1
EXHIBIT 13
SELECTED FINANCIAL DATA
In millions, except per share amounts 1994 1993 1992 1991 1990 1989 1988
CONSOLIDATED OPERATING RESULTS
Revenues $ 8,485.3 $ 7,850.2 $ 6,600.7 $6,572.0 $ 7,248.9 $ 6,127.2 $ 5,008.9
Earnings from continuing operations
before taxes 303.3 242.2 215.4 228.4 153.6 135.6 62.0
Earnings from continuing operations,
net 192.4 166.8 135.3 153.1 119.4 84.1 38.6
Earnings (loss) from discontinued
operations, net _ _ (96.6) 11.0 35.2 28.6 21.6
Cumulative effect of change
in accounting principle, net _ _ (32.9) _ _ _ _
Net earnings 192.4 166.8 5.8 164.1 154.6 112.7 60.2
Earnings per share
Continuing operations 2.32 2.03 1.65 1.87 1.47 1.04 0.48
Discontinued operations _ _ (1.18) 0.14 0.43 0.36 0.27
Cumulative effect of change
in accounting principle _ _ (0.40) _ _ _ _
Net earnings per share $ 2.32 $ 2.03 $ 0.07 $ 2.01 $ 1.90 $ 1.40 $ 0.75
Return on average shareholders'
equity 17.1% 17.4% 0.6% 20.2% 23.3% 21.5% 14.2%
Cash dividends per common share $ 0.52 $ 0.48 $ 0.40 $ 0.32 $ 0.24 $ 0.14 $ 0.02
CONSOLIDATED FINANCIAL POSITION
Current assets $ 1,258.4 $ 1,309.1 $ 1,138.6 $ 1,159.5 $ 1,222.8 $ 1,036.4 $ 1,001.0
Current liabilities 1,021.3 930.9 845.4 848.2 984.0 797.7 786.1
Working capital 237.1 378.2 293.2 311.3 238.8 238.7 214.9
Property, plant and equipment, net 1,274.4 1,100.9 1,046.9 1,092.7 925.3 775.3 729.8
Total assets 2,824.8 2,588.9 2,365.5 2,421.4 2,475.8 2,154.3 2,075.7
Capitalization
Long-term debt 24.4 59.6 61.3 75.7 57.6 62.5 95.0
Shareholders' equity 1,220.5 1,044.1 880.8 900.6 741.3 589.9 467.1
Total capitalization $ 1,244.9 $ 1,103.7 $ 942.1 $ 976.3 $ 798.9 $ 652.4 $ 562.1
Percent of total capitalization
Long-term debt 2.0% 5.4% 6.5% 7.8% 7.2% 9.6% 16.9%
Shareholders' equity 98.0% 94.6% 93.5% 92.2% 92.8% 90.4% 83.1%
Shareholders' equity per common
share $ 14.79 $ 12.72 $ 10.81 $ 11.10 $ 9.22 $ 7.39 $ 5.91
Common shares outstanding at
October 31 82.5 82.1 81.5 81.1 80.4 79.8 79.1
OTHER DATA
New awards $ 8,071.5 $ 8,000.9 $10,867.7 $ 8,531.6 $ 7,632.3 $ 7,135.3 $ 5,955.2
Backlog at year end 14,021.9 14,753.5 14,706.0 11,181.3 9,557.8 8,360.9 6,658.6
Capital expenditures 301.3 171.5 287.0 159.7 155.7 139.2 86.3
Cash provided by operating activities $ 459.4 $ 188.0 $ 306.1 $ 219.0 $ 353.1 $ 265.1 $ 17.7
<FN>
<F1> See Management's Discussion and Analysis on pages 25 to 27, Consolidated
Statement of Earnings on page 30, Notes to Consolidated Financial Statements on
pages 33 to 43 and Quarterly Financial Data on page 45 for information relating
to significant items affecting the results of operations.
<F2> The quarterly dividend was increased from $.02 per share to $.04 per share
in the second quarter of 1989, to $.06 per share in the first quarter of 1990,
to $.08 per share in the first quarter of 1991, to $.10 per share in the first
quarter of 1992, to $.12 per share in the first quarter of 1993, to $.13 per
share in the first quarter of 1994 and to $.15 per share in the first quarter
of 1995.
</FN>
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is provided to increase understanding of,
and should be read in conjunction with, the consolidated financial statements
and accompanying notes.
RESULTS OF OPERATIONS
Earnings from continuing operations were $192 million in 1994, compared with
$167 million in 1993 and $135 million in 1992. The related earnings per share
were $2.32 in 1994, compared with $2.03 in 1993 and $1.65 in 1992. Earnings
from continuing operations in 1993 included a nonrecurring after-tax charge of
$6.1 million related to the settlement of a dispute with the pension and
benefits funds of the United Mine Workers of America/Bituminous Coal Operators
of America. This charge was more than offset by the 1993 reversal of $12.6
million of income tax liabilities no longer required due to the favorable
conclusion of a federal income tax audit in the second quarter of 1993 for the
years 1984 through 1986. This reduction in liabilities did not affect the
company's cash flow.
ENGINEERING AND CONSTRUCTION
Total new awards were $8.1 billion in 1994, compared with $8.0 billion in 1993
and $10.9 billion in 1992. Consistent with the company's long-term goal of
broad geographic diversity, 61 percent of 1994 new awards came from projects
located outside the United States, compared with 54 percent in 1993 and 32
percent in 1992. The following table sets forth new awards for each of the
company's business groups:
$ in millions
Year ended October 31, 1994 1993 1992
Process $ 4,432 55% $ 5,439 68% $ 5,053 46%
Industrial 2,948 37 1,828 23 2,517 23
Power/Government 516 6 527 6 3,000 28
Diversified Services 176 2 207 3 298 3
Total new awards $ 8,072 100% $ 8,001 100% $10,868 100%
U.S. $ 3,165 39% $ 3,686 46% $ 7,348 68%
Outside U.S. 4,907 61 4,315 54 3,520 32
Total new awards $ 8,072 100% $ 8,001 100% $10,868 100%
The company's future award prospects include several large-scale international
projects. The large size and uncertain timing of these projects can create
variability in the company's award pattern, consequently, future award trends
are difficult to predict with certainty.
Backlog at October 31, 1994, 1993 and 1992 was $14.0 billion, $14.8 billion and
$14.7 billion, respectively. In addition to the increased percentage of 1994
new awards for projects located outside the United States, work performed on
existing contracts during 1994 was largely (79%) attributable to projects
located in the United States, consequently, the amount of backlog for projects
located outside the United States increased to 51 percent of total backlog at
October 31, 1994, compared with 39 percent at October 31, 1993.
Recent growth in the Process group's backlog reflects the award of three major
projects. The Industrial group has maintained a 25 percent share of backlog,
most recently due to significant activity in mining and metals, along with
recent growth in the demand for consumer products, particularly in developing
countries. The decline in the last two years in the Power/Government group
reflects a major slowdown in the award and funding of new U.S. government
programs and the continued low demand for power generation projects in the U.S.
Backlog has been adjusted to reflect project cancellations, deferrals, and
revised project scope and cost, both upwards and downwards. The net reductions
in backlog from project adjustments and cancellations for the year ended
October 31, 1994 was $1,130 million, compared with $844 million and $1,454
million for the years ended October 31, 1993 and 1992, respectively.
Engineering and Construction operating profits increased 17 percent to $259
million in 1994, compared with $221 million in 1993 and $191 million in 1992
due primarily to increases in margins and volume of work performed. Margins
are affected by competitive market conditions and the mix of engineering and
construction projects. The company continues to focus on improving operating
margins by lowering the cost of delivering services. Recent increases in
margins reflect returns attributable to large complex international projects
and fixed-price contracts.
