<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________to______________
Commission File Number: 1-7775
FLUOR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-0740960
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3353 Michelson Drive, Irvine, CA 92698
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(949) 975-2000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
As of May 31, 1999 there were 75,809,059 shares of common stock outstanding.
<PAGE> 2
FLUOR CORPORATION
FORM 10-Q
APRIL 30, 1999
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- -----------------------------------------------------------------------------------------
<S> <C>
PART I: FINANCIAL INFORMATION
Condensed Consolidated Statement of Operations for the Three Months
Ended April 30, 1999 and 1998.............................................. 2
Condensed Consolidated Statement of Operations for the Six Months
Ended April 30, 1999 and 1998.............................................. 3
Condensed Consolidated Balance Sheet at April 30, 1999 and October 31,
1998....................................................................... 4
Condensed Consolidated Statement of Cash Flows for the Six Months Ended
April 30, 1999 and 1998.................................................... 6
Notes to Condensed Consolidated Financial Statements....................... 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 10
Changes in Backlog......................................................... 23
PART II: OTHER INFORMATION ....................................................... 24
SIGNATURES......................................................................... 26
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended April 30, 1999 and 1998
UNAUDITED
<TABLE>
<CAPTION>
In thousands, except per share amounts 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 3,091,307 $ 3,282,079
COSTS AND EXPENSES
Cost of revenues 3,001,212 3,184,891
Special provision 136,500 --
Corporate administrative and general expense 10,222 10,115
Interest expense 13,008 9,327
Interest income (5,112) (5,904)
-------------------------------
Total Costs and Expenses 3,155,830 3,198,429
-------------------------------
(LOSS) EARNINGS BEFORE INCOME TAXES (64,523) 83,650
INCOME TAX EXPENSE 8,372 29,361
-------------------------------
NET (LOSS) EARNINGS $ (72,895) $ 54,289
===============================
(LOSS) EARNINGS PER SHARE
BASIC $ (.97) $ .67
===============================
DILUTED $ (.97) $ .67
===============================
DIVIDENDS PER COMMON SHARE $ .20 $ .20
===============================
SHARES USED TO CALCULATE
BASIC (LOSS) EARNINGS PER SHARE 75,154 80,506
===============================
DILUTED (LOSS) EARNINGS PER SHARE 75,154 80,865
===============================
</TABLE>
See Accompanying Notes.
2
<PAGE> 4
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended April 30, 1999 and 1998
UNAUDITED
<TABLE>
<CAPTION>
In thousands, except per share amounts 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 6,475,372 $ 6,681,098
COSTS AND EXPENSES
Cost of revenues 6,292,416 6,494,170
Special provision 136,500 --
Corporate administrative and general expense 19,780 10,563
Interest expense 26,012 18,749
Interest income (9,712) (10,492)
-------------------------------
Total Costs and Expenses 6,464,996 6,512,990
-------------------------------
EARNINGS BEFORE INCOME TAXES 10,376 168,108
INCOME TAX EXPENSE 32,190 59,006
-------------------------------
NET (LOSS) EARNINGS $ (21,814) $ 109,102
===============================
(LOSS) EARNINGS PER SHARE
BASIC $ (.29) $ 1.33
===============================
DILUTED $ (.29) $ 1.33
===============================
DIVIDENDS PER COMMON SHARE $ .40 $ .40
===============================
SHARES USED TO CALCULATE
BASIC (LOSS) EARNINGS PER SHARE 75,136 81,541
===============================
DILUTED (LOSS) EARNINGS PER SHARE 75,136 81,751
===============================
</TABLE>
See Accompanying Notes.
3
<PAGE> 5
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
April 30, 1999 and October 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
April 30, October 31,
$ in thousands 1999 1998*
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 207,871 $ 340,544
Accounts and notes receivable 945,363 959,416
Contract work in progress 625,557 596,983
Deferred taxes 99,941 81,155
Inventory and other current assets 342,454 262,753
Net assets held for sale -- 36,300
----------------------------
Total current assets 2,221,186 2,277,151
----------------------------
Property, plant and equipment (net of accumulated
depreciation, depletion and amortization of $1,207,501
and $1,132,923, respectively) 2,179,076 2,147,308
Investments and goodwill, net 256,590 276,653
Other 356,928 318,096
----------------------------
$5,013,780 $5,019,208
============================
</TABLE>
(continued on next page)
* Amounts at October 31, 1998 have been derived from audited financial
statements.
4
<PAGE> 6
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
April 30, 1999 and October 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
April 30, October 31,
$ in thousands 1999 1998*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts and notes payable $ 893,296 $ 972,096
Commercial paper and loan notes 374,048 428,458
Advance billings on contracts 588,938 546,816
Accrued salaries, wages and benefit plans 324,083 324,412
Other accrued liabilities 312,773 223,596
Current portion of long-term debt 3 176
-------------------------------
Total current liabilities 2,493,141 2,495,554
-------------------------------
Long term debt due after one year 300,002 300,428
Deferred taxes 128,754 105,515
Other noncurrent liabilities 611,178 592,102
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 -
75,797,347 shares and 75,572,537
shares, respectively 47,373 47,233
Additional capital 208,023 199,077
Retained earnings 1,279,711 1,331,843
Unamortized executive stock plan expense (26,187) (22,633)
Accumulated other comprehensive income:
Cumulative translation adjustment (28,215) (29,911)
-------------------------------
Total shareholders' equity 1,480,705 1,525,609
-------------------------------
$ 5,013,780 $ 5,019,208
===============================
</TABLE>
See Accompanying Notes.
