SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from to Commission File No. 1-7775 FLUOR CORPORATION (Exact name of registrant as specified in its charter) Delaware 95-0740960 (State or other jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 3333 Michelson Drive, Irvine, CA 92730 (Address of principal executive offices) Registrant's telephone number including area code: (714)975-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes ( X ) No ( ) As of August 31, 1995 there were 83,023,593 shares of common stock outstanding. FLUOR CORPORATION FORM 10-Q July 31, 1995 TABLE OF CONTENTS PAGE Part I: Financial Information Condensed Consolidated Statement of Earnings for the Three Months Ended July 31, 1995 and 1994..... 2 Condensed Consolidated Statement of Earnings for the Nine Months Ended July 31, 1995 and 1994...... 3 Condensed Consolidated Balance Sheet at July 31, 1995 and October 31, 1994......................... 4 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended July 31, 1995 and 1994...... 6 Notes to Condensed Consolidated Financial Statements........................................ 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............... 9 Condensed Consolidated Changes in Backlog.......... 13 Part II: Other Information........................ 14 Signatures........................................... 15 Part I: Financial Information FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF EARNINGS Three Months Ended July 31, 1995 and 1994 (In Thousands Except Per Share Amounts) UNAUDITED 1995 1994 REVENUES.............................. $2,436,831 $1,963,052 COSTS AND EXPENSES Cost of revenues.................... 2,335,885 1,873,675 Corporate administrative and general expenses................... 12,793 14,726 Interest expense.................... 3,449 4,340 Interest income..................... (9,875) (5,697) Total Costs and Expenses.............. 2,342,252 1,887,044 EARNINGS BEFORE INCOME TAXES.......... 94,579 76,008 INCOME TAX EXPENSE.................... 34,427 27,700 NET EARNINGS.......................... $ 60,152 $ 48,308 NET EARNINGS PER SHARE................ $ 0.72 $ 0.58 DIVIDENDS PER COMMON SHARE............ $ 0.15 $ 0.13 SHARES USED TO CALCULATE EARNINGS PER SHARE............................... 83,542 83,001 See Accompanying Notes. -2- FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF EARNINGS Nine Months Ended July 31, 1995 and 1994 (In Thousands Except Per Share Amounts) UNAUDITED 1995 1994 REVENUES.............................. $6,725,770 $6,100,310 COSTS AND EXPENSES Cost of revenues.................... 6,444,551 5,841,624 Corporate administrative and general expenses................... 34,850 38,738 Interest expense.................... 10,010 12,979 Interest income..................... (24,328) (15,176) Total Costs and Expenses.............. 6,465,083 5,878,165 EARNINGS BEFORE INCOME TAXES.......... 260,687 222,145 INCOME TAX EXPENSE.................... 94,890 82,100 NET EARNINGS.......................... $ 165,797 $ 140,045 NET EARNINGS PER SHARE................ $ 1.99 $ 1.69 DIVIDENDS PER COMMON SHARE............ $ 0.45 $ 0.39 SHARES USED TO CALCULATE EARNINGS PER SHARE............................... 83,253 82,744 See Accompanying Notes. -3- FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET July 31, 1995 and October 31, 1994 (Dollars in Thousands) ASSETS July 31, October 31, 1995 1994 * (Unaudited) Current Assets Cash and cash equivalents........... $ 305,730 $ 374,468 Marketable securities............... 127,273 117,618 Accounts and notes receivable....... 400,431 318,672 Contract work in progress........... 328,234 308,877 Deferred taxes...................... 42,624 56,967 Inventory and other current assets.. 88,252 81,861 Total Current Assets............... 1,292,544 1,258,463 Property, plant and equipment (net of accumulated depreciation, depletion and amortization of $598,990 and $514,145, respectively) 1,388,135 1,274,437 Investments and goodwill, net......... 109,965 71,596 Other................................. 229,691 220,272 $3,020,335 $2,824,768 (Continued On Next Page) * Amounts at October 31, 1994 have been derived from audited financial statements. -4- FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET July 31, 1995 and October 31, 1994 (Dollars in Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY July 31, October 31, 1995 1994 * (Unaudited) Current Liabilities Accounts and notes payable.......... $ 308,028 $ 333,244 Commercial paper.................... 24,918 19,957 Advance billings on contracts....... 365,793 220,101 Accrued salaries, wages and benefit plans...................... 187,379 199,506 Other accrued liabilities........... 185,105 210,511 Current portion of long-term debt... 462 38,001 Total Current Liabilities.......... 1,071,685 1,021,320 Long-term debt due after one year..... 26,516 24,366 Deferred taxes........................ 