3
COAL
Revenues and operating profit from Coal operations in 1994 were $768 million
and $95 million, respectively, compared with $717 million and $71 million in
1993. Revenues and operating profit in 1992 were $697 million and $80 million.
The following table sets forth produced and purchased coal revenues:
$ in millions
Year ended October 31, 1994 1993 1992
Produced coal $ 725 $ 638 $ 549
Purchased coal 43 79 148
$ 768 $ 717 $ 697
The increase in produced coal revenues in 1994 compared with 1993 is due
primarily to a 12 percent increase in sales volume together with a slight
increase in sales price. Sales volume of produced coal is up due to a strong
demand for metallurgical coal by the steel industry resulting from continued
economic growth in the United States. Sales of purchased coal declined as the
result of a planned shift to produced coal, which carries a higher profit
margin. Although produced coal sales prices showed slight improvement in 1994
compared with 1993, they were offset by slightly higher costs associated with
the start-up of production facilities and the development of new reserves.
Operating profit increased 18 percent in 1994 compared with 1993, excluding the
1993 nonrecurring pretax charge of $10 million to settle the dispute with the
pension and benefit funds of the United Mine Workers of America/Bituminous Coal
Operators of America. Operating profit increased 12 percent due to increased
gross margin from higher produced coal sales volume and 6 percent primarily
from a gain on the sale of excess land.
The increase in produced coal revenues in 1993 compared with 1992 is due
primarily to increased sales volume offset by a modest decline in sales price.
Sales of purchased coal declined as the result of the planned shift towards an
increased proportion of produced coal. Operating profit declined in 1993
compared with 1992 primarily as the result of the previously mentioned
nonrecurring $10 million pretax settlement charge in 1993 despite a 5 percent
increase in gross margin associated with the higher sales volume of produced
coal.
OTHER
Net interest income increased in 1994 compared with 1993 due to an increase in
interest income and a decrease in interest expense. Interest income increased
due to higher average investable funds and interest rates, whereas the lower
interest expense was attributable to reduced amounts of debt. Net interest
income improved slightly in 1993 compared with 1992 due largely to long-term
debt repayments during 1993 and 1992 of approximately $46 million and $18
million, respectively. The resultant decrease in 1993 interest expense was
offset by lower interest income due to lower interest rates and lower interest
earning assets.
Corporate administrative and general expense increased in 1994 compared with
1993 due primarily to higher stock price and performance driven compensation
plans expense partially offset by an increase in net periodic pension income.
Corporate administrative and general expense increased in 1993 compared with
1992 due primarily to higher net periodic pension income in 1992.
The company has only minimal exposure to foreign currency fluctuations as it is
generally able to negotiate neutral positions by matching the foreign currency
revenues and costs in its engineering and construction activities. From time
to time, the company enters into foreign exchange contracts to hedge specific
foreign currency commitments. The company does not have substantial net assets
or liabilities denominated in foreign currencies and, therefore, does not have
significant risk to currency fluctuations. During 1994, the net translation
adjustment represented a gain of $3.5 million in the cumulative translation
component of shareholders' equity due to overall strengthening of the Dutch
guilder and British pound against the U.S. dollar. In December 1994, the
Mexican government announced a major devaluation to the peso. The company
believes that its investment in ICA Fluor Daniel has not been permanently
impaired by the devaluation as prospects remain for long-term engineering and
construction work in Mexico.
The effective tax rate on earnings from continuing operations for 1994 is
essentially unchanged as compared to 1993 and 1992, after excluding the
reversal of $12.6 million of income tax liabilities in 1993.
As of October 31, 1994, the company retroactively adopted as of the beginning
of the fiscal year Statement of Financial Accounting Standards No. 112,
"Employers'Accounting for Postemployment Benefits" (SFAS No. 112). The
statement requires accrual of the estimated cost of benefits provided by the
employer to former or inactive employees after employment but before
retirement. The adoption of SFAS No. 112 had no impact on results of
operations or financial position.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). The statement addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all invest-
4
ments in debt securities. Adoption of SFAS No. 115 is not required by the
company until 1995. Based on the nature and composition of the company's
current investment portfolios, the impact of implementation will not be
material.
DISCONTINUED OPERATIONS
On April 7, 1994, the company completed the sale of its Lead business to an
affiliate of a private investment company for consideration consisting of both
cash and deferred payments. Proceeds included $52 million cash on the date of
the closing and deferred amounts to be paid in installments over periods
ranging from five to eight years. The company announced its decision to exit
its Lead business in November 1992, and, as of October 31, 1992, the Lead
business was classified as a discontinued operation and adjusted to estimated
net realizable value. See Acquisitions and Dispositions in the Notes to
Consolidated Financial Statements on page 35, for additional information.
The sale by the company of its Lead business included St. Joe Minerals
Corporation ("St. Joe"), and its environmental liabilities for several
different lead mining, smelting and other lead related environmental sites.
As a condition of the St. Joe sale, however, the company retained
responsibility for certain non-lead related environmental liabilities, but
only to the extent that such liabilities are not covered by St. Joe's
comprehensive general liability insurance.
In 1987, St. Joe sold its zinc mining and smelting division to Zinc Corporation
of America ("ZCA"). As part of the sale agreement, St. Joe and the company
agreed to indemnify ZCA in the event that certain environmental liabilities
arise from three Zinc facilities (the "Zinc facilities"). During 1993, ZCA
made claims under this indemnity as well as under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") against St.
Joe. In 1994, ZCA filed suit against St. Joe and the company, among others,
seeking compensation. In 1994, the company and St. Joe, among others, executed
a settlement agreement with ZCA which, among other things, cancels the
indemnity previously provided to ZCA and limits environmental expenditures at
the Zinc Facilities for which St. Joe would be responsible to no more than
approximately $10 million. This amount had been previously reserved by the
company. Expenses incurred and payments made under the settlement agreement
are expected to be made over a period of at least 5 years.
FINANCIAL POSITION AND LIQUIDITY
The increase in cash flows from operating activities in 1994 is due primarily
to increased earnings, collection of accounts and project financing receivables
and increases in certain short-term liabilities primarily related to project
activity. Increases and decreases in working capital from year to year are
affected by the mix, stage of completion and commercial terms of engineering
and construction projects. The increase in cash utilized by investing
activities in 1994 compared with 1993 is primarily attributable to increased
capital expenditures and coal company acquisitions. During 1994, Massey Coal
purchased three coal mining companies for consideration totaling $68 million,
including cash of $38 million and the assumption of approximately $30 million
of liabilities. In 1993 and 1992, consideration for the purchase of coal
mining companies totaled $14 million and $77 million, respectively. The
purchases included cash of $11 million and $64 million and the assumption of
approximately $3 million and $13 million of liabilities in 1993 and 1992,
respectively. Massey's capital expenditures and investments have been directed
toward the acquisition of high-quality, low-sulfur coal to benefit from an
expected increase in demand due to the Clean Air Act. Investing activity also
includes the initial pretax proceeds from the sale of the Lead business which
was completed in 1994. Cash utilized by financing activities consisted
primarily of dividend payments and payments on short and long-term debt.
The long-term debt to capitalization ratio at October 31, 1994 was 2.0 percent,
compared with 5.4 percent and 6.5 percent at October 31, 1993 and 1992,
respectively. The 1994 ratio decreased due to the reclassification of a $34.7
million note from long-term to current based on management's decision to prepay
the note in 1995 and the increase in shareholders' equity from earnings, net of
dividends.
The company has on hand and access to sufficient sources of funds to meet its
anticipated operating, expansion and capital needs. Significant short and
long-term lines of credit are maintained with banks which, along with cash on
hand and marketable securities, provide adequate operating liquidity.
Additional liquidity is provided by the company's commercial paper program
under which there was $20 million and $30 million, respectively, outstanding
at October 31, 1994 and 1993.
Quarterly cash dividends of $.10 per share declared in December 1991 were
raised to $.12 per share in December 1992, to $.13 per share in December 1993
and to $.15 per share in December 1994.