* Amounts at October 31, 1998 have been derived from audited financial
statements.
5
<PAGE> 7
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended April 30, 1999 and 1998
UNAUDITED
<TABLE>
<CAPTION>
$ in thousands 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings $ (21,814) $ 109,102
Adjustments to reconcile net (loss) earnings to cash
provided by operating activities:
Depreciation, depletion and amortization 153,629 139,179
Deferred taxes 5,216 (19,044)
Special provision, net of cash paid 130,424 --
Change in operating assets and liabilities,
excluding effects of business acquisitions/dispositions (188,557) 199,330
Other, net (21,342) (31,158)
---------------------------
Cash provided by operating activities 57,556 397,409
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (250,728) (241,025)
Proceeds from sale of subsidiary 36,300 --
Proceeds from sale of property, plant and equipment 77,634 53,884
Proceeds from sales/maturities of marketable securities -- 10,089
Investments, net (6,863) (3,779)
Other, net (4,205) (8,890)
---------------------------
Cash utilized by investing activities (147,862) (189,721)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings (54,410) 67,030
Proceeds from issuance of notes payable to affiliate 41,972 --
Cash dividends paid (30,318) (32,884)
Stock options exercised 1,852 8,744
Purchases of common stock -- (227,941)
Other, net (1,463) (2,470)
---------------------------
Cash utilized by financing activities (42,367) (187,521)
---------------------------
(Decrease) increase in cash and cash equivalents (132,673) 20,167
Cash and cash equivalents at beginning of period 340,544 299,324
===========================
Cash and cash equivalents at end of period $ 207,871 $ 319,491
===========================
</TABLE>
See Accompanying Notes.
6
<PAGE> 8
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, 1998 annual report on Form
10-K. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end. The results of
operations for the three and six months ended April 30, 1999 are not
necessarily indicative of results that can be expected for the full
year.
The condensed consolidated financial statements included herein are
unaudited; however, they contain all adjustments (consisting of normal
recurring accruals) which, in the opinion of the Company, are necessary
to present fairly its consolidated financial position at April 30, 1999
and its consolidated results of operations and cash flows for the three
and six months ended April 30, 1999 and 1998. In addition, results for
the Engineering and Construction segment include a previously announced
one-time, special provision of $136.5 million. See Note 6 below and
Management's Discussion and Analysis of Financial Condition and Results
of Operations for further information on this item.
Certain 1998 amounts have been reclassified to conform with the 1999
presentation.
(2) Inventories comprise the following:
<TABLE>
<CAPTION>
April 30, October 31,
$ in thousands 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Equipment for sale/rental $ 123,816 $ 94,179
Coal 70,543 52,628
Supplies and other 53,842 51,838
---------------------------------
$ 248,201 $ 198,645
=================================
</TABLE>
7
<PAGE> 9
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(3) Effective November 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130). SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the
adoption of this Statement has no impact on the Company's net (loss)
earnings or shareholders' equity. SFAS No. 130 requires foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
The components of comprehensive (loss) income, net of related tax, are
as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
April 30, April 30,
---------------------- ---------------------
($ in thousands) 1999 1998 1999 1998
---------------------- ---------------------
<S> <C> <C> <C> <C>
Net (loss) earnings $(72,895) $54,289 $(21,814) $109,102
Foreign currency translation
adjustment 1,470 288 1,696 (7,419)
---------------------- ---------------------
Comprehensive (loss) income $(71,425) $54,577 $(20,118) $101,683
====================== =====================
</TABLE>
(4) Cash paid for interest was $15.4 million and $19.4 million for the six
month periods ended April 30, 1999 and 1998, respectively. Income tax
payments, net of receipts, were $42.9 million and $33.5 million during
the six month periods ended April 30, 1999 and 1998, respectively.
(5) During the fourth quarter of 1998, the Company entered into a forward
purchase contract for 1,850,000 shares of its common stock at a price
of $49 per share. The contract matures in October 1999 and gives the
Company the ultimate choice of settlement option, either physical
settlement or net share settlement. This contract effectively
incorporates and extends a number of prior contracts originally entered
into during the third quarter of 1998 as part of the Company's then
ongoing share repurchase program. As of April 30, 1999, the contract
settlement cost per share exceeded the current market price per share
by $16.70. In May 1999, the contract was amended and the maturity date
extended until October 2000.
8
<PAGE> 10
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
Although the ultimate choice of settlement option resides with the
Company, if the price of the Company's common stock falls to certain
levels, as defined in the contract, the holder of the contract has the
right to require the Company to settle the contract.
(6) On March 9, 1999, the Company announced a new strategic direction,
including a reorganization of the operating units and administrative
functions of its Engineering and Construction segment. A one-time,
special provision of $136.5 million ($119.8 million after-tax) was
recorded in the Company's second quarter for the implementation of the
reorganization. The provision is primarily for personnel, facilities
and asset impairment costs. See Management's Discussion and Analysis of
Financial Condition and Results of Operations for a more detailed
discussion.
Expanded disclosure will be provided in future periods to report the
progress of the reorganization. As of April 30, 1999, $6.1 million of
cash costs were incurred for employee severance. In addition, $12.6
million of intangible assets (goodwill) and investments were charged
against the provision as impaired assets.