41,773 45,199 Other noncurrent liabilities.......... 514,408 513,427 Commitments and contingencies Shareholders' Equity Capital stock Preferred - authorized 20,000,000 shares without par value; none issued Common - authorized 150,000,000 shares of $0.625 par value; issued and outstanding - 82,970,584 shares and 82,507,568 shares, respectively............. 51,857 51,567 Additional capital.................. 519,734 498,804 Retained earnings................... 812,808 684,249 Unamortized executive stock plan expense............................ (20,831) (14,472) Cumulative translation adjustments.. 2,385 308 Total Shareholders' Equity......... 1,365,953 1,220,456 $3,020,335 $2,824,768 See Accompanying Notes. * Amounts at October 31, 1994 have been derived from audited financial statements. -5- FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Ended July 31, 1995 and 1994 (Dollars in Thousands) UNAUDITED 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings........................ $ 165,797 $ 140,045 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation, depletion and amortization................... 106,177 84,678 Deferred taxes................... 8,056 (4,958) Equity earnings in construction joint ventures, net of distributions................... (16,438) (11,367) Change in operating assets and liabilities.................... (22,002) 99,123 Other, net....................... (10,593) 14,723 Cash provided by operating activities. 230,997 322,244 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures................ (225,588) (171,829) Investments......................... (11,032) 1,444 Purchase of marketable securities... (9,655) (10,915) Initial cash proceeds from sale of discontinued operations, excluding tax benefits....................... -- 51,869 Acquisition of ADP.................. (5,342) -- Proceeds from sale of property, plant and equipment................ 11,462 11,443 Other, net.......................... 2,655 1,309 Cash utilized by investing activities. (237,500) (116,679) CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid................. (37,238) (32,103) Payments on long-term debt.......... (35,604) (594) Decrease in note payable to affiliate.......................... -- (30,000) Increase (decrease) in short-term borrowings......................... 4,961 (15,070) Stock options exercised............. 6,808 11,658 Other, net.......................... (1,162) (2,811) Cash utilized by financing activities. (62,235) (68,920) Increase (decrease) in cash and cash equivalents......................... (68,738) 136,645 Cash and cash equivalents at beginning of period................. 374,468 214,844 Cash and cash equivalents at end of period.............................. $ 305,730 $ 351,489 See Accompanying Notes. -6- FLUOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (1) The condensed consolidated financial statements do not include footnotes and certain financial information normally presented annually under generally accepted accounting principles and, therefore, should be read in conjunction with the company's October 31, 1994 annual report on Form 10-K. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended July 31, 1995 are not necessarily indicative of results that can be expected for the full year. The condensed consolidated financial statements included herein are unaudited; however, they contain all adjustments (consisting of normal recurring accruals) which, in the opinion of the company, are necessary to present fairly its consolidated financial position at July 31, 1995 and its consolidated results of operations for the three and nine months ended July 31, 1995 and 1994 and cash flows for the nine months ended July 31, 1995 and 1994. (2) Earnings per share is based on the weighted average number of common and, when appropriate, common equivalent shares outstanding in each period. Common equivalent shares are included when the effect of the potential exercise of stock options is dilutive. (3) Inventories comprise the following: July 31, October 31, 1995 1994 ($ in thousands) Coal........................... $ 18,383 $ 24,289 Supplies and other............. 