Although the company is affected by inflation and the cyclical nature of the
industry, its Engineering and Construction operations are generally protected
by the ability to recover cost increases through price escalation provisions
in most contracts. Coal operations produce a commodity which is
internationally traded at prices established by market factors outside the
control of the company. However, commodity prices generally tend over the long
term to correlate with inflationary trends and the company's substantial coal
reserves provide a hedge against the long-term effects of inflation. Although
the company has taken actions to reduce its dependence on external economic
conditions, management is unable to predict with certainty the amount and mix
of future business.
5
CONSOLIDATED BALANCE SHEET
$ in thousands
At October 31, 1994 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 374,468 $ 214,844
Marketable securities 117,618 97,335
Accounts and notes receivable 318,672 392,577
Contract work in progress 308,877 306,251
Inventories 52,703 32,834
Net assets of discontinued operations _ 172,822
Deferred taxes 56,967 76,364
Other current assets 29,158 15,997
Total current assets 1,258,463 1,309,024
PROPERTY, PLANT AND EQUIPMENT
Land 59,779 58,867
Buildings and improvements 313,512 304,566
Machinery and equipment 763,992 643,818
Mining properties and mineral rights 561,574 499,459
Construction in progress 89,725 35,875
1,788,582 1,542,585
Less accumulated depreciation,
depletion and amortization 514,145 441,676
Net property, plant and equipment 1,274,437 1,100,909
OTHER ASSETS
Investments and goodwill, net of
accumulated amortization of $45,956
and $44,490, respectively 71,596 52,383
Other 220,272 126,568
Total other assets 291,868 178,951
$2,824,768 $2,588,884
6
$ in thousands
At October 31, 1994 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 333,244 $ 289,721
Note payable to affiliate _ 30,000
Commercial paper 19,957 30,053
Advance billings on contracts 220,101 194,695
Accrued salaries, wages and
benefit plan liabilities 199,506 194,270
Other accrued liabilities 210,511 190,447
Current portion of long-term debt 38,001 1,687
Total current liabilities 1,021,320 930,873
LONG-TERM DEBT DUE AFTER ONE YEAR 24,366 59,637
NONCURRENT LIABILITIES
Deferred taxes 45,199 51,642
Other 513,427 502,610
Total noncurrent liabilities 558,626 554,252
CONTINGENCIES AND COMMITMENTS
SHAREHOLDERS' 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 1994 - 82,507,568 shares
and in 1993 - 82,093,207 shares 51,567 51,308
Additional capital 498,804 478,204
Retained earnings (since October 31, 1987) 684,249 534,678
Unamortized executive stock plan expense (14,472) (16,828)
Cumulative translation adjustment (308) (3,240)
Total shareholders' equity 1,220,456 1,044,122
$2,824,768 $2,588,884
<FN>
<F1> See Notes to Consolidated Financial Statements.
</FN>
7
CONSOLIDATED STATEMENT OF EARNINGS
In thousands, except per share amounts
Year ended October 31, 1994 1993 1992
REVENUES
Engineering and construction services $7,717,542 $7,133,578 $5,903,975
Coal 767,725 716,591 696,721
Total revenues 8,485,267 7,850,169 6,600,696
COST OF REVENUES
Engineering and construction services 7,466,274 6,918,464 5,729,148
Coal 672,527 645,911 616,671
Total cost of revenues 8,138,801 7,564,375 6,345,819
OTHER (INCOME) AND EXPENSE
Corporate administrative and general
expense 47,855 43,682 39,270
Interest expense 16,861 19,982 23,580
Interest income (21,549) (20,070) (23,323)
Total cost and expenses 8,181,968 7,607,969 6,385,346
EARNINGS FROM CONTINUING OPERATIONS
BEFORE TAXES 303,299 242,200 215,350
INCOME TAX EXPENSE 110,900 75,400 80,100
EARNINGS FROM CONTINUING OPERATIONS 192,399 166,800 135,250
LOSS FROM DISCONTINUED OPERATIONS, NET _ _ (96,566)
EARNINGS BEFORE CHANGE IN
ACCOUNTING PRINCIPLE 192,399 166,800 38,684
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE, NET _ _ (32,866)
NET EARNINGS $ 192,399 $ 166,800 $ 5,818
EARNINGS PER SHARE
Continuing operations $ 2.32 $ 2.03 $ 1.65
Discontinued operations _ _ (1.18)
Cumulative effect of change in
accounting principle _ _ (0.40)
NET EARNINGS PER SHARE $ 2.32 $ 2.03 $ 0.07
SHARES USED TO CALCULATE
EARNINGS PER SHARE 82,796 82,282 81,558
<FN>
<F1> See Notes to Consolidated Financial Statements.
</FN>
8
CONSOLIDATED STATEMENT OF CASH FLOWS
$ in thousands
Year ended October 31, 1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 192,399 $ 166,800 $ 5,818
Adjustments to reconcile net earnings
to cash provided by operating
activities:
Depreciation, depletion and
amortization 114,258 111,793 135,259
Discontinued operations (4,287) (34,184) 127,275
Change in accounting principle _ _ 53,008
Deferred taxes 2,801 (6,082) (55,674)
Changes in operating assets and
liabilities 141,723 (61,430) 38,436
Other, net 12,482 11,150 2,011
Cash provided by operating activities 459,376 188,047 306,133
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (236,623) (158,822) (223,199)
Payments for purchase of coal
companies (38,164) (10,700) (63,937)
Sale (purchase) of marketable
securities, net (20,283) 50,249 38,458
Initial pretax cash proceeds from
sale of discontinued operations 51,869 _ _
Investments (4,193) (20,081) _
Proceeds from sale of property,
plant and equipment 18,271 9,841 11,493
Other, net (2,468) 15,808 (1,169)
Cash utilized by investing activities (226,655) (113,705) (238,354)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in note payable
to affiliate (30,000) 30,000 _
Payments on long-term debt (1,994) (45,689) (17,969)
Increase (decrease) in short-term
borrowings (10,096) 96 29
Cash dividends paid (42,828) (39,340) (32,486)
Stock options exercised 11,946 8,709 2,540
Other, net (125) (8,620) (8,569)
Cash utilized by financing activities (73,097) (54,844) (56,455)
Increase in cash and cash equivalents 159,624 19,498 11,324
Cash and cash equivalents at beginning
of year 214,844 195,346 184,022
Cash and cash equivalents at end of year $ 374,468 $ 214,844 $ 195,346
<FN>
<F1> See Notes to Consolidated Financial Statements.
</FN>
9
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
In thousands, except per share amounts
Year ended October 31, 1992, 1993 and 1994
Common Stock Unamortized Cumulative
---------------- Additional Retained Stock Plan Translation
Shares Amount Capital Earnings Expense Adjustment Total
------ ------- ---------- -------- ----------- ----------- ----------
BALANCE AT OCTOBER 31, 1991 81,112 $50,695 $ 424,616 $ 433,886 $ (10,797) $ 2,245 $ 900,645
Net earnings 5,818 5,818
Cash dividends ($.40 per share) (32,486) (32,486)
Exercise of stock options, net 346 217 5,996 6,213
Stock option tax benefit 4,024 4,024
Amortization of executive stock
plan expense 1,425 1,425
Issuance of restricted stock, net 122 76 5,093 (5,238) (69)
Common stock repurchase (100) (63) (3,666) (3,729)
Translation adjustment (net of
deferred taxes of $535) (1,039) (1,039)
BALANCE AT OCTOBER 31, 1992 81,480 50,925 436,063 407,218 (14,610) 1,206 880,802
Net earnings 166,800 166,800
Cash dividends ($.48 per share) (39,340) (39,340)
Exercise of stock options, net 520 326 8,383 8,709
Stock option tax benefit 5,839 5,839
Amortization of executive stock
plan expense 1,889 1,889
Issuance of restricted stock, net 93 57 3,858 (4,107) (192)
Tax benefit from reduction of
valuation allowance for
deferred tax assets 24,061 24,061
Translation adjustment (net of
deferred taxes of $2,694) (4,446) (4,446)
BALANCE AT OCTOBER 31, 1993 82,093 51,308 478,204 534,678 (16,828) (3,240) 1,044,122
Net earnings 192,399 192,399
Cash dividends ($.52 per share) (42,828) (42,828)
Exercise of stock options, net 396 248 11,698 11,946
Stock option tax benefit 4,046 4,046
Amortization of executive stock
plan expense 3,837 3,837
Issuance of restricted stock, net 19 11 1,128 (1,481) (342)
Tax benefit from reduction of
valuation allowance for
deferred tax assets 3,728 3,728
Translation adjustment (net of
deferred taxes of $2,268) 3,548 3,548
BALANCE AT OCTOBER 31, 1994 82,508 $51,567 $ 498,804 $ 684,249 $ (14,472) $ 308 $1,220,456
<FN>
<F1> See Notes to Consolidated Financial Statements.
