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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 January 31, 1998
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
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(Exact name of registrant as specified in its charter)
Delaware 95-0740960
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3353 Michelson Drive, Irvine, CA 92698
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(Address of principal executive offices)
(714) 975-2000
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(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 February 28, 1998 there were 82,075,374 shares of common stock
outstanding.
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FLUOR CORPORATION
FORM 10-Q
JANUARY 31, 1998
TABLE OF CONTENTS PAGE
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Part I: Financial Information
Condensed Consolidated Statement of Earnings for the Three Months
Ended January 31, 1998 and 1997.......................................2
Condensed Consolidated Balance Sheet at January 31, 1998 and
October 31, 1997.......................................................3
Condensed Consolidated Statement of Cash Flows for the Three
Months Ended January 31, 1998 and 1997.................................5
Notes to Condensed Consolidated Financial Statements...................6
Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................8
Changes in Backlog....................................................13
Part II: Other Information...............................................14
Signatures...................................................................15
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PART I: FINANCIAL INFORMATION
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended January 31, 1998 and 1997
UNAUDITED
In thousands, except per share amounts 1998 1997
-------------------------------------- ----------- -----------
REVENUES $ 3,399,019 $ 3,434,061
COSTS AND EXPENSES
Cost of revenues 3,309,279 3,327,287
Corporate administrative and general expense 448 10,870
Interest expense 9,422 5,542
Interest income (4,588) (5,263)
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Total Costs and Expenses
3,314,561 3,338,436
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EARNINGS BEFORE INCOME TAXES 84,458 95,625
INCOME TAX EXPENSE 29,645 33,590
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NET EARNINGS $ 54,813 $ 62,035
=========== ===========
EARNINGS PER SHARE
BASIC $ .66 $ .75
=========== ===========
DILUTED $ .66 $ .74
=========== ===========
DIVIDENDS PER COMMON SHARE $ .20 $ .19
=========== ===========
SHARES USED TO CALCULATE
BASIC EARNINGS PER SHARE 82,575 83,054
=========== ===========
DILUTED EARNINGS PER SHARE 82,636 83,649
=========== ===========
See Accompanying Notes.
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FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
January 31, 1998 and October 31, 1997
UNAUDITED
January 31, October 31,
$ in thousands 1998 1997*
--------------- ---------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 305,413 $ 299,324
Marketable securities -- 10,089
Accounts and notes receivable 915,909 930,104
Contract work in progress 529,664 691,395
Deferred taxes 63,905 58,039
Inventory and other current assets 226,775 236,935
---------- ----------
Total current assets 2,041,666 2,225,886
---------- ----------
Property, Plant and Equipment (net of accumulated
depreciation, depletion and amortization of
$1,047,488 and $1,001,315, respectively) 1,951,083 1,938,790
Investments and goodwill, net 256,711 254,948
Other 293,676 278,216
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$4,543,136 $4,697,840
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(Continued On Next Page)
* Amounts at October 31, 1997 have been derived from audited financial
statements.
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FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
January 31, 1998 and October 31, 1997
UNAUDITED
January 31, October 31,
$ in thousands 1998 1997*
--------------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts and notes payable $ 706,070 $ 878,187
Commercial paper 49,871 61,886
Advance billings on contracts 527,043 525,518
Accrued salaries, wages and benefit plans 277,094 303,490
Other accrued liabilities 257,215 221,487
Current portion of long-term debt 118 116
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Total current liabilities 1,817,411 1,990,684
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Long-term debt due after one year 300,439 300,508
Deferred taxes 60,917 66,739
Other noncurrent liabilities 623,805 598,859
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 $.625 par value; issued and outstanding -
82,786,538 shares and 83,748,111
shares, respectively 51,742 52,343
Additional capital 534,027 569,356
Retained earnings 1,198,115 1,159,996
Unamortized executive stock plan expense (28,409) (33,441)
Cumulative translation adjustments (14,911) (7,204)
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Total shareholders' equity 1,740,564 1,741,050
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$ 4,543,136 $ 4,697,840
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See Accompanying Notes
* Amounts at October 31, 1997 have been derived from audited financial
statements.
