Fluor CorporationCover and Annual Report
Company Description
This annual report features the super projects that have become the forte of Fluor. Execution of such ultra-large, complex projects demands a multi­ plicity of technical disciplines, advanced management controls, and task-force organization. Increasingly, Fluor engineering facilities are designed with the task-force in mind. The Corporation's World Head-
Fluor Corporation provides world­ wide engineering, construction, procurement, and project manage­ ment services to energy, natural­
quarters at Irvine, California, is part of the panorama that starts on the cover, then wraps around to the frontispiece to depict the Southern California Division of Fluor Engineers and Constructors. (This photograph and the four project photos on the following pages were taken by Tack D. Rankin and his unique computer-controlled camera capable of a 360 degree sweep.)
resource, and industrial clients. The Corporation also has subsidiaries involved in contract drilling, oil-and­ gas operations, and distribution of oil-well, industrial, and tubing supplies.
Fluor Corporation
Years ended October 31, 1978 and 1977 1978 1977 Change
Work performed Revenues Net earnings Earnings per share Cash dividends per share
Preferred Common
Depreciation, depletion, amortization and dry-hole writeoffs Working funds provided from operations New orders received
Backlog Net investment in property, plant, equipment and oil and gas properties Total assets Shareholders' equity
Per common share Number of employees
$ 4,325,139,000 $ 3,639,638,000 + 18.8
3.00 3.00
1977 amotznts include Daniel International Corporation from date of acquisition, May 31, 1977.
See Financial Review on pages 18, 19, 20, 21, 22, 23 and 24.
2Corporate Profile Operations Report 4
Backlog Financial Review
Management's Discussion Lines of Business 33
Five-Year Financial Highlights 34 Principal Subsidiaries 35
Directors and Officers 36
78 18.7
77 15.4
76 10.7
75 5.2
74 2.2
78 11.56 78 3.36
75 9.09 75 6.93
74. 4.45 74 3.91
:13
Revenues $ Billions Earnings $ Millions 78 2.866 78 78.4 77 1.996 77 75.5 76 1.802 76 64.9
75 1.325 --I 75 47.4 -
74 .801 74 33.2
Fluor Corporation posted record earnings for the fifth consecutive year.
Net earnings for fiscal year 1978 ended October 31 were $78.4 million, or $4.63 per share, compared to $75.5 million, or $4.48 per share, for the previous year. Revenues, also highest in history, were $2.9 billion, compared to $2.0 billion.
Fourth-quarter net earnings were $23.2 million, or $1.37 per share, compared to net earnings of $19.5 million, or $1.15 per share, for the same period last year. Revenues for the quarter were $835.2 million, com­ pared to $624.1 million for the same three months in 1977. New orders for the quarter were $679 million, compared to $819 million last year.
Earnings per share for 1978 were reduced 39 cents primarily due to a coal strike which adversely affected Fluor through its io percent equity interest in Peabody Holding Company, parent of Peabody Coal Company.
Debt as a percentage of total capitalization was 3.8 percent at year-end; shareholders' equity was $421.3 million, compared to $361.1 million. Total assets were over $1 billion for the first time. Cash and short-term investments were $118 million, compared to $116 million for 1977.
Dividends on Fluor's common stock were increased from 30 to 35 cents in the first quarter of 1979 by the Board of Directors at their December II, 1978, meeting. This brings the annual dividend rate on Fluor common stock to $1.40. The Board also declared a regular quarterly dividend of 75 cents per share on the series B preferred stock. Both dividends were payable January 15, 1979, to holders of record at the close of business December 28, 1978.
Total new orders booked during the year were $3.4 billion, compared to $2.8 billion for 1977. Additional projects with a potential backlog value of $4.8 billion,: primarily in Fluor Engineers and Constructors, Inc. (Fluor E&C), were received and placed into a condi­ tional awards category. Total conditional awards at year-end were $7.6 billion, including the $4 billion Alaska gas pipeline contract awarded Fluor in 1978.
A contract can be placed in conditional awards either because it has one or more contingencies that must be resolved or because it is being released in phases. Only those portions of work released to Fluor are taken into backlog.
There is a trend toward awarding contracts in phases, so shareholders and potential investors should be aware of the existence of the conditional-awards cat­ egory. Though Fluor believes all conditional awards will eventually go into backlog, they may be subject to delays or even terminations.
New orders were marked by a diversity of geographic locations and were highlighted shortly after the end of the year by the announcement that Fluor Mining & Metals, Inc., received a contract in the People's Republic of China (PRc) to design and manage construction of a grass-roots copper mine and concentrator. Fluor E&C also received a contract from the PRC for engineering, procurement and construction advisory services for crude-stabilization units and processing facilities.
We have been building relations with the Chinese people for a number of years. Several delegations from the PRC have visited our offices in the U.S., and we have had a number of teams in China for extended periods of time. We believe that the PRC could prove to be a major market for a broad spectrum of services from Fluor subsidiaries in the hydrocarbon, natural-resource and power fields.
We anticipate that new projects available to us in 1979 and the early 19805 will be spread throughout emerging markets in Asia, Latin America, Africa, Australia, and Canada. The Middle East should continue to be an important source of new business. The pro­ cess-plant market in the U.S. has yet to show signs of being stimulated into the kind of activity needed to meet the nation's energy requirements. However, U.S. markets addressed by our Daniel subsidiary are generally good and improving.
As the company increases its focus overseas, we note with regret the retirement on January 2, 1979, of Mr. James L. Tathwell, a Board member and Fluor Group Vice President. In 1957, he opened our first permanent overseas office in London. A valued member of Fluor senior management, he will be greatly missed. In antic­ ipation of his retirement, the Bylaws of the Corporation were amended to reduce the size of the Board from 18 to 17 persons. Reporting relationships of those sub­ sidiaires under Mr. Tathwell are being realigned.
Late in the year, the Anti-Trust Division of the Department of Justice informed us that it had closed 'itS investigation on Fluor's acquisition of Daniel. This news is welcome in view of our constant efforts to bring Fluor subsidiaries together on projects.
At Esfahan, Iran, Fluor is a participant in a joint. venture for the construction of a refinery for the National Iranian Oil Company (NIOC). The project is about 98 percent complete. However, due to civil strife, we have reduced our activities on the job under the force majeure provisions of our contract with NI00. These provisions stipulate that the joint-venture may take this action without penalty and that the costs associated with such disruptive conditions are tecoverable.
The joint-venture anticipates completing the project and satisfactorily concluding negotiations with NIOC concerning the escalation provisions of the Esfahan contract. It is not yet possible to determine the ultimate outcome of current events in Iran, however, the joint­ venture expects to realize the compensation to which it is entitled under the contract. This compensation, exceeds the amount of assets which are at risk.
2
Overall, 1978 was a successful year for Fluor. We are enthusiastic about the future and new business pros­ pects overseas. We would like to feel equally confident about the U.S. process-plant market - particularly in view of our nation's energy needs and trade imbalance. Unfortunately, government interference, indecision, and over-regulation continues to dampen the business, climate for our industry at home and for American companies abroad. To combat this tendency, Fluor has become increasingly involved in communicating the needs of business to government. During the year, we helped moderate tax legislation that would have sharply increased taxes on Americans working abroad making our industry less competitive overseas, and could have constrained our access to valuable world markets.
The media said a great deal in 1978 about increasing competition abroad from foreign engineering and construction firms. Fluor has been relatively insulated from this competition because of its ability to totally manage super projects, a capability foreign companies haven't been able to match. Where necessary, Fluor has vigorously opposed ill-advised legislation that dulls our competitive edge against foreign companies.
" On other issues during the year, Fluor amplified its communications to government by: forming a Public Affairs Committee through which employees volun­ tarily contributed almost $65,000 to political candidates; utging employees, shareholders, vendors, and members of Congress to support the sale by the U.S. of military aircraft to Egypt, Israel, and Saudi Arabia as the best compromise on that issue; sharing ongoing legislative efforts to permit creation of a coal slurry pipeline industry and to expedite access to North Slope Alaskan gas; and publicly announcing our intention to adhere to President Carter's wage and price guidelines as one method of fighting inflation.
Since we live in a time when government action or in­ action can adversely affect the economic climate for business and citizens alike, it is important that our rep­ resentatives know our views. Guiding government toward sound economic judgments is becoming in­ creasingly important if we are to continue to compete successfully in what has become a viable and exciting global marketplace for Fluor and our industry,
David S. Tappan, Jr: Vice Chairman of the Board
J. Robert Fluor Chairman of the Board, Chief Executive Officer and President
January 17, 1979
Operating Profit 133,046 134,295 123,913 71,672 38,610
Earnings Before Taxes 129,740 130,449 125,508 73,306 39,916 New Orders 1,611,244 2,141,137 3,122,848 6,431,760 3,205,216 Backlog Year End $6,491,208 $8,138,083 $8,564,888 $8,143,953 $3,885,182 Manpower 11,548 12,963 12,363 11,372 8,479
New orders from diverse geographic locations high­ lighted the fiscal year for Fluor Engineers and Con­ structors, Inc. (Fluor E&C). However, only portions of some of these orders were released to the company. This resulted in the subsidiary taking $1.6 billion of
DE G H I J K
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Major elements in view: Depropanizer column A 600,000 barrel propane tank Propane/butane fractiona-
East/West pipcway tion module, Train No. 2 C Refrigeration, vapor 157 MBD
recovery, chilling units I Utility plant Debutanizer column J North/South pipeway Propane/butane fractiona- Firewater tanks tion module, Train No. 614 mile concrete trestle 157 MBD M LPG offshore loading
F Deethanizer column terminal
4
new work into backlog while assigning an additional $4.7 billion to "conditional awards," a category which includes portions of contracts on which Fluor E&C is not yet authorized to begin work.