</FN>
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAJOR ACCOUNTING POLICIES
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 percent to 50 percent. Investment ownership of less than 20
percent is accounted for on the cost method. All significant intercompany
transactions of consolidated subsidiaries are eliminated. Certain 1993 and
1992 amounts have been reclassified to conform with the 1994 presentation. In
November 1992, the company announced its decision to exit its Lead business and
on April 7, 1994 a sale was completed. The assets and liabilities of the Lead
business for periods prior to the sale are shown as net assets of discontinued
operations.
ENGINEERING AND CONSTRUCTION CONTRACTS
The company recognizes engineering and construction contract revenues using the
percentage-of-completion method, based primarily on contract costs incurred to
date compared with total estimated contract costs. Customer furnished
materials, labor and equipment and in certain cases subcontractor materials,
labor and equipment are included in revenue and cost of revenue when management
believes that the company is responsible for the ultimate acceptability of the
project. Contracts are segmented between types of services, such as
engineering and construction, and accordingly, gross margin related to each
activity is recognized as those separate services are rendered. Changes to
total estimated contract costs or losses, if any, are recognized in the period
they are determined. Revenues recognized in excess of amounts billed are
classified as current assets under contract work in progress. Amounts received
from clients in excess of revenues recognized to date are classified as current
liabilities under advance billings on contracts. The company anticipates that
substantially all incurred costs associated with contract work in progress at
October 31, 1994 will be billed and collected in 1995.
DEPRECIATION, DEPLETION and AMORTIZATION
Additions to property, plant and equipment are recorded at cost. Assets other
than mining properties and mineral rights are depreciated principally using the
straight-line method over their estimated useful lives. Mining properties and
mineral rights are depleted on the units-of-production method. Leasehold
improvements are amortized over the lives of the respective leases. Goodwill
is amortized on the straight-line method over periods not longer than 40 years.
EXPLORATION, DEVELOPMENT AND RECLAMATION
Coal exploration costs are expensed as incurred. Development and acquisition
costs of coal properties, when expected to be significant, are capitalized in
mining properties and depleted. The company accrues for post-mining
reclamation costs as coal is mined. Reclamation of disturbed acreage is
performed as a normal part of the mining process.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the company's financial
statements or tax returns.
EARNINGS PER SHARE
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, primarily stock options, are included when the effect of
exercise would be dilutive.
11
INVENTORIES
Coal 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, 1994 1993
Coal $ 24,289 $ 15,375
Supplies and other 28,414 17,459
$ 52,703 $ 32,834
FOREIGN CURRENCY
The company enters into forward exchange contracts to hedge foreign currency
transactions, and not to engage in currency speculation. The company's forward
exchange contracts do not subject the company to risk from exchange rate
movements because gains and losses on such contracts offset losses and gains,
respectively, on the assets, liabilities or transactions being hedged. At
October 31, 1994, the company had $75.5 million of foreign exchange contracts
outstanding relating to foreign currency denominated long-term debt and
interest, lease commitments and contract obligations. The forward exchange
contracts generally require the company to exchange U.S. dollars for foreign
currencies at maturity, at rates agreed to at inception of the contracts. If
the counterparties to the exchange contracts (AA rated international banks) do
not fulfill their obligations to deliver the contracted currencies, the company
could be at risk for any currency related fluctuations. The company limits
exposure to foreign currency fluctuations in most of its engineering and
construction contracts through provisions that require client payments in U.S.
dollars or other currencies corresponding to the currency in which costs are
incurred. As a result, the company generally has had no need to hedge foreign
currency cash flows for contract work performed. The functional currency of
all significant foreign operations is the local currency.
CONCENTRATIONS OF CREDIT RISK
The company provides a variety of financing arrangements for its Engineering
and Construction clients. The majority of accounts receivable and all
contract work in progress are from Engineering and Construction clients in
various industries and locations throughout the world. Most contracts require
payments as the projects progress or in certain cases advance payments.
Accounts and notes receivable at October 31, 1994 and 1993 include $5.2 million
and $47.5 million, respectively, in notes receivable related to engineering and
construction contracts. The company generally does not require collateral but,
in most cases can place liens against the property, plant or equipment
constructed if a default occurs. Accounts receivable from customers of the
company's Coal operations are primarily concentrated in the steel and utility
industries. The company maintains adequate reserves for potential credit
losses and such losses have been minimal and within management's estimates.
CONSOLIDATED STATEMENT OF CASH FLOWS
The company invests in short-term, highly liquid investment grade securities
which are usually sold before their maturity. Securities with maturities of
ninety days or less at the date of purchase are classified as cash equivalents.
Securities with maturities beyond ninety days are classified as marketable
securities and are carried at cost which approximates market. Due to the high
dollar volume and turnover of these securities, the related cash flows are
reported on a net basis. The changes in operating assets and liabilities as
shown in the Consolidated Statement of Cash Flows comprise:
$ in thousands
Year ended October 31, 1994 1993 1992
Decrease (increase) in:
Accounts and notes receivable $ 73,905 $(80,223) $ 50,758
Contract work in progress (2,626) (87,143) 37,456
Inventories (18,042) (1,529) (5,549)
Other current assets (8,493) 8,136 (1,241)
Increase (decrease) in:
Accounts payable 43,523 90,720 (58,310)
Advance billings on contracts 25,406 20,286 18,783
Accrued liabilities 28,050 (11,677) 29,275
Other noncurrent liabilities _ _ (32,736)
Changes in operating assets and
liabilities $141,723 $(61,430) $ 38,436
Cash paid during the year for:
Interest expense $ 12,830 $ 20,152 $ 18,650
Income tax payments, net $ 81,306 $ 89,469 $ 53,713
12
ACQUISITIONS AND DISPOSITIONS
On April 7, 1994, the company completed the sale of its Lead business to an
affiliate of a private investment company for consideration consisting of both
cash and deferred payments. Proceeds included $52 million cash on the date of
the closing and deferred amounts to be paid in installments over periods
ranging from five to eight years. The company announced its decision to exit
its Lead business in November 1992, and, as of October 31, 1992, the Lead
business was classified as a discontinued operation and adjusted to estimated
net realizable value, including $10 million of estimated pretax operating
losses through the date of disposal.
Due to extended depressed lead prices in the international commodity markets,
losses during the holding period were in excess of the company's November 1992
estimates. Actual holding period losses incurred aggregated $51 million pretax
from November 1992 to the date of sale. The amount by which the actual
operating loss exceeded the original estimate was offset by reductions in other
estimated costs, such as disposition and environmental expenses. As a result,
the closing of the sale had no impact on the company's earnings beyond what was
originally recognized in 1992.
Revenues from the Lead business were $121 million and $143 million for the
years ended October 31, 1993 and 1992, respectively, and $71 million for the
five month period through the date of sale in 1994. Discontinued operations in
the accompanying Consolidated Statement of Earnings for the year ended October
31, 1992 contained a loss from operations of $17.6 million (net of income tax
benefit of $10.8 million) and estimated loss from disposal of $78.9 million
(net of income tax benefit of $48.4 million).