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FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended January 31, 1998 and 1997
UNAUDITED
$ in thousands 1998 1997
--------------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 54,813 $ 62,035
Adjustments to reconcile net earnings to cash
provided by (utilized by) operating activities:
Depreciation, depletion and amortization 69,663 56,987
Deferred taxes (8,052) 18,394
Changes in operating assets and liabilities,
excluding effects of businesses acquired 24,187 (185,221)
Other, net 19,527 (18,931)
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Cash provided by (utilized by) operating activities 160,138 (66,736)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (100,656) (138,119)
E & C businesses acquired -- (30,603)
Proceeds from sales/maturities of marketable securities 10,089 25,257
Proceeds from sale of property, plant and equipment 12,942 7,074
Investments, net (5,454) (9,469)
Contribution to deferred compensation trust -- (22,593)
Other, net (6,773) (6,853)
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Cash utilized by investing activities (89,852) (175,306)
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CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings (11,185) 128,544
Cash dividends paid (16,694) (15,941)
Stock options exercised 61 8,615
Purchases of common stock (35,204) --
Other, net (1,175) (1,566)
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Cash (utilized by) provided by financing activities (64,197) 119,652
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Increase (decrease) in cash and cash equivalents 6,089 (122,390)
Cash and cash equivalents at beginning of period 299,324 246,964
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Cash and cash equivalents at end of period $ 305,413 $ 124,574
========= =========
See Accompanying Notes
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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, 1997 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 months ended January 31, 1998 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 January 31, 1998 and
its consolidated results of operations and cash flows for the three months
ended January 31, 1998 and 1997.
Certain 1997 amounts have been reclassified to conform with the 1998
presentation.
(2) Inventories comprise the following:
January 31, October 31,
$ in thousands 1998 1997
------------------------- ----------- -----------
Coal $ 39,338 $ 54,419
Equipment for sale/rental 79,081 74,574
Supplies and other 46,594 46,455
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$165,013 $175,448
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FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(3) Effective November 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" which specifies the
method of computation, presentation and disclosure for earnings per share
("EPS"). The new standard requires presentation of two EPS amounts, basic
and diluted. Basic EPS is calculated by dividing net earnings by the
weighted average number of common shares outstanding for the period.
Diluted EPS is calculated by dividing net earnings by the weighted average
number of common shares and common share equivalents outstanding for the
period. Currently, the Company's common share equivalents consist solely of
stock options. EPS amounts for prior periods have been adjusted to conform
with the provisions of the new standard.
(4) Cash paid for interest was $3.8 million and $4.6 million for the three
month periods ended January 31, 1998 and 1997, respectively. Income tax
receipts, net of payments, were $15.6 million for the first quarter in 1998
reflecting the receipt of a $30 million tax refund on January 30, 1998.
Income tax payments, net of refunds, were $19 million during the three
month period ended January 31, 1997.
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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 and the Company's October 31, 1997 annual
report on Form 10-K.
FORWARD-LOOKING INFORMATION
Any of the comments in this Form 10-Q that refer to the Company's estimated or
future results, including its estimates of the cost savings, and the timing of
cost savings, from its previously announced cost reduction program, are
forward-looking and reflect the Company's current analysis of existing trends
and information. Actual results may differ materially from current expectations
or projections based on a number of factors affecting the Company's businesses.
These factors include, but are not limited to, cost overruns on fixed, maximum
or unit-priced contracts, contract performance risk, the uncertain timing of
awards and revenues under contracts, project financing risk, credit risk, risks
associated with government funding of contracts, market conditions impacting
realization of investments, market conditions in the domestic and international
coal market, relatively mild weather conditions which may lower demand for steam
coal and the state of the economic and political conditions worldwide. These
forward-looking statements represent the Company's judgment only as of the date
of this Form 10-Q. As a result, the reader is cautioned not to rely on these
forward-looking statements. The Company disclaims any intent or obligation to
update these forward-looking statements.
Additional information concerning these and other factors can be found in press
releases as well as the Company's public periodic filings with the Securities
and Exchange Commission, including the discussion under the heading "Certain
Factors and Trends Affecting Fluor and Its Businesses--Forward-Looking
Statements" in the Company's Form 8-K filed May 6, 1997, which is hereby
incorporated by reference and attached hereto as Exhibit 99.1.