9
<PAGE> 11
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, 1998 annual
report on Form 10-K. For purposes of reviewing this document "operating profit"
is calculated as revenues less cost of revenues excluding: corporate
administrative and general expense; interest expense; interest income; domestic
and foreign income taxes; gain or loss on discontinued operations; the
cumulative effect of a change in accounting principles; and certain other
miscellaneous non-operating income and expense items which are immaterial.
FORWARD-LOOKING INFORMATION
Statements regarding the Company's expectations for future performance or
results, including estimated and projected operating profits and earnings,
expectations regarding office closures and projected reductions in employment
levels and overhead expenses, expectations regarding its resolution of any "Year
2000" issues, expectations regarding continued weakness in new contract awards
and expectations regarding the issuance of long-term debt are forward-looking.
Forward looking statements reflect current analysis of existing information.
Caution must be exercised in relying on forward-looking statements. Due to known
and unknown risks, actual results may differ materially from expected or
projected results. Factors potentially contributing to such differences include,
among others:
o Cost overruns on contracts and other contract performance risk
o The uncertain timing of awards and revenues under contracts
o Conditions affecting the domestic and international coal market,
including competition in the global market for steel and weather
conditions
o Global economic and political conditions
o Unforeseen impediments to the Company's access to capital markets
o Year 2000 readiness
o Unforeseen impediments to the realization of the Company's strategic
initiatives
There is also a risk that future results may be impacted by currently unforeseen
impediments to the realization of revenues or other payments that have been
recognized through accruals prior to actual receipt. Failure to realize such
accrued amounts may result in a charge against future earnings.
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 "Item 1.
Business - Other Matters - Fluor Business Risks" in the Company's Form 10-K
filed January 22, 1999. These filings are available publicly and upon request
from Fluor's Investor Relations Department: (949) 975-3909. The Company
disclaims any intent or obligation to update its forward-looking statements.
10
<PAGE> 12
RESULTS OF OPERATIONS
Revenues for the three and six month periods ended April 30, 1999 decreased by 6
percent and 3 percent, respectively, compared with the same periods of 1998. Net
losses for the three and six month periods ended April 30, 1999 were $72.9
million and $21.8 million, respectively, compared with net earnings of $54.3
million and $109.1 million, respectively, for the same periods of 1998. Results
for 1999 include a previously announced one-time, special provision of $136.5
million ($119.8 million after-tax) for personnel, facilities and asset
impairment costs required to implement the Company's new strategic direction and
reorganization of its Engineering and Construction segment. Also contributing to
the lower results was a decrease in operating profit from the Company's Coal
segment as well as higher interest and corporate administrative and general
expenses.
ENGINEERING AND CONSTRUCTION
The Engineering and Construction segment revenues and operating (loss) profit
for the three and six month periods ended April 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
April 30, April 30,
-------------------------- ---------------------------
($ in thousands) 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $2,837,953 $3,014,378 $5,947,387 $6,120,853
Operating (loss) profit $(76,905) $57,867 $(19,832) $111,254
</TABLE>
Revenues for the Engineering and Construction segment were slightly lower for
the three and six month periods ended April 30, 1999 compared with the same
periods in 1998, primarily due to a reduction in work performed in the core
engineering, procurement and construction business. This reduction is consistent
with the global slow down in the development of mining and petrochemical plants
and facilities, which has been adversely impacted by low petroleum and
commodity prices. Excluding the impact of the $136.5 million special provision,
the segment generated operating profits of $59.6 million and $116.7 million for
the three and six month periods ended April 30, 1999, respectively, both
represent increases over the same periods in 1998. Operating margins improved
slightly during 1999 as compared with 1998, primarily due to the Company's
continuing emphasis on improving margins through selectivity in new projects.
In addition to the $136.5 million special provision, results for the Engineering
and Construction segment included a provision totaling $64 million for process
design problems which have arisen on its Murrin Murrin nickel cobalt project in
Western Australia. The Company anticipates recovering a portion of this amount
and, accordingly, has recorded $44 million in potential insurance recoveries.
The result is a negative $20 million impact on the quarter from this project.
Partially offsetting this was recognition of $10 million of earnings from a
project in Indonesia. Realization of these earnings had been in question
primarily due to the previously reported uncertainty of collection of certain
progress billings. The collection of these billings combined with resolution of
other normal project completion contingencies during the current quarter,
resulted in recognition of project earnings in accordance with contract
accounting principles.
11
<PAGE> 13
As a result of the strategic reorganization, the Engineering and Construction
segment has been separated into two strategic business enterprises: Fluor Daniel
and Fluor Global Services. Fluor Daniel, which will concentrate on the Company's
engineering, procurement and construction business, reported operating profit
for the quarter of $39 million, including the significant project items
discussed in the preceding paragraph. Fluor Global Services, which includes
American Equipment Company, TRS Staffing Solutions, Government Services,
Telecommunications, and a new company, Operations, Maintenance and Consulting
Services, posted operating profit of $21 million for the quarter. The above
results exclude the impact of the $136.5 million special provision.
New awards for the three and six months ended April 30, 1999 were $1.6 billion
and $3.3 billion, respectively, compared with $2.8 billion and $5.4 billion for
the same periods of 1998. Approximately 45 percent and 52 percent, respectively,
of the new awards for the three and six months ended April 30, 1999 were for
projects located outside of the United States. There were no individual project
awards in excess of $225 million in the second quarter of 1999. The decrease in
1999 new awards as compared with 1998 reflects a continued trend by clients to
defer capital spending on new projects in certain markets as well as greater
project selectivity by the Company. Furthermore, despite some improvement in
both oil prices and the economic stability of Asia and Latin America, the
ongoing overall weak global economic conditions and volatility in capital
markets may result in new awards continuing to decline for the remainder of 1999
and into 2000 compared with 1998.