Delays in the award of contracts resulted in a drop in manpower. However, by the end of the fiscal year 1979, manpower levels are expected to be above 1978.
During the year, two of Fluor E&C's largest projects the $5 billion-plus gas-gathering program in Saudi
Arabia and the $2 billion-plus fuels and chemicals from coal facility in Africa moved almost com­ pletely out of the engineering stage and into field construction. At year-end, the projects were over 50 per­ cent complete. Also, a grass-roots refinery at Esfahan, Iran, was 98 percent completed, and a natural-gas­ liquids turboexpander plant in the Pazanan area was finished shortly after the end of the year.
A major event of the year was the award of the project management contractor role to the Southern California Division for the $4 billion Alaska portion of the pipeline to bring natural gas from the North Slope of Alaska to the lower 48 states. However, because con­ tingencies still must be resolved on the contract, only $14 million was taken into backlog during the year.
A $50 million contract in a new technology was awarded Fluor E&C for engineering of the first U.S. facility to enrich uranium by means of a new gas­ centrifuge process. Experience on the project puts the company in an advantageous position to compete for similar contracts in the future.
At Lake Charles, Louisiana, Fluor E&C commenced work on. a $1oo million low-density polyethelene plant,
The natural gas liquids The program was initiated (NGL) fractionation center by the Saudi Arabian govern­ being built at Ju'aymah ment and Arabian American (above) is part of a gas- Oil Company to gather and gathering system of plants process gas from the Ghawar and pipelines being con- and Berri oil fields. When structed along a r8o-mile completed, the system will stretch of the Eastern Prov­ ince of Saudi Arabia.
and in Wilmington, California, front-end engineering was authorized on a Silo million refinery expansion.
Major overseas contracts received by Fluor E&C were: engineering, procurement and construction of a $600 million refinery addition to process heavy oil in Venezuela; design, engineering, procurement and construction management of a $ oo million, ioo,000 tons-per-year magnesium oxide plant in the Nether­ lands; a $330 million contract to engineer, procure and construct a gas-processing plant, ancillary facilities and pipelines in Algeria; and, in Abu Dhabi, a sheik­ dom of the United Arab Emirates, a $20 million first­ phase contract was awarded Fluor E&C for the planning of a multi-billion-dollar infrastructure program that will serve as the basis for the development of a new industrial city to be built over to years. The job is Fluor's first major infrastructure project and will utilize the capabilities of three other Fluor subsidiaries under the direction of Fluor E&C.
After the end of the fiscal year, Fluor E&C announced receipt of an $8 million contract from the People's Republic of China to provide engineering, procurement and construction advisory services for crude-stabiliza­ tion units and other facilities.
Fiscal 1978 was also the year when consolidation of engineering offices at several international locations
Control of costs and timely completion of a project, regardless of size, depends to a great degree 0/1 the formulation of an execution plan (see graph) that identifies milastones, their sequence, and the tinte frame in which they must occur. Establishment of the proper sequence and tinte durations is dependent on such factors as project location, economic conditions, and client plans.
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process up to 3.5 billion management services for aa standard cubic feet per day big portion of the project. of gas and produce up to The system begins at gas­ 900,000 barrels a day of NGL oil separator plants at 25 oila to become by far the largest production sites in the single gas-gathering and pro- Ghawar field. Gas and liquid cessing system. A number of will be piped from there to Fluor task forces are provid- gas-processing plants now ing design, engineering, pro­ curement, and construction
55
Data Sheets Plot Plans Models Procurement (Major equipment)
Instruments ordered Design
Site Prep drawings issued Underground drawings Foundations (FDNS) issued FDN location plans issued Pipe supports issued Pipe spools issued Material takeoffs Electronic DWGS issued Instrument DWGS issued
CONSTRUCTION Grading & Excavation Underground Concrete (Excl. Paving) Pipe supports (Major) Pipe Erection Pipe Fabrication Instrumentation Electrical Equipment setting
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- - while increasing its backlog with new work in food
processing, pulp, aluminum, glass and fiberglass. New awards represent a total of almost $400 million in capital expenditures for construction of a cellulose pulp mill, an automobile glass fabricating facility, and for the design and construction of an aluminum plant. Year-end backlog indicates continued growth in 1979.
Daniel's International Group added almost 30 con­ tracts to backlog during the year, 45 percent of which is for facilities to be built in Europe and the balance in the Caribbean area. Two major awards are in Puerto Rico, an area of traditional strength for the Group.
Work started on a large pharmaceutical plant in Ireland and several smaller projects in West Germany. Management by the group continued on a joint venture construction project the world's largest airport in Jeddah, Saudi Arabia.
The Maintenance and Mechanical Group had its best earnings year and significantly increased its work­ load for 1979 by obtaining several continuous and long-term maintenance contracts. Two are for nuclear facilities. New contracts were booked for jobs in the Midwest, Northeast, the South and the Gulf Coast area.
The Regional Group, with six sales and operations offices in the South and Southwest states, experienced substantial growth. Some 40 jobs were completed and almost so new contracts were added to backlog.
Fluor Engineers and Constructors' task forces (upper photo) embody all of the engineering, procurement, construction, and management required to execute a project. Each operates like a separate company under a project management staff. Technicians assenible scale models (lower photo) to aid in the design effort.
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tinder construction at Uthmaniyah and Shedgum. Each plant occupies some 825 acres and can process up to 1.4 billion cubic feet per day of gas. NGL is piped from the two plants to Ju'aymah, where the fractionation and treating facility has a design feed volume of 270,000 bar­ reis a day. Some of the
resulting liquefied petroleum gas will be piped for export over a 6'A mile trestle to an offshore terminal that will berth 200,000 dwt tankers.
The multi-billion-dollar proj­ ect will require an estimated
ro million engineering man­ hours from one Fluor office in the U.S. and three European offices. Construction on Fluor's portion of the program will peak in 1979 with a work­ force of 15,000, of whom 4,000 are from 15 different nations. Procurement is worldwide and includes: L000 pressure vessels
weighing 720 tons each; 5,000 shell-and-tube heat ex­ changers up to 90 inches in diameter and 6o feet long; 1,80o bays of air coolers, MOSt 20 by 40 feet; and 1,200 pumps, many in the r,000 horsepower category.
& Metals, Inc., there are four other U.S. engineering com­ panies, three German, and a French company involved in the project. In addition, num­ erous South African engineer­ ing and manufacturing firms are involved in major facets of the job.
Basically, the process gas­ ifies coal by means of Lurgi gasifiers using steam and oxygen followed by the SASOL Synthol process which produces a synthetic crude
oil. The crude is then cleaned and refined into gasoline and diesel products. SASOL II will initially produce a variety of different products. Coal will be provided from two mines constructed for this project. SASOL II will
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consume some 12,000,000 metric tons of coal per year, with a daily average usage of 40,000 metric tons.
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drew near completion. In early 1979, the London operations will move from seven locations into a new 237,000 square-foot building complex at Euston Square, London. The complex has been leased on a long-term basis and has the capacity to house 1,740 employees. At Manchester, England, the newly purchased Fluor House will accommodate 750 persons. In March 1979, a 14-story, 214,000 square-foot building at Al Khobar, Saudi Arabia, will be completed for Fluor Arabia Limited employees and other tenants. At Calgary, Canada, 250 employees have moved into q-uarters suit­ able for rapid expansion.
With its worldwide engineering facilities firmly in place by early 1979, Fluor E&C expects to keep them busy as various countries grow in importance to the process-plant engineering and construction market. These countries include: Venezuela, Mexico, Canada, The People's Republic of China, Korea, Malaysia,
'Indonesia, Algeria, Nigeria, the Ivory Coast, and Aus­ tralia. They are the likely "hot spots" for new business during the new year and the 19805 along with tradi­ tional sources such as the Middle East.
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Major elements in view: J Utility cooling tower A Chemical workup area Main pipeway
Ethylene plant Phenosolvan/ammonia, C CO2 removal; C2 recovery recovery
MHydrogen production Oxygen plant Synthol plant N Methane reforming
F CO2 removal; C2 recovefy o 450-foot process cooling Coal conveyor tower Steam plant Oil workup area
I 820-foot smoke stack Tank farm
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Total Operating Profit (Loss) Before Certain Costs*:
Construction Company Industrial Services
Total Earnings Before Taxes*
Manpower
30,312 11,656
29,613 11,802
1,003,254 475,000
$4,260,489 $4,375,000
6,810 5,181
1977 results are from the date of acquisition, May 31, 1977 to October 31,1977.
*Excludes amortization of excess of cost over net assets of acquired companies of $1,751 in 1978 and $1,020 in 1977, amortiza, tion of stepped-up value of acquired assets of $2,528 in 1978 and $840 in 1977 and charges for future income tax benefits and other tax adjustments relating to the acquisition of Daniel International Corporation of $7,747 in 1978 and $538 in 1977. Provision for income taxes has been reduced by the same amount as the charges for future income tax benefits and other tax adjustments relating to the acquisition of Daniel with no overall effect on net earnings.