29,500 28,414 $ 47,883 $ 52,703 (4) Cash paid for interest was $5.1 million and $9.2 million for the nine month periods ended July 31, 1995 and 1994, respectively. Income tax payments, net of refunds, were $71.0 million and $49.2 million during the nine month periods ended July 31, 1995 and 1994, respectively. -7- (5) Effective November 1, 1994, the company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115), which requires that the carrying value of debt and equity securities be adjusted according to guidelines based on their classification as held-to-maturity, available-for-sale or trading. Management determines classification at the time of purchase and reevaluates its appropriateness at each balance sheet date. The company's investments primarily include short-term, highly liquid investment grade securities which are usually sold before their maturity. Accordingly, all investment securities are considered to be available-for-sale and carried at fair value. As of July 31, 1995 and November 1, 1994 there were no material gross unrealized gains or losses as the carrying value of the security portfolio approximated fair value. Gross realized gains and losses on sales of securities for the three and nine months ended July 31, 1995 were not material. The cost of securities sold is based on the specific identification method. As of July 31, 1995 approximately $71.1 million of securities mature within the next year, approximately $51.6 million mature in the next one to three years and approximately $4.6 million mature after three years. (6) In July 1995, the company acquired Anderson Debartolo Pan, Inc. ("ADP"), a privately held company providing professional services in engineering, architectural and construction management. ADP was acquired for a purchase price of $9.2 million consisting of $5.3 million in cash and 68,299 shares of the company's common stock. The acquisition has been accounted for as a purchase; accordingly, ADP's results of operations have been included in the company's consolidated financial statements from the July 28, 1995 acquisition date. -8- FLUOR CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, the condensed consolidated financial statements and accompanying notes. RESULTS OF OPERATIONS Revenues increased 24 percent and 10 percent, respectively, for the three and nine month periods ended July 31, 1995, compared with the same periods of 1994. Net earnings for the three and nine months ended July 31, 1995 were $60.2 million and $165.8 million, respectively, compared with net earnings of $48.3 million and $140.0 million for the same periods of 1994. The increases in net earnings are due primarily to higher earnings for both the Engineering and Construction and Coal segments together with higher net interest income. ENGINEERING AND CONSTRUCTION Revenues for the Engineering and Construction segment increased 25 percent and 10 percent, respectively, for the three and nine month periods ended July 31, 1995 compared with the same periods of 1994, primarily due to an increase in work performed. Engineering and Construction operating profits increased 10 percent and 7 percent, respectively, for the three and nine months ended July 31, 1995 compared to the same periods of 1994 primarily due to the increased volume of work performed, partially offset by higher levels of investment spending for strategic business development. Reported margins may fluctuate from time to time as a result of changes in the mix of engineering and design services and construction related services. New awards for the three and nine month periods ended July 31, 1995 were $2.6 billion and $7.6 billion, respectively, compared with $2.3 billion and $6.8 billion for the same periods of 1994. Approximately 58 percent and 60 percent, respectively, of new awards for the three and nine months ended July 31, 1995 were for projects located outside the United States. New awards for the three months ended July 31, 1995 included approximately $700 million relating to work to be performed on a copper concentrator at the Alumbrera copper/gold mine in Argentina, and for the nine months ended -9- July 31, 1995 also included over $1.0 billion relating to a power plant to be constructed in Paiton, Indonesia. The large size and uncertain timing of new awards can create variability in the company's award pattern, consequently, future award trends are difficult to predict with certainty. The following table sets forth backlog for each of the company's Engineering and Construction business groups: July 31, October 31, July 31, ($ in millions) 1995 1994 1994 Process $ 6,861 $ 7,668 $ 8,471 Industrial 4,090 3,564 3,336 Power/Government 3,282 2,369 2,654 Diversified Services 317 421 446 Total $ 14,550 $ 14,022 $ 14,907 Approximately 56 percent of backlog at July 31, 1995 relates to projects located outside of the United States compared with 51 percent at October 31, 1994 and 50 percent at July 31, 1994. The Process group has experienced a reduction in backlog due primarily to high levels of work performed on international projects awarded in prior years. Backlog is adjusted as required to reflect project cancellations, deferrals, and revised project scope and cost, both upwards and downwards. COAL Produced coal revenues increased 22 percent and 16 percent, respectively, for the three and nine month periods ended July 31, 1995 compared with the same periods of 1994. The increases were primarily due to increased sales volume of metallurgical coal, which more than offset lower demand for steam coal stemming from the continuing effects of relatively mild