The following table sets forth backlog for each of the Company's Engineering and
Construction business groups:
<TABLE>
<CAPTION>
April 30, October 31, April 30,
$ in millions 1999 1998 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Process $ 4,141 $ 5,345 $ 6,129
Industrial 3,755 4,761 5,280
Power/Government 1,166 1,272 1,371
Diversified Services 1,161 1,267 1,134
----------------------------------------
Total backlog $ 10,223 $ 12,645 $ 13,914
========================================
U.S. $ 4,795 $ 5,911 $ 5,926
Outside U.S. 5,428 6,734 7,988
----------------------------------------
Total backlog $ 10,223 $ 12,645 $ 13,914
========================================
</TABLE>
12
<PAGE> 14
The overall decrease in backlog is consistent with the slowing trends in new
awards. Approximately 53 percent of the Company's backlog as of April 30, 1999
is for projects located outside the United States. Due to the nature of the
projects the Company pursues and those included in backlog, the Company has not
experienced any significant disruption in ongoing project execution related to
turmoil in the global financial markets. Although backlog reflects business
which is considered 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.
REORGANIZATION COSTS
During the second quarter of 1999, the Company adopted a plan to reorganize its
operations to respond to deteriorating business conditions in its Engineering
and Construction segment. The anticipated benefits to be derived from the
reorganization will be a $160 million annual reduction in overhead expense.
The Company recorded a one-time, special provision of $136.5 million ($119.8
million after-tax) to recognize the costs associated with the reorganization.
Approximately 5,000 jobs are expected to be eliminated by these actions within
the next year. Some affected employees are entitled to receive severance
benefits under established severance policies or by governmental regulations.
Additionally, outplacement services may be provided on a limited basis to some
affected employees. The provision also reflects amounts for asset impairment,
primarily for property, plant and equipment; intangible assets (goodwill); and
certain investments, totaling $48.8 million. The asset impairments were recorded
primarily because of the Company's decision to exit certain non-strategic
geographic locations and businesses. The carrying values of impaired assets were
adjusted to their current market values based on estimated sale proceeds, using
either discounted cash flows or contractual amounts. Lease termination costs of
$14.5 are also included in the reorganization charge. The Company anticipates
closing 15 non-strategic offices worldwide as well as consolidating and
downsizing other office locations. The closure or rationalization of these
facilities is expected to be substantially completed by the end of fiscal year
2000.
The following table summarizes the Company's reorganization plan:
<TABLE>
<CAPTION>
Lease
($ in millions) Personnel Asset Termination
Costs Impairments Costs Other Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Special provision $72.2 $48.8 $14.5 $1.0 $136.5
Cash expenditures (6.1) -- -- -- (6.1)
Asset write-offs -- (12.6) -- -- (12.6)
--------------------------------------------------------------
Balance at April 30, 1999 $66.1 $36.2 $14.5 $1.0 $117.8
==============================================================
</TABLE>
13
<PAGE> 15
COAL
Coal segment revenues and operating profit for the three and six month periods
ended April 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
April 30, April 30,
------------------------ ------------------------
($ in thousands) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $253,354 $267,701 $527,985 $560,245
Operating profit $31,741 $40,298 $70,448 $76,989
</TABLE>
Revenues decreased 5 percent and 6 percent, respectively, for the three and six
month periods ended April 30, 1999 compared with the same periods in 1998. The
decrease was primarily due to lower sales volume of metallurgical coal,
partially offset by an increase in lower margin steam coal sales. Prices for
both metallurgical and steam coal were also slightly lower during the periods as
compared with 1998. The metallurgical coal market continues to be adversely
affected by steel imports from outside the United States. These imports have
reduced demand for steel produced in the U.S. and thereby reduced U.S. demand
for metallurgical coal, which is used in steel production. Additionally, the
market for steam coal, which is used to fire electric generating plants, is
softening as a result of mild weather conditions and the low price of oil, which
offers a lower cost alternative to steam coal. These market conditions have
placed pressure on both the sales volume and pricing outlook for 1999. Gross
profit increased slightly during the three and six months ended April 30, 1999
as compared with 1998, primarily due to the decrease in production costs for
both metallurgical and steam coal. The improvement in gross profit during both
periods was more than offset by higher fixed costs, primarily depreciation,
depletion and amortization.
OTHER
Interest expense for the three and six months ended April 30, 1999 increased
compared with the same periods of 1998 due primarily to an increase in
commercial paper and loan notes used to fund the Company's share repurchase
program, which was completed in October 1998.
Corporate administrative and general expense during the three months ended April
30, 1999 was relatively flat compared with the same period in 1998. Corporate
administrative and general expense for the six month period ended April 30, 1999
was higher than the comparable period in 1998 due primarily to a credit in 1998
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.
The effective tax rate for the three and six month periods ended April 30, 1999
is significantly higher than the amounts reported for the same periods in 1998.
This is primarily because certain
14
<PAGE> 16
non-U.S. items included in the special provision did not receive full tax
benefit. If the special provision were excluded for tax rate determination
purposes, there would be no significant difference between the effective tax
rate and the statutory rate for the three and six month periods ended April 30,
1999.
