Document xwd6jJOjGvnwZgn60jZkangm

DR 2801254 Fluor $ in thousands except per share amounts m 1989 m 1988 m Percent Improvement Fiscal Year Revenues Net earnings Net earnings per share Return on average shareholders' equity Capital expenditures New awards Cash dividends per common share $6,277,607 108,484 $ 1-35 16.5% $ 139,174 7,135,300 $ .14 $5,132,457 56,395 $ .71 10.0% $ 86,259 5,955,200 $ .02 22 92 90 61 20 600 At Year End Working capital Bond portfolio Total assets Backlog Capitalization Long-term debt Shareholders' equity $ 238,720 151,640 2,154,313 8,360,900 62,477 720,363 $ 214,904 154,777 2,075,732 6,658,600 94,961 601,747 11 (2) 4 26 34 20 Total capitalization $ 782,840 $ 6f)6,yo8 Percent of total capitalization Long-term debt Shareholders' equity Closing stock price Shareholders' equity per common share Permanent employees 8.0 92.0 $ 283/4 $ 9.03 ------2-0-,-0--5-9m 13.6 $ 19% $ 7.61 17,876 m--.-- cb 00 Dividends were resumed in the fourth quarter of 1988. The quarterly dividend was increased from $,02 per share to $.04 per share in the second quarter of 1989 and to $.06 per share in the first quarter of 1990. 12 46 19 12 DR 2801256 Dear Fellow Stockholder: Fluor enters the new decade with strong earnings momentum, superior financial strength and a business strategy and industry focus well suited for the 1990s. Net earnings for 1989 increased 92 percent to $108.5 million, com pared with $56.4 million a year ago. Importantly, our engineering and construction backlog grew 26 percent this past year to $8.4 bil lion, the highest level in more than seven years. The coming decade offers sig nificant opportunities for an engi neering and construction (E&C) company. Our diverse client base expresses a growing demand for technical services, and developing markets worldwide have basic needs that must be satisfied. Our industry appears to be in the early stages of a long-term growth trend. Consequently, we dedicated this past year to meeting interim goals that will allow us to fully capitalize on each phase of that trend. Engineering and Construction We concentrated on four major E&C objectives: First, we targeted and won specific contracts aimed at improving profit margins or strategically positioning the company in markets or geo graphic areas that will enhance future growth. We exerted special effort to expand our market posi tion outside the U. S. International backlog grew 44 percent in 1989 and now stands at S2.0 billion or 23 percent of total backlog. Inter national growth is expected to out pace growth in the U. S. over the next several years as new markets are further penetrated. Second, superior performance in project execution, a hallmark of the company, received special emphasis as we focused on Fluor Daniel's mission statement (page 49). More than 60 percent of new work in 1989 was from repeat clients, clear evidence that our mission accom modates changing market needs. Further indications of our suc cess are our ranking as Number 1 contractor in the U. S. by Engineer ing News Record Magazine for the second consecutive year. Fluor Daniel led the U. S. with its out standing safety performance in 1989, our best on record and five times better than industry norms. Third, the company's dedication to superior service is founded upon attracting and retaining the most qualified and experienced people in our industry. This will be accom plished by selective recruitment, and stepping up reinvestment in extensive training, enhanced use of electronic engineering and more advanced communication tools. Special functional taskforces have been established to ensure that our more than 50,000 salaried, hourly and craft personnel continuously improve performance. Fourth, we strengthened our capa bilities in all five business sectors through internal development, technology positioning, niche acquisitions and client alliances. A significant step was taken in Power. A 50/50 joint venture com pany was formed with Duke Power Company, one of the most progres sive and well-managed utilities in the U.S. The new company, Duke/ Fluor Daniel, will provide clients with a single source for all of their coal-fired power generation needs. Fluor Daniel will concen trate on non-coal privatized power, cogeneration, technical services and maintenance. The Hydrocarbon Sector, where we are the recognized industry leader, is also adding to its capa bilities. In November, we announced our intent to purchase Williams Brothers Engineering, a well regarded company in pipelines and production facilities. Industrial, our largest, most diverse business sector, continues to make solid progress penetrat ing domestic and international markets--more than offsetting softness in certain of their industries. The Process Sector, which achieved market share gains in its global markets, is benefitting DR 2801257 Executive Committee. Pictured left to right in frame 14 are E. Morgan Massey, President, A. T. Massey Coal Company; R Joseph Trimble, Senior Vice President-Law, Fluor (ex officio); Robert L. Guyett, Senior Vice President and Chief Financial Officer, Fluor; Hugh K. Coble, Group President, Fluor Daniel; Gerald M. Glenn, Group President, Fluor Daniel; Leslie G. MeCraw, Vice Chairman and Chief Executive Officer, Fluor; David S. Tappan, Jr., Chairman, Fluor; Vincent L. Kontny, President, Fluor, and President and Chief Executive Officer, Fluor Daniel. from strong client alliances and an outstanding reputation in advanced composites, plastics and biotechnology. Finally, Government is concen trating on several promising tech nology fields, including certain Department of Energy projects, telecommunications, hazardous waste and environmental remediation. Natural Resources Massey Coal's excellent perfor mance in 1989 stems from higher volume and continued downward pressure on operating costs. This past year Massey reopened a major low-sulfur coal mine and purchased additional low-sulfur reserves adja cent to existing facilities in antici pation of proposed federal acid rain legislation. Doe Run, the market leader in lead, also showed outstanding per formance, taking full advantage of robust demand and higher com modity prices. Pricing, however, softened as the year ended. As pre viously reported, we are responding to inquiries regarding the potential purchase of our 57.5 percent inter est in the company. Financial Condition Financially, Fluor is in excellent condition. Long-term debt cur rently stands at $62 million, $32 million less than a year ago and only 8 percent of total capitaliza- DR 2801258 .1 7-5 Revenues dollars in billions Net Earnings (Loss) Per Share dollars Return on Equity percent tion. Our cash, cash equivalents and bond portfolio total S3 87 mil lion or $67 million more than a year ago. Return on shareholders' equity also improved, advancing to 16.5 percent from 10 percent in 1988. In recognition of the company's improving performance, strong financial position and positive outlook, the Board of Directors approved in December an increase in the quarterly dividend rate to 6 cents per share. The normal payout guideline is approximately 20 per cent of the previous year's earnings. Management Changes Fluor's senior management tran sition entered its final phase with Les McCraw succeeding Dave Tappan as Chief Executive Officer on January 1,1990. Tappan will con tinue as Chairman until December 31,1990, with McCraw serving as Vice Chairman. Vince Kontny replaced McCraw as President, Fluor Corporation, and retained his responsibilities as President and Chief Executive Officer of Fluor Daniel. The team management philoso phy which enhanced Fluor's recent restructuring and recovery will continue to be a guiding precept for success in the 1990s. Outlook As the rate of political and eco nomic change continues to acceler ate, Fluor is structured and ready to respond. The world is clearly moving toward reduced military spending with the prospect of reallocating national resources toward more productive enter prises. The coming decade will see increased private and government investment to satisfy a growing demand for products and services. As a global leader in our industry, we are in a unique position to cap italize on these favorable trends. We look forward to a new decade of further growth and pros perity, and we thank our employees, shareholders, clients and Board of Directors, all of whom have invested with us for the future. David S. Tappan, Jr. Chairman Leslie G. McCraw Vice Chairman and Chief Executive Officer January 19,1990 DR 2801259 Financial Community Per sp e c v e Fluor places utmost importance on relations with its shareholders. With this in mind, special emphasis is given to communications, spe cifically the annual and quarterly shareholder reports, special bulle tins and the annual meeting. To further facilitate the flow of infor mation to shareholders, Fluor man agement also meets regularly with members of the financial commu nity, who in turn provide their investment conclusions to investors. The objective of these communi cation efforts is to provide current and prospective Fluor shareholders with sufficient information so that they can fairly assess the company's progress and its value as an investment. What Financial Analysts Are Saying About Fluor The following excerpts from recent financial reports reflect the view points of financial analysts on the long-term outlook for the indus tries served by Fluor and the opportunities for the company. m Industry Outlook ... The capital investment cycle appears to be in the early stage of a long-term recovery worldwide which is good news for Fluor. ... Compilation of E&C new orders and backlog points to continued expansion of the industry. We expect these stocks to continue to reflect secular growth in new orders and backlog. ... Finding the resources to execute backlogged work will become one of the most critical issues facing the industry in coming years. . ..Impact of acid rain legislation on coal markets now becomes important. Producers with low sulfur coal reserves, strategically located near eastern U.S. markets, are likely to benefit. Fluor's Status, Issues and Opportunities ... The market's excitement over Fluor's strong end-markets, wellfocused strategy and rapidly improving cash flows has caused the stock to outperform the market. ... Fluor's top management has emerged with a clear idea of how this company will approach its business through the 1990s. . ..Fluor Daniel's strong brand name, combined with a welldiversified geographic presence, should enable the company to participate in almost any major regionally-specific capital spending cycle. ... The company has thus far been very successful in adding staff... nevertheless, we expect the problem (of scarcity) to exacerbate before improving. ... Fluor's first priority is to invest excess cash in its E&C business, then consider other options. DR 2801260 (Left) Fluor Daniel's work force demonstrated the company's total commitment to safety by chalk ing up new records for working without lost-time accidents on this important project. The mill represents one of the largestcapital investment projects in South Carolina. In the 30 months to complete Phase I of the plant and its support facilities, Fluor Daniel workers achieved 1 million hours without a lost-time accident five different times and worked 2.8 million hours without a lost-time accident at a single stretch --a dramatic mile stone for the pulp and paper busi ness unit. Engineering and construction (E&C) services, the company's core busi ness activity led by Fluor Daniel, achieved significantly improved earnings in 1989 due in part to higher margins and increased mar ket share. Operating profit more than doubled to $117 million com pared with a year ago. Revenues increased 26 percent to $5.3 billion. The E&C strategy we developed in 1986 with the formation of Fluor Daniel--deliver more services to more clients in more markets in more geographic areas--is meeting with considerable success. New awards grew 20 percent this past year to S7.1 billion. Backlog rose 26 percent to $8.4 billion and is well diversified among the five business sectors. Business activity outside the U.S. also showed marked improvement in 1989. The inter national component of backlog grew 44 percent to $2.0 