Fiscal year 1978 was Daniel International Corporation's first full year as a subsidiary of Fluor. Earnings for the year exceeded expectations, and the company antici: pates 1979 earnings will be above 1978.
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Ninety-four miles east of Johannesburg and 5,000 feet above sea level in the eastern Transvaal Region of the Republic of South Africa
Fluor is building SASOL II,
the world's largest process plant for the conversion of coal into fuel liquids and gas. The complex, to be fed from huge, adjacent coal deposits, will be 3.7 square miles in size. Fluor is responsible for management and coordination of the total project, including a major portion of the engineering,
For the first time, engineering activities for the com­ pany accounted for more than io percent of the com­ pany's total profit. Continued growth is seen in the new year.
Daniel Construction Company (DCC), the largest of Daniel International's two main operations, experi­ enced signs of upturns in some of its main market arcas :­ power, pharmaceuticals, pulp and paper, chemicals, and fibers.
The Power Group, the largest of DCC's Bix main businesses, added almost twice as much new work as it completed in 1978. At year end, the Group had power plants under construction totalling more than 15 ,000 Megawatts (mw) : nuclear-9,978 mw; fossil-3,rno mw; and hydro 2,100 MW. The most significant contracts added to backlog are for two 640 mw coal-fired units in Florida and two 600 mw coal-fired units in Ohio. The contracts represent the Power Group's first market penetration of these states.
DCC's Chemical and Fibers Group balanced 1978 completions with new orders and has 26 major projects in progress, primarily in the South. Prospects for 1979 are excellent.
Two relatively large orders from a European client significantly increased the Group's design and build backlog in fiberglass. In another industry, the company was awarded a contract to build a coal mining and preparation facility in Wyoming. Fluor Mining and Metals, Inc., will design the project. Completions during the year include two herbicide and two chemical plants.
The Industrial Group completed several projects
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design, procurement, con- force at Fluor E&C's Southern struction, and a multitude California Division. Duringa
of other supportive functions. the peak of construction, Purchasing is done world- 20,000 workers are in the field, wide with special emphasis many trained by Fluor. Besides on local fabrication. At the Fluor E&C and Fluor Mining peak of engineering and de­ sign, 1,400 personnel were assigned to the Fluor task
Operations Report The Group pursues projects valued up to $30 million Mining/Metals Engineering and Constructionwith particular emphasis on obtaining design and
build responsibilities. ($ in thousands) 1978 - 1977 1976 1975 1974 Daniel Industrial Services (DIS), the other major Work
operating division of Daniel International, had a record Performed $ 91,647 $115,008 $207,201 $297,500 $226,198 earnings year. Prospects for 1979 are for continued Revenues 39,691 46,042 83,895 127,899 112,870 earnings growth. Operating
Highlight for the year was the opening of three Profit (Loss) (5,040) 944 3,321 9,047 5,309 Freightliner distributorships by DIS' Goldston unit. Earnings (Loss)
In other DIS operations,American Equipment Com- Before Taxes (4,766) 1,207 3,628 9,323 5,967
pany exceeded its financial plan in fiscal 1978 and New Orders 257,056 107,815 26,954 446,504 514,132
anticipates continued growth in sales, rentals and Backlog servicing of construction equipment, tools and supplies. Year End $277,360 $127,756 $131,565 $497,618 $374,758
Even though interest rates climbed, Fortis Corpora- Manpower 671 65o 989 1,761 1,493
tion continued strong in housing and expanded in commercial construction and special wood products. Fluor Mining & Metals, Inc.
Applied Engineering Company improved its inter- For Fluor Mining 8,),. Metals, Inc. (FMM), 1978 was a national business in design and construction of process year in which the company rebuilt and strengthened modules and received several large contracts from U.S. its internal organization while carrying out an intensive utilities for nuclear fabrications. marketing effort worldwide. The culmination of these
activities is expected to be the turnaround of the com­ pany in 1979.
A key event emanating from the year's efforts carne shortly after the end of the fiscal year when the China National Technical Import Corporation selected
A B CD EFGH K L FMM to design and manage construction of a 175,000 ' metric-tons-per-day copper mine and concentrator
in the People's Republic of China . When completed,.
this will be the largest capacity single concentrator in the copper industry. The first portion of FMM's work is for basic engineering valued in excess of $ ro million.
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Farley Nuclear Site Major elements in viewf Atmosphoric vent stack In the Southeast, Fluor's two 860 megawatt units. The A Emergency generating F Spent fuel handling crane Daniel International Corpora- first went into commercial
building Condensate storage tank tion subsidiary is general operation in December 1977, Turbine generating building; Reactor containment build- contractor on the Joseph M. and the second is scheduled
bls C Reactor containment build- ing, Unit No. 2 Farley Nuclear Plant (above) to go on line in 1980. ing, Unit No. I Condensate storage tank' for the Alabama Power Com­
pany. The plant consists of
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Fuel building J Cooling towers Water treating building Demineralized water tank
FMM's new orders of $133 million include a $73 million contract for a coal-processing facility at Coal Creek, Wyoming. FMM will do the engineering and procurement, and Daniel International will undertake, the construction. Completion is scheduled for 1981.
A follow-on contract for $32 million was also acquired for continued work on a uranium mining and process­ ing facility in Yugoslavia. Additionally, a $21 million contract was awarded FMM to expand a coal mining and production project at the Cordero Mine in Wyo­ ming and; a small but important contract was signed for a $2 million first-phase engineering job on a $50 million copper conccntrator expansion in Chile.
The centerpiece of FMM's new order success reflects, a vigorous commitment to reorganization, where needed. The fiscal year started under a new president, Edwin J. O'Connell, a 25-year veteran in sales and executive positions in the mining and metals industry. Subsequently, the company's name was changed from Fluor Utah, Inc., to the current designation in order to more accurately reflect the industry FMM serves.
Addition of two new vice presidents - bringing the total to three - and nine sales managers, significantly strengthened the sales department. Six new offices were opened in the U.S. and overseas. The key objectives of the new organization are to increase client coverage and address a considerably larger world market., Fluor Australia, Pty. Limited Fluor Australia Pty. Limited increased revenues 12 per­ cent, earnings before taxes 39 percent and new orders 16 percent.
The subsidiary won a major contract valued at $84
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Located on an 1,800 acre site 2,000 miles long. There will be 20 miles east of Dothan, enoLgli steel reinforcing the Alabama, the plant started concrete to manufacture construction in 1970. Cost of 25,000 automobiles. The facility both units will he $1.4 billion. Will use 9.5 million feet of
When completed, the project electric cables, 87 miles of will contain enough concrete piping, and each of the two, to build a sidewalk three feet 200 foot high containment wide, four inches deep and
million to co-manage initial development of a two million tons-per-year coking coal facility at Oaky Creek, Queensland, scheduled for completion in 1981. Fluor Australia also received contracts to a value of $40 mil­ lion for iron ore handling, coal processing, bitumen dis­ tillation and blowing, refinery upgrading, continuing railway and mine maintenance and a range of studies.
The business climate in Australia has been improving and demand for engineering and construction in the hydrocarbon and mining and metals fields should grow in 1979 and the 19805. With years of experience in that, country, Fluor Australia believes it is in a prime posi­ tion to obtain a significant share of these projects.
Power-Plant Engineering and Construction
Work Performed $18,287 $20,561 $18,425 $24,874 $ 7,503
Revenues 18,287 20,561 18,425 24,874 7,503
Operating Profit (Loss) Before Certain Costs* 1,029 1,630 (42) (807) (803)
Earnings (Loss) Before Taxes* 1,015 1,631 (42) (8o8) (796)
New Orders 10,641 14,818 16,184 7,473 15,075,
Backlog Year End _$10,888 $14,854 $18,848 $19,983 $26,562
Manpower 429 583 658 689 815,
*Excludes amortization of excess of cost over net assets of acquired companies of $253 in 1978, $253 in 1977, $260 in1976, $237 in 1975 and $115 in 1974.
buildings are large enough to hold 330,000 barrels of oil instead each houses a 359 ton. pressurized water nuclear reactor. At peak construction 4,200 workcrs were on site.
Fluor Power Services, (FPS) Inc. changed its name during the year from Fluor Pioneer, Inc. to more readily identify with the industry it serves.
Profits for the company held up, but new orders ebbed in reaction to a continued weak market for engineering and design in the U.S. utility industry. However, barring a serious recession in 1979, FPS antici­ pates utilities will begin increasing engineering and construction commitments for replacement of obsolete plants to shore up the industry's shrinking reserve margin power capacity.
New orders for FPS should be up in 1979 if the utility industry begins to turn around, but earnings will be flat or below 1978 levels.
Most orders during the year were additions to existing contracts except for a Si million contract to design and manage construction of a two-unit gas turbine genera­ ting facility for Nevada Power Company.
In the Sheikdom of Abu Dhabi in the United Arab Emirates, FPS is collaborating with Daniel Interna­ tional, Fluor Ocean Services, and the Southern California Division of Fluor Engineers & Constructors, Inc., on a contract to provide planning of the infra­ structure for a multibillion dollar industrial city. The site is expected to cover an area of about 240 square­ miles, onshore and offshore. It is estimated that the project will take 10-12 years to complete.
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The Farley Unit No. 2 is one of so nuclear units in six facilities under construction by Daniel.
