructors International, Inc., Irvine, California Fluor Canada Constructors, Ltd., Calgary Alberta, Canada Fluor Constructors, Inc. Irvine, California Natural Resource Investments Massey Coal Company, Richmond, Virginia The Doe Run Company, St. Louis, Missouri DR 2801202 47 Stockholders' Reference Common Stock and Dividend Information Form 1Q-K A copy of the Form 10-K, which is filed with the Securities and Exchange Commission, is available upon request. Write to: Vice President and Controller, Fluor Cor poration, 3333 Michel son Drive, Irvine, California 92730,(714)975-2000. Registrar and Transfer Agent Security Pacific National Bank, Corporate Services Division, 333 South Beaudry Avenue, Los Angeles, California 90017, and Security Pacific Clearing & Services Corp. New York, 2 Rector Street, 2nd Floor, New York. New York 10006. For change of address, lost dividends, or lost stock certificates, write or telephone: Security Pacific National Bank, Stock Transfer Division, Box 3546, Terminal Annex, Los Angeles, California 90051, Attn: Shareholder Relations (800) 423-5041 Independent Accountants Arthur Young & Company. 3200 Park Center Drive, Costa Mesa, California 92626 Annual Stockholders' Meeting Annual report and proxy statement are mailed about February 1. Fluor's annual meeting of stock holders will be held at9:Q0a.m. on March 8,1988 at the Red Lion Inn, 3050 Bristol Street, Costa Mesa, California 92626-3098. Company Contacts Stockholders may call collect. Stockholder information: Lawrence N. Fisher (714)975-6961 Investor Relations: Lila J. Churney (714) 975-3909 The following table sets forth for the periods indicated the cash dividends paid per share of common stock and the high and low sales prices of such common stock as reported in the Consolidated Transactions Reporting System. Dividends Per Share Price Range High Low Fiscal 1987 First Quarter Second Quarter Third Quarter Fourth Quarter $.10 $1414 $11% -- 16% 12% -- 2014 14'% -- 21% 11 $.10 Fiscal 1986 First Quarter Second Quarter Third Quarter Fourth Quarter $.10 $16% $13% .10 18% 15 .10 19% 12 .10 15% 12 $.40 Common Stock Information At December 31,1987 there were 78,810,446 shares outstanding and approximately 25,500 stockholders of record of Fluor's common stock. Stock Trading Fluor's stock is traded on the New York, Midwest, Pacific, Amsterdam, London and Swiss Stock Exchanges. Common stock domestic trading symbol: FLR Common Stock History Since Going Public in 1950 08/23/57 12/15/61 03/11/63 03/09/64 03/08/65 02/14/66 03/24/66 03/27/67 02/09/68 03/22/68 05/16/69 03/06/70 03/05/71 03/10/72 03/12/73 03/11/74 08/13/79 07/18/80 20% Stock Dividend 5% Stock Dividend 5% Stock Dividend 5% Stock Dividend 5% Stock Dividend 5% Stock Dividend 2 for 1 Stock Split 5% Stock Dividend 5% Stock Dividend 2 for 1 Stock Split 5% Stock Dividend 5% Stock Dividend 5% Stock Dividend 5% Stock Dividend 5% Stock Dividend 3 for 2 Stock Split 3 for 2 Stock Split 2 for 1 Stock Split dr 2801203