billion and we anticipate continued growth. International work now represents 23 percent of total backlog. During the past year Fluor Daniel refined its organizational structure to enhance its industry leadership role and to expand its diversity. Formalized business units were created to focus on specific markets within each of the five business sectors. To facilitate career development opportunities, as well as insure the quality and consis tency of Fluor Daniel's services. functional leaders within various disciplines were created. The busi ness units and functional leaders concept overlay our network of Operations Centers which provide project execution worldwide. While we have been reasonably successful in improving our mar gins by offering clients a clear value advantage, market conditions which impact margins are still only fair. To optimize our intermediateterm margin performance, we intend to reinvest aggressively in increased personnel training and development; more sophisticated electronic engineering and control systems; improvements in our communications networks; and extending our leading edge knowl edge and capabilities in emerging technologies. This reinvestment strategy will achieve best results for the full business cycle. Completing its second year, the Growth through Excellence in Technology, or "GET" program, provides focus for Fluor Daniel's commitment to a leadership posi tion in the application of new and emerging technologies. Target areas in this program include the direct conversion of natural gas to liquid transport fuels; significant advances in new and environmentally clean electric power generation tech nology; new biological processes for production of chemicals; appli cation of supercritical processing to the foods industry; new bleach- DR 2801262 ^fjcrutions Report ing technology to improve the quality of wood pulp and eliminate harmful effluents; and the applica tion of superconductivity for electro magnetic launch of space vehicles. A key objective of the program is to achieve the technological synergy potential represented by Fluor Daniel's unique multi industry position and bring that know-how and experience to bear in providing added value to our clients. Industrial Sector Serving the most diverse range of markets of Fluor Daniel's five business sectors, the Industrial Sec tor serves clients through its five business units: pulp and paper; metals; food, beverage and con sumer products; commercial; and automotive and electronics. New awards in 1989 were strong, totalling $2.4 billion. Backlog for the Industrial Sector grew to $2.9 billion, representing 35 percent of the company's total. The sector increased its international presence during the year working for U. S. clients outside the U.S., as well as adding new international clients. The trend toward client/ contractor "alliances" continues to grow. A number of new agree ments were reached in 1989, and discussions are currently underway with several other industrial clients. New awards for the pulp and paper business unit were extremely strong this past year, including a major expansion of Union Camp's Eastover paper mill in South Caro lina, a grassroots tissue mill for Kimberly-Clark in Tennessee, and the addition of a fourth tissue paper machine at Fort Howard's Savannah River Mill in Georgia. While it is expected that new capacity additions in the US. may slow in 1990, pulp and paper pro jects are anticipated internationally. The market for the food, bever age and consumer products unit was active, due to technological advances in food processing and packaging. During the year, an "alliance" agreement was reached with Pillsbury, now a subsidiary of U. K. -based Grand Metropolitan PLC. Current projects for Procter & Gamble, an alliance client, include manufacturing facilities in the U.S., Canada and West Germany. The downstream metals pro cessing market picked up in 1989 because of advances in recycling and product quality, and higher commodity prices. Significant proj ects included two awards from Alcan for a major modernization program at their sheet rolling facil ity in New York, and upgrading and capacity expansion of, their Kentucky plant; and a grassroots lithographic plate manufacturing facility for Polychrome in Georgia. A strengthening commercial market, combined with Fluor Daniel's selective marketing strategy which targets specific geographic areas and client relationships, is generating a growing list of con tracts. Projects for the commercial unit include high-rise buildings, hotels, court houses and prisons. Increased engineering services coupled with Fluor Daniel's already strong construction reputation helped achieve market share growth in the automotive and electronics areas. Examples of such awards include a semiconductor manufac turing facility in California; expansion of an advanced ceramic products facility in West Germany; and continued expansion of services for an automotive assembly facility in Kentucky. Significant projects completed during the year include an elec tronic wafer fabrication facility for Intel in California; two high-rise hotels for Hyatt in the Washington, D.C. area; a dry cereal manufactur ing facility for Kellogg in Michigan; and expansion and upgrade of the Greenville-Spartanburg airport in South Carolina. Process Sector Serving an increasingly global market and client base, the Process Sector achieved solid growth in 1989. New awards grew to $2.0 billion from $1.1 billion a year ago. Backlog at year end was S2.0 bil lion, representing 25 percent of the company's total. dr 2801263 (Far left) Siting, design, procure ment, construction, commissioning and maintenance services are pro vided by the Industrial Sector for Alcan Aluminum's new state-of- the-art used beverage can (UBC) recycling plant in Berea, Kentucky. The latest technology is used to shred and melt the UBC's and feed molten metal into a single caster. The plant has an annual capacity of about 6 billion cans. (Left) The Process Sector completed design and construction manage ment of a fluid cracking catalyst plant in Terneuzen, Netherlands, for Engelhard Corporation. Front- end design was performed at the Greenville, South Carolina Opera tions Center, with completion man aged by the Haarlem, Netherlands office. OR 2801264 Operations Report 10 The Process Sector serves clients through its four business units: chemicals, textiles and fibers; plas tics; pharmaceuticals, biotechnol ogy and fine chemicals; and the Delta Division, which performs work worldwide for our "alliance" with Du Pont. Constantly advancing technol ogy and new product development keep growth in the biotechnology and pharmaceutical unit rapid. The Process Sector has developed a strong presence in the northeast U.S., where many U.S. phar maceutical companies are located. Fluor Daniel's Philadelphia Opera tions Center, established in 1988, is one of our fastest growing offices serving these important Process Sector clients. The economic inte gration of the European Economic Community in 1992 is also stimu lating project activity for a number of major U. S. and European-based clients. The chemical industry world wide continues to operate at high rates of capacity utilization necessi tating new expansion projects and debottlenecking of existing facili ties. Chemical manufacturers are geographically diversifying their production base in response to an increasingly global market, lead ing to additional international assignments. Chemical compa nies are beginning to invest in environmentally-driven projects in order to comply with new and more stringent environmental regulations. Growth in the use of engineered plastics and advanced composites in aerospace, automotive manufac turing and computer applications continues to expand opportunities for the plastics unit. Significant projects awarded to the Process Sector this year include a specialty chemical project for CIBA-GEIGY in Alabama; a second expansion of an animal feed supple ment facility for Heartland Lysine in Iowa; a new world headquarters facility for Bausch & Lomb's Pharmafair subsidiary in Florida; a specialty chemical plant for the North American subsidiary of West German-based Hiils AG in Alabama; expansion of an amino acids production facility for Ajinomoto USA in North Carolina; a polyester film plant for Toray Plastics (America) in Rhode Island; environmental services for Rohm and Haas in Pennsylvania; and several awards worldwide for GE Plastics. During 1989, the Delta Division further expanded the services pro vided to Du Pont and is currently working at over 25 sites in five countries. Considered the standard of the industry for "alliances" (Right) Innovative construction techniques met a fast-track sched ule, achieving job completion in just 13 months instead of the cus tomary 28 months. Fluor Daniel's project approach and use of Auto CAD achieved dramatic savings in time and dollars. A "Go" team of impartial inside experts continually reviewed job progress and made appropriate recommendations. A significant on-site engineering force designed and implemented construction deci sions on the spot. Fluor Daniel and client project organizations were developed to meet required tasks rather than follow conventional methods of working the tasks around an established organization. DR 2801265 13 (Left) Fluor Daniel's leading edge position in use of advanced tech nology is being applied in the design of this new cogeneration plant in Massachusetts. Located in a residential area with a neighboring public school, the plant has a state-of-the-art emissions control system. The proj ect was evaluated and designed using highly sophisticated computer-aided design techniques and proprietary computer models. Special noise-attenuated cooling towers have been installed and major equipment enclosed within concrete structures. The result is one of the quietest facilities of its type in the United States. between clients and contractors, the number of employees in the Delta Division grew worldwide to an all time high. The Process Sector also has alliances of varying size and scope with a number of other clients, providing an important baseload of engineering work. Significant projects completed during 1989 include expansion of a titanium dioxide facility in Georgia for Kemira; a feedstock treatment plant for pigment production in West Germany for Bayer AG; and a biotech facility in Puerto Rico for Ortho Pharmaceuticals. Power Sector During 1989, the Power Sector continued to strengthen its market position and client relationships. While significant growth in the power market is anticipated over the next several years, the current level of activity remains modest. Nevertheless, new awards for the Power Sector in 1989 improved 30 percent over last year to $539 million. Due to significant work-off on the large Midland Cogeneration project, backlog declined somewhat from a year ago to $657 million, or 8 percent of the company's total. The Power Sector provides a broad range of services to gas and electric utilities, independent power producers, cogenerators and indus trial clients in the areas of coal, gas, nuclear and other alternative energy technologies. The Power Sector has seven business units. Five of the units focus on client needs in geographic regions of the U.S., while the remaining two units provide technical expertise focused on specific technologies for coal- and gas-fired power plants. In September, the Power Sector significantly improved its position in the coal-fired electrical power generating market by forming a joint venture with Duke Power, a leading U.S. utility. The new com pany, Duke/Fluor Daniel, will pro vide comprehensive engineering, construction, operating and main tenance services in the U. S. to coalfired facilities for utilities, indepen dent power producers, cogenerators and manufacturers who produce their own power. The combination of Duke's outstanding design and operating capabilities and Fluor Daniel's engineering and construc tion expertise is now a major force in the power market. The combined strengths of the two companies will provide clients with a single source for all of their coal-fired power generation needs. As a leader in power mainte nance technology, Fluor Daniel serves the current