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matched in their ability to keep the surroundings clean. A computerized center at the terminal controls opera­ tions for the entire system, including the 800-mile pipe­ line. Ships can load oil at a rate of up to almost 1,300 gallons a second..
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This super project called for more than 3.5 million tons of material and equipment, which, if loaded on trucks, would have made a convoy stretching from New York to Chicago. The project in-
The highpoints of the year for Fluor Drilling Services, Inc., (FDS) were the placement into service of its largest drillship, Western Offshore No. IX (woDEco ix), and the completion of the fiscal year with all of its drillships, drilling barges and jack-ups under contract. Utilization rates were 79 percent compared to 70 percent in 1977, and day rates generally improved throughout the year. Performance in 1979 is expected to be considerably above 1978.
In the second half of fiscal year 1978, WODECO IX was contracted for two years, with options, to Lagoven, S.A., an affiliate of Petrolcos de Venezuela. The vessel, one of the largest of its kind in the world, commenced drilling its first well offshore eastern Venezuela some so miles from the mouth of the Orinoco River. The program represents the start of a major effort by Vene­ zuela to find offshore reserves. .
Shortly after the end of the year, FDS's newest unit, a $20 million self-elevating jack-up named "Mr. Dave" in honor of Fluor's Vice Chairman, David S. Tappan, Jr. was christened and went immediately into service in the Gulf of Mexico. The rig is under a one-year contract with options.
Mr. Dave features a cantilever design which allows, multiple wells to be drilled without changing locations.
, '
"
eluded 115,000 pieces of pipe, billion, 731-mile Alaska por­ ain 40-to-60 focit lengths, tion of a pipeline to bring
40,000 tons of modular natural gas from the North housing, and i,000 tons of Slope of Alaska through fuel a day just to heat 31a Callada to the lower 48-states, construction camps.
In 1978, Fluor was selecte.d project management con­ tractor for the proposed $4
r
Farley Unit No. r currently represents about To percent of the power company's total installed capacity and should provide 20 percent of its electrical output in 1979. The unit's annual output is equiva ­ lent to the use of more than two million tons of coal.
15
Revenues 26,387 13,427 16,556 14,281 20,703
Operating Profit 2,892 2,097 921 1,226 1,182
Earnings Before Taxes 2,953 2,113 917 1,244 1,220
New Orders 371,839 101,217 19,155 315,445 97,809
Backlog Year End $528,779 $221,438 $173,013 $390,325 $86,067
Manpower 350 245 230 229 207
Fluor Ocean Services, Inc. (FOS), surpassed its new order expectations for 1978 and increased backlog to the highest level in its ro-year history.
,
G H
Major elements in view: Berth NO. 4 A Crude oil storage tanks -- E Operations Control Center
5 10,000 barrels each Power plant B Berth No. 5 Berth No. 3 C Vapor recovery Ballast water impounding
Fire water pump building Crude oil storage tanks ­ 5X0,000 barrels each
13
tractor for the offshore portion of the terminal. Com­ pletion is scheduled for 1981. When in operation, the marine terminal will handle tankers of up to 700,000 deadweight tons. Offloading capacity will be an average 1.4 million barrels of oil a day.
The second project is offshore Greece in the Prinos oil field in the Aegean Sea. FOS will be managing con­ tractor for the offshore production facilities, pipelines, and onshore plant. The overall project is one of a growing number of examples where Fluor subsidiaries collaborate on various portions of a major project. In this case, Fluor Canada Ltd. is doing engineering and procurement on the sulfur plant, Fluor E&C, Houston Division, is doing engineering and procurement on part of the onshore processing facilities, Fluor Oil and Gas has 14 percent interest in the Prinos Field, and Fluor Drilling Services' WODECO in drilled exploratory and confirmation wells. Production from this field is expected to start in 1981.
In the Far East, the Natural Gas Organization of Thailand authorized FOS to proceed with the detailed engineering phase of a $soo to $700 million natural­ gas development project. When completed, the facil­ ities will move natural gas and associated hydrocarbon products from the Gulf of Thailand to Bangkok.
In Africa, FOS is collaborating with Fluor Great Britain Limited on the design, engineering and con­ struction management of an oil-and-gas drilling-and­ production platform offshore the Ivory Coast. The facility will daily handle ro,000 barrels of oil and five million cubic feet of gas. In addition, FOS has a $40 million contract to design and manage the construe­
ill 1977, the company COM­ pleted its work on the 800­ mile Alaska oil pipeline which included 12 pump stations along the route, 62 remote gate valves, four miles
of mainline refrigeration, and a $r billion terminal (above) at the port of Valdez. The project was the largest privately funded venture in history. Fluor, with respon­ sibility for almost $2 billion of work, was the largest single contractor on the job.
f
tion of the pipeline network for a $330 million gas­ processing plant in Algeria for which Fluor E&C Houston Division, is the prime contractor.
FOS is also collaborating with Fluor E&C, Southern California Division, Daniel International, and Fluor Power Services on a contract to provide planning for what will eventually be the multibillion dollar infra­ structure for an industrial city in Abu Dhabi, United Arab Emirates.
With new orders up sharply, manpower for the subsidiary increased 43 percent. The full weight of the new orders, however, has not yet been reflected in 1978 earnings.
Drilling Services
Revenues 47,577 41,012 50,590 57,160 35,835
Operating Profit Before Certain Costs* 4,752 2,693 12,334 18,452 10,441
Earnings Before Taxes* 4,738 2,621 12,262 18,444 10,369
New Orders 74,473 43,670 29,862 23,958 71,831
Backlog Year End $41,775 $15,618 $12,960 $33,836 $70,515
Average Rig Utilization Rate 79% 70% 87% 92% 93%
Manpower 602 821 827 896 717
*Excludes amortization of excess of cost over net assets of acquired companies of $213 in 1978 and $712 in 1977.
At milestone points during the project, Fluor's engineer­ ing task force reached Soo persons, construction workers peaked at 7000, and cash flow mounted to $3 million a day. Today 1.2 million barrels of
t ,
crude oil a day are pumpeda from Prudhoe Bay, through the 48-inch pipeline and across three mountain ranges to the Valdez terminal.
The terminal covers 1,000 acres. Each. of 18 storage tanks holds 51o,000 barrels of crude oil, and the vapor­ recovery system and water­ treatment plant are un­
14
Revenues $138,714 $120,069 $115,566 $120495 $111,685
Operating Profit 13,190 9,913 9,984 16,844 17,640
Earnings Before Taxes $ 13,313 $ 9,912 $ 9,982 $ 16,845 $ 17,636
Manpower 679 645 626 597 616
Fluor's two supply companies, Kilsby Tubesupply Com­ pany and The Republic Supply Company of California,, had successful years, and both laid considerable groundwork for internal growth in 1979.
Kilsby reported the best year in its history. Revenues were up 30 percent and earnings before taxes increased 51 percent.
A distributor of steel and aluminum piping and tubing, Kilsby's sharp increase in sales is largely at­ tributable to increased penetration in established West Coast and Mid-Continent markets and modest contributions from new sales offices in Spokane and New Orleans and a new mini-warehouse in Wichita. Existing facilities in Los Angeles and Dallas were expanded to support increased demand.
Customer demand in 1979 is expected to remain high in the aircraft, trucking and oil-field equipment manufacturing industries - three traditional client groups. Kilsby plans to increase sales in the Southeast in 1979 as part of its long-range plan toward achieving national distribution.
Though Republic's traditional California-Arizona market for oil refinery and industrial supplies continued in a static mode, the company improved its perform­ ance over the previous year, while setting the stage for major moves into new markets.
Foremost in this effort was the formation in early fiscal year 1979 of the Fluor Oil Field Supply Company in Houston, the center of the largest market in the United States for Republic's services to the oil industry. Heading the new operation is Leon Shackelford, President and Chief Operating Officer.
Another key development was the establishment of a branch in Milan, New Mexico, to serve the uranium mining and processing industry. Also, increased atten­ tion has been focused on California's developing geo­ thermal and power transmission markets.
Shortly after the end of the fiscal year, Edward A. Law, Jr., President of Republic, was named Chairman, and Chief Executive Officer, succeeded by Charles FT, McIntyre as President and Chief Operating Officer.
Oil and Gas Operations
,Revenues $34,077 $43,786 $33,152 $24,225 $17,493 Operating Profit (Loss) 16,010 21,276 3,739 (1,510) 2,184
Earnings (Loss) Before Taxes $16,026 $21,391 $ 3,769 $ (1,481) $ 2,186
Manpower 28 25 ,23 23 22
Fluor Oil and Gas Corporation's (FOG) performance in 1978 was below the banner year of 1977, but better than plan. Oil production levels overseas were above expectations, and declining domestic gas production was offset by wells discovered in fiscal year 1977.
Increased emphasis was placed on domestic explora­ tion activity. An office was opened in Houston to administer the subsidiary's interest in various properties and to seek new opportunities for investment.
The most significant participation of the year was an oil discovery in the Granite Wash formation at the north end of the Mills Ranch Field in Wheeler County, Texas, where FOG has a 15 percent interest. An initial well tested at 600 barrels of oil per day. This was followed by two wells producing 500 barrels per day each. At least three new wells are planned for 1979.