During 1994, Massey Coal purchased three coal mining companies for
consideration totaling $68 million, consisting of $38 million of cash and the
assumption of approximately $30 million of liabilities. Assets included $65
million of property, plant and equipment and mining property and mineral rights
and $3 million of working capital and other assets. Massey Coal purchased a
coal mining company in 1993, for consideration totaling $14 million, consisting
of $11 million of cash and the assumption of approximately $3 million of
liabilities. Assets included $13 million of property, plant and equipment and
mining property and mineral rights and $1 million of working capital and other
assets. In 1992, consideration for the purchase of two coal mining companies
totaled $77 million, consisting of $64 million of cash and the assumption of
approximately $13 million of liabilities. Assets included $64 million of
property, plant and equipment and mining property and mineral rights and $13
million of working capital and other assets.
From time to time the company enters into joint venture arrangements with other
engineering and construction firms. During 1994, the company invested
approximately $4 million in joint venture arrangements, the majority of which
related to the acquisition of a minority interest in Prochem S.A., one of
Poland's largest engineering and construction companies. In 1993, the company
formed an exclusive association with ICA Industrial of Mexico, and acquired a
49 percent interest in that entity, now known as ICA Fluor Daniel. In 1992,
the company entered into a joint venture agreement with the Jaakko Poyry Group
of Finland. The company invested approximately $20 million in these two
ventures in 1993.
13
INCOME TAXES
The income tax expense (benefit) included in the Consolidated Statement of
Earnings is as follows:
$ in thousands
Year ended October 31, 1994 1993 1992
Current:
Federal $ 58,420 $ 58,489 $ 23,716
Foreign 37,151 23,490 20,476
State and local 12,528 12,124 12,280
Total current 108,099 94,103 56,472
Tax liability reversal _ (12,621) _
Deferred:
Federal (2,145) (1,634) (54,818)
Foreign 4,673 (3,939) 6,773
State and local 273 (509) (7,629)
Total deferred 2,801 (6,082) (55,674)
Total income tax expense $110,900 $ 75,400 $ 798
The income tax expense (benefit) applicable to continuing operations,
discontinued operations and the cumulative effect of change in accounting
principle is as follows:
$ in thousands
Year ended October 31, 1994 1993 1992
Provision for continuing
operations:
Current $ 133,870 $ 110,917 $ 64,920
Tax liability reversal _ (12,621) _
Deferred (22,970) (22,896) 15,180
Total provision for
continuing operations 110,900 75,400 80,100
Provision for discontinued
operations:
Current (25,771) (16,814) (8,448)
Deferred 25,771 16,814 (50,712)
Total provision for
discontinued operations _ _ (59,160)
Provision for cumulative
effect of change in
accounting principle:
Deferred _ _ (20,142)
Total income tax expense $ 110,900 $ 75,400 $ 798
A reconciliation of U.S. statutory federal income tax to the income tax expense
on the earnings from continuing operations is as follows:
$ in thousands
Year ended October 31, 1994 1993 1992
U.S. statutory federal
income tax expense $ 106,155 $ 84,358 $ 73,219
Increases (decreases)
in taxes resulting from:
State and local income
taxes 8,498 5,205 8,487
Effect of non-U.S.
tax rates 7,412 6,173 5,959
Items without tax
effect, net 5,002 2,137 3,741
Depletion (9,560) (5,256) (7,488)
Tax liability reversal _ (12,621) _
Other, net (6,607) (4,596) (3,818)
Total income tax expense -
continuing operations $ 110,900 $ 75,400 $ 80,100
14
Deferred taxes reflect the tax effects of differences between the amounts
recorded as assets and liabilities for financial reporting purposes and the
amounts recorded for income tax purposes. The tax effects of significant
temporary differences giving rise to deferred tax assets and liabilities are as
follows:
$ in thousands
At October 31, 1994 1993
Deferred tax assets:
Accrued liabilities not currently
deductible $ 169,899 $ 169,248
Expected tax benefits on disposition
of Lead business _ 25,771
Tax basis of building in excess of
book basis 24,260 25,980
Other 52,272 57,916
Total deferred tax assets 246,431 278,915
Valuation allowance for deferred
tax assets (51,724) (55,452)
Deferred tax assets, net 194,707 223,463
Deferred tax liabilities:
Coal mining property book basis
in excess of tax basis (95,818) (98,516)
Tax on unremitted non-U.S. earnings (28,685) (36,324)
Other (58,436) (63,901)
Total deferred tax liabilities (182,939) (198,741)
Net deferred tax assets $ 11,768 $ 24,722
The company established a valuation allowance to reduce certain deferred tax
assets to amounts that are more likely than not to be realized. Substantially
all of this allowance relates to deferred tax assets existing at the date of
the company's 1987 quasi reorganization. Reductions in the valuation allowance
relating to these 1987 deferred tax assets are credited to additional capital.
In 1994 and 1993, reductions in the valuation allowance resulted in an increase
to additional capital of $3.7 million and $24.1 million, respectively.
Residual income taxes of approximately $12 million have not been provided on
approximately $30 million of undistributed earnings of certain foreign
subsidiaries at October 31, 1994, because the company intends to keep those
earnings reinvested indefinitely.
United States and foreign earnings from continuing operations before taxes are
as follows:
$ in thousands
Year ended October 31, 1994 1993 1992
United States $ 196,397 $ 175,835 $ 145,825
Foreign 106,902 66,365 69,525
Total $ 303,299 $ 242,200 $ 215,350
Net earnings for 1993 include $12.6 million related to the favorable conclusion
of a federal income tax audit for the years 1984 through 1986. As a result of
the conclusion of that audit, $12.6 million in income tax liabilities were no
longer deemed necessary and were reversed.
The Internal Revenue Service is currently examining the company's returns for
fiscal years 1987 through 1989. Management does not expect the resolution of
any tax issues raised by the IRS for these years or subsequent periods to have
a material adverse effect on the company's consolidated financial position or
results of operations.
15
RETIREMENT BENEFITS
The company sponsors contributory and non-contributory defined contribution
retirement and defined benefit pension plans for eligible employees.
Contributions to defined contribution retirement plans are based on a
percentage of the employee's compensation. Expense recognized for these plans
of $67 million in both 1994 and 1993, and $65 million in 1992 is primarily
related to domestic engineering and construction operations. Contributions to
defined benefit pension plans are generally at the minimum annual amount
required by applicable regulations. Payments to retired employees under these
plans are generally based upon length of service and/or a percentage of
qualifying compensation. The defined benefit plans are primarily related to
international engineering and construction operations, U.S. craft employees and
coal operations. Net periodic pension income for continuing operations defined
benefit pension plans includes the following components:
$ in thousands
Year ended October 31, 1994 1993 1992
Service costs incurred
during the period $ 14,310 $ 11,528 $ 12,439
Interest cost on projected
benefit obligation 20,275 18,494 17,556
Income and gains on assets
invested (7,907) (74,228) (24,282)
Net amortization and deferral (34,255) 39,295 (12,477)
Net periodic pension income $ (7,577) $ (4,911) $ (6,764)
The following assumptions were used in the determination of net periodic cost:
Year ended October 31, 1994 1993 1992
Discount rates 7.0-8.0% 8.5-9.5% 8.5-9.5%
Rates of increase in
compensation levels 3.5-5.0 5.0-6.0 5.0-6.0
Expected long-term rates
of return on assets 6.0-10.0% 7.5-10.0% 7.5-10.0%
In recognition of the current interest rate environment, as of October 31, 1994
the company adjusted the discount rates used in the determination of its
benefit obligations to 7.75-9.25 percent, the expected long-term rates of
return to 6.75-10.25 percent and the rates of salary increases to 4.0-6.25
percent.