market which is still strongly geared to plant main tenance, modification, upgrade and life extension projects. Pent-up demand for new electric generating capacity continues to build as growth outpaces industry DR 2801268 * 14 * (Far left) The Government Sector's telecommunications services unit is designing and installing an upgraded data network to connect approximately 800 Bank of Amer ica offices throughout California. (Left) Duke/Fluor Daniel, the Power Sector s newly formed joint venture with Duke Power, will tar get U. S. coal-fired electric power generating facilities. Senior execu tives, drawn from both parent com panies include (left to right) Mike Epprecht, Sales; Ron Green, Presi dent; and Parks Cobb, Operations. (Right) The Hydrocarbon Sector is performing engineering, procure ment and construction manage ment on a lead phase-out project at Ultramar Canadas refinery in St. Romuald, Quebec. DR 2801269 *5 expectations. Despite heightened awareness and numerous industry studies indicating future shortages, utilities have not as yet begun to add new base-load capacity. The privatized segment of the power industry and cogeneration remain the strongest markets for new power plant construction. In some instances, utility clients are participating as equity partners, developers and plant operators through their unregulated subsid iaries. For example, Fluor Daniel is designing and building a 90-MW cogeneration plant at Boise Cascade's Fort Frances, Ontario, pulp and paper mill for ICG Utilities. The ICG facility will provide steam to Boise Cascade and electricity to a local utility. Primarily a U. S. -based focus, international opportunities exist in privatization in the United King dom and the developing economies in the Asia/Pacific region. Through a joint venture with British Electric International, Fluor Daniel is now operating and maintaining a coal-fired power plant in China. Significant projects completed during the year include a 20-MW agri-waste power facility for the California Agricultural Power Company; and three cogeneration facilities to provide steam for enhanced oil recovery, one for Harbor Cogeneration, and two for Mobil Oil, all in California. Hy dr 0 carbon Sector The outlook for the Hydrocarbon Sector continued to improve throughout 1989, as many clients expanded their capital spending plans. This sector provides a full range of services through its three business units: petroleum/petro chemical; production/ pipeline; and mining and metallurgy. Geo graphically diverse, these markets represent growing opportunities worldwide, particularly in the Asia/Pacific region, the Middle East, Canada and Latin America. Although new awards of $1.6 billion were somewhat below last year's dramatic recovery to $1.9 billion, opportunities in the Hydro carbon Sector's markets continue to grow. Backlog at year end was $2.0 billion, representing 23 percent of the company's total. Client capital spending, which was deferred in these markets throughout much of the 1980s, improved in 1989. The factors most responsible for this trend are con tinuing environmental pressures, shifting product demand and expan sion plans in certain countries. New projects in 1989 were pri marily for plant upgrades, expan sions and modernization programs, although there were some new facilities such as the 500,000 tons per year grass-roots facility in Alberta, Canada for Neste Oy. This plant will produce MTBE, an addi tive which enhances octane in DR 2801270 ,wis Report * mm unleaded gasoline. Safety concerns related to aging plants also continue to influence this market, buoyed by the unfortunate recent explosions and fires at plants in various U. S. locations. Outside of the U.S., developing economies in the Asia/Pacific region and reduced hostilities in the Middle East are creating renewed opportunities. Plans have been announced by a number of OPEC countries to expand their current production capacity over the next few years. Additionally, opportunities for pipeline projects are growing in the Middle East, driven by increased demand for export flexibility and planned pro duction increases. Fluor Daniel is providing engineering services for a crude oil pipeline which connects production facilities on the east coast of Saudi Arabia to the port of Yanbu on the west coast. Demand for natural gas as a fuel source has been increasing due to its environmentally clean-burning qualities and attractive pricing. As a result, gas pipeline systems in the U.S. are currently operating near capacity and expansions are antici pated. Restructuring and changing ownership within the gas pipeline industry along with aging-of the transmission facilities are causing a rise in investments to modernize and improve efficiency. In November 1989, Fluor Daniel signed a letter of intent to purchase Williams Brothers Engineering Company, a leading engineering and construction firm with out standing skills and reputation in pipelines and production facilities. The addition of Williams Brothers, based in Tulsa, Oklahoma, will enhance Fluor Daniel's worldwide presence in this market. New mining projects remain active, reflecting strong com modity prices. The acquisition of Vancouver-based Wright Engineers a year ago has significantly strengthened Fluor Daniel's posi tion in this market. anticipate continued growth in the mining and metallurgy area with signifi cant opportunities in gold mining and base metals projects, partic ularly copper. Fluor Daniel's mining and metallurgy unit was recently awarded a $300 million contract for expansion of copper recovery facilities in Indonesia for FreeportMcMoRan Copper Company. Significant projects completed in 1989 include expansion of an acrylonitrile facility in Texas for Sterling Chemical; a gold ore min ing project in Australia for Dalhold Resources; refinery revamp and modernization projects at facilities in Indiana and Michigan for Mara thon Petroleum; and expansion of a polyalphaolefins unit in Texas for Quantum Chemicals. (Right) Exceptional teamwork was achieved on this plant being engineered and built to a tight schedule. Unique construction require ments meant close coordination between design and field work exe cution, demanding creative plan ning and cooperation with Fluor Daniel construction and client operations and maintenance personnel. Strong commitment by Chevron and Fluor Daniel in terms of time, effort and investment created an environment of "teamwork" with individual recognition for superior effort on the task force. Continuous performance improvement accounted for significant produc tivity increases. DR 2801 o~r* i9 (Left) Hurricane Hugo swept through the US. Naval Weapons Station where FD Services employees were already working on a five-year maintenance contract. Even before naval personnel returned, the FD Services work force began immediate tempor ary repairs on 2,200 damaged residences at the base. Downed trees were cleared, roofs patched and water, food and generators were trucked in. Rapid response to client needs by the on-site team maintained the smooth functioning of this vital facility. FD Services has been awarded the contract for permanent repair and renovation of the structures. Govern m e n i b ecto r The Government Sector achieved significant growth in 1989 by expanding their market share and broadening their client base. New awards were $576 million, well above last year's $154 million. Backlog at year end grew to $780 million, representing 9 percent of the company's total with a growing profit contribution. The sector provides an expan ding range of services to public as well as private clients through its five business units: advanced tech nology; telecommunications; space and defense; environmental serv ices; and FD Services, which provides facility operations and maintenance services. The advanced technology unit provides leading edge technology skills in nuclear and other fuel cycles which support the entire Fluor Daniel organization. Two sig nificant awards in 1989 were pre liminary design-engineering on the Waste Vitrification Plant at Han ford, Washington for the Depart ment of Energy (DOE); and engineering services on the first commercial uranium enrichment plant in the U.S. The sector is also benefitting from Fluor Daniel's continued investment and market positioning in the telecommunications field through its telecommunications services unit. Heavy investment in telecommunications in both the public and private sectors are antic ipated in the 1990s as technological advances continue to drive this developing market. The newly formed space and defense unit provides services to the Department of Defense (DOD) and its military branches, the National Aeronautics & Space Administration (NASA), and pri mary defense contractors. Current projects include construction of the ground-based laser project at White Sands, New Mexico for the Army Corp of Engineers and construction management services at Stennis Space Center for NASA. The fastest growing 1 sector is environmental i which provides hazardoi - < remediation and cleanup clients in both the public vate sector. Projects for E . the Environmental Protection Agency and others are now moving ahead after years of study work. Cleanup efforts have also begun in the private sector and the environ mental services unit is providing these services to many of the tradi tional Fluor Daniel clients in our other four business sectors. FD Services continues to expand its market share in facilities opera tion and maintenance services. New business in 1989 included a one-year renewable contract for the Naval Air Station in Jacksonville, Florida; and, following Hurricane DR 2801274 Operations Report Natural Resource Investments t 20 m Hugo, an expanded scope of serv ices to existing operations at the Charleston Naval Weapons Station in South Carolina. Fluor Constructors International Fluor Constuctors International, Inc. (FCII) is the company's union construction arm in the United States. As an integral part of the largest double-breasted company in the U. S., it plays the major role in activities requiring a union pos ture, constructing virtually all union projects for the company. Internationally, FCII takes an active role in supporting all company divisions and project offices. FCII posted significantly improved operating profit in 1989 compared with a year ago. The gain was due in part to a prior year restructuring, including relocation of its Eastern Operations Center to Greenville, South Carolina. This move brought the company into closer contact with engineering and it is now better positioned to serv ice all five business centers. In the past the majority of FCII's work has been for Hydrocarbon and Power clients; however, activity is now increasing in the other three busi ness sectors. Coal A. T. Massey Coal Company, Fluor's investment in coal, produces high-quality steam coal for electri cal utilities and metallurgical coal for the steel industry. Ranking among the 10 largest U.S. coal companies, Massey also markets coal for independent producers. Massey achieved increased oper ating profit in 1989 compared with a year ago due to higher volume and reduced costs. Massey's highquality, low-sulfur coal reserves are strategically located to serve the eastern electric utility market, and the proposed acid rain legislation is beginning to benefit pricing for low-sulfur coal. During the year, Massey acquired new low-sulfur reserves and reopened its low-sulfur coal mine and processing plant in Sydney, Kentucky. The company intends to continue to evaluate the purchase of low-sulfur coal reserves. Additionally, Massey is working jointly with Fluor Daniel's Power Sector to identify and pursue opportunities in the privatized power market where the combina tion of engineering and construc tion capabilities and a source of low-sulfur coal brings added value. Lead The company's investment in lead operations, conducted through its 57.5 percent interest in The Doe Run Company, achieved significant growth in operating profit in 1989 due to strong lead prices and signif icant copper and zinc by-product credits. The major use for lead is the production of batteries which con sumes approximately 75 percent of the lead metal produced by Doe Run. Closely associated with the automobile industry, consumption of lead for both new and replace ment battery production is a stable long-term market. While lead prices remained well above the depressed levels experi enced throughout much of the 1980s, prices softened somewhat at year end. During the year we received a number of inquiries regarding the purchase of our interest in Doe Run. We have been pursuing those discussions and had hoped to reach a conclusion in 1989. Given Doe Run's strong earnings performance, negotiating an acceptable sales price has been difficult. Our objec tive to maximize cash flow and return on investment through operations or sale remains unchanged. DR 2801275 (Far left) Massey Coal's Sydney mine, reopened in April 1989, pro duces extremely low-sulfur coal and is well positioned to take advantage of the growing market resulting from expected acid rain legislation. The new processing plant is highly computerized with a state-of-the-art quality control system. (Left) Doe Run, the larges t inte grated producer of primary lead in the U.S., continues to focus on cost efficiencies to maximize cash flow and return on investment. Floor's portion of Doe Run's lead metal sales in 1989 increased 6 percent to over 155,000 tons. PiO oorv-* Operating Statistics 22 Fluor $ in thousands/Year ended October 31, Engineering and. Construction Work Performed Revenues Operating Profit (Loss) New Awards Backlog Permanent Employees 1989 . 