The subsidiary's domestic production for fiscal year 1978 was 743,000 barrels of oil compared to 748,000 in 1977, and 11.7 billion cubic feet of gas compared to 12.4 billion cubic feet of gas. Domestic oil and gas opera­ tions provided 84 percent of total net income and acre­ age under lease increased 83 percent.
U.S. gas sales from Mills Ranch Field declined as ex­ pected, but were largely offset by new production from Ship Shoal Block 72, offshore Louisiana, and from La Fourche Parish, in the Northwest Houma Field, La.
Oil production in Irian Jaya, Indonesia, where FOG has io percent interest, decreased from a daily average of 82,000 barrels in 1977 to 72,000 barrels in 1978, which was higher than expected. In the Prinos Field, offshore Greece, in the Northern Aegean Sea, production is scheduled to start in early 1981. FOG has 14 percent interest in the field.
Underwater Completion Systems
Revenues 1,670 1,970 2,748 3,646 1,913
Operating Loss (536) (153) (235) (413) (49)
Loss Before Taxes (536) (153) (235) (413) (49)
New Orders 4,119 1,826 1,279 3,035 4,063
Backlog Year End $2,622 $ 221 $ 197 $1,371 $2,150
Manpower 37 36 39 49 28
16
Deep Oil Technology (DOT) increased its new orders sharply in 1978 and started work on two new programs that should lead to breakeven earnings in 1979.
The first program is valued at about $1 million and is sponsored by the Department of Energy. The project will test a major component of a concept called Ocean Thermal Energy Conversion, which seeks to use temperature differences in the ocean to generate elec­ trical power. Tests will be conducted offshore California from DOT's Tension Leg Platform (Tip).
The second program is valued at $2.2 million and will use the TLP in a tension moored mode to test riser pipes in various sea conditions. Thirty percent of the funding for the project is provided by the European Economic Community and the balance by Scott Lith­ gow, Ltd., six oil companies and DOT.
Successful land-based tests on subsystems for an experimental subsea station were carried out in Africa in 1978. DOT will participate in further tests of the entire station in 1979 offshore Gabon, Africa.,
rBacklog by Industry and Location
Dollar amounts in millions
Power 3,623 31.3 3,694
Petroleum 864 7.5 _ 518
Chemical/Petrochemical 731 6.3 ,907
Offshore 379 3.3 ' 5
Mining/Metals 310 2.7 153
Paper 224 1.9 216
Other 385 3.4 no Total 11,563 100.0 12,759
United States 5,017 43-4 4,842
Outside U.S. 6,546 56.6 7,917
Total 11,563 100.0 12,759
Backlog includes owners'
Corporate Sizeable real estate sales included $6 million for the former Fluor Corporation headquarters in Los Angeles, and $2 million for Fluor's interest in two California developments.
Leasehold interests were assigned to other parties or terminated on real property formerly occupied by Fluor employees prior to consolidation of operations at Irvine, California.
Acquisition of 32 acres adjacent to the Fluor complex at Irvine was completed in 1978:
In July of the fiscal year, and after approval by share­ holders, Fluor reincorporated in Delaware. Previously it had been a California company.
In the second quarter, Fluor Corporation, Fluor E&C, and four other plaintiffs won an action against Pull­ man, Inc., when a jury invalidated a major ammonia process-plant patent assigned to Pullman, thus opening up that market to greater competition. The verdict is being appealed,
% $ 1976 % $ 1975 % $ 1974 %
2 67 .7 86 1.9
1.2 46 .5 397 4.4 375 8.4
1.7
100.0 8,751 100.0 9,088 100.0 4,446 100.0
598 - 6.8 1,790 19.7 2,673 60.137.9
62.1 8,153 93.2 7,298 80.3 1,773 39.9
100.0 8,751 100.0 9,088 100.0 4,446 100.0
costs of approximately 40% 53% 61% 56% 41%
(Fluor earns a fee on this portion of backlog which will not ultimately be recorded as revenues.)
The above backlog information is detailed by industry and location, it does not necessarily relate to the backlog information shown in the Operations Report which is detailed by major operating unit.
17
Major Accounting Policies
Principles of Consolidation The financial statements include the accounts of the company and all its subsidiaries. All significant inter­ company transactions are eliminated. The equity method of accounting is used for investments in cor­ porate joint ventures and for investments in com­ panies where ownership ranges from 20% to 50%.
Certain 1977 amounts have been reclassified to con­ form with the 1978 presentation.
Engineering and Construction Contracts The company recognizes revenues on engineering and construction contracts on the percentage-of-completion method, primarily based on contract costs incurred to date compared with total estimated contract costs, and on manhours incurred to date compared with total estimated manhours for the construction of certain power plants. Changes to total estimated contract costs or manhours and 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. It is anticipated that the incurred costs associated with contract work in progress at October 31, 1978, will be billed and collected in 1979. Amounts received from clients in excess of revenues recognized to date are classified as current liabilities under advance billings on contracts.
Inventorie,s Inventories are stated at the lower of cost (average and first-in, first-out methods) or net realizable value.
Accounting for Foreign Operations See Operations by Business Segment and Geographic Area, page 22 for information about the company's fiscal 1978 foreign operations. For the fiscal year ended October 31, 1977, the combined foreign operations, which were located principally in Europe, the Middle East and Africa, had revenues to unaffiliated customers of $762,927,000, intercompany revenues to domestic operations of $13,900,000, operating profits of $113,217,000 and identifiable assets of $261,798,000.
Net exchange gains of approximately $1,205,000 in 1978 and $322,000 in 1977 have been included with costs and expenses in the consolidated statement of earnings.
Income Taxes Deferred income taxes included under current liabili­ ties relate principally to the use, for U.S. tax-reporting purposes, of the completed-contract method of ac­ counting by certain engineering and construction subsidiaries, whereas the percentage-of-completion method of accounting is used for financial-reporting purposes. Deferred income taxes included in other noncurrent liabilities relate to timing differences between financial and tax reporting for such items as depreciation, deferred compensation, accounting for oil and gas properties and taxes provided on cumulative undistributed earnings of foreign subsidiaries.
Investment tax credits are applied to reduce the current provision for federal income taxes under the flow-through method.
Depreciation, Depletion, Amortization and Exploration Costs Depreciation and amortization of property, plant and equipment, other than oil and gas properties, are cal­ culated on a straight-line or accelerated basis over the estimated useful life of the related assets. Depreciation, depletion and amortization of oil and gas properties are calculated on a composite unit-of-production method based on estimated reserves. Geological and geophysical costs are capitalized if connected with the acquisition or retention of an economic interest in oil and gas properties; otherwise, such costs are expensed. The costs of exploratory dry holes are charged to expense when the well is known to be non­ productive. Oil and gas property lease rentals are charged against income as incurred. The cost of dry holes drilled in the delineation of productive economic fields are capitalized as part of the cost of developing the reservoir. Costs of undeveloped oil and gas lease­ holds are capitalized and amortized over the estimated average holding period.
Earnings per Share Earnings per share are based on the weighted average number of common and common equivalent shares outstanding in each period (16,911,000 in 1978 and 16,839,000 in 1977). Common equivalent shares include the potential dilution from exercise of stock options and the weighted average number of outstanding pre­ ferred shares, assuming conversion to common shares.
18
Acquisitions
Effective May 31, 1977, the company acquired, in a purchase transaction, approximately 99% of the out­ standing common stock of Daniel International Cor­ poration (Daniel), for a total purchase price of $218,180,000. Daniel is a general building contractor engaged in industrial and utility, commercial and institutional construction, with headquarters in the Southeastern United States. Certain estimates were made at October 31, 1977, as to the allocation of the purchase price to certain assets of Daniel, pending the completion of an independent appraisal and corporate liquidations. During fiscal 1978, an additional $25,615,000 was allocated to the acquired assets, in­ cluding $18,853,000 related to the future income tax benefit resulting from the difference between the book and tax basis of acquired construction contracts and proposals. After giving effect to 1978 adjustments, $78,240,000 has been allocated to excess of cost over net assets of acquired companies and is being amortized over a 40 year period. The results of Daniel's operations are included in the consolidated statement of earnings from the date of its acquisition by the company. The following table summarizes the unaudited results of consolidated operations for the year ended October 31, 1977 on a pro-forma basis as though Daniel had been acquired at November 1, 1976.
Revenues $2,530,025,000 Net earnings 76466,000 Earnings per share 4.54
In June 1977, the company acquired an interest in Peabody Coal Company through the purchase of io% of the common stock of Peabody Holding Company, Inc. (Plic), a corporate joint venture, for approximately $20,000,000. In addition, the company is contingently liable for an additional $25,000,000 in the form of stock subscription agreements securing PHC senior notes pay­ able to lenders. This investment is accounted for on the equity method based on financial statements audited by PHC'S independent auditors as of the pre­ ceding December 31, and unaudited financial state­ ments as of September 30, 1978 and 1977. Financial information of Peabody Holding Company, based on
the latest available audited and unaudited financial statements, follows:
Sept. 30, 1978 Dec. 31, 1977 (Unaudited)
Financial Condition Current assets $ 2721943/000 $ 284,129,000$
Property, plant and equipment (net) 912,300,000 903,326,000 Other assets 103,752,000 94,832,000
Total assets $1,288,995,000 $1,282,287,000
Nine Months Ended Six Months Sept. 30, 1978 Ended
(Unaudited) Dec. 31, 1977
Working Funds
Working funds are current assets less current liabilities excluding current deferred income taxes. Generally accepted accounting principles require, under the operating cycle concept, that current deferred income taxes be classified as current liabilities which reduces working capital, even though no portion of that liability will be paid in the succeeding fiscal year. Working funds, therefore, reflect the funds currently available to the company.