The following table sets forth the funded status of the defined benefit plans:
$ in thousands
At October 31, 1994 1993
Actuarial present value of benefit obligations:
Vested benefit obligation $ 212,011 $ 211,182
Nonvested benefit obligation 10,433 10,774
Accumulated benefit obligation $ 222,444 $ 221,956
Plan assets at fair values (primarily listed
stocks and bonds) $ 392,129 $ 373,421
Projected benefit obligation (263,038) (256,709)
Plan assets in excess of projected benefit
obligation 129,091 116,712
Unrecognized net gain (13,682) (14,048)
Unrecognized net asset at implementation (20,640) (20,723)
Pension asset recognized in the Consolidated
Balance Sheet $ 94,769 $ 81,941
<FN>
<F1> Amounts shown above at October 31, 1994 and 1993 exclude the projected
benefit obligation of $109 million and $166 million, respectively, and
associated plan assets relating to discontinued operations.
</FN>
Massey Coal Company (Massey) participates in multiemployer defined benefit
pension plans for its union employees. Pension expense related to these plans
approximated $.5 million in each of the years ended October 31, 1994, 1993 and
1992. Under the Coal Industry Retiree Health Benefits Act of 1992, Massey is
required to fund medical and death benefits of certain beneficiaries. Massey's
obligation under the Act is estimated to aggregate $52 million at October 31,
1994, which will be recognized as expense as payments are assessed. For the
years ended October 31, 1994 and 1993 the expense recorded for such benefits
approximated $4 million.
In addition to the company's defined benefit pension plans, the company and
certain of its subsidiaries provide health care and life insurance benefits for
certain retired employees. The health care and life insurance plans are
generally contributory, with retiree contributions adjusted annually. Service
costs are accrued currently. Cash basis accounting was used prior to the
November 1, 1991 adoption of Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
16
The accumulated postretirement benefit obligation at October 31, 1994 and 1993
was determined in accordance with the current terms of the company's health
care plans, together with relevant actuarial assumptions and health care cost
trend rates projected at annual rates ranging from 11.3 percent in 1995 down to
5 percent in 2004 and beyond. The effect of a one percent annual increase in
these assumed cost trend rates would increase the accumulated postretirement
benefit obligation and the aggregate of the annual service and interest costs
by approximately 9 percent. The discount rates used in determining the
accumulated postretirement benefit obligation were 8.5 percent and 7 percent at
October 31, 1994 and 1993, respectively.
Net periodic postretirement benefit cost for continuing operations includes the
following components:
$ in thousands
Year ended October 31, 1994 1993
Service cost incurred during the period $ 1,352 $ 1,017
Interest cost on accumulated postretirement
benefit obligation 4,153 4,633
Net periodic postretirement benefit cost $ 5,505 $ 5,650
The following table sets forth the plans' funded status and accumulated post-
retirement benefit obligation for continuing operations which has been fully
accrued in the company's Consolidated Balance Sheet:
$ in thousands
At October 31, 1994 1993
Accumulated postretirement benefit obligation:
Retirees $ 44,517 $ 49,546
Fully eligible active participants 4,853 2,550
Other active plan participants 10,713 9,150
Unrecognized gain (loss) 3,667 (4,536)
Accrued postretirement benefit obligation $ 63,750 $ 56,710
<FN>
<F1> During 1994, Massey assumed approximately $6 million of postretirement
related liabilities in connection with the acquisition of a coal company.
</FN>
The above information does not include amounts related to benefit plans
applicable to employees associated with certain contracts with the U.S. Depart-
ment of Energy because the company is not responsible for the current or future
funded status of the plans.
As of October 31, 1994, the company retroactively adopted, as of the beginning
of the fiscal year, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (SFAS No. 112). The state-
ment requires accrual of the estimated cost of benefits provided by the
employer to former or inactive employees after employment but before
retirement. The adoption of SFAS No. 112 had no impact on the results of
operations or financial position.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the company's financial instruments are as
follows:
$ in thousands
At October 31, 1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash and cash equivalents $374,468 $374,468 $214,844 $214,844
Marketable securities 117,618 119,555 97,335 102,366
Notes receivable including
non-current portion 104,117 105,088 65,417 65,995
Long-term investments 15,811 16,616 21,615 21,907
Liabilities:
Commercial paper and notes
payable 19,957 19,957 60,053 60,053
Long-term debt including current
portion 62,367 64,405 61,324 69,211
Other noncurrent financial
liabilities 2,691 2,691 2,736 2,736
Off-balance sheet financial
instruments:
Foreign currency contract
obligations _ 219 _ 2,381
Letters of credit _ 740 _ 351
Line of credit _ 1,384 _ 981
17
[FN]
<F1> Fair values were determined as follows:
<F2> The carrying amounts of cash and cash equivalents, short-term notes
receivable, commercial paper and notes payable approximates fair value because
of the short-term maturity of these instruments.
<F3> Marketable securities and long-term investments are based on quoted market
prices for these or similar instruments.
<F4> Long-term notes receivable are estimated by discounting future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings.
<F5> The fair value of long-term debt, including current portion, is estimated
based on quoted market prices for the same or similar issues or on the current
rates offered to the company for debt of the same maturities.
<F6> Other noncurrent liabilities consist primarily of deferred payments, for
which cost approximates fair value.
<F7> Foreign currency contract obligations are estimated by obtaining quotes
from brokers.
<F8> Letters of credit and line of credit amounts are based on fees currently
charged for similar agreements or on the estimated cost to terminate or settle
the obligations.
[/FN]
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). The statement addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. Adoption
of SFAS No. 115 is not required by the company until 1995. Based on the nature
and composition of the company's current investment portfolios, management
believes the impact of implementation will not be material.
LONG-TERM DEBT
Long-term debt comprises:
$ in thousands
At October 31, 1994 1993
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 $ 23,644 $ 23,644
13.50% first mortgage note, due in 2000,
prepayable at par in 1995 34,701 35,000
Other notes and mortgages 4,022 2,680
62,367 61,324
Less: Current portion 38,001 1,687
Long-term debt due after one year $ 24,366 $ 59,637
Long-term debt maturities are as follows: 1996, $24.1 million; 1997, $60
thousand; 1998, no maturities; 1999, no maturities; and $.2 million thereafter.
All long-term debt (including current portion) outstanding at October 31, 1994,
bears interest at fixed rates. In 1995, the company intends to prepay the
13.50 percent first mortgage note of $34.7 million, and accordingly, this
amount has been classified as current at October 31, 1994.
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 $250 million. Commitment and facility fees are paid on these lines. In
addition, the company has $784 million in short-term uncommitted lines of
credit. Borrowings under lines of credit and revolving credit agreements bear
interest at prime or 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. At October 31, 1994, no amounts were outstanding
under the committed lines of credit. As of that date, $193 million of the
short-term uncommitted lines of credit were used to support undrawn letters of
credit issued in the ordinary course of business.
The company had unsecured commercial paper outstanding in the amount of $20
million and $30 million at October 31, 1994 and 1993, respectively. The
commercial paper was issued at a discount with an effective interest rate of
5.0 percent and 3.2 percent in 1994 and 1993, respectively. Maturities range
from 9 to 90 days in 1994 and 18 to 90 days in 1993. The weighted average
maturity at both October 31, 1994 and 1993 was 16 days. The maximum and
average balances outstanding for the years ended October 31, 1994 and 1993
were $52.9 million and $24.1 million, respectively, and $92 million and $44.9
million, respectively, with weighted average interest rates of 3.6 percent and
3.2 percent, respectively.
18
OTHER NONCURRENT LIABILITIES
The company maintains appropriate levels of insurance for business risks.
Insurance coverages contain various deductible amounts for which the company
provides accruals based on the aggregate of the liability for reported claims
and an actuarially determined estimated liability for claims incurred but not
reported. Other noncurrent liabilities include $112.1 million and $118.1
million at October 31, 1994 and 1993, respectively, relating to these
liabilities.
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 administered by the
Organization and Compensation Committee of the Board of Directors ("Committee")
comprised of outside directors, none of whom are eligible to participate in the
plans. Stock options may be granted with or without SARs. Grant prices are
determined by the Committee and 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 under committee policy become exercisable in installments of
25 percent per year commencing one year from the 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 employment, shares upon which
restrictions have not lapsed must be returned to the company. Restricted stock
issued under the plans totaled 52,560 and 101,540 shares in 1994 and 1993,
respectively.