1988 1987 1986 1985 $5,240,827 5,311,653 117,439 7,135,300 $8,360,900 17.5W-* $4,267,892 4,225,212 50,819 5,955,200 $6,658,600 15,576 ------------- s $3'37'957 3,251,304 (49<473) 4'59'7 $4,667,300 11,993 ------------- g $3,817,200 3,727,764 (71,152) 2,992,200 $4,291,400 12,068 ------------- B $3,438,327 3,226,486 (106,528) 4,485,300 $5,114,700 14.53 --------- a $ in millions Backlog by Sector and Location Industrial Process Power Hydrocarbon Government Total Backlog United States Outside U. S. Total Backlog $ 1989 * % $ 1988 % $ 1987 % $ 1986 % $ 1983 8 % 2.935 2,038 657 1,951 780 35 25 8 23 9 8,361 6,404 1.957 100 * 77 23 8,361 100 2,338 1,224 756 1.932 49 35 19 11 29 6 6,659 " 5,298 1,361 100 h 80 20 6,659 100 1,661 836 927 940 33 36 18 20 20 6 4.667 * 4,039 628 100 8 87 13 4.667 100 1,865 610 1,032 690 94 44 14 24 16 2 4,291 3.587 74 100 B 84 16 4.291 100 2.453 536 762 1,289 75 48 11 15 25 1 5,115 a 4,072 i.43 100 8 80 20 5.115 100 $ in thousands/in thousands of short tons Year ended October 31, Coal* Revenues Operating Profit (Loss) Permanent Employees Steam Coal Produced Metallurgical Coal Produced Produced Coal Sold Purchased Coal Sold 1989 1988 1987 1986 1985 $815,558 $ 51,007 1.435 12,303 4,191 16,582 9,300 $783,719 $ 5.375 1,232 11,078 3,98 15,025 10,038 $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 1Amounts through June 1987 represent 50% of Massey's operations, except the number of employees which is 100%.. Commencing July 1987, amounts include 100% of the operations of Massey after reflecting partitioning of a partnership. $ in thousands /in short tons Year ended October 31, Lead* Revenues Operating Profit (Loss) Permanent Employees Lead Content of Concentrates Produced Lead Metal Sold a I989 B 1988 B 1987 B 19 86 B 1983 $150,396 $ 38,895 1,105 144,205 155.433 ------------B $123,526 $ 29,022 1,068 139,809 146,879 $ 93,53 $ (5,511) 986 123,888 130,753 $ 96,993 $ (26,640) 855 186,975 193,849 $ 74,905 $(187,105) 957 172,781 177,772 * Amounts through 1986 represent 100% of domestic lead operations. Commencing in 1987 amounts represent Fluor's 57.5% interest in the operations of The Doe Run Company, except the number of employees which is 100%. DR 2801277 3$% 86 87 88 89 .. .............-- I 10.0 23 89 86 87 88 89 New Awards 8s 86 87 88 89 Lead Metal Sold* thousands of short tons *Amounts reflect Fluor's proportionate share for all periods. 87 86 87 88 89 2000 1500 1000 500 o International Backlog dollars in millions 89 Backlog by Business Sector 1 Power 8% a Government . 9% a Hydrocarbon 23% a Process 25% Industrial 35% S5 86 87 88 89 Work Performed dollars in billions DR 2801278 Management's Discussion and Analysis 24 a Results of Operations Earnings from continuing opera tions were $108 million in 1989 compared with $56 million in 1988 and a loss of $75 million in 1987. The related earnings per share were $1.35 for 1989 compared with $.71 in 1988 and a loss per share of $.95 in 1987. Revenues from continuing operations increased 22% in 1989 following a 31% increase in 1988. Engineering and Construction New contract awards for Engineer ing and Construction increased 20% in 1989 to $7.1 billion com pared with $6.0 billion in 1988 and $4.1 billion in 1987. The engineer ing and construction industry con tinues to experience a growth cycle as capital expenditures are increas ing in response to high capacity utilization in many of the indus tries served by the company Favor able worldwide business conditions continued to enhance the overall increase in new awards as well as the contribution to the international component of both backlog and new awards. The company expects both industry growth and favorable business conditions to continue into 1990. Backlog at October 31, 1989 was $8.4 billion (up 26%) compared with $6.7 billion and $4.7 billion at October 31,1988 and 1987, respectively Engineering and Construction had operating profits of $117 mil lion in 1989 compared with $51 million in 1988 and a loss of $49 million in 1987. Operating results improved in 1989 compared with 1988 primarily due to the increased volume of work performed. Third quarter 1989 results were impacted by a $43 million favorable cash set tlement of an outstanding claim received from the National Iranian Oil Company. The impact of the settlement was partially offset by costs associated with accelerated hiring and training of personnel to respond to work commitments, delays in realization of certain con tract incentives, front-end develop ment costs on certain projects and a one-time charge for costs associ ated with a previously established performance incentive plan. In 1989 the company also recorded gains from the sale of investments in its two cellular telecommunications operations. Marketing effectiveness and operational efficiencies continue to improve results as the reorganiza tion of the segment, finalized in 1987, has continued to enable expansion and diversification of engineering and construction serv ices. Improved operating results also reflect the impact of increasing margins on orders received over the last 12-18 months. New awards 8j 86 87 88 89 Long-Term Debt dollars in millions 89 I Revenues by Segment 3 Lead 2 % Coal 13% s E&C 85% 87 36 87 88 89 Dividends Per Share dollars DR 2801279 25 mciude more full service contracts, providing engineering, technical services and maintenance as well as project and construction manage ment. Approximately 60% of the year end backlog will be performed in fiscal 1990. Generally tracking the level of work performed, the number of permanent employees increased 12% in 1989 compared with a 30% increase in 1988 after a slight reduction in 1987. During 1989 and 1988, certain excess real estate rental costs were charged to accrued lease costs whereas such costs were charged to operations in 1987. The accrual for such costs was established in con nection with the company's 1987 quasi-reorganization. Operating results for 1987 reflect $23 million of losses incurred on certain fixed price construction contracts bid in prior years under extremely com petitive conditions. These contracts were completed in 1988 without incurring additional overruns. Oofi / In 1:987, the company completed a partitioning of the assets of the Massey Coal Company Partnership (Massey) which resulted in no net gain or loss. Subsequent to the partitioning the results of Massey have been fully consolidated to reflect the company's ownership interest. Revenues and operating profit from Coal operations in 1989 were $816 million and $51 million, respectively, compared with reve nues of $784 million and operating profit of $50 million in 1988. Reve nues and operating profit in 1987 were $580 million and $28 million, respectively. In 1989, coal opera tions improved significantly com pared with 1988 and 1987 primarily due to lower costs and higher sales volume of produced coal. In addition, 1989 was impacted by lower contribution from brokered coal sales while realized prices on produced coal sold remained rela tively unchanged compared with 1988. Coal operating profit for 1988 included $7 million related to a favorable settlement with the United Mine Workers. Lead . Lead operations represent the com pany's 57.5% interest in The Doe Run Company partnership (Doe Run). The company proportionally consolidates its interest in Doe Run. Revenues and operating profit from lead operations in 1989 were S150 million and $39 million, respectively, compared with reve nues of $124 million and operating profit of $29 million in 1988. Reve nues and operating loss in 1987 were $93 million and $6 million, respectively. Operations improved significantly in 1989 compared with 1988 and 1987 primarily due to an increase in realized prices and lower operating costs. Operating costs in 1989 were reduced by higher by product credits (copper and zinc) as realized prices and volumes for these commodities were up signifi cantly over 1988 and 1987. Operat ing results in 1987 were affected by operational inefficiencies and down time at the Herculaneum smelter. Results of operations in 1989 and 1988 benefitted from reduced depreciation and amortization charges due to certain fair value adjustments effected through the October 31,1987 quasi reorganization. Such adjustments had no impact on 1987 results of operations. Discontinued Operations In 1987 the 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 the company sold its 90% interest in St. Joe Gold Corporation and its zinc operations resulting in an after tax gain of approximately $233 million. Metals operations remain ing at October 31, 1987 were writ ten down to their estimated net realizable value resulting in an DR 2801280 Management's Discussion and Analysis 26 after tax charge to discontinued operations of $122 million. In 1988, the remaining base metals busi nesses were sold, except Pea Ridge which the company is continuing to hold for sale. Other In 1989 the company had net inter est income of $16 million compared with $10 million in 1988 and net interest expense of $40 million in 1987. Increased net interest income in 1989 compared with 1988 and 1987 is primarily due to lower interest costs due to a decrease in average debt outstanding. Increased interest income in 1989 and 1988 compared with 1987 reflects signif icantly higher balances of cash and cash equivalents and the bond port folio. The significant increase in invested funds in 1988 was pro vided primarily from collection of proceeds from sale of the discon tinued metals businesses. In 1988, the company made an investment, convertible into a con trolling equity interest, in SOS International (SOS), a contractor in the asbestos abatement industry. During 1989 the company obtained the remaining ownership in SOS at minimal additional cost. Asbestos abatement is a relatively new, fast growing industry and as such has experienced severe competition and the normal start-up and cost risks associated with such an environ ment. Prior and subsequent to the company's investment SOS experi enced losses. In 1988 the company recognized losses of $9 million, including $2 million of investment amortization. In 1989 SOS has been fully consolidated and its operating results, including good will amortization of $4 million, are included in the Engineering and Construction segment. Management believes the com bined strengths of Fluor Daniel and SOS will provide stronger market presence and penetration, maximiz ing the profit opportunities in this emerging market. Corporate general and adminis trative expenses in 1989 include an increase of $6 million related to stock price driven compensation plan expense and approximately $11 million in costs of certain finance, law, human resources and other general and administrative func tions formerly included in Engi neering and Construction. In addition, other corporate general and administrative