Working funds provided from operations reflect the increase in current deferred income taxes as an addition to working capital provided from operations.
Credit Arrangements
At October 31, 1978, the company had bank lines of credit under which it may borrow up to a maximum of $52,890,000 on a short-term basis. Borrowings under these lines of credit would bear interest at the prime rate, or its foreign equivalent. During 1978, borrowings under these lines of credit were not material. During 1977, the maximum aggregate amount of short-term borrowings at any month-end was $133,026,000, and the average aggregate borrowings outstanding during the year were $32,828,000. The 1977 weighted average interest rate was 6.9% computed on daily outstand­ ing balances.
19
Fluor Corporation
Financial Review
Long-Term Debt
Long-term debt at October 31, 1978 and 1977 consists of the following:
1978 1977
8.5% mortgage note secured by buildings and improvements, with a net book value of approximately $15,733,000 , due in monthly install­ ments of $81,000, including interest, through January zoos $10,163,000 $10,263,000
% above London Interbank Offered Rate, unsecured revolving note, interest payable quarterly 20,000,000 Other notes and mortgages 9,032,000 8,534,000
Total long-term debt Less current portion
19,195,000 2,634,000
38,797,000 1,286,000
Total long-term debt due after one year $16,561,000 $37,511,000
Maturities relating to long-term debt during the next five years are as follows: Years ending October 3 I Amount
1979 $2,634,000 1980 1,272,000 1981 1,230,000 1982 1,244,000 1983 611,000
The company has two long-term financial agreements. Under one agreement with 18 banks, the company may borrow up to $50,000,000, which was reduced from $8o,000,000 subsequent to October 31, 1978, at an interest rate not to exceed 105% of prime interest rate. Under the second agreement with five banks, the company may borrow up to $20,000,000 at an interest rate equal to the London Interbank Offered Rate plus /8%. The company may repay any borrowings to reduce its interest costs and may reborrow under the lines when it has further cash requirements until 1980. In 1980, any borrowings may be converted to term loans which would require semi-annual repayments through July 1984.
In connection with these agreements, the company has agreed to pay a commitment fee of V2(70 per annum of the unborrowed portion of the line.
Income Taxes
The provision for income taxes in the consolidated statement of earnings is composed of: :
State 1978 Federal Foreign and Local Total
Current tax expense $15,463,000 $35,470,000 $4,896,000 $55,829,000
Deferred tax expense 12,526,000 3,411,000 I,189,000 17,126,000
$27,989,000 $38,881,000 $6,085,000 $72,955,000.
$43,201,000 $33,602,000 $4,917,000 $81,720,000
A reconciliation of income tax expense to the statu­ tory federal income tax rate follows:
1978 % 1977 %
Statutory federal tax expense $75,839,000 48.0 $75,307,000 48.0
Increases (reductions) in taxes resulting from: Foreign oil and gas operations 1,631,000 1.0 4,604,000 2.9
Investment tax credit (2,560,000) (i.6) (5,335,000) (3.4)
Other (1,955,000) (1.2) 7,144,000 4.5
46.2 $81,720,000 52.0$72,955,000
Deferred income taxes have been provided for timing differences as follows:
1978 1977
Use of different methods of account­ ing for contracts $10,517,000 $17,541,000 Undistributed earnings of foreign subsidiaries 4,766,000 6,875,000
Other timing differences which are individually less than 5% of the stat­ utory federal income tax expense 1,843,000 16,251,000
$17,126,000 $40,667,000
Incremental income taxes have not been provided on approximately $6,267,000 of undistributed earnings of a foreign subsidiary because the company intends to reinvest these earnings overseas indefinitely.
The balance of current deferred income taxes is esti­ - mated to become payable as follows:
1980 $ 28,178,000 1981 19,343,000 1982 19,977,000 Thereafter 40,152,000
$107,650,000
Stock Options
The company has two stock option plans, the 1971 Fluor Stock Option Plan and the 1977 Fluor Executive Stock Plan, under which various officers and key employees held options or awards at October 31, 1978.
1971 Fluor Stock Option Plan This plan, as approved by the shareholders, provides for grant of nonqualified options at prices equal to the market value at date of grant. The options are generally exercisable one year after issuance and expire ro years after date of grant. Under this plan, 1,097,506 shares were authorized for grant and 5,034 shares were avail­ able for grant at October 31, 1978. At October 3 1, 1978, options were outstanding under this plan to purchase 415,492 shares of common stock at prices ranging from $12.90 to $42.63 per share with a weighted average price of $29.36. In accordance with the terms of this plan, certain holders of options have the right to receive the excess of the market value of the shares exercisable over the aggregate option price thereof in cash or stock in lieu of exercising their options. Total outstanding options for 109,851 shares have such rights and were issued between October 31, 1973, and December 9, 1974, at an average price of $27.42. For such shares and for any future issuance of similar options, changes in the market value over the option price are accounted for currently as increases or (de­ creases) in compensation expenses [($135,000) in 1978 and $247,000 in 1977].
1977 Fltzor Executive Stock Plan This plan, as approved by the shareholders, provides for the grant of rights to purchase shares of common stock under both nonqualified stock option agreements (options) and restricted stock purchase agreements (awards). The number of shares of common stock which may be issued or sold under this plan may not exceed 700,000 shares, but no more than 250,000 shares may be awarded as restricted stock. At October 31, 1978, 534,000 shares were available for grant under this plan.
The options are generally exercisable one year after issuance at a price equal to the fair market value at the date of grant and expire ro years after date of grant. At October 31, 1978, options to purchase 69,000 shares of common stock at prices ranging from $31.63 to $39.31 per share with a weighted average price of $38.78 were outstanding under this plan.
Upon issuance of an award, various officers and key employees may purchase restricted stock of the com­ pany for $1.00 per share. Until either the retirement, death or permanent disability of the recipient, the stock can only be sold back to the company at $1.00 per share. For such shares awarded, the difference between $i.00 and the fair market value of the shares at date of the award is charged to shareholders' equity as unamortized 1977 executive stock plan expense and amortized over the period of time from date of the award to the estimated date of retirement for each recipient. Total awards of 97,000 shares were granted during 1977, all of which shares are outstanding as of October 3i, 1978. Total amortization relating to these awards was $423,000 in 1978 and $199,000 in 1977.
Fiscal 1978 and 1977 stock option transactions under both plans are summarized as follows:
Common Shares Under Option 1978 1977
Balance, November r 576,391 575,095 Exercised (94,20o) (102,304) Expired (15,699) (3,600) Granted 8,000 111,200
Balance, October 31 484,492 576,391
Exercisable at October 3i 466,492 466,291
Preferred Stock
Each Series B Preferred share is entitled to one vote, is cumulative as to dividends, and is convertible into 2.4 shares of common stock, for which 1,158,237 shares of common stock have been reserved. Annual dividends of $3.00 per share have been paid or declared to September 30, 1978. Each share is redeemable at the discretion of the company at $103 per share, plus accrued dividends. Upon liquidation, preferred share­ holders are entitled to $100 per share plus accrued dividends which are payable out of capital or surplus of any nature.
20 21
Fluor Corporation
Financial Review
The company and certain subsidiaries have a non- Real Personalcontributory profit-sharing plan, a savings investment Property Property
plan, and formal incentive compensation plans. The 1979 $ 17,121,000 $1,720,000aggregate contributions to these plans in 1978 and 1977 1980 14,933,000 339,000charged to operations were $47,406,000 and
$36,423,000, respectively. 1981 13,258,000 193,000
1982 12,659,000 110,000 Lease Obligations
1983 12,491,000 I 10,000
1984 - 1988 54,571,000 547,000-Total rental expense in 1978 amounted to $21,473,000 ($19,041,000 in 1977). The company's lease obligations 1989 - 1993 73,000- 41,703,000
-
Thereafter 2,074,000 with long-term construction contracts and other per­
$174,556,000 $3,092,000 sonal property. At October 31, 1978, the company was
Operations by Business Segment and Geographic Area
October 31, 1978 ($ in thousands) Engineering
and Construction Oil and
Gas Drilling Services Other
Minority interests Interest - net- (6,866)
4,536 Corporate administrative and general expenses (28,189)
Equity in net loss of Peabody Holding Company (6,689)
Earnings before income taxes $ 151,308
Identifiable Assets $ 616,288 $31,814 $124,114 $204,233 $ $ 976,449
Corporate assets 117,522
Corporate 2,300
Capital Expenditures $ 33,495 $12,585 $ 20,187 $ 21,540 $ $ 87,807
Corporate 11,909
United States $1,878,287 Europe 270,597 Middle East 270,003 Africa 324,063
Other 122,822
Minority interests Interest - net- Corporate Equity in net loss of Peabody Holding Company Interarea eliminations
$2,865,772
The company's engineering and construction business segment includes the subsidiaries engaged in process­ plant, mining and metals, power-plant, and offshore engineering and construction, as well as that portion of Daniel International Corporation engaged in engineer­ ing and construction. Each business segment of the com­ pany, which comprises less than ro% of the revenues, operating profits and identifiable assets of all business segments combined, are grouped in Other.