RESULTS OF OPERATIONS
Revenues decreased one percent for the three month period ended January 31, 1998
compared with the same period of 1997. Net earnings for the three month period
ended January 31, 1998 were $54.8 million compared with $62.0 million for the
same period of 1997. The decrease in net earnings was primarily due to lower
earnings for the Engineering and Construction segment, partially offset by lower
corporate administrative and general expense.
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ENGINEERING AND CONSTRUCTION
Revenues for the Engineering and Construction segment decreased two percent for
the three month period ended January 31, 1998 compared with the same period of
1997, due primarily to a decrease in the volume of work performed, partially
offset by higher revenues from the segment's Diversified Services units.
Operating profit for the three months ended January 31, 1998 decreased 28
percent to $53.4 million, compared with $74.0 million during the same period of
1997. Operating margins for the first quarter of 1998 reflect lower average
project margins, partially offset by savings from cost initiative actions
undertaken in 1997.
Provisions of $21.0 million were recognized in the first quarter of 1997 for
cost overruns on two fixed price power projects, including a power project
located outside of the United States. The loss in the first quarter on this
project reflected additional costs then identified to be incurred arising
primarily from bad weather, lack of timely site access, unexpected design
changes and low labor productivity. The loss on the second project, which is
located in the United States, was due primarily to startup problems, craft
employee turnover and operation of the plant control system. The company also
recognized in the first quarter of 1997 a credit totaling $25.0 million related
to certain actuarially determined insurance accruals.
New awards for the three months ended January 31, 1998 were $2.6 billion
compared with $3.6 billion for the three months ended January 31, 1997, due to
the effect of a lower percentage of large projects and project selectivity by
the Company in an effort to improve project profitability. Approximately 49
percent of first quarter 1998 new awards were for projects located outside the
United States. There were no project awards in excess of $400 million in the
first quarter of 1998. The uncertain timing and, in some cases, large size of
new awards can create variability in the company's award pattern. Consequently,
future award trends are difficult to predict with certainty. Furthermore, the
global effect of the recent turmoil in Asian financial markets could result in
the delay of awards during the remainder of fiscal year 1998.
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The following table sets forth backlog for each of the Company's Engineering and
Construction business groups:
January 31, October 31, January 31,
$ in millions 1998 1997 1997
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Process $ 6,563 $ 6,384 $ 5,236
Industrial 4,677 5,178 6,374
Power/Government 1,908 2,092 3,430
Diversified Services 870 716 937
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Total backlog $14,018 $14,370 $15,977
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U.S. $ 5,819 $ 5,665 $ 7,486
Outside U.S. 8,199 8,705 8,491
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Total backlog $14,018 $14,370 $15,977
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The composition of backlog by business group has remained relatively unchanged
since year end. At January 31, 1998, approximately 26 percent of the Company's
backlog is in the Asia Pacific region, including Australia. Due to the nature of
the projects included in backlog, the Company has not experienced any
significant disruption in ongoing project execution related to the recent
turmoil in Asian financial markets. Although backlog reflects business which is
considered to be firm, cancellations or scope adjustments may occur. Backlog is
adjusted to reflect any known project cancellations, deferrals, and revised
project scope and cost, both upward and downward.
On March 9, 1998, the Company announced that it intends to pursue options to
either divest or restructure its equipment sales and rental unit, American
Equipment Company. If market conditions warrant, the Company intends to use the
after-tax proceeds from any such transaction to fund its ongoing share
repurchase program.
COAL
Revenues increased 17 percent for the three month period ended January 31, 1998
compared with the same period in 1997. The increase was due primarily to
increased sales volume of both metallurgical and steam coal, partially offset by
lower steam coal prices. The increase in metallurgical coal revenues reflects
primarily an increased demand by steel producers. Steam coal market prices
declined as overall demand was down due to recent mild winter weather
conditions. Despite lower prices, steam coal revenues increased due primarily to
higher sales volume to existing electric utility customers. Operating profit for
the three months ended January 31, 1998 was $36.7 million compared with $32.6
million for the same period in 1997. Gross profit and operating profit increased
for the three months ended January 31, 1998 compared with the same period in
1997 due primarily to the increased sales volume of both metallurgical and steam
coal, offset by lower pricing of steam coal.