expenses increased approximately 10% in 1989 compared with 1988. Corpo rate administrative and general expenses increased 36% in 1988 compared with 1987 primarily due to higher insurance costs and accrued obligations associated with the company's incentive compensa tion plans. Results for 1987 include a provi sion for the difference between contract rents and estimated fair market rents for office space to be subleased in the future. In addi tion, certain investments were writ ten down to net realizable value. In 1989,1988 and 1987 there is no significant difference between the effective federal income tax rate on results of continuing operations and the statutory rate. Implemen tation of Statement of Financial Accounting Standards No. 96-- 'Accounting for Income Taxes" -- which is not required until fiscal 1993, would not have had a mate rial impact on the company's 1989 results of operations or financial position. Financial Position and Liquidity Working capital at October 31,1989 was $239 million compared with $215 million at October 31,1988. Working capital increased 11% as cash provided by operations was more than adequate to fund the company's growth. Capital expenditures for 1989 were $139 million compared with $86 million in 1988 and $100 mil lion in 1987. In 1989, capital expen- DR 2801281 ditures include approximately $30 million related to coal reserve acquisitions and mine start-up at Massey Coal Company and $10 million for additional engineering office facilities primarily in Green ville, South Carolina. In addition, the engineering and construction segment has made a significant commitment of capital in 1989 and 1988 for additions to computer aided design (CAD) electronic engineering equipment. This con centration of investment in CAD equipment is expected to continue in order to enhance productivity and satisfy workload demand. In 1987, capital expenditures included the repurchase of land in Sugar Land, Texas for $26 million. In 1988, the company purchased a long-term bond portfolio totaling approximately $155 million. The cash flows from these bonds are scheduled to offset and match the cash flow obligations on the Sugar Land facility lease. The long-term debt to capitaliz ation ratio at October 31,1989 was 8.0% compared with 13.6% and 29.1% at October 31,1988 and 1987, respectively. The improved 1989 ratio reflects both an increase in shareholders' equity due to net earnings and a $32 million reduction in long-term debt due after one year. The next scheduled sig nificant payment of long-term debt from the October 31,1989 balance of $62 million is not due until 1993. At October 31,1989, all long-term debt bears interest at fixed rates. The company has on hand and access to sufficient sources of funds to meet its anticipated oper ating, expansion, and capital needs. Significant short and long-term lines of credit are maintained with banks which along with cash on hand provide adequate operating liquidity. The Board reinstated cash divi dends at $.02 per share paid in October, 1988. In the second quar ter of 1989 the Board- raised the quarterly dividend to $.04 per share and in December 1989 fur ther raised the quarterly dividend to $.06 per share. The company's dividend guideline is to pay out approximately 20% of the previous year's earnings. Although the company is affected by inflation, its Engineer ing and Construction operations are generally protected by the ability to recover cost increases through price escalation provisions in most contracts. Coal and Lead operations produce commodities which are internationally traded at prices established by factors outside the control of the company. However, commodity prices generally tend to reflect a close correlation to infla tionary trends and the company has substantial coal and lead reserves. Contents 27 28 Selected Financial Data 29 Consolidated Statement of Earnings 30 Consolidated Balance Sheet ^ 2 Consolidated Statement of Cash Flows 33 Consolidated Statement of Shareholders' Equity 34 Notes to Consolidated Financial Statements 43 Segment Information 44 Reports of Management and Independent Auditors 45 Quarterly Financial Data DR 2801282 Selected Financial Data 28 Fluor In millions, except per share amounts m 1989 1988 m 1987 1986 1985 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) Return on average shareholders' equity Cash dividends per common share Financial Position Current assets Current liabilities $6,277.6 $5,132.5 $3,924.5 $4,341-7 $3,776-4 CO O H 174.7 108.5 90.9 56.4 56.4 (126.1) (75-3) 26.6 (55-o) (18.6) (60.4) (556.2) (512.8) (633-3) i-35 .71 (-95) (23) (6.48) $ 1.35 $ .71 $ .33 S (.76} $ (8.01) 16.5% 10.0% 3-3% (6.0)% (41.7)% $ .14 $ .02 $ .10 $ .40 $ .40 m -----------* ----------- $1,036.4 797-7 $1,001.0 786.1 $1,213.5 698.0 $ 922.1 656.8 $1,057.2 1,020.7 Working capital Bond portfolio Property, plant and equipment, net Total assets Capitalization Long-term debt Shareholders' equity 238.7 151.6 775-3 2,154.3 214.9 154.8 729.8 2,075.7 515-5 4.0 735-2 2,061.2 265.3 - 1,301.8 2,565.4 36-5 -- 1,433-3 2,796.4 62.5 720.4 ON O H Ci 95.0 217.8 531-7 511.5 950.2 250.8 i,033-9 Total capitalization $ 782.9 $ 696.7 $ 749.5 $1,461.7 $1,284.7 Percent of total capitalization Long-term debt 8.0 13.6 29.1 35.0 19.5 Shareholders' equity 92.0 86.4 70.9 65.0 80.5 Shareholders' equity per common share $ 9.03 $ 7.61 $ 6.74 $ 11.99 $ 13.06 Common shares outstanding at October 31 Other Data 79.8 79-1 78.9 m -----7-9----3g 79.1 ----------- a New awards Backlog at year end Capital expenditures $7,135.3 8,360.9 139.2 $5,955.2 6,658.6 86.3 $4,059.7 4,667.3 99.8 $2,992.2 4,291.4 91.6 $4,485-3 5,114-7 121.2 Cash provided (utilized) by operating activities $ 265.1 $ 17.7 $ 57.3 $ (224.2) $ (21.0) Permanent employees 20,059 17,876 ----------- 14,351 22,309 26,958 --------~n See Management's Discussion and Analysis on pages 24 to 27, Consolidated Statement of Earnings on page 29 and Notes to Consolidated Financial Statements and Quarterly Financial Data for information relating to significant items affecting the results of operations. At October 51, iy8j, a quasi-reorganization was effected which resulted in a net reduction in shareholders' equity of $438 million. See Notes to Consolidated Financial Statements for additional information. Dividends were resumed in the fourth quarter of 1988 folloiving a suspension which began in the second quarter of 1987. The quarterly dividend was increased from $.02 per share to $.04 per share in the second quarter of 1989 and to $.06 per share in the first quarter of 1990. pjQ OO A Consolidate d Statement of Earnings 29 Fluor In thousands, except per share amounts/Year ended October 31, u Revenues Engineering and construction services Natural resources Total revenues Cost of Revenues Engineering and construction services Natural resources Total cost of revenues a Other Income and Expense Corporate administrative and general expense Interest expense Interest income Equity in loss of SOS Provision for sublease losses and write-down of investments Total cost and expenses s Earnings (Loss) From Continuing Operations Before Taxes m Income Tax Benefit (Expense) a Earnings (Loss) From Continuing Operations m Discontinued Operations Loss from operations, net of income tax expense of $4,988 Gain on disposal, net of income tax expense of $104,483 Earnings From Discontinued Operations a Earnings Before Extraordinary Item Tax benefit of net operating loss * .Vet Earnings' Ear n i n gs (Loss) Per Sha re Continuing operations Discontinued operations Extraordinary item \Tet Earnings Per Share a Shares Used to Calculate Earnings iLossj Per Share See Notes to Consolidated Financial Statements. m m 1989 1988 1987 $5,311,653 9b5,954 6,277,607 $4,225,212 907,245 5,132,457 $3,251,304 673,176 3,924,480 5,190,343 876,052 6,066,395 52,660 20,239 (36,371) -- -- 6,102,923 4,181,269 827,848 5,009,117 32,795 27,259 (37,060) 9,451 -- 5,041,562 3,298,628 650,886 3,949,514 24,131 58,304 (18,231) -- 36,845 4,050,563 174,684 (66,200) 108,484 90,895 (34,500) 56,395 (126,083) 50,808 (75,275) -- -- -- 108,484 -- $ 108,484 B $ 1.35 -- -- $ 1.35 -- __ -- 56,395 -- $ 56,395 a $ .71 -- -- $ .71 (16,544) 111,254 94,710 19,435 7,157 S 26,592 --------------- 1 $ (.95) 1.19 .09 $ .33 80,459 - 79,582 --------------------------- S 79,484 -- ------------- --S DR 2801284 Consolidated Balance Sheet Fluor $ in thousands/At October 31, Assets Current Assets Cash and cash equivalents Accounts and notes receivable Contract work in progress Inventories Other current assets Total current assets Investment in Bond Portfolio a Property, Plant and Equipment Land Buildings 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 Investments and goodwill, net of accumulated amortization of $10,176 and $6,103, respectively Other Total other assets m 1989 < 3 m 1988 $ 234,877 348,803 333,264 67,604 51^93 1,036,441 151,640 $ 164,580 396,658 337/347 66,580 35,815 1,000,980 154,777 62,931 97,023 346,080 415,017 15,229 936,280 160,957 775,323 61,647 79/55 254,037 395A97 14,209 804,840 75,081 729,759 96,590 94/3^9 190,909 $2,154,313 a 105'359 84,857 190,216 $2,075,732 I DR 2801285 3* Liabilities and Shareholders' Equity m Curren: ~-.anilities Accounts 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 Total current liabilities m Long-Term Debt Due After One Year a Noncurrent Liabilities Deferred income taxes Accrued lease costs Other Total noncurrent liabilities Contingencies ana Commitments m Share hoi tiers' Equity Capital Stock Preferred--authorized 20,000,000 shares without par value, none issued Common--authorized 150,000,000 shares of $.625 par value; issued and outstanding in 1989 --79,792,996 shares and in 1988 --79,051,744 shares Additional capital Retained earnings (since October 31,1987) Unamortized executive stock plan expense Cumulative translation adjustments Total shareholders' equity See Notes to Consolidated Financial Statements. 1989 1988 $ 322,262 119,45 93,598 205,161 35,645 21,605 797,721 62,477 $ 358,061 118,752 7i/53 5 160,884 58,506 18,338 786,076 94/96i 88,530 119,790 365432 573452 81,449 148,792 362,707 592,948 49/871 522,615 152,172 (4439) 144 720,363 82,154,313 49/407 497/907 54,814 (3,117) 2/736 601,747 DR 2801286  32 Fluor In thousands /Year ended October 32, Cash Flows From Operating Activities Net earnings Depreciation, depletion and amortization Deferred income taxes Amortization of accrued lease costs and deferred gains Provision for sublease losses and write-down of investments Gain on disposal of discontinued operations Change in operating working capital Other, net Cash provided by operating activities Cash Flows From Investing Activities Capital expenditures Coal reserve acquisitions and mine start-up Proceeds from sale of property, plant and equipment Decrease (increase) in bond portfolio Additions to investments Proceeds from sale of discontinued operations, net Partition of Massey assets Other, net Cash provided (utilized) by investing activities s Cash Flows From Financing Activities Payments of long-term debt Cash dividends paid Other, net Cash utilized by financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year See Notes to Consolidated Financial Statements. ms 1989 1988 1987 $ 108,484 87,398 (11473) (31,013) -- _ 69,342 42,386 265,124 $ 56,395 76,000 (49497) (37,009) -- -- (66,313) 38,073 17449 $ 26,592 124,377 62,321 (20,570) 36,845 (215437) 58,677 (15469) 57,336 (108,675) (30499) 11,675 3437 (7,206) -- -- . (3415) (134,683) (81,878) (4481) 8,960 (150,777) (69,267) 450,000 -- 3449 156,606 (97,272) (2452) 21,738 (4,000) -- 147/535 108,148 (3/g99) 169,698 (62,382) (11,126) 13,364 (60,144) 70,297 164,580 S 234,877 (81,537) (1,581) (i499) (84,417) 89,938 74,642 S 164,580 (250,830) (7/927) 10,034 (248,723) (21,689) 96,331 $ 74,642 DB 2801287 Consolidated Statement of Shareholders' E q u i t y 33 Fluor $ in millions, except per share amounts Year ended October 52, 2987, 1988 and 1989 m Common Stock m Additional Capital m Retained Earnings (Deficit) H Unamortized Executive Stock Plan Expense m Cumulative Translation Adjustments a Total B a l a n ces at Oct 0 b e r yi, 19 8 6 Net earnings Cash dividends ($. 