Intersegment and interarea revenues are accounted for on a cost plus fee basis. Operating profit is total revenues less operating expenses. In computing oper­ ating profit, none of the following has been added or deducted: minority interests, interest income and expense, corporate administrative and general expenses, income taxes or equity in loss of Peabody Holding Company, a domestic coal producer.
Identifiable assets are those tangible and intangible assets used in operations in each of the business segments and geographic areas. Corporate assets are principally cash, short-term investments, property, plant and equipment, and other assets.
The company's United States operations generated revenues from customers in Europe, Middle East, Africa and other foreign areas of $6,426,000, $124,564,000, $63,044,000 and $23,119,000, respectively.
Revenues of the engineering and construction business segment from enterprises owned or partially owned by governments were $412,870,000.
Contracts with two major customers accounted for $379,110,000 and $347,716,000, respectively, of the revenues of the engineering and construction business segment.
Revenues - Interarea
Revenues - Total
Operating Profit
Identifiable Assets
553 123,375 10,325 113,867 (6,866)
4,536 (28,189) 117,522
Contingencies and Commitments
The company is contingently liable for commitments and performance guarantees arising in the ordinary course of business. Claims arising from engineering and construction contracts have been made against the company by clients, and the company has made cer­ tain claims against clients for costs incurred in excess of contract coverage. The company's consolidated federal income tax returns for the years 1964 through 1974 have been examined by the Internal Revenue Service and settlement has been achieved without material adverse impact on the company's financial statements. The company's consolidated and certain separate federal income tax returns for 1975 and 1976 are presently being examined by the Internal Revenue Service. In the opinion of management, the outcome of the claims and the contested deficiencies will not have a material effect on the company's consolidated financial position or results of operations.
Subsequent Event
The company is a participant in a joint venture which is constructing a major refinery in Iran on behalf of the National Iranian Oil Company (NIOC). On Decem­ ber 29, 1978, the joint venture notified NIOC that it was reducing activity on the project under the force majeure provisions of the contract due to escalating civil disturbances in Iran. The project is approximately 98% complete.
23
The company anticipates that it will complete the project and realize its assets, which are primarily con­ tract amounts receivable from NIOC. However, it is not possible to determine the ultimate outcome of the current events in Iran and what effect, if any, their resolution will have on the company's Iranian opera­ tions and the realization of its assets related thereto which approximate $2 s ,000,000, after related income tax effects.
Replacement Cost Information - Unaudited-
The company's annual report on Form ro-K as filed with the Securities and Exchange Commission (a copy of which is available upon request) contains estimated information with respect to year-end 1978 and 1977 replacement costs of inventories and certain productive capacity, as well as the approximate effect that re­ placement costs would have had on the computation of cost of revenues and depreciation expense for each year. Because replacement cost valuation reflects the effect of inflation and improved technology, the result­ ing costs are generally higher than historical costs.
Quarterly Financial Data - Unaudited-
The following is a summary of the unaudited quarterly results of operations of the years ended October 31, 1978 and 1977.
First Second Third Fourth 1978 Quarter Quarter Quarter Quarter (S in thousands, except per share amounts)
Revenues Cost of revenues Equity in net income (loss) of Peabody Holding Company Net carnings Earnings per share
$627,075 583,732
(1,134) 18,618
1.37
1977
Revenues Cost of revenues Equity in net income of Peabody Holding Company Net earnings Earnings per share
$407,991 369,438
Board of Directors and Shareholders Fluor Corporation
We have examined the accompanying consolidated balance sheet of Fluor Corporation at October 31, 1978 and 1977, and the related consolidated statements of earnings, shareholders' equity and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circum­ stances. The consolidated financial statements of Daniel International Corporation, a consolidated subsidiary, have been examined by other independent auditors ; insofar as our opinion on the consolidated financial statements relates to data incltzded for Daniel International Corporation, it is based solely on their reports. The statements of Daniel International Corpo­ ration show total assets and revenues constituting 31% and 47%, respectively, of the consolidated totals for 1978 and 22% and 25%, respectively, of such totals fOr 1977.
In our opinion, based on our examinations and the reports of the other independent auditors, the accom­ panying consolidated financial statements present fairly the consolidated financial position of Fluor Corporation at October 31, 1978 and 1977, and the con­ solidated results of operations and changes in financial position for the years then ended, in conformity with generally accepted accotznting principles applied on a consistent basis during the period.
Santa Ana, California December 8, 1978,
and as to the Subsequent Event described on pages 23 and 24, the date is January 12, 1979.
Fluor Corporation
Revenues
Costs and Expenses Cost of revenues Corporate administrative and general expenses Interest expense Interest income Total costs and expenses
Earnings Before Income Taxes and Equity in Net Income (Loss)
of Peabody Holding Company Income Taxes
Earnings Before Equity in Net Income (Loss) of Peabody
Holding Company Equity in Net Income (Loss) of
Peabody Holding Company Net Earnings
Earnings Per Share
See Financial Reviexv on pages18, 19, 20, 21, 22, 23 and 24.
1978 1977
Other Assets
Cash Short-term investments at cost, which approximates market Accounts and notes receivable Contract work in progress Inventories Other current assets Total current assets
Land Buildings and improvements Machinery and equipment Drilling and marine equipment Construction in progress
Less accumulated depreciation and amortization Net property, plant and equipment
Less accumulated depreciation and depletion Net oil and gas properties
Excess of cost over net assets of acquired companies, less accumulated amortization Other Total other assets
See Financial Review on pages 18, 19, zo, 21, 22, 23 and 24.
1978
498,749,000
I11,922,000
386,827,000
72,823,000
Other Noncurrent Liabilities
Contingencies and Commitments
Current liabilities excluding deferred income taxes
Deferred income taxes
Total current liabilities
Capital Stock Preferred authorized 1,000,000 shares without par value
Series B issued and outstanding in 1978 482,599 shares (liquidation preference $48,260,000) and in 1977 532,953 shares (liquidation preference $53,295,000)
Common authorized 40,000,000 shares of $.62/2 par value; issued and outstanding in 1978 15,688,488 shares and in 1977 15,491,534 shares
Additional capital Retained earnings Unamortized 1977 executive stock plan expense
Total shareholders' equity
Consolidated Statement of Changes in Financial Position
Years ended October 31, 1978 and 1977
Sources of Working Funds Net earnings Charges (credits) to earnings not affecting working capital
Depreciation, depletion and amortization Plant, property and equipment Oil and gas properties
Dry-hole writeoffs Amortization of intangible assets Equity in net (income) loss of Peabody Holding Company Increase in noncurrent deferred income taxes Other
Working capital provided from operations Increase in current deferred income taxes
Working funds provided from operations Long-term debt incurred or assumed in the acquisition of Daniel International Corporation Exercise of stock options and awards Net book value of property, plant and equipment and other assets sold or retired
Dispositions of Working Funds Acquisition of Daniel International Corporation Property, plant and equipment Excess of cost over net assets of acquired company Other assets net
Additions to property, plant, equipment and oil and gas properties Reduction of long-term debt Investment in Peabody Holding Company Cash dividends paid Decrease (increase) in other non­ current liabilities Other
Increase (Decrease) in Working Funds
See Financial Review 011 pages 18, 19, 20, 21, 22, 23 and 24.
1978
$ 78,353,000
Increase (Decrease) in Working Funds
Working Funds
Current assets increase (decrease) Cash Short-term investments Accounts and notes receivable Contract work in progress Inventories Other current assets
Current liabilities (increase) decrease Accounts payable Advance billings on contracts Accrued liabilities Current portion of long-term debt Income taxes currently payable Deferred income taxes
Increase (decrease) in working capital
Current deferred income taxes included above
Beginning of year Increase (decrease)
1978 1977
$ (25,172,000) $ 26,141,000
100,122,000 28,929,000
(1,348,000) 246,000
12/374,000 (8,925,000)
(9,301,000) (20,416,00o)
(67,565,000) (124,067,000)
32,557,000 (95,138,000)
9,301,000 20,416,000
$ 41,858,000 $ (74,722,000)
$ 26,017,000 $100,739,000
41/858,000 (74,722,000)
$ 67,875,000 $ 26,017,000
28 29
Fluor Corporation
Years ended October 31, 1978 and 1977
Series B Preferred
Balances at November i, 1976 $548,000
Net earnings Cash dividends on preferred ($3.00 per share) Cash dividends on common ($1.00 per share) Conversion of preferred shares into common (13,000)
Exercise of stock options Issuance of restricted stock Amortization of 1977 executive stock plan expense
Balances at October 31, 1977 535,000 Net earnings Cash dividends on preferred ($3.00 per share) Cash dividends on common ($1.20 per share) Conversion of preferred shares into common (75,000)
Exercise of stock options Amortization of 1977 executive stock plan expense
Balances at October 31, 1978 $460,000
See Financial Review on pages 18, 19, zo, 21, 22, 23 and 24.