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OTHER
Net interest for the three months ended January 31, 1998 increased compared with
the same period of 1997 due primarily to $300 million in new long-term debt
issued in March 1997.
Corporate administrative and general expense in the first quarter ended January
31, 1998 was lower compared with the same period in 1997 due primarily to a
credit of approximately $10 million related to a long-term incentive
compensation plan. The Company accrues for certain long-term incentive awards
whose ultimate cost is dependent on attainment of various performance targets
set by the Organization and Compensation Committee (the "Committee") of the
Board of Directors. Under the long-term incentive compensation plan referred to
above, the performance target expired, without amendment or extension by the
Committee, on December 31, 1997.
FINANCIAL POSITION AND LIQUIDITY
At January 31, 1998, the Company had cash and cash equivalents of $305.4 million
and a long-term debt to total capital ratio of 14.7 percent. At January 31,
1997, the Company had cash and cash equivalents of $124.6 million and a
long-term debt to total capital ratio of less than one percent.
The Company expects to have adequate resources available from operating cash
flows, cash and short-term investments, revolving credit and other banking
facilities, capital market sources and commercial paper to provide for its
capital needs for the foreseeable future. Operating activities generated $160.1
million in cash during the three month period ended January 31, 1998, compared
with cash utilized by operations of $66.7 million during the same period in
1997. The increase in cash generated from operating activities is due primarily
to a decrease in project related operating assets and liabilities. The change in
operating assets and liabilities from period to period is affected by the mix,
stage of completion, and commercial terms of engineering and construction
projects. Cash was also positively impacted by the receipt of a $30 million tax
refund on January 30, 1998.
During the first quarter of 1998, the Company purchased 942,400 shares of its
common stock for a total of $35 million in connection with its ongoing share
repurchase program initiated during fiscal 1997.
For the three months ended January 31, 1998, capital expenditures were $101
million, including $41 million related to Massey Coal. Dividends paid in the
three months ended January 31, 1998 were $16.7 million ($.20 per share) compared
with $15.9 million ($.19 per share) for the same period of 1997.
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FINANCIAL INSTRUMENTS
The Company's utilization of derivative financial instruments is substantially
limited to the use of forward exchange contracts to hedge foreign currency
transactions entered into in the ordinary course of business and not to engage
in currency speculation. At January 31, 1998 and October 31, 1997, the Company
had forward foreign exchange contracts of less than one year duration, to
exchange principally Japanese yen, Canadian dollars, Australian dollars, French
francs and Dutch guilders for U.S. dollars. In addition, the Company has a
forward currency contract to exchange U.S. dollars for British pounds sterling
to hedge annual lease commitments which expire in 1999. The total gross notional
amount of these contracts at January 31, 1998 and October 31, 1997 was $146
million and $78 million, respectively. Forward contracts to purchase foreign
currency represented $138 million and $74 million and forward contracts to sell
foreign currency represented $8 million and $4 million, at January 31, 1998 and
October 31, 1997, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes new
standards for reporting information about operating segments in interim and
annual financial statements. This statement is effective for the Company's
fiscal year 1999.
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FLUOR CORPORATION
CHANGES IN BACKLOG
Three Months Ended January 31, 1998 and 1997
UNAUDITED
$ in millions 1998 1997
- -------------- ----------- -----------
Backlog - beginning of period $ 14,370.0 $ 15,757.4
New awards 2,602.1 3,590.6
Adjustments and cancellations, net 2.6 (243.2)
Work performed (2,956.6) (3,128.3)
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Backlog - end of period $ 14,018.1 $ 15,976.5
=========== ===========
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PART II : OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3 Restated Bylaws (as amended effective March
10, 1998) of Fluor Corporation.
27 Financial Data Schedule.
99.1 Current Report on Form 8-K filed May 6, 1997.
(b) Reports on Form 8-K.
None.
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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
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(Registrant)
Date: March 17, 1998 /s/ J. Michal Conaway
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J. Michal Conaway, Senior Vice President and
Chief Financial Officer
/s/ V. L. Prechtl
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V. L. Prechtl, Vice President and Controller
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EXHIBIT INDEX
3 Restated Bylaws (as amended effective March 10, 1998) of Fluor
Corporation.
27 Financial Data Schedule.
99.1 Current Report on Form 8-K filed May 6, 1997.