10 per share) Exercise of stock options, net Amortization of executive stock plan expense Repurchase of restricted stock, net Repurchase of common stock Translation adjustment for the period Quasi-reorganization Revaluation adjustments, net Transfer to additional capital Balances at October 31, igSr Net earnings Cash dividends ($.02 per share) Exercise of stock options, net Amortization of executive stock plan expense Repurchase of restricted stock, net Repurchase of common stock Tax benefit of net operating loss Translation adjustment for the period $49,545 $ 1,070,845 $(160,022) 26,592 (7,927) 105 2,260 (20) (293) (563) (5,528) 49037 180 (438,222) (141,357) 487,435 141057 -- 3,771 56,395 (1,581) (29) (955) (81) (1,581) 9,237 Balances at O c 10 b e r yi, igS 8 49,407 497,907 54,814 Net earnings Cash dividends ($. 14 per share) Exercise of stock options, net Amortization of executive stock plan expense Issuance of restricted stock, net Tax benefit of net operating loss Translation adjustment for the period 108,484 (11,126) 371 7,896 93 4,568 12,244 Balances at Oc10 her 11, 1 a 8 g See Notes to Consolidated Financial Statements. S49.871 S 122,617 $ 172,172 - --- 1 ' 1 S(6,736) 1,928 441 (4A67) 326 924 (3,117) 3,407 (4,729) 5(4,439) " " ~TI $(3,392) $ 950,240 26,592 (7,927) 2,365 2,730 1,928 (142) (5,821) 2,730 (438,222) (662) 531,743 56,395 (1,581) 3,951 3,398 2,736 326 (60) (1,662) 9A37 3,398 601,747 108,484 (11,126) 8,267 (2,592) 3,407 (68) 12,244 (2,592) $ 144 $ 720,361 " '1 DR 2801288 Notes t o Consolidated Financial Statements .34 Fluor m Major Accounting Policies a Balance Sheet Revaluation At October 31,1987 the company adjusted its consolidated balance sheet to fair value in accordance with accounting principles applicable to quasi-reorganizations. See Restructuring. Principles of Consolidation The financial statements include the accounts of the company and its subsidiaries. The equity method of accounting is used for investment ownership ranging from 20% to 50%. Investment ownership of less than 20% is accounted for on the cost method. The company does not consolidate entities for which control is deemed temporary. The company recognizes 100% of the operations of certain unconsolidated entities which are under effective control. Prior to the July 10,1987 partitioning, the company proportionally con solidated its 50% interest in Massey Coal Company (Massey); subsequently, Massey's operations are fully consolidated to reflect the company's ownership interest. The company proportionally consolidates its 57.5% interest in The Doe Run Company partnership (Doe Run). All significant intercompany transac tions of consolidated subsidiaries are eliminated. Certain 1988 and 1987 amounts have been reclassified to conform with the 1989 presentation. Engineering and Construction Contracts The company recognizes engineering and construction contract revenues using the percentage-ofcompletion method, primarily based on contract costs incurred to date compared with total estimated con tract costs. Contracts are segmented between engineering and construction efforts and, accordingly, gross margin related to each activity is recognized as those separate services are rendered. Changes to total esti mated contract costs or losses, if any, are recognized in the period they are determined. Revenues recog nized 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 31,1989, will be billed and collected in 1990. Amounts received from clients in excess of revenues recognized to date are classified as current liabilities under advance billings on contracts. a Depreciation and Amortization Additions to property, plant and equipment subsequent to October 31,1987 are recorded at cost. 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 amortized over the lives of the respective leases. The excess of cost over net assets of acquired businesses is amortized on the straight-line method, over periods not longer than 40 years. a 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 amortized using the straight line method over periods approximating the economic life of the mine. Subsequent maintenance and under ground development expenditures are generally charged to expense as incurred. Investment in Bond Portfolio The company's bond portfolio is carried at amortized cost which approximates market value. At October 31, 1989, the portfolio has a weighted average yield of nearly 11% and maturities ranging from 1990 to 2004. DR 2801289  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. Earnings per ska re Earnings per share is based on the weighted average number of common and common equivalent shares out standing in each period. Common equivalent shares include the dilution from the potential exercise of stock options when the effect is dilutive. Inventories Coal, metals and processed minerals inventories are stated at the lower of cost using the last-in, first-out (LIFO) method or net realizable value. Supplies and other are valued on the average cost method. Inventories comprise: $ in thousands/At October 31, Coal, metals and processed minerals Supplies and other 1989 $37^43 30,461 $67,604 1988 $34,713 31,867 O 00 CO 0CO0 a 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/Year ended October 31, Balance at beginning, of year Translation adjustments Deferred income taxes on translation adjustments Balance at end of year 1989 $ 2,736 (3^927) *035 $ 144 1988 $ (662) 5,149 (1,751) $ 2,736 Consolidated Statement of Cash Flows The company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Changes in operating working capital as shown in the Consolidated Statement of Cash Flows comprise: $ in thousands /'Year ended October 31, Decrease (increase) in: Accounts and notes receivable Contract work in progress Inventories Other current assets Increase (decrease) in: Accounts payable Advance billings on contracts Accrued liabilities Income taxes currently payable Cash paid during the year for: Interest expense Income tax payments (refunds), net 1989 $47,855 4,083 (1,024) (16,078) (35T99) 698 66,340 3,267 $69,342 1988 1987 $(43,012) (83,605) (5,348) (6,079) $ 42,595 (65,946) 14,466 (7,893) 41,810 31,45! (?-,793) 1,2.63 $(66,313) 78,723 25,040 (23,349) (3,959) $ 58,677 DFl 2801290 $1.7,744 $46,038 $ 16,509 $ 52,014 Oi $ 48,871 $(99,433) Notes to Consolidated Financial Statements <36 a Acquisition and Investments In August 1988, the company purchased Wright Engineers Limited (Wright). The total purchase price, depending on future operating results, could approximate $5 million. Wright, based in Canada, is a worldrecognized leader in the process and detailed design and construction management of gold, copper, uranium, complex sulfides and coal projects. The company's financial statements include the results of Wright on a consolidated basis from the acquisition date. The acquisition has been accounted for as a purchase. Investments included in Other assets relate primarily to entities accounted for on the equity method. Additions to investments in 1988 included $14 million in a resource recovery project, $15 million in Centre Reinsurance and $40 million in SOS International (SOS), a contractor in the asbestos abatement industry. In March 1988, the company made an investment, convertible into a controlling equity interest, in SOS and due to the company's significant influence over operating and financial policies, recognized 100% of SOS's losses from that date. During 1989, the company obtained the remaining ownership in SOS at mini mal additional cost and, accordingly, has fully consolidated the results of SOS for 1989. The company's investment in SOS exceeded the net assets acquired by $37 million. Amortization of the excess commenced in the second quarter of 1988 using the straight-line method over ten years. Restructuring m Quasi-Reorganization At October 31,1987, the company adjusted its balance sheet to fair value and transferred the accumulated deficit of $141 million to Additional capital in accordance with quasi-reorganization accounting principles. The fair value adjustments to the October 31,1987 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 operations. Revenues for the discontinued Metals segment were $309 million in 1987. In October 1987, the company completed the sale of its 90% interest in St. Joe Gold Corporation and other gold properties for $500 million. The sale resulted in a net gain of approximately $248 million. In September 1987, the company sold its domestic zinc mining operations for approximately $100 million, including the elimination of $38 million in outstanding debt, resulting in a net loss of $15 million. At October 31,1987, a net charge to discontinued operations of $122 million was made to write down the metals businesses held for sale to their estimated net realizable value. In 1988 disposals of the remaining base metals businesses held for sale were completed, except Pea Ridge which the company is continuing to hold for sale. DR 2801291 Income Taxes The income tax benefit (expense) included in the Consolidated Statement of Earnings is as follows: $ in thousands/Year ended October ji, Current: Federal (includes a charge in lieu of taxes of $11,267, $7/3*9 and $7,157 for 1989, 1988 and 1987, respectively) Foreign (includes a charge in lieu of taxes of $977 and $1,918 for 1989 and 1988, respectively) State and local Total current Deferred: Federal Foreign State md local Total deferred Total income tax expense 1989 1988 1987 $(58,820) (7,976) (10,877) (77,673) $ (69,706) $ 12,881 (8,430) (5,761) (83,897) (4,718) (4,505) 3,658 12,017 (*,540) 996 473 S(66,20o) a 52,961 (3,655) 91 49,397 $ (34,500) (64,677) 271 2,085 (62,321) $ (58,663) -------------8 Total income tax benefit (expense) applicable to continuing and discontinued operations is as follows: $ in thousands /Year ended October 31, Provision for continuing operations: Current Deferred Total provision--continuing operations Provision for discontinued operations: Current Deferred Total provision--discontinued operations Total income tax expense 1989 $(77,673) i*,473 (66,200) 1988 $ 67,007 (101,507) (34,500) 1987 $ (17,292) 68,100 50,808 -- $(66,200) (150,904) 150,904 $ (34,500) 20,950 (130,421) (109,471) $ (58,663) A reconciliation of statutory federal income tax to the income tax benefit (expense) on the earnings (loss) from continuing operations follows: S in thousands/Year ended October 31, Statutory federal income tax benefit (expense) Reductions (increases) in taxes resulting from: Depletion State and local income taxes Effect of foreign tax rates Items without tax effect, net Amortization and write-down of property, plant and equipment Other, net Total income tax benefit (expense) 19S9 $(59,393) 19 88 $ (30,904) 1987 $ 52,955 10,038 (5,744) (3,835) (3,5*5) (2,682) (1,069) - 9,343 (3,742) (3,.790) (6,247) (2,206) 3,046 $(66,2001 S [34,500) 7,783 (*,259) (2,635) (8,650) 2,614 S 30,808 Notes to Consolidated Financial Statements The difference between the statutory federal income tax rate and the actual tax rates applicable to discon tinued operations was 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 was primarily attributable to capital gain rates and foreign tax credits. The deferred income tax benefit (expense) applicable to timing differences from continuing operations is as follows: $ in thousands / Year ended October 31, Use of different methods of accounting for construction contracts Deferred gains on property sales Accruals not currently reportable for tax purposes Residual tax on undistributed foreign earnings Reduction (increase) in deferred tax credits Other, net Total 1989 $ 8,037 7,782 (7,170) (840) -- 3,664 $ 11,473 ---------------------- S 1988 $ (6,538) (317) (33/964) 1,064 (51/565) (10,187) $(101,507) 1987 $ 21,841 (5/699) 10,603 U3/477) 51,565 3,267 $ 68,100 Continuing operations in 1987 were benefitted by $52 million through reductions 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 follows: $ in thousands/Year ended October 31, United States Foreign Total 1989 $ 96,785 77/899 $174,684 1988 $ 63,843 27,052 $ 90,895 1987 $(157,812) 31,729 $(126,083) Residual income taxes have not been provided on approximately $42 million of undistributed earnings of certain foreign subsidiaries at October 31,1989 because the company intends to reinvest these earnings indefinitely. The Internal Revenue Service (IRS) has completed its examination of the company's federal