UNITED STATES 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 April 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 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) (714)975-2000 ----------------------------------------------------------------- (Registrant's telephone number, including area code) 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 past 90 days. Yes (X) No ( ) As of May 31, 1996 there were 83,574,157 shares of common stock outstanding. FLUOR CORPORATION FORM 10-Q April 30, 1996 TABLE OF CONTENTS PAGE ----------------------------------------------------------------- Part I: Financial Information Condensed Consolidated Statement of Earnings for the Three Months Ended April 30, 1996 and 1995..... 2 Condensed Consolidated Statement of Earnings for the Six Months Ended April 30, 1996 and 1995....... 3 Condensed Consolidated Balance Sheet at April 30, 1996 and October 31, 1995.......................... 4 Condensed Consolidated Statement of Cash Flows for the Six Months Ended April 30, 1996 and 1995....... 6 Notes to Condensed Consolidated Financial Statements......................................... 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................ 9 Changes in Backlog.................................. 13 Part II: Other Information......................... 14 Signatures............................................ 16 Part I: Financial Information FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF EARNINGS Three Months Ended April 30, 1996 and 1995 UNAUDITED In thousands, except per share amounts 1996 1995 ----------------------------------------------------------------- REVENUES.............................. $2,582,229 $2,229,313 COSTS AND EXPENSES Cost of revenues.................... 2,477,175 2,133,971 Corporate administrative and general expenses................... 11,334 12,451 Interest expense.................... 3,475 3,241 Interest income..................... (6,837) (7,334) ------------------------- Total Costs and Expenses.............. 2,485,147 2,142,329 ------------------------- EARNINGS BEFORE INCOME TAXES.......... 97,082 86,984 INCOME TAX EXPENSE.................... 33,382 31,662 ------------------------- NET EARNINGS.......................... $ 63,700 $ 55,322 ========================= NET EARNINGS PER SHARE................ $ 0.75 $ 0.66 ========================= DIVIDENDS PER COMMON SHARE............ $ 0.17 $ 0.15 ========================= SHARES USED TO CALCULATE EARNINGS PER SHARE............................... 84,664 83,251 ========================= See Accompanying Notes. -2- Part I: Financial Information FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF EARNINGS Six Months Ended April 30, 1996 and 1995 UNAUDITED In thousands, except per share amounts 1996 1995 ----------------------------------------------------------------- REVENUES.............................. $4,984,643 $4,288,939 COSTS AND EXPENSES Cost of revenues.................... 4,780,517 4,108,666 Corporate administrative and general expenses................... 24,597 22,057 Interest expense.................... 6,916 6,561 Interest income..................... (14,232) (14,453) ------------------------- Total Costs and Expenses.............. 4,797,798 4,122,831 ------------------------- EARNINGS BEFORE INCOME TAXES.......... 186,845 166,108 INCOME TAX EXPENSE.................... 65,697 60,463 ------------------------- NET EARNINGS.......................... $ 121,148 $ 105,645 ========================= NET EARNINGS PER SHARE................ $ 1.43 $ 1.27 ========================= DIVIDENDS PER COMMON SHARE............ $ 0.34 $ 0.30 ========================= SHARES USED TO CALCULATE EARNINGS PER SHARE............................... 84,536 83,108 ========================= See Accompanying Notes. -3- FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET April 30, 1996 and October 31, 1995 UNAUDITED April 30, October 31, $ in thousands 1996 1995* ----------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents........... $ 245,318 $ 292,934 Marketable securities............... 137,710 137,758 Accounts and notes receivable....... 590,279 470,104 Contract work in progress........... 373,321 362,910 Deferred taxes...................... 44,531 55,088 Inventories and other current assets 117,377 92,877 ------------------------- Total current assets............... 1,508,536 1,411,671 ------------------------- Property, Plant and Equipment, net of accumulated depreciation, depletion and amortization of $717,391 and $630,573, respectively. 1,571,348 1,435,811 Goodwill, net of accumulated amortization of $14,439 and $11,778, respectively........................ 65,405 33,303 Investments........................... 103,745 88,488 Other................................. 271,566 259,633 ------------------------- $3,520,600 $3,228,906 ========================= * Amounts at October 31, 1995 have been derived from audited financial statements. -4- FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET April 30, 1996 and October 31, 1995 UNAUDITED April 30, October 31, $ in thousands 1996 1995* ----------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts and notes payable.......... $ 356,362 $ 372,301 Commercial paper.................... 29,880 29,937 Advance billings on contracts....... 597,188 393,438 Accrued salaries, wages and benefit plan liabilities........... 266,865 269,812 Other accrued liabilities........... 151,146 148,782 Current portion of long-term debt... 23,903 24,375 ------------------------- Total current liabilities.......... 