Common Stock
Five-Year Summary of Consolidated Operations
Dollar and share amounts are in 000's, except per share amounts
1978 1977 1976 1975 1974
Revenues $2,865,772 $1,996,050 $1,801,761 $1,325,423 $801,322
Costs and Expenses Cost of revenues 2,684,122 Corporate administrative and general expenses 28,189 Interest expense 4,269 Interest income (8,805)
Provision for estimated losses on planned disposition of assets
1,819,745 23,078
5,796 (9,458)
1,650,822 18,802
Total costs and expenses 2,707,775 1,839,161 1,663,381 1,225,583 736,800
Earnings before Income Taxes and Equity in Net Income (Loss) of Peabody Holding Company 157,997 156,889 138,380 99,840 64,522
Income Taxes 72,955 Equity in Net Income (Loss) of Peabody Holding Company (6,689)
81,720
297
73,500
Earnings Per Share $ 4.63 $ 4-48 $ 3.88 $ 2.87 $ 2.11
Dividends per Share Series B Preferred 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
Common 1.20 $ 1.00 .70 $ .35 $ .15
Shares of stock used to calculate earnings per share 16,911 16,839 16,743 16,547 15,422
1977 amounts include Daniel International Corporation from date of acquisition. May 31, 1977.
Management's Discussion and Analysis of the Summary of Consolidated Operations
1978 compared with 1977 Consolidated Operations include the results of Daniel Administrative and general expenses increased International Corporation (Daniel) for twelve months $5,111,000 or 22.1% as a result of increases in staff, as in 1978 as compared to five months in 1977. well as in salaries and benefits. In addition, during the
The inclusion of Daniel for an additional seven year, there were some increases in cost as a result of months of 1978 is primarily responsible for the in- maintaining our former facilities during the move into creases in revenues and cost of revenues. Revenues our new facility at Irvine, California. Our old facilities increased $869,722,000 or 43.6%. Of this increase, were disposed of during the year. $857,938,000 or 43.0% relates to the inclusion of Daniel Interest expense decreased $1,527,000 or 26.3%. The for the full year. Improved performances by our drill- decrease resulted from the reduction in short-term ing and supply service subsidiaries contributed to the borrowing associated with the Daniel acquisition in increase in revenues although this was partially offset the prior year. by decreases in revenues from our oil and gas subsidiary.
Cost of revenues increased $864,377,000 or 47.5%. Of this increase, $849,755,0oo or 46.6% relates to the inclusion of Daniel operations for a full year.
30 31
1975 1974
Fluor Corporation
Management's Discussion and Analysis of the Summary of Consolidated Operations (continued)
The provision for income taxes as a percentage of The following discussion and analysis relates to the earnings before taxes and equity in net income (loss) of consolidated information after elimination of Daniel Peabody Holding Company decreased from 52% to amounts for 1977. 46.2%. The decrease results primarily from amortization Revenues decreased $293,004,000, or 16%. Revenues of future tax benefits arising from the acquisition of from our engineering and construction subsidiaries Daniel, a reduction of the provision for incremental include the cost of material purchased for our clients taxes on undistributed earnings of a foreign subsidiary as well as fees earned. Fees are received for all services because the company intends to reinvest these earn- rendered, including a fee earned on costs paid directly ings overseas indefinitely, and a reduction in expense by the client when Fluor has provided procurement associated with foreign oil and gas operations. These and other services. In any one period, revenues can be reductions were partially offset by lower investment affected by the mix between contracts requiring Fluor tax credits. to purchase materials and those on which the customer
Equity in net loss of Peabody Holding Company was furnishes materials. The decrease in 1977 revenues $6,689,000 primarily as a result of the coal strike during results primarily from such a change in the mix of con­ the ist and 2nd quarters of the current year. tracts. The company completed work on contracts
that required Fluor to purchase the majority of mate­ 1977 compared with 1976 rials, while new contracts beginning during the year Effective May 31, 1977, the company acquired, in a contained larger amounts of customer furnished mate­ purchase transaction, approximately 99% of the out- rials. Also contributing to the decrease in revenues was standing common stock of Daniel International lower utilization of drilling rigs working in interna- Corporation (Daniel), primarily a general building tional waters. These decreases were offset by increased contractor engaged in industrial, utility, commercial revenues from our oil and gas subsidiary as a result of and institutional construction, headquartered in the higher volume and prices of oil and gas products. southeastern United States. Daniel's operations from Cost of revenues decreased $309,101,000, or 19%. The that date have been included in the consolidated results decrease resulted from completion of contracts as out­ of the company for the year ended October 31, 1977. lined above as well as decreases in nonproductive The table (below) eliminates the impact of Daniel's exploratory costs in our oil and gas subsidiary. operations, which include amortization of the excess Corporate administrative and general expense of cost over net assets acquired and depreciation of increased $4,276,000, or 23%. This increase reflects additions to plant, property and equipment, resulting higher levels of manpower, increases in salaries and from appraisal valuations under Accounting Principles related employee costs, including an increase in the Board Opinion No. 16, and excludes any allocation accrued provision for compensation expense related to of interest cost associated with the acquisition. certain stock options, which costs are subject to the
Daniel Fluor fluctuations in the market price of Fluor's common Fluor for the period Consolidated stock. Another reason for the increase was the increaseConsolidated June r, 1977 excluding Daniel
Oct. 31, 1977 to Oct. 31, 1977 Oct. 31, '77 Oct. 31, '76 in costs associated with the relocation to our new ($ in thousands) worldwide headquarters in Irvine, California. Revenues $1,996,050 $487,293 $5,508,757 $1,801,761 Interest expense increased $3,119,000, or 143%. The Costs and Expenses increase relates to interest on long and short-term debt Cost of revenues 1,819,745 478,024 1,341,721 1,650,822 associated with the Daniel acquisition. Corporate admin- The provision for income taxes (including the effectistrative and general expenses 23,078 23,078 18,802 of Daniel for the 5 months ended October 31, 1977) Interest expense 5,796 , 497 5,299 2,180 as a percentage of earnings before taxes and equity in Interest income (9,458) (632) (8,826) (8,423) net income of Peabody Holding Company decreased Total Costs and from 53.1% to 52%. The decrease results from higher Expenses 1,839,161 477,889 1,361,272 1,663,381 investment tax credits and capital gain benefits, as well Earnings Before as reduction in the expense associated with foreign oil Income Taxes and and gas operations. These reductions in the provision Equity in Net for income taxes were partially offset by increases inIncome of Peabody Holding Company $ 156,889 $ 9,404 $ 147,485 $ 138,380 taxes on undistributed earnings of foreign subsidiaries
and nondeductible costs associated with the Daniel acquisition.
Fluor Corporation
1978
Revenues Engineering and construction $2,538,953 Oil and gas 34,077 Drilling services 47,577 Other 251,368 Intergroup revenues (6,203)
$2,865,772
Operating Profit Engineering and construction $ 141,829 Oil and gas 16,010 Drilling services 4,539 Other 26,403 Eliminations (265)
$ 188,516
Earnings Before Income Taxes, Corporate Charges and Equity in Net Income (Loss) of Peabody Holding Company* Engineering and construction $ 138,926 Oil and gas 16,026 Drilling services 4,525 Other 26,709
$ 186,186
1977 amounts include Daniel International Corporation from date of acquisition, May 31, 1977.
1978 identifiable assets are $616,288 for Engineering and Con­ struction, $31,814 for Oil and Gas, $124,114 for Drilling Services and $204,233 for Other. See Operations by Business Segment and Geographic area, page 22 and 23 for information about the company's fiscal 1978 foreign operations.
*Amounts differ from operating profit by amounts of minority interests and interest income and expense.
1977
1978 1977 1976
Financial Position Current assets $ 546,269 $ 446,147 $ 417,218 Current liabilities excluding current deferred income taxes (478,394) (420,130) (316,479) Current deferred income taxes Property, plant and equipment - net Oil and gas properties - net-
(107,650)
25,537 Other assets 133,846 159,763 31,168 Other noncurrent liabilities (70,085) (53,666) (22,217)
Total $ 437,842 $ 398,648 $ 304,868
Equity and Long-Term Debt Long-term debt $ 16,561 $ 37,511 $ 4,056 Shareholders' equity 421,281 361,137 300,812
Total capitalization $ 437,842 $ 398,648 $ 3(4,868
Shares Outstanding Series B Preferred 482,599 532,953 541,248 Common 15,688,488 15,491,534 15,286,429
Depreciation, Depletion, Amortization and Dry-Hole Writeoffs $ 42,488 $ 38,513 $ 41,767 Working Funds Provided from Operations 153,748 162,928 136,422 New Orders Received During Year 3,356,840 2,826,573 3,210,551
Backlog at End of Year $11,562,856 $12,758,827 $ 8,751,256 Statistics Percent of total capitalization
Long-term debt 3.8 9.4 1.3 Shareholders' equity 96.2 90.6 98.7
Shareholders' equity per common share $ 23.78 $ 19.87 $ 16.14 Percent of net earnings to average equity 20.0 22.8 23.8 Number of employees 21,693 21,744 16,305
Shareholders' equity per common share assumes payment of the liquidation preference of preferred shares. 1977 amounts include Daniel International Corporation from date o f acquisition, May 31, 1977.
1975
$ 305,481
(219,511)
(49,590)
Fluor Engineers and Constructors, Inc. 3333 Michelson Drive Irvine, California 92730 Charles N. Cannon, President
Marketing Division : Arthur C. Sheffield, Group Vice President-Marketing
Hugh K. Coble, Senior Vice President- Sales: West and East Europe, Middle East and Africa Albert C. Ewert, Senior Vice President- Sales: Far East and Russia Robert E. Harrigan, Senior Vice President-Sales: United States and Canada
Western Hemisphere Division: Ernest Moncrief, Group Vice President- Western Hemisphere
Southern