FINANCIAL POSITION AND LIQUIDITY
At April 30, 1999, the Company had cash and cash equivalents of $207.9 million
and a total debt to total capital ratio of 32.6 percent. At April 30, 1998, the
Company had cash and cash equivalents of $319.5 million and a total debt to
total capital ratio of 22.0 percent.
Cash flow generated from operating activities was $57.6 million during the six
month period ended April 30, 1999, compared with $397.4 million during the same
period in 1998. The decrease in cash generated from operating activities is
primarily due to a decrease in cash flow from engineering and construction
activities which is affected from period to period by the mix, stage of
completion and commercial terms of engineering, procurement and construction
projects. In addition, operating cash flow was adversely impacted by an increase
in inventories, both for equipment for sale/rental and coal. The increase in
inventories is a result of slowing markets. Cash flow in 1998 was positively
impacted by the receipt of a $30 million tax refund in the first quarter.
Financing activities during the six months ended April 30, 1999 included capital
expenditures of $250.7 million, including $144.0 million for the Coal segment.
Capital expenditures, net of proceeds from the sale of property, plant and
equipment, were lower in 1999 than the comparable period in 1998, entirely in
the Engineering and Construction segment. The Company also completed the sale of
its ownership interest in Fluor Daniel GTI, Inc. during the first six months of
1999 and received proceeds totaling $36.3 million.
Investing activities during the six months ended April 30, 1999 included a
reduction in commercial paper and loan notes of $54.4 million partially offset
by the issuance of $42.0 million in notes payable to an affiliate. Dividends
during the first six months of 1999 were $30.3 million ($.40 per share) as
compared with $32.9 million ($.40 per share) in 1998. The decrease in the
dividends paid is due to a lower number of shares outstanding as a result of the
Company's 1997/1998 share repurchase program. Under this program, during the six
months ended April 30, 1998 the Company repurchased 4,995,400 shares of its
common stock for a total of $227.9 million.
The Company has on hand and access to sufficient sources of funds to meet its
anticipated operating needs, including cash required to implement the Company's
reorganization plan. Significant short- and long-term lines of credit are
maintained with banks which, along with cash on hand, provide adequate operating
liquidity. Liquidity is also provided by the Company's commercial paper and loan
note program. During January 1999, the Company filed a shelf registration
statement with the Securities and Exchange Commission for the sale of up to $500
million in debt securities.
15
<PAGE> 17
FINANCIAL INSTRUMENTS
During the fourth quarter of 1998, the Company entered into a forward purchase
contract for 1,850,000 shares of its common stock at a price of $49 per share.
The contract matures in October 1999 and gives the Company the ultimate choice
of settlement option, either physical settlement or net share settlement. This
contract effectively incorporates and extends a number of prior contracts
originally entered into during the third quarter of 1998 as part of the
Company's then ongoing share repurchase program. As of April 30, 1999, the
contract settlement cost per share exceeded the current market price per share
by $16.70. In May 1999, the contract was amended and the maturity date extended
until October 2000.
Although the ultimate choice of settlement option resides with the Company, if
the price of the Company's common stock falls to certain levels, as defined in
the contract, the holder of the contract has the right to require the Company to
settle the contract.
The Company utilizes forward exchange contracts to hedge foreign currency
transactions entered into in the ordinary course of business and not to engage
in currency speculation. At April 30, 1999 and October 31, 1998, the Company had
forward foreign exchange contracts of less than one year duration, to exchange
principally Australian Dollars, Korean Won, Dutch Guilders and German Marks 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 April 30, 1999 and October 31, 1998 was $46 million and $106
million, respectively. Forward contracts to purchase foreign currency
represented $44 million and $102 million and forward contracts to sell foreign
currency represented $2 million and $4 million, at April 30, 1999 and October
31, 1998, respectively.
THE YEAR 2000 ISSUE - READINESS DISCLOSURE - UPDATE
The Year 2000 issue is the result of computer systems and other equipment with
processors that use only two digits to identify a year rather than four. If not
corrected, many computer applications and date sensitive equipment could fail or
create erroneous results before, during and after the Year 2000. The Company
utilizes information technology ("IT") systems such as computer networking
systems and non-IT devices which may contain embedded circuits such as building
security equipment. The Year 2000 issue could affect the systems, transaction
processing, computer applications and devices used by the Company to operate and
monitor all major aspects of its business, including financial systems,
marketing services, proprietary engineering and procurement systems, technical
reference databases and facilities operating systems. Both IT systems and non-IT
devices are subject to potential failure due to the Year 2000 issue.
The Company has developed and implemented a plan to achieve Year 2000 readiness
(the "Y2K Program"). The Company has implemented its Y2K Program through teams
located at the Company's operating units throughout the world. Senior corporate
staff oversee and coordinate such implementation efforts. Progress reports on
the Y2K Program are presented regularly to the Company's senior management and
periodically to the Audit Committee of the Company's Board
16
<PAGE> 18
of Directors. The Audit Committee reviews the Company's Year 2000 processes and
procedures to assess the appropriateness of its risk analysis process and
results.