The following table summarizes stock option activity for the two years ended
October 31, 1994:
Stock Options Price Per Share
Outstanding at October 31, 1992 2,435,229 $ 12-44
Granted 601,820 41-44
Expired or cancelled (26,468) 17-44
Exercised (520,137) 12-44
Outstanding at October 31, 1993 2,490,444 12-44
Granted 59,480 51
Expired or cancelled (82,374) 36-44
Exercised (396,044) 12-44
Outstanding at October 31, 1994 2,071,506 $ 12-51
Exercisable at:
October 31, 1993 1,271,330 $ 12-44
October 31, 1994 1,358,986 $ 12-44
Available for grant at:
October 31, 1993 2,610,490 * <F1>
October 31, 1994 2,610,047 * <F1>
<FN>
<F1> * Available for grant includes shares which may be granted as either stock
options or restricted stock, as determined by the Committee under the 1988
Fluor Executive Stock Plan (the Plan).
</FN>
LEASE OBLIGATIONS
Net rental expense for continuing operations amounted to $60 million, $69
million, and $80 million, in 1994, 1993, and 1992, respectively. The company's
lease obligations relate primarily to office facilities, equipment used in
connection with long-term construction contracts and other personal property.
The company's obligations for minimum rentals under noncancellable leases are
as follows:
$ in thousands
At October 31, 1994
1995 $ 28,278
1996 24,174
1997 23,559
1998 22,501
1999 18,054
Thereafter 33,226
At October 31, 1994 and 1993, obligations under capital leases of approximately
$6 million and $7 million, respectively, are included in other noncurrent
liabilities.
19
CONTINGENCIES AND COMMITMENTS
The company and certain of its subsidiaries are involved in litigation in the
ordinary course of business. The company and certain of its engineering and
construction subsidiaries are 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 the current contract provisions. The company does
not expect that the foregoing matters will have a material adverse effect on
its consolidated financial position or results of operations.
Financial guarantees, made in the ordinary course of business on behalf of
clients and others in certain limited circumstances, are entered into with
financial institutions and other credit grantors and generally obligate the
company to make payment in the event of default by the borrower. Most
arrangements require the borrower to pledge collateral in the form of property,
plant and equipment which is deemed adequate to recover amounts the company
might be required to pay. As of October 31, 1994, the company had extended
financial guarantees on behalf of certain clients and other unrelated third
parties totaling $59.4 million.
The company's operations are subject to and affected by federal, state and
local laws and regulations regarding the protection of the environment. The
company maintains reserves for potential future environmental costs where such
obligations are either known or considered probable and can be reasonably
estimated.
The sale by the company of its Lead business included St. Joe Minerals
Corporation ("St. Joe"), and its environmental liabilities for several
different lead mining, smelting and other lead related environmental sites.
As a condition of the St. Joe sale, however, the company retained
responsibility for certain non-lead related environmental liabilities arising
out of St. Joe's former zinc mining and smelting division, but only to the
extent that such liabilities are not covered by St. Joe's comprehensive general
liability insurance. These liabilities arise out of three zinc facilities
located in Bartlesville, Oklahoma, Monaca, Pennsylvania, and Balmat, New York
(the "Zinc Facilities").
In 1987, St. Joe sold its zinc mining and smelting division to Zinc Corporation
of America ("ZCA"). As part of the sale agreement, St. Joe and the company
agreed to indemnify ZCA for certain environmental liabilities arising from
operations conducted at the Zinc Facilities prior to the sale. During 1993,
ZCA made claims under this indemnity as well as under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") against St.
Joe for past and future environmental expenditures at the Zinc Facilities. In
1994, the company and St. Joe, among others, executed a settlement agreement
with ZCA which, among other things, cancels the indemnity previously provided
to ZCA and limits environmental expenditures at the Zinc Facilities for which
St. Joe would be responsible to no more than approximately $10 million, which
was previously fully reserved by the company. Expenses incurred and payments
made under the settlement agreement would be made over the span of at least 5
years.
The company and St. Joe, among others, are currently prosecuting cost recovery
actions under CERCLA against other potentially responsible parties for the
Bartlesville facility. In addition, St. Joe has initiated legal proceedings
against certain of its insurance carriers alleging that the investigative and
remediation costs, for which St. Joe is or may be responsible, including costs
incurred prior to the sale of St. Joe and costs related to the Zinc Facilities,
are covered by insurance. A portion of any recoveries received from the
insurance carriers would be, pursuant to the St. Joe sale agreement, for the
benefit of the company. In January 1995, St. Joe reached a settlement in
principle with one of its primary insurance carriers that provided coverage for
a minor portion of the applicable coverage periods. St. Joe continues to
pursue its other primary insurance carrier for additional payments. In as much
as the insurance, as well as the cost recovery, proceedings remain in the early
stages of litigation, no credit or offset (other than for amounts actually
received in settlement) has been taken into account by the company in
establishing its reserves for future environmental costs.
The company believes, based upon present information available to it, that its
reserves with respect to future environmental costs are adequate, and that such
future costs will not have a material effect on the company's consolidated
financial condition, results of operations or liquidity. However, the
imposition of more stringent requirements under environmental laws or
regulations, new developments or changes regarding site cleanup costs or
allocation of such costs among potentially responsible parties, or a
determination that the company is potentially responsible for the release of
hazardous substances at sites other than those currently identified, could
result in additional expenditures, or the provision of additional reserves in
expectation of such expenditures.
20
OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
The Engineering and Construction segment includes subsidiaries engaged in the
design, engineering, procurement, construction, technical services and
maintenance of facilities for process, industrial, power/government and
diversified services clients. Coal segment amounts include the operations of
Massey Coal Company.
Identifiable assets are those tangible and intangible assets used in the
operation of each of the business segments and geographic areas, except for
discontinued operations in 1993 and 1992 which are net of related liabilities.
Corporate assets are principally cash and cash equivalents, marketable
securities and nontrade receivables.
Engineering services for international projects are often performed within the
United States or a country other than where the project is located. Revenues
associated with these services have been classified within the geographic area
where the work was performed.
OPERATIONS BY BUSINESS SEGMENT
$ in millions
Operating
Revenues Profit
1994 1993 1992 1994 1993 1992
Engineering and Construction $ 7,717.6 $ 7,133.6 $ 5,904.0 $ 259.1 $ 220.6 $ 190.7
Coal 767.7 716.6 696.7 95.2 70.7 80.2
Continuing Operations $ 8,485.3 $ 7,850.2 $ 6,600.7 $ 354.3 $ 291.3 $ 270.9
$ in millions
Depreciation, Depletion
Identifiable Assets Capital Expenditures and Amortization
1994 1993 1992 1994 1993 1992 1994 1993 1992
Engineering & Construction $1,288.5 $1,144.7 $1,018.6 $ 72.5 $ 60.6 $ 58.7 $ 47.1 $ 52.5 $ 52.5
Coal 1,076.5 926.3 864.0 228.8 110.9 214.0 66.8 58.8 54.0
Corporate 459.8 345.1 344.3 _ _ _ 0.4 0.5 0.5
Continuing Operations 2,824.8 2,416.1 2,226.9 301.3 171.5 272.7 114.3 111.8 107.0
Discontinued Operations _ 172.8 138.6 _ _ 14.3 _ _ 28.2
$2,824.8 $2,588.9 $2,365.5 $ 301.3 $171.5 $287.0 $114.3 $111.8 $135.2
OPERATIONS BY GEOGRAPHIC AREA
$ in millions
Revenues Operating Profit Identifiable Assets
1994 1993 1992 1994 1993 1992 1994 1993 1992
United States $6,100.3 $5,628.1 $4,790.6 $284.9 $237.8 $221.6 $2,463.1 $2,262.2 $2,097.8
Europe 1,166.4 994.2 714.9 23.5 15.6 21.1 147.5 127.6 112.7
Asia Pacific 673.2 422.4 329.2 12.8 13.8 9.1 107.5 69.7 55.5
Canada 258.0 225.8 391.3 12.1 9.2 11.4 44.6 65.5 46.6
Middle East 89.1 434.5 317.8 2.4 2.1 4.5 20.1 32.7 41.9
Other 198.3 145.2 56.9 18.6 12.8 3.2 42.0 31.2 11.0
$8,485.3 $7,850.2 $6,600.7 $354.3 $291.3 $270.9 $2,824.8 $2,588.9 $2,365.5
<FN>
<F1> Included in United States revenues are export sales to unaffiliated
customers of $857.1 million in 1994, $1,090.3 million in 1993 and $1,230.5
million in 1992.