weather during the past nine months. Metallurgical coal sales have increased largely due to the capturing of a larger market share as the Coal segment continues to establish itself as the low cost producer in the industry. The Coal segment also provides a higher quality metallurgical coal that is more attractive to steel producers. Brokered coal sales and margins in the three and nine month periods ended July 31, 1995 and 1994 were immaterial as brokered coal volume has been replaced with produced coal from reserves acquired in recent years. Accordingly, brokered coal sales are netted with related cost -10- of revenues in 1995. Prior periods have not been restated. Operating profit increased 28 percent and 17 percent, respectively, for the three and nine month periods ended July 31, 1995 compared with the same periods of 1994. The increases were primarily due to increased sales volume of metallurgical coal which has a higher gross margin than steam coal. OTHER Corporate administrative and general expenses decreased approximately $1.9 million and $3.9 million, respectively, for the three and nine months ended July 31, 1995 compared with the same periods in 1994, due primarily to lower corporate overhead partially offset by higher performance driven compensation plan expense. Net interest income for the three and nine months ended July 31, 1995 increased $5.1 million and $12.1 million, respectively, due largely to higher returns on short-term investments and the prepayment of a 13.5 percent $34.7 million note in the first quarter of 1995. The effective income tax rates for the three and nine month periods ended July 31, 1995 were essentially unchanged from the same periods of 1994. The company does not have substantial net assets or liabilities denominated in foreign currencies and, therefore, does not have significant risk to currency fluctuations. Since the official government devaluation of the Mexican peso on December 20, 1994, the peso has experienced lower volatility in recent months. The company believes that its investment in ICA Fluor Daniel has not been permanently impaired as prospects remain for long-term engineering and construction work in Mexico. Effective November 1, 1994, the company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). The adoption of SFAS No. 115 had no material impact on the results of operations or financial position. In July 1995, the company acquired Anderson Debartolo Pan, Inc. ("ADP"), a privately held company providing professional services in engineering, architectural and construction management. ADP was acquired for a purchase price of $9.2 million consisting of $5.3 million in cash and 68,299 shares of the company's common stock. The acquisition has been accounted for as a purchase; accordingly, ADP's results of operations have been included in the company's consolidated financial statements from the July 28, 1995 acquisition date. -11- FINANCIAL POSITION AND LIQUIDITY The company expects to have adequate resources available from cash and short-term investments currently on hand, plus available revolving credit facilities, capital market sources, and its commercial paper program to provide for its financing needs for the foreseeable future. In late August of 1995 the company's long-term debt rating was upgraded by Standard and Poors from "A" to "A+." The ratings assigned by the other major credit rating agencies remained unchanged. For the nine months ended July 31, 1995, capital expenditures were $225.6 million including $123.4 million related primarily to mine development at Massey. Dividends paid in the nine months ended July 31, 1995 were $37.2 million ($.45 per share) compared with $32.1 million ($.39 per share) for the same period of 1994. -12- FLUOR CORPORATION CONDENSED CONSOLIDATED CHANGES IN BACKLOG (Dollars in Millions) UNAUDITED For the Three Months Ended July 31, 1995 1994 Backlog - beginning of period....... $ 14,404.2 $ 14,850.1 New awards.......................... 2,611.9 2,287.4 Adjustments and cancellations, net.. (266.5) (433.4) Work performed...................... (2,200.0) (1,796.8) Backlog - end of period............. $ 14,549.6 $ 14,907.3 For the Nine Months Ended July 31, 1995 1994 Backlog - beginning of period....... $ 14,021.9 $ 14,753.5 New awards.......................... 7,583.1 6,793.9 Adjustments and cancellations, net.. (1,007.2) (1,118.3) Work performed...................... (6,048.2) (5,521.8) Backlog - end of period............. $ 14,549.6 $ 14,907.3 -13- FLUOR CORPORATION PART II - Other Information Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. None. -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLUOR CORPORATION (Registrant) Date: September 14, 1995 /s/ J. Michal Conaway J. Michal Conaway, Vice President and Chief Financial Officer Date: September 14, 1995 /s/ V.L. Prechtl V.L. Prechtl, Vice President and Controller -15-