The Company has divided systems potentially affected by the Year 2000 issue into
the following broad categories:
o Business Systems, including general ledger, accounting, human resources
and other ancillary business systems software that runs on mainframe
computers and various servers and is used throughout the Company's
facilities;
o Hardware, Network and Operating Systems, including mainframe computers
running Business Systems and other applications software, servers for
local area networks and wide area networks, hubs, routers, switches, and
various operating systems located on servers and personal computers;
o Engineering Systems, including engineering applications running
primarily on personal computers and local area networks;
o Major Site Specific Systems, including software and hardware which is
not shared throughout the Company's facilities but is used at the
Department of Energy's Hanford and Fernald Project Sites and at specific
coal facilities and processing plants of the Company;
o Other Site Specific Systems, including hardware and software used by the
Company at other project sites;
o Customer Systems, including equipment and software provided by the
Company to its customers; and
o Other Non-Mission Critical Systems, including, for the most part,
applications software for specific disciplines or projects.
In each category (excluding Other Non-Mission Critical Systems), the Company has
identified and assigned priority to certain mission critical systems. The
Company defines mission critical systems as those that might have a significant
adverse effect in one or more of the following areas: safety, environmental,
legal or financial exposure and Company credibility and image.
In relation to existing systems, the Company's Y2K Program has been implemented
in the following three phases: (1) identification and assessment of Year 2000
problems requiring systems modifications or replacements; (2) the remediation or
replacement and testing of systems having Year 2000 problems; and (3)
development of contingency and business continuity plans to mitigate the effect
of any system or equipment failure. The timeframe for each phase of the Y2K
Program, without respect to distinctions between mission critical systems and
non-mission critical systems, are represented in the following table:
<TABLE>
<CAPTION>
Phases of the Project START DATE END DATE
<S> <C> <C>
Identification and assessment of IT and non-
IT systems Early 1996 December 31, 1998
Remediation or replacement and testing Late 1996 October 31, 1999
Contingency planning Late 1998 Ongoing into 2000
</TABLE>
17
<PAGE> 19
With respect to systems that are being acquired by the Company for its own
account or the account of customers, the Company uses standard compliance
processes to certify Year 2000 compliance. The Company maintains relationships
with thousands of suppliers, some of whom supply software, hardware and systems
that must be assessed for Year 2000 compliance. The Company has identified
approximately 2,000 critical suppliers. The Company requires that all suppliers
certify and, where appropriate, guarantee that the systems and equipment they
provide to the Company for its own account and the account of its customers are
Year 2000 compliant. In addition to requiring such certifications, the Company
has also established a procedure for reviewing Year 2000 compliance by critical
suppliers. Actions include the review of remediation and testing of specific
equipment, review of suppliers' corporate Year 2000 progress and confirmation of
electronic exchange formats. Where appropriate, the Company may follow up its
review of supplier information with on-site visits. Where a supplier does not,
or cannot, satisfy the Company's Year 2000 requirements, the Company seeks
alternate suppliers, subject to customer requirements and contract
specifications. Given the number of suppliers utilized by the Company,
compliance assessment is ongoing. Although initial reviews indicate that Year
2000 compliance by the Company's suppliers should not have a material adverse
affect on the Company's operations, there can be no assurance that suppliers
will resolve all Year 2000 issues in their systems and equipment in a timely
manner.
Generally, the Company has substantially completed phase 1 (identification and
assessment) and phase 2 (remediation or replacement and testing) with respect to
most of its Business Systems. The upgrading or remediation of the balance of the
Business Systems are scheduled to be complete by the end of October 1999.
At this time, the Company believes its mainframe system is Year 2000 ready. The
Company is using an automated tool to test servers and approximately 17,000
personal computers with standard connections to servers. Approximately
77 percent of those computers have been tested, and approximately 85 percent of
the personal computers tested (or approximately 65 percent of the total) have
been found to be Year 2000 compliant. Approximately 15 percent of the computers
tested require upgrading and are being upgraded. Remaining hardware, including
personal computers that are not connected to servers, is predominately located
at project sites or smaller offices. Such hardware is not likely to be mission
critical and is being assessed through manual procedures. The Company is
migrating its personal computers to new operating systems (Windows 95 and
Windows NT), and migration is expected to address Year 2000 problems in various
operating systems that are being replaced. All equipment upgrades and
remediation are expected to be complete by August 1999.
With respect to Engineering Systems, the Company plans to retire approximately
29 percent of its engineering applications software to streamline its
operations, reduce support costs and avoid costs of Year 2000 remediation. The
cost of such software, to the extent originally capitalized, has been fully
amortized and the Company does not expect any significant write off as the
result of such retirement. The remediation of remaining applications software is
largely being addressed via upgrades. At this time, approximately 66 percent of
the engineering applications software that will remain in use has been upgraded.
With respect to the Engineering Systems, remediation and
18
<PAGE> 20
testing are proceeding in accordance with the schedule and are generally
expected to be complete by the end of June 1999.
The assessment of mission critical Major Site Specific Systems is substantially
complete. Remediation or replacement and testing of all the systems and
equipment the Company has identified at the Department of Energy's projects has
been completed. The assessment of site specific control systems used at the
Company's coal plants is substantially complete. Approximately 63% of those
systems are Year 2000 ready. Remediation of the remaining systems is expected to
be complete by October 1999.
Other Site Specific Systems have been assessed. The Company has identified
approximately 330 applications in this category. Approximately 115 will be
retired. Approximately 138 of those systems are Year 2000 ready. The balance are
scheduled to be remediated by the end of June 1999.