income tax returns for fiscal years 1977 through 1983 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. Management believes that the resolution of all tax issues will not have a material adverse effect on the company's consolidated financial position or results of operations. In December 1987, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 96 "Accounting for Income Taxes." Management believes the implementation, which is not required until 1993, would not have had a material effect on the 1989 consolidated results of operations or financial position of the company. DR 2801293 39 Retirement Benefits The company sponsors defined contribution retirement and noncontributory defined benefit pension plans for eligible employees. Contributions to defined contribution retirement plans are based on a percentage of employees' compensation. Expense recognized for these plans is primarily related to Engineering and Construction operations and totaled $47 million in 1989, $42 million in 1988 and $33 million in 1987. Contributions to defined benefit pension plans are generally at the minimum annual amount required by applicable regulations. Payments to retired employees under these plans, which are primarily related to natural resource operations, are generally based upon length of service and a percentage of qualifying compensation. Net periodic pension expense (income) for continuing operations defined benefit pension plans includes the following components: 5 in thousands / Year ended October 31, Service costs -- benefits earned during the period Interest cost on projected benefit obligation Income and gains on assets invested Net amortization and deferral Net periodic pension expense (income) 198 9 $ 3,236 6,225 (16,168) 5,807 $ (900) 1988 $ 3,156 5,724 (8,653) (30) S 197 1987 $ 4,064 4,922 (5/839) (52) $ 3,095 ------------- a The following assumptions were used in the determination of net periodic pension cost for each of the three years in the period ended October 31,1989: Discount rate Rates of increase in compensation levels Expected long-term rate of return on assets 9.0% 5.0-7.5% 8.0-9.0% The following table sets forth the status of the defined benefit plans: $ in thousands!At October 31, Actuarial present value of benefit obligations: Vested benefit obligation Nonvested benefit obligation Accumulated benefit obligation Plan assets at fair values (primarily listed stocks and bonds) Projected benefit obligation Plan assets in excess of projected benefit obligation Unrecognized net gain Pension asset recognized in the Consolidated Balance Sheet 1989 $ 49,396 6,987 S 56,383 $*57'799 (75,228) 82,571 (36,925) S 45,646 1988 $ 41,114 10,507 $ 51,621 $121,271 (69,487) 51,784 (9,703) $ 42,081 Excludes the projected benefit obligation and an equal amount of associated plan assets relating to present and former employees of discontinued operations of $117 million and $124 million at October 31,1989 and 1988, respectively. Massey participates in multiemployer defined benefit pension plans for its union employees. Pension expense related to these plans was approximately $.6 million, $.4 million and $1 million in the years ended October 31,1989,1988 and 1987, respectively. The company and certain of its subsidiaries provide health care and life insurance benefits for certain retired employees. The cost of such benefits for continuing operations, which approximated $5 million in 1989, $4 million in 1988 and $3 million in 1987, is expensed when paid. DR 2801294 Notes to Consolidated Financial Statements 40 Long-Term Debt Long-term debt comprises: $ in thousands/At October 32, Eurodollar zero coupon debentures, effective interest rate 14%, due in 1990 (net of unamortized discount of $1,967 and $6,511, respectively) 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 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 Notes, effective interest rate 9.7%, due in 1993 Term loans, 9.3% Serial zero coupon notes, effective interest rate 14.3 % (net of unamortized discount of $955) Other notes and mortgages Less: Current portion Long-term debt due after one year 1989 S 3So15 28,578 I5'39 14/305 -- 4,885 98,122 35/645 $ 62,477 1988 $ 31,176 28,578 15,039 16,196 40,100 18,077 4,301 i53>467 58,506 $ 94,961 Maturities relating to long-term debt are as follows for the years ending: 1991, $.6 million; 1992, $.6 million; 1993, $29.9 million; 1994, $.4 million; and $31.0 million thereafter. The company has unsecured committed revolving long-term lines of credit with banks from which it may borrow for general corporate purposes up to a maximum of $285 million, of which S250 million can be converted to four-year term loans. Commitment fees are paid on unused portions of these lines. In addition, at October 31,1989 the company had $317 million in unused short-term lines of credit. At October 31,1989, 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 31,1989 bears interest at fixed rates. Stock Plans The company's executive stock plans approved by the shareholders provide for grants of nonqualified or incentive stock options, restricted stock awards and stock appreciation rights (SARs). All plans are admin istered by the Organization and Compensation Committee of the Board of Directors ("Committee"), no member of which is eligible to participate in the plans. Stock options may be granted with or without SARs. Grant prices are determined by the Committee and generally are established at the fair market value of the company's common stock at the date of grant. Options and SARs normally extend for 10 years and generally become exercisable one year after date of grant, in installments of 25 % per year commencing one year from date of grant or over a vesting period determined by the Committee. Restricted stock awards issued under the plans provide that shares awarded may not be sold or otherwise transferred until restrictions as established by the Committee have lapsed. Upon termination of employ ment shares upon which restrictions have not lapsed must be returned to the company. During 1989, 160,000 shares of restricted stock were issued under the plans. Upon exercise of SARs the holder receives the excess of market value of the rights on exercise date over the market value of the rights on the grant date either in the form of cash or stock of the company. Such market values are generally equal to the market value of the company's common stock. Changes in market value are accounted for currently as compensation expense. DR 2801295 41 The following table summarizes stock option and SAR activity for the two years ended October 31,1989: Outstanding at October 31, 1987 Granted Expired or cancelled Exercised Stock Options 2,879,032 413,704 (231,690) (298,145) Price Per Share $11-34 20-22 11-34 11-22 SAR 696,494 363,544 (69o97) (107,251) Value Per Right $12-34 20-22 12-22 12-22 Outstanding at October 31, 1988 Granted Expired or cancelled Exercised 2,762,901 800,300 (72,648) (598,765) 11-34 23-35 12-26 11-26 883,190 14,300 (34,584) (255,968) 12-34 13-20 12-34 12-22 Outstanding at October 31, 1989 2,891,788 $12-35 606,938 $12-22 Exercisable at: October 31, 1988 October 31, 1989 Available for grant at: October 31, 1988 October 31,1989 990,3*5 970,067 $11-34 $12-26 154,090 2,167,386* Ti ----- --.--g 309,650 249,239 5,679 126,015 ---------- g $12-34 $12-22 --------- B *Available for grant at October 31, 1989 includes 2,051,379 shares which may be granted as either stock options, SARs or restricted stock as determined by the Committee under the 1988 Fluor Executive Stock Plan which was approved by the shareholders in March 1989. The company adopted a preferred shares purchase rights plan and, pursuant thereto issued one preferred share purchase right ("Right") on each outstanding 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 holders to buy '4th share of a newly issued preferred stock at an exercise price of $40, subject to certain antidilution adjustments. The Board of Directors, at its option, may lower the exercisability threshold from 20% to as low as 10% so long as no person or group then owns more than the lowered amount and may, at any time after the rights have become exercisable, but before there has been an acquisition of 50% or more by any person or group, exchange each then valid right for one new share of common stock. However, the rights do not become exercisable when, as a result of a single purchase, the common stock ownership of a person or group goes from below the exercisability threshold to 85 % or more of the amount outstanding. 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 November 30, 1997. DR 2801296 Notes to Consolidated Financial Statements *42 Lease Obligations The rental expense for continuing operations amounted to $102 million, $89 million and $84 million, in 1989, 1988 and 1987, respectively. The company's lease obligations relate primarily to office facilities, data processing equipment, equipment used in connection with long-term construction contracts and other personal property The company's obligations under noncancellable leases for minimum rentals reduced by cash flows from the bond portfolio are as follows: $ in thousands / At October 31, 19S9 1990 1991 1992 1993 1994 Thereafter Gross Rentals $ 69,545 67,819 63,853 62,490 64,114 274,212 $602,033 tr\ CO d N Cash Flows from Bond Portfolio $ 18,781 17,785 19,994 20,416 227,268 $ 325,101 Net $ 50,764 46,962 46,068 42,496 43fo98 46,944 $ 276,932 Present Value* $ 46,864 38,951 34,329 28,452 26,286 19,481 $ 194,363 *The present value of net lease obligations is presented as supplementary information to reflect the impact on future lease commitments of the time value of money, using a discount rate of 11%. At October 31,1989 and 1988, obligations under capital leases of approximately $14 million are included in Other noncurrent liabilities. m 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 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 current contract provisions. The company's natural resource operations are affected by federal, state and local laws and regulations regarding environmental protection. The outcome or timing of current environ mental matters or the full impact, if any, of such legislative or regulatory developments on future opera tions is not currently estimable. 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 31,1989, $137 million of net assets of Doe Run, including $35 million of working capital, are restricted by the requirement that both partners must approve a transfer of assets outside the Partnership. a Operations by Business Segment and Geographic Area The Engineering and Construction segment includes subsidiaries engaged in the design, engineering, pro curement, construction, technical services and maintenance of facilities for industrial, commercial, utility, natural resource, energy and government clients. Coal segment amounts through June 1987 represent 50% of Massey's operations. Commencing in July 1987 Coal segment amounts include the operations of Massey after reflecting a partitioning of the partnership. The Lead segment represents the company's 57.5 % inter est 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, cash equivalents, nontrade receivables and the bond portfolio. DR 2801297 43 Operations by Business Segment $ in millions Engineering and Construction Coal Lead Continuing Operations 1989 1988 $5,311.7* $4,225.2 815-5 150.4 783.7 123.6 $6,277.6 $5,132-5 Revenues 1987 $3,251.3 580.1 93.1 $3,924.5 Operating Profit (Loss) 1989 1988 1987 $117.4 $ 50.8 $(49.5) 51.0 5-4 28.3 38.9 29.0 (5-5) $207.3 $130.2 $(26.7) $ in millions Engineering and Construction Coal Lead Corporate Continuing Operations Discontinued Operations 1989 Identifiable Assets 1988 1987 $ 828.4 748.1 158.4 419.4 2,154.3 - $2,154.3 $ 886.9 667.7 159.8 36i-3 2 ,075-7 - $2 075.7 $ 620.4 657-5 154.6 621.9 2,054.4 6.8 $2,061.2 Capital Expenditures 1989 1988 1987 $ 58.4 72.O 8.7 .1 139.2 - $139.2 $ 46.8 30.6 8.7 .2 86.3 -- $ 86.3 $37.4 25.0 5.1 - 67.5 32.3 $99.8 Depreciation, Depletion and Amortization 1989 1988 1987 $33.7 42.0 10.9 .8 87.4 - $87.4 $23.9 38.3 10.1 3-7 76.0 - $76.0 $ 21.1 39-5 22.9 i-7 85.2 39-2 $124.4 Operations by Geographic Area $ in millions United States Canada Middle East Europe Other 1989 1988 $5,310.2* $4,444.6 326.0 25.2 257-9 55.1 407.2 296.6 209.0 78.3 Revenues 1987 $3,461.9 220.1 70.7 99.2 72.6 $6,277.6 $5,132.5 $3,924-5 Operating Profit (Loss) 1989 $195.3 2.2 5 9.8 (-5) 1988 $120.1 2.2 (.6) 7-3 1.2 1987 $(29.0) 1.8 (1.6) (.1) 2.2 $207.3 $130.2 $(26.7) Revenues include a $43 million settlement from the National Iranian Oil Company. 