1,425,344 1,238,645 ------------------------- Long-term debt due after one year..... 4,711 2,873 Deferred taxes........................ 41,879 44,211 Other noncurrent liabilities.......... 509,256 512,363 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 - 83,473,940 shares and 83,164,866 shares, respectively............. 52,231 51,978 Additional capital.................. 555,731 538,503 Retained earnings................... 959,071 866,305 Unamortized executive stock plan expense............................ (25,927) (26,865) Cumulative translation adjustments.. (1,696) 893 ------------------------- Total shareholders' equity......... 1,539,410 1,430,814 ------------------------- $3,520,600 $3,228,906 ========================= See Accompanying Notes. * Amounts at October 31, 1995 have been derived from audited financial statements. -5- FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended April 30, 1996 and 1995 UNAUDITED $ in thousands 1996 1995 ----------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings........................ $ 121,148 $ 105,645 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation, depletion and amortization................... 88,644 68,449 Deferred taxes................... 12,801 4,079 Change in operating assets and liabilities.................... 37,132 (48,495) Other, net....................... (18,281) 3,044 ------------------------- Cash provided by operating activities. 241,444 132,722 ------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures................ (206,491) (160,253) Acquisitions........................ (50,468) -- Investments......................... (13,313) (5,435) Purchases of marketable securities.. (55,541) (17,290) Proceeds from sales and maturities of marketable securities........... 55,395 36,564 Proceeds from sale of property, plant and equipment................ 13,425 8,158 Other, net.......................... (2,595) 4,226 ------------------------- Cash utilized by investing activities. (259,588) (134,030) ------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid................. (28,382) (24,821) Payments on debt.................... (16,543) (35,528) Stock options exercised............. 15,731 955 Other, net.......................... (278) (1,279) ------------------------- Cash utilized by financing activities. (29,472) (60,673) ------------------------- Decrease in cash and cash equivalents. (47,616) (61,981) Cash and cash equivalents at beginning of period................. 292,934 374,468 ------------------------- Cash and cash equivalents at end of period.............................. $ 245,318 $ 312,487 ========================= 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, 1995 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 six months ended April 30, 1996 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 April 30, 1996 and its consolidated results of operations for the three and six months ended April 30, 1996 and 1995 and cash flows for the six months ended April 30, 1996 and 1995. Certain 1995 amounts have been reclassified to conform with the 1996 presentation. (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: April 30, October 31, $ in thousands 1996 1995 ------------------------------------------------------------ Coal........................... $ 34,538 $ 28,874 Supplies and other............. 40,405 34,410 -------------------------- $ 74,943 $ 63,284 ========================== -7- (4) Cash paid for interest was $3.8 million for the six month periods ended April 30, 1996 and 1995. Income tax payments, net of refunds, were $53.3 million and $60.4 million during the six month periods ended April 30, 1996 and 1995, respectively. (5) Effective November 1, 1995, the company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). The adoption of SFAS No. 121 had no impact on the company's consolidated results of operations or financial position. (6) In March 1996, American Equipment Company, Inc., the company's equipment rental and sales subsidiary acquired S&R Equipment Company, Inc. (S&R), a high-lift equipment dealer. S&R was acquired for a cash purchase price of $44.4 million, for which the company received $29.1 million of property, plant and equipment and $4.4 million of working capital and other assets. In addition, the company assumed $17.4 million of debt of which $15.6 million was repaid by the company subsequent to the purchase. Goodwill of $28.3 million will be amortized over 15 years. The acquistion has been accounted for as a purchase; accordingly, S&R's results of operations have been included in the company's Condensed Consolidated Statement of Earnings from the March 1, 1996 acquisition date. (7) In May 1996, the company consummated a merger between one of its subsidiaries, Fluor Daniel Environmental Services, Inc. (FDESI) and Groundwater Technology, Inc. (GTI), wherein the company acquired 55 percent of the newly named company, Fluor Daniel GTI. The company contributed $33.4 million in cash and ownership of FDESI to Fluor Daniel GTI. GTI shareholders received $60 million in cash and 45 percent of Fluor Daniel GTI. The merger will broaden and enhance the company's existing environmental, contracting and project management services. -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 16 percent for both the three and six month periods ended April 30, 1996 compared with the same periods of 1995. Net earnings for the three and six months ended