With respect to Customer Systems and current customer projects generally, the
Company is making evaluations to determine whether or not any action is required
to ensure Year 2000 readiness. At any time, the Company may have approximately
2,000 ongoing customer projects. The Company is reviewing those projects where
it has ongoing warranty or performance obligations for Year 2000 issues. It has
targeted approximately 1,000 projects for additional Year 2000 assessment, of
which approximately 94 percent have been reviewed. At those projects where Year
2000 issues may exist, the Company is evaluating what further action is
required, including remediation and contingency planning. In many cases, the
Company does not provide its own warranties but has passed through to its
customers the warranties provided by its suppliers. Accordingly, the Company is
contacting suppliers of the systems affected by Year 2000 issues and monitoring
their remediation efforts. The Company relies directly and indirectly on
external systems utilized by its suppliers and on equipment and materials
provided by those suppliers and used for the Company's business. As discussed
above, the Company has implemented a procedure for reviewing Year 2000
compliance by its suppliers.
With respect to systems and equipment previously provided to clients, the
Company does not control the upgrades, additions and/or changes made by its
clients, or by others for its clients, to those systems and equipment.
Accordingly, the Company does not provide any assurances, nor current
information about Year 2000 capabilities, nor potential Year 2000 problems, with
respect to past projects. Each project is performed under an agreement with the
Company's client. Those agreements specifically outline the extent of the
Company's obligations and warranties and the limitations that may apply.
Other Non-Mission Critical Systems are comprised, for the most part, of
approximately 600 specific applications software programs. Such software is not
critical to the Company's operations and is being reviewed and remediated in
accordance with the schedule.
The Company has investments in various joint ventures and is monitoring the Year
2000 efforts of such joint ventures. Based on available information, the Company
believes, that with a few exceptions, business systems used in such joint
ventures are Year 2000 ready.
19
<PAGE> 21
The Company uses both internal and external resources in its Y2K Program. The
Company estimates that, from 1996 to date, it has spent approximately $16.3
million on the Year 2000 issue. It anticipates spending an additional $14.0
million in the next year and running into the first quarter of 2000. This
estimate of additional spending was derived utilizing numerous assumptions,
including the assumption that the Company has already identified its most
significant Year 2000 issues and that plans of its third party suppliers will be
fulfilled in a timely manner without cost to the Company. The Company estimates
that 32 percent of the total costs incurred in the Y2K Program have been and
will be incurred to remediate systems (including software upgrades); the
remaining 68 percent will be incurred to replace problem systems and equipment.
In addition to the direct costs of the Y2K Program, the Company has accelerated
its program of replacing out-of-date personal computers and operating systems,
regardless of whether or not such computers and systems are Year 2000 compliant.
The Company estimates it has spent $11.8 million to date and will spend an
additional $13.1 million in connection with such replacement program. This
replacement program will continue into October 1999. The Y2K Program has been
funded under the Company's general IT and operating budgets. In 1999, Y2K
Program costs are estimated to be 12 percent of the IT budget. The Year 2000
expenditures have been and will continue to be expensed and deducted from income
when incurred, except for costs incurred to acquire new software developed or
obtained to replace old software which may be capitalized and amortized under
generally accepted accounting principles. No significant internal systems
projects are being deferred due to the Y2K Program efforts. The above amounts
are the Company's best estimate given other systems initiatives that were
ongoing irrespective of the Y2K Program (such as the migration to Windows NT and
related hardware upgrades). However, there can be no guarantee that these
assumptions are accurate, and actual results could differ materially from those
anticipated.
The Company is developing contingency plans to address the Year 2000 issues that
may pose a significant risk to its ongoing operations and existing projects.
Such plans will include the implementation of alternate procedures to compensate
for any system and equipment malfunctions or deficiencies with the Company's
internal systems and equipment, with systems and equipment utilized at the
Company's project sites and with systems and equipment provided to clients.
During the remediation phase of the internal business systems, the Company has
been and will be evaluating potential failures and attempt to develop responses
in a timely manner. However, there can be no assurance that any contingency
plans implemented by the Company would be adequate to meet the Company's needs
without materially impacting its operations, that any such plan would be
successful or that the Company's results of operations would not be materially
and adversely affected by the delays and inefficiencies inherent in conducting
operations in an alternative manner.
Further contingency plans are being developed to address issues related to third
parties that are not considered to be making sufficient progress in becoming
Year 2000 ready in a timely manner. Due to the large number of variables
involved with estimating resultant lost revenues should there be a third party
failure, the Company cannot provide an estimate of damage if any of the
scenarios were to occur.
20
<PAGE> 22
The Company's Y2K Program is subject to a variety of risks and uncertainties
some of which are beyond the Company's control. Those risks and uncertainties
include, but are not limited to, the availability of qualified computer
personnel, the Year 2000 readiness of third parties and the Year 2000 compliance
of systems and equipment provided by suppliers.
The Company believes that its most reasonably likely worst case Year 2000
scenarios would relate to problems with the systems of third parties, rather
than with the Company's internal systems. In this regard, the Company believes
that risks are greatest in the area of utilities. Each of the Company's
locations relies on local private and governmental suppliers for electricity,
water, sewer, telecommunication and other basic utility services. If the supply
of such necessary utilities were to fail at any location, the Company's
operations at that location, whether consisting of engineering, design or
construction activities, maintenance services or coal mining and processing,
would essentially be shut down or disrupted until such utilities were restored.