</FN>
The following table reconciles business segment operating profit with the
earnings from continuing operations before taxes.
$ in millions 1994 1993 1992
Operating profit from continuing operations $354.3 $291.3 $270.9
Interest income (expense), net 4.7 0.1 (0.2)
Corporate administrative and general expense (47.9) (43.7) (39.3)
Other items, net (7.8) (5.5) (16.0)
Earnings from continuing operations before
taxes $303.3 $242.2 $215.4
21
REPORTS OF MANAGEMENT AND INDEPENDENT AUDITORS
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. These statements have been prepared in conformity
with generally accepted accounting principles 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 internal control structure designed to protect the company's
assets and properly record transactions and events as they occur has been
developed, placed in operation and maintained. The internal control structure
is supported by an extensive program of internal audits and is tested and
evaluated by the independent auditors in connection with their annual audit.
The Board of Directors pursues its responsibility for financial information
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 management present to discuss the results of their audits, the adequacy
of the internal control structure and the quality of financial reporting.
/s/ Les McCraw /s/ J. Michal Conaway
Les McCraw J. Michal Conaway
Chairman of the Board and Vice President and
Executive Officer Chief Financial Officer
INDEPENDENT AUDITORS
Board of Directors and Shareholders
Fluor Corporation
We have audited the accompanying consolidated balance sheet of Fluor
Corporation as of October 31, 1994 and 1993, and the related consolidated
statements of earnings, cash flows, and shareholders' equity for each of the
three years in the period ended October 31, 1994. 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 consolidated financial position of Fluor Corporation
at October 31, 1994 and 1993, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended October 31,
1994, in conformity with generally accepted accounting principles.
As discussed in notes to the consolidated financial statements, in 1992, the
company changed its method of accounting for postretirement benefits other than
pensions.
/s/ Ernst & Young LLP
Orange County, California
November 29, 1994
22
QUARTERLY FINANCIAL DATA
(Unaudited)
The following is a summary of the quarterly results of operations:
$ in thousands, except per share amounts
First Second Third Fourth
Quarter Quarter(a)<F1> Quarter Quarter
1994
Revenues $2,057,665 $2,079,593 $1,963,052 $2,384,957
Gross margin 81,039 88,270 89,377 87,780
Earnings before taxes 70,998 75,139 76,008 81,154
Net earnings 43,998 47,739 48,308 52,354
Earnings per share $ 0.53 $ 0.58 $ 0.58 $ 0.63
1993
Revenues $1,806,939 $2,006,054 $1,844,112 $2,193,064
Gross margin 66,071 58,407 74,035 87,281
Earnings before taxes 56,881 46,553 64,935 73,831
Net earnings 35,681 41,953 40,835 48,331
Earnings per share $ 0.43 $ 0.51 $ 0.50 $ 0.59
<FN>
<F1> (a) Second quarter 1993 net earnings includes a reversal of income taxes
no longer required of $12.6 million and an after-tax charge of $9.2 million (of
which $3.1 million was reversed in the fourth quarter of 1993) to provide for
the estimated cost of settling disputed obligations relating to pension funds
associated with the company's coal segment.
</FN>
23
STOCKHOLDERS' REFERENCE
FORM 10-K
A copy of the Form 10-K, which is filed with the Securities and Exchange
Commission, is available upon request.
Write to: Vice President - Corporate Law, Fluor Corporation, 3333 Michelson
Drive, Irvine, California 92730 (714) 975-2000.
REGISTRAR AND TRANSFER AGENT
Chemical Trust Company of California, 300 S. Grand Avenue 4th Floor, Los
Angeles CA 90071 and Chemical Bank, 450 W. 33rd Street, New York, NY 10001.
For change of address, lost dividends, or lost stock certificates, write or
telephone: Chemical Bank, J.A.F. Building, P. O. Box 3068, New York, NY
10116-3068, Attn: Securityholder Relations (800) 813-2847
INDEPENDENT AUDITORS
Ernst & Young LLP, 18400 Von Karman Avenue, Suite 800, Irvine, California 92715
ANNUAL STOCKHOLDERS' MEETING
Annual report and proxy statement are mailed in early February. Fluor's annual
meeting of stockholders will be held at 9:00 a.m. on March 14, 1995 at the
Hyatt Regency Irvine, 17900 Jamboree Boulevard, Irvine, California.
STOCK TRADING
Fluor's stock is traded on the New York, Midwest, Pacific, Amsterdam, London
and Swiss Stock Exchanges. Common stock domestic trading symbol: FLR.
COMPANY CONTACTS
Stockholders may call (800) 854-0141
Stockholder Information:
Lawrence N. Fisher
(714) 975-6961
Investor Relations:
Lila J. Churney
(714) 975-3909
COMMON STOCK INFORMATION
At December 31, 1994, there were 82,727,721 shares outstanding and
approximately 15,430 stockholders of record of Fluor's common stock.
The following table sets forth for the periods indicated the cash dividends
paid per share of common stock and the high and low sales prices of such
common stock as reported in the Consolidated Transactions Reporting System.
COMMON STOCK AND DIVIDEND INFORMATION
Dividends Price Range
Per Share High Low
FISCAL 1994
First Quarter $0.13 $45 $38 5/8
Second Quarter 0.13 56 1/4 43 3/4
Third Quarter 0.13 55 5/8 47 5/8
Fourth Quarter 0.13 55 46 3/8
$0.52
FISCAL 1993
First Quarter $0.12 $46 7/8 $39 1/2
Second Quarter 0.12 46 38
Third Quarter 0.12 43 7/8 38 1/8
Fourth Quarter 0.12 46 1/8 38 3/8
$0.48
DIVIDEND REINVESTMENT PLAN
Fluor's Dividend Reinvestment Plan provides stockholders of record with the
opportunity to conveniently and economically increase their ownership in Fluor.
Through the Plan, stockholders can automatically reinvest their cash dividends
in shares of Fluor common stock. Optional cash investments may also be made in
additional Fluor shares ranging from a minimum of $100 to a maximum of $10,000
per quarter. For details on the Plan, contact Fluor's agent, Chemical Bank
(800) 813-2847.
DUPLICATE MAILINGS
Shares owned by one person but held in different forms of the same name result
in duplicate mailing of stockholder information at added expense to the
company. Such duplication can be eliminated only at the direction of the
stockholder. Please notify Chemical Bank in order to eliminate duplication.
HISTORY OF STOCK DIVIDENDS AND SPLITS SINCE GOING PUBLIC IN 1950
08/23/57 20% Stock Dividend
12/15/61 5% Stock Dividend
03/11/63 5% Stock Dividend
03/09/64 5% Stock Dividend
03/08/65 5% Stock Dividend
02/14/66 5% Stock Dividend
03/24/66 2 for 1 Stock Split
03/27/67 5% Stock Dividend
02/09/68 5% Stock Dividend
03/22/68 2 for 1 Stock Split
05/16/69 5% Stock Dividend
03/06/70 5% Stock Dividend
03/05/71 5% Stock Dividend
03/10/72 5% Stock Dividend
03/12/73 5% Stock Dividend
03/11/74 3 for 2 Stock Split
08/13/79 3 for 2 Stock Split
07/18/80 2 for 1 Stock Split
Fluor's investor relations activities are dedicated to providing investors with
complete and timely information. All investor questions are welcome.