April 30, 1996 were $63.7 million and $121.1 million, respectively, compared with net earnings of $55.3 million and $105.6 million, respectively, for the same periods of 1995. The increases in net earnings are primarily due to higher earnings for both the Engineering and Construction and Coal segments. ENGINEERING AND CONSTRUCTION Revenues for the Engineering and Construction segment increased 15 percent and 17 percent, respectively, for the three and six month periods ended April 30, 1996 compared with the same periods of 1995, primarily due to an increase in work performed. Engineering and Construction operating profits increased 7 percent and 11 percent, respectively, for the three and six months ended April 30, 1996 compared with the same periods of 1995 primarily due to the increase in the volume of work performed which was partially offset by an increase in marketing and proposal costs. These expenditures, which are recognized as they are incurred, reflect the company's pursuit of strong business opportunities across numerous global markets. Excluding the impact of increased marketing and proposal costs, reported margins which may fluctuate from time to time as a result of changes in the mix of engineering and design services and construction related services, declined slightly for both the three and six month periods ended April 30, 1996 compared with the same periods of 1995. New awards for the three and six month periods ended April 30, 1996 were $3.0 billion and $6.0 billion, respectively, compared with $2.7 billion and $5.0 billion for the same periods of 1995. Approximately 53 percent and 57 percent, respectively, of new awards for the three and six months ended April 30, 1996 were for projects located outside the United States. New awards in the Industrial group for the the second quarter of 1996 were $1.8 billion and included a $558 million mining and metals project located in Indonesia. -9- The remainder of other new awards in the second quarter of 1996 consisted of a mix of smaller to medium sized projects located primarily in the U.S., Asia Pacific and Middle East regions. The large size and uncertain timing of significant new awards can create variability in the company's awards 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 groups: April 30, October 31, April 30, $ in millions 1996 1995 1995 ----------------------------------------------------------------- Process $ 6,296 $ 6,671 $ 7,175 Industrial 5,318 4,516 3,723 Power/Government 3,054 3,275 3,214 Diversified Services 694 263 292 -------------------------------------- Total $ 15,362 $ 14,725 $ 14,404 ====================================== The increase in the Diversified Services group's backlog at April 30, 1996 compared with October 31, 1995 was due primarily to the award of new facility management services for IBM at seven facilities located throughout the United States. Approximately 57 percent of backlog at April 30, 1996 relates to projects located outside of the United States compared with 55 percent at October 31, 1995 and 56 percent at April 30, 1995. Backlog is adjusted both upwards and downwards as required to reflect project cancellations, deferrals and revised project scope and cost. These adjustments were comparable for the three and six months ended April 30, 1996 and 1995, respectively. COAL Revenues from produced coal increased 19 percent and 11 percent, respectively, for the three and six month periods ended April 30, 1996 compared with the same periods of 1995. These increases were primarily due to increased sales volume of both metallurgical and steam coal. Metallurgical coal revenues increased primarily due to the continued strong demand by steel producers and increased market share. Steam coal sales increased due to stronger demand from electric utilities stemming from a more severe winter this year compared with a -10- year ago. Gross margin increased for the three and six months ended April 30, 1996 compared with the same periods of 1995 primarily due to the increased sales volume of both metallurgical and steam coal, and improved pricing of metallurgical coal. For the three months ended April 30, 1996, the increase in steam coal gross margin compared with the same period of 1995 was partially offset by a decline in sales price. Operating profit increased 17 percent and 20 percent, respectively, for the three and six months ended April 30, 1996 compared with the same periods of 1995 due primarily to increased gross margins. OTHER Corporate administrative and general expenses decreased approximately $1.1 million for the three months ended April 30, 1996 and increased approximately $2.5 million for the six months ended April 30, 1996, respectively, compared with the same periods in 1995. The decrease for the three months ended April 30, 1996 compared with the same period of 1995 is primarily due to lower stock price compensation plans expense and lower corporate overhead, partially offset by higher performance driven compensation plans expense. The increase for the six months ended April 30, 1996 compared with the same period of 1995 is primarily due to higher stock price and performance driven compensation plans expense, partially offset by lower corporate overhead. Net interest income for the three and six months ended April 30, 1996 decreased $.7 million and $.6 million, respectively, compared with the same periods of 1995 primarily due to lower average interest earning assets. The effective income tax rate for the six month period ended April 30, 1996 was essentially unchanged compared with the same period of 1995. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 establishes financial accounting and reporting standards for stock-based compensation plans. Adoption of the new accounting standards prescribed by SFAS No. 123 is optional. The company does not expect to adopt the new accounting standards and will continue to account for its plans under previous accounting standards, consequently, SFAS No. 123 will not affect the company's consolidated results of operations or financial position. However, in accordance with the provisions of SFAS No. 123, beginning in fiscal 1997 pro forma disclosures of net earnings and net earnings per share will be made in the footnotes to the company's financial statements as if the SFAS No. 123 accounting standards had been adopted. -11- In May 1996, the company consummated a merger between one of its subsidiaries, Fluor Daniel Environmental Services, Inc. (FDESI), and Groundwater Technology, Inc. (GTI) wherein the company acquired an approximate 55 percent interest in the newly named company, Fluor Daniel GTI. The company contributed $33.4 million in cash and ownership of FDESI to Fluor Daniel GTI. GTI shareholders received $60 million in cash and 45 percent ownership of Fluor Daniel GTI. The merger will broaden and enhance the company's existing combination of environmental, contracting and project management services. In March 1996, American Equipment Company, Inc., the company's equipment rental and sales subsidiary acquired S&R Equipment Company, Inc. (S&R), a high-lift equipment dealer. S&R was acquired for a cash purchase price of $44.4 million, for which the company received $29.1 million of property, plant and equipment and $4.4 million of working capital and other assets. In addition, the company assumed $17.4 million of debt of which $15.6 million was repaid by the company subsequent to the purchase. Goodwill of $28.3 million will be amortized over 15 years. The acquisition has been accounted for as a purchase; accordingly, S&R's results of operations have been included in the company's Condensed Consolidated Statement of Earnings from the March 1, 1996 acquisition date. 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. Changes in operating assets and liabilities are affected by the mix, stage of completion and commercial terms of engineering and construction projects. The increase in operating assets and liabilities in the first six months of 1996 compared with the same period of 1995 is primarily due to increases in advanced billings on contracts partially offset by increased project receivables resulting from increased project volume. For the six months ended April 30, 1996, capital expenditures were $206.5 million including $134.5 million related primarily to mine development at Massey. Dividends paid in the six months ended April 30, 1996 were $28.4 million (.34 per share) compared with $24.8 million (.30 per share) for the same period of 1995. -12- FLUOR CORPORATION CHANGES IN BACKLOG ($ in Millions) UNAUDITED For the Three Months Ended April 30, 1996 1995 ----------------------------------------------------------------- Backlog - beginning of period....... $ 15,108.2 $ 14,115.7 New awards.......................... 2,967.5 2,719.3 Adjustments and cancellations, net.. (403.9) (422.9) Work performed...................... (2,309.8) (2,007.9) ------------------------- Backlog - end of period............. $ 15,362.0 $ 14,404.2 ========================= For the Six Months Ended April 30, 1996 1995 ----------------------------------------------------------------- Backlog - beginning of period....... $ 14,724.9 $ 14,021.9 New awards.......................... 5,956.0 4,971.2 Adjustments and cancellations, net.. (838.5) (740.7) Work performed...................... (4,480.4) (3,848.2) ------------------------- Backlog - end of period............. $ 15,362.0 $ 14,404.2 ========================= -13- PART II - Other Information Item 4. Submission of Matters to a Vote of Security Holders. (a) Date of Meeting. The annual meeting of stockholders of Fluor Corporation was held on March 12, 1996 at the Fluor Daniel offices, Greenville, South Carolina. (b) Election of Directors. Directors elected - Peter J. Fluor 64,199,308 FOR 688,297 VOTED TO WITHHOLD AUTHORITY Bobby R. Inman 64,170,353 FOR 717,252 VOTED TO WITHHOLD AUTHORITY Buck Mickel 64,158,548 FOR 729,057 VOTED TO WITHHOLD AUTHORITY Other directors continuing in office - Carroll A. Campbell, Jr. Hugh K. Coble David P. Gardner William R. Grant Robert V. Lindsay Vilma S. Martinez Leslie G. McCraw Martha R. Seger (c) Matters Voted Upon. Ratification of the appointment of Ernst & Young LLP as auditors for the fiscal year ending October 31, 1996: 64,708,953 FOR 71,496 AGAINST 107,156 ABSTAIN -0- BROKER NON-VOTE -14- Approval of the 1996 Fluor Executive Stock Plan: 51,876,527 FOR 11,416,506 AGAINST 605,417 ABSTAIN 989,155 BROKER NON-VOTE Approval of certain executive compensation performance goals: 61,758,482 FOR 1,197,497 AGAINST 942,472 ABSTAIN 989,154 BROKER NON-VOTE (d) Terms of settlement between registrant and any other participant. None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. None. (b) Reports on Form 8-K. None. -15- 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: June 13, 1996 /s/ J. Michal Conaway J. Michal Conaway, Vice President and Chief Financial Officer /s/ V.L. Prechtl V.L. Prechtl, Vice President and Controller -16-