1989 $1,880.0 55.8 33-o 79.8 105-7 $2,154.3 ----------- g Identifiable Assets 1988 1987 $1,864.5 $1,830.7 53-9 49.2 74.6 61.9 39-9 89.5 33-5 39-2 $2 075-7 $2,061.2 ----------- B The following table reconciles business segment operating profit (loss) with the earnings (loss) from continuing operations before taxes. $ in millions/Year ended October 91, Operating profit (loss) from continuing operations Interest, net Equity in loss of SOS Provision for future losses on facility subleases and certain investments Corporate administrative and general expense Other items, net Earnings (loss) from continuing operations before taxes 1989 $207.3 16.1 - (52.7) 4.0 1988 $130.2 9.8 (9-5) - (32.8) (6.8) 1987 $ (26.7) (40.1) - (36.8) (24.1) 1.6 $174.7 1 $ 90.9 ----------------a $(126.1) -------------------b DR 2801298 .mi * a*t * ,r n.fl Reports of Management and Independent Auditors ,44 Fluor m Management The company is responsible for preparation of the accompanying consolidated balance sheet and the related consolidated statements of earnings, cash flows and shareholders' equity. They have been prepared in con formity with generally accepted accounting principles, which have been applied on a consistent 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 estimates and judgments relating to matters not concluded by fiscal year end, is the responsibility of management. 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 developed and maintained. This system of internal controls is supported by an extensive program of internal audits and tested and evaluated by the independent auditors in connection with their annual audit. The Board of Directors pursues its responsibility for financial information and review through an Audit Committee of Directors who are not employees. The internal auditors and the independent auditors have full and free access to the Committee. Periodically the Committee meets with the independent auditors without man agement present to discuss the results of their examinations, the adequacy of internal accounting controls and the quality of financial reporting. Independent Auditors Board of Directors and Shareholders Fluor Corporation We have audited the accompanying consolidated balance sheet of Fluor Corporation as of October 31,1989 and 1988, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended October 31,1989. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the con solidated financial position of Fluor Corporation at October 31,1989 and 1988, and the consolidated results of operations and cash flows for each of the three years in the period ended October 31,1989, in conformity with generally accepted accounting principles. Orange County, California December 5,1989 DR 2801299 Quarterly Financial Data 45 unaudited The Mowing is a summary of the quarterly results of operations: $ in thousands, except per share amounts 1980 Revenues Gross margin Earnings before taxes Net earnings Earnings per share 1988 Revenues Gross margin Earnings before taxes Net earnings Earnings per share First Quarter $1,420,401 43'938 35,105 21,605 $ .27 Second Quarter $1,633,211 46,746 38,234 23,934 $ .30 Third Quarter Fou rth Quarter $1,556,943 67,546 54,857 33,857'a) $ .42 $1,667,052 52,982 46,488 29,088 $ .36 $1,039,320 18,875 16,264 9,016 $ .11 $1,148,466 21,899 15,654 10,302 $ .13 $1,339,106 30,442 23,144 13,444 $ .17 $1,605,565 52,124 35,833' 23fo33 $ .30 "'Third quarter 1989 earnings include a settlement received from the National Iranian Oil Company offset by certain charges for a net benefit of $9 million. b>Fourth quarter 1988 results include $7 million related to a favorable settlement with the United Mine Workers. DR 2801300 Directors David S. Tappan, Jr. Chairman of the Board (1965j Caroline L. Ahmanson Chairman Emeritus, Federal Reserve Bank of San Francisco -- nth District (1985) Hugh K. Coble Group President Fluor Daniel, Inc. (1984) Peter J. Fluor President of Texas Crude, Inc. (1984) David E Gardner President, University of California (1988) Gerald M. Glenn Group President Fluor Daniel, Inc. (1989) William R. Grant Chairman of the Board of Galen Associates (1982) Robert L. Guyett Senior Vice President and Chief Financial Officer (1987) Bobby R. Inman Admiral U.S. Navy (Retired) (1985) Vincent L. Kontny President (1988) Robert V Lindsay Chairman, The International Council, Morgan Guaranty Trust Company of New York (1982) E. Morgan Massey President, A. T. Massey Coal Company, Inc. (1987) Leslie G. McCraw Vice Chairman and Chief Executive Officer (1984) Buck Mickel Retired, former Vice Chairman of the Board (1977) Allen E. Puckett Chairman Emeritus of Hughes Aircraft Company (1987) Louis H. Wilson General, U.S. Marine Corps (Retired) and former Commandant of the Marine Corps (1979) 1 1 nth. t , hi m i tte e. ' ''it' \L<~raw Chairman I- Cobh i-iid M i '.tun t! .*rt I. C uyctt b u'ttpt L. Kontny F Vlo'gari Massey fCviJs Tappan, Jr. F ? w-tpl. I imble (ex officio) A ti d it Co m mi tte e William R. Grant, Chairman Ffeter J; Fluor David E Gardner Bobby R. Inman Louis H. Wilson N0 m i n a t i ng ' Committee David S. Tappan, Jr., Chairman Peter J. Fluor David E Gardner lobby R. Inman Robert V Lindsay Leslie G. McCraw Men E. Puckett 0 rg a n i zat ion and Compensation Committee Louis H. Wilson, Chairman Caroline L. Ahmanson William R. Grant Robert V Lindsay Allen E. Puckett ( M6; Years in parentheses indicate the year each director was elected to the Board. Except as otherwise indicated, all offices are of the company. DR 2801301 Principal Subsidiaries and Divisions 47 Corporate Executive Officers David S. Tappan, Jr. Chairman of the Board (1952) Leslie G. McCraw Vice Chairman and Chief Executive Officer (1975) Vincent L. Kontny President (1967) Robert L. Guyett Senior Vice President and Chief Financial Officer (1987} E Joseph Trimble Senior Vice President-Law (1972) Nad A. Peterson Senior Vice President and Secretary (1967) Corporate Officers Charles J. Bradley Vice President-Human Resources and Administration (1978) John F. Combs Vice President and Treasurer (1980) Lawrence N. Fisher Vice President-Corporate Law (1974) J. Robert Fluor II Vice President-Corporate Relations (1967) William M. Hofacre Vice President-Financial Planning and Analysis (1984) Larry W. Lineberger Vice President and Controller (1971) Thomas H. Morrow Vice President-Tax (1984) David J. H. Nicoll Vice President-Project Finance (1989) - Richard D. Paul Vice President-Financial and Operational Evaluation (1968) James O. Rollans Vice President-Corporate Communications (1982) Fluor Daniel Executive Officers Vincent L. Kontny President and CEO (2967) Hugh K. Coble Croup President (1966} Gerald M. Glenn Croup President (1964) Kcy Fluor Dan1e l Opern-ting / Ma rket 1 ng x e c it t i v e s Industrial Sector James C. Stein President (1964) Richard M. Teater Vice President-Marketing (1980) Process Sector Paul J. Varello President (1972) Steven G. Tappan Vice President-Marketing (1977) Power Sector Peter S. Van Nort President (1980) Michael J. Epprecht Vice President-Marketing (1979) Hydrocarbon Sector Charles R. Oliver President (1970) Dennis G. Bemhart Vice President-Marketing (1968) Government Sector Emil J. Parente President (1978) Thomas R Merrick Vice President-Marketing (1984) Operations Centers Charles R. Cox President (1969) Charles R Pringle Vice President-Marketing (1970) Information Services Larry M. Hart President (1967) Tears in parentheses indicate the year each officer or executive joined the company. Except as otherwise indicated, all offices are of the company. Asia /Pacific Rodney J. Harden Managing Director (Australia) (1989} Richard D. Carano Vice President-Marketing (1970) Canada A. B. McArthur President (1975) Europe ! Africa /Middle East Richard W. Dean President (1967) Richard Fenny Vice President-Marketing (1986) Other Key Operating / Staff Executives A. T. Massey Coal Company, Inc. E. Morgan Massey President (1947) Fluor Constructors International, Inc. Richard A. Flinton Chairman (i960) G. William Gilfillan President (1989) Government Relations Betty L. Hudson Vice President (1974) DR 2801302 ngineer1ng and Construction Fluor Daniel, Inc. Industrial Sector, Irvine, California Process Sector, Irvine, California Power Sector, Irvine, California Hydrocarbon Sector, Irvine, California Government Sector, Irvine, California U.S. Operations Centers Chicago Greenville Houston Irvine Philadelphia International Operations Fluor Daniel Arabia Limited, Ai-Khobar, Saudi Arabia Fluor Daniel Australia Limited, Melbourne, Victoria, Australia Fluor Daniel B. V., Haarlem, The Netherlands Fluor Daniel Canada, Inc. Calgary, Alberta, Canada Fluor Daniel Chile, S.A., Santiago, Chile Fluor Daniel China, Inc., Beijing, Peoples Republic of China Fluor Daniel Engineers & Constructors, Ltd., Hong Kong Fluor Daniel Espana, S.A., Madrid, Spain Fluor Daniel GmbH, Dusseldorf, West Germany Fluor Daniel Limited, London, England Fluor Daniel Pacific, Inc., Manila, The Philippines Fluorven Limited, Caracas, Venezuela Wright Engineers Limited, Vancouver, British Columbia, Canada American Equipment Company, Inc., Greenville, South Carolina Duke/Fluor Daniel, Charlotte, North Carolina SOS International, Greenville, South Carolina Daniel International Corporation, Greenville, South Carolina Fluor Constructors International, Inc., Irvine, California Natural Resource Investment s A. T. Massey Coal Company, Inc., Richmond, Virginia The Doe Run Company, St. Louis, Missouri Stockholders Reference t-48 For tn 10-K A c g y r r't- r >rm t r % 611 h fj ' ,m~ 6* mn it _tid t, h tn_- i.'U'-'i'ia 1 tv. lLble urc r -_.r~ U >n " f j 1 fw't id > ontrulk u .. t c 1 f title0 . M -- - n I 'r> e In mt ! J form <* > ' 41 a R r( , -, , 1 1 i. / ' .urn. "Y.,lr totis'i 1 Rank v ( igt rate '-a a 1 union ~n '(Huh VAe-tem Fv< mac ( lendalt t ulit irr.u ,i2Ci and '-e uritv Cit'di \i 1 n.i! F UA imp an , . f ctoi -m-- n nn Tk or Nets (. 1 bn V d 1 n' f >r thar.c* .t . ddr<~ >oa dia Otn'W, cr `tA tocr c> Itlhcate Anti or -rephont <~ea-ntv Pj.iTc n .T1_n.1l B ink on k Trjmkr "" v- on, lu< ~y Ierirmai Annet L' An. ele , ( ..lifornj t-. 121, Attn Shaiehoi.e* rebtinn(teoi 4;'. s 4- < h An 'd 11 IK f 11 hr 1 t / . * tAg 81c ) viiri F jf tri rn A\enm, ,pr,rie,( ahf irmu,;-r d Killil \\ 1 ' toD h d l ! ` Annual o-x r and pr ix\ -tatt inert n r iiiikd .txiut 1 oriar/i irluor' - cal netting.oik hold '' jo. re held r a c c.m. on M nd 4 '<4., n the F! 1 ir Dam 11 .tenville Opcntn n (enter .'1 -lut r P nn 1 Lhtvi l rttrm e '<)u*h Cm ,hr. lO ' f <( f -t icfhok- ' n i ill ml t a -to. 1> hoia " r'hirrr m< n I .vuetf F sh> * (7 In t ' thn n 1J 41* f J. i * p ... . (714) 975-tqoq Common Stock and Dividend Inter mat ion The following table sets forth tor 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. Price Ranee Dividends F t s e a / 1 9,5 9 Per Share Hi eh Low First Quarter Second Quarter Third Quarter Fourth Quarter S.02 .04 .04 .04 S'lsi24O 3d"" 36N Si 8vs 21 ' s 24 w zS'o Fiscal 7988 First Quarter Second Quarter Third Quarter Fourth Quarter S. 14 s_ -- ,02 Sir's 19m 2} ;4 230, Si 1 'A 12-/4 17'A 19C S. 02 Common Stock 1 n form a tip n At December 31,1989, there were 79,847,703 shares outstanding and approximately 19,000 stockholders of record of Floor's common stock. Stock Trad me Fluors stock ss traded on the New York, Midwest, Pacific, .Amsterdam, London and Swiss Stock Exchanges. Common stock domestic trading symbol: FLR, Com man S 10 ck Hist 0 r 1/ Since Gome Public in ms0 08/23/Y7 12/13/61 03 /i1/63 0 3/09/64 03/08/69 02/14/66 03/24/66 03/27/67 02/09/68 03/22/68 09/16/69 03/06/70 03/0 9/7 T or/10/72 02/12/'7 02/11/74 08 /17 Do 07/18!80 20"0 Stock Dividend 3 o Stock Dividend 5% Stock Dividend 3o Stock Dividend 3 o Stock Dividend 3o Stock Dividend 2 for 1 Stock Split 3 o Stock Dividend 3 o Stock Dividend 2 for 1 Stock Split Co Stock Dividend 7% Stock Dividend 9% Stock Dividend 5o Stock Dividend 3% Stock Dividend 3 for 2 Stock Split 2 for 2 Stock Split 2 for 1 Stock Split DR 2801303