Depending on the location, the Company could suffer delays in performing
contracts and in otherwise fulfilling its commitments. Such delays could
materially adversely impact the Company's receipt of payments due from customers
upon its tender of contract deliverables or upon achievement of contract
milestones. At facilities located in developing countries, the risk of sustained
infrastructure failures is accentuated by the lack of transparency in government
and private enterprises and general constraints on infrastructure spending. The
Company is working to assess its exposure to utility providers and other
infrastructure risks. The Company believes that the geographical dispersion of
the Company's facilities mitigates the risk that infrastructure failures in any
locale will result in the simultaneous closure of, or sustained suspension of
operations at, multiple Company facilities. Consequently, to the extent
practical, the Company expects to mitigate any interruption in its business
operations in one locale by shifting the performance of the constrained activity
to a functioning office or facility. There may be instances, however, where the
activity cannot be performed elsewhere or on a timely basis given the disruption
caused by the Year 2000 problems in any locale. In such instances, the Company
will assess the relevant provisions of its contracts and, where it deems
appropriate, work with its customers to resolve performance and schedule delays
and any resulting financial consequences on a mutually satisfactory basis to the
extent possible under then prevailing circumstances.
No assurance can be given that the Company will achieve Year 2000 readiness.
Further, there is the possibility that significant litigation may occur due to
business and equipment failures caused by the Year 2000 issue. It is uncertain
whether, or to what extent, the Company may be affected by such litigation. The
failure of the Company, its clients (including governmental agencies), suppliers
of computer systems and equipment, joint venture partners and other third
parties upon whom the Company relies, to achieve Year 2000 readiness could
materially and adversely affect the Company's results from operations.
EURO CONVERSION - UPDATE
Given the nature and size of the Company's European operations, the Company does
not perceive the conversion to the Euro as a significant risk area. The
Company's businesses operate under long-term contracts, typically denominated in
U.S. Dollars, as compared with more traditional retail or manufacturing
environments. If required, the Company is currently able to bid, price and
21
<PAGE> 23
negotiate contracts using the Euro. The Company's treasury function is also
capable of operating with the Euro. Specifically, the Company is able to:
establish bank accounts; obtain financing; obtain bank guarantees or letters of
credit; trade foreign currency; and hedge transactions. The Company's ongoing
Euro conversion effort will be primarily concentrated in the systems area.
Conversion to the Euro impacts the Company's subsidiaries in The Netherlands,
Germany, Belgium, and Spain. All subsidiaries use a standard accounting system
and all reside in the same database. The Company's conversion plan is to
maintain the legacy database for historical reference and to create a new
database with the Euro as the base currency. The new database will permit
transactions to take place in both legacy currencies and the Euro as well as
perform prescribed rounding calculations. The new Euro-based database is
anticipated to be available by June 1999, with testing complete by the end of
July 1999. Full conversion is anticipated to be completed by the start of fiscal
year 2000, with the exception of the Spain office which is anticipated to be
completed by the start of fiscal year 2001.
The Company has not incurred and it does not expect to incur any significant
costs from the continued conversion to the Euro, including any currency risk,
which could significantly affect the Company's business, financial condition and
results of operations.
The Company has not experienced any significant operational disruptions to date
and does not currently expect the continued conversion to the Euro to cause any
significant operational disruptions, including the impact of systems operated
by others.
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
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 will
be adopted by the Company in 1999. As discussed elsewhere in this Form 10-Q, the
Company is undertaking a complete reorganization of its current operating units
and administrative functions. Although management has not completed its review
of SFAS No. 131 in light of the new organizational structure, management
anticipates that under the new standard the number of its identifiable segments
will increase over that currently being reported.
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). SFAS No. 133 establishes new standards for recording
derivatives in interim and annual financial statements. On May 19, 1999, the
Financial Accounting Standards Board voted to defer the implementation date of
this statement, thereby making it effective for the Company's fiscal year 2001.
Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the new statement will have a significant impact
on the results of operations or the financial position of the Company.
22
<PAGE> 24
FLUOR CORPORATION
CHANGES IN BACKLOG
Three and Six Months Ended April 30, 1999 and 1998
UNAUDITED
<TABLE>
<CAPTION>
For the Three Months Ended April 30, 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Backlog - beginning of period $ 11,064.5 $ 14,018.1
New awards 1,621.1 2,776.6
Adjustments and cancellations, net 138.7 (73.3)
Work Performed (2,601.8) (2,807.4)
--------------------------
Backlog - end of period $ 10,222.5 $ 13,914.0
==========================
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Backlog - beginning of period $ 12,645.3 $ 14,370.0
New awards 3,322.0 5,378.7
Adjustments and cancellations, net (252.8) (70.8)
Work Performed (5,492.0) (5,763.9)
--------------------------
Backlog - end of period $ 10,222.5 $ 13,914.0
==========================
</TABLE>
23
<PAGE> 25
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Date of Meeting. The annual meeting of stockholders of Fluor
Corporation was held on March 9, 1999 at The Hyatt Regency
Hotel, Irvine, California.
(b) Election of Directors - Voting Results
Directors elected -
Don L. Blankenship
64,447,796 FOR
1,245,870 VOTED TO WITHHOLD AUTHORITY
Peter J. Fluor
64,507,431 FOR
1,186,235 VOTED TO WITHHOLD AUTHORITY
Bobby R. Inman
64,401,930 FOR
1,291,736 VOTED TO WITHHOLD AUTHORITY
James O. Rollans
64,440,910 FOR
1,252,756 VOTED TO WITHHOLD AUTHORITY
Other directors continuing in office -
Carroll A. Campbell, Jr.
Philip J. Carroll, Jr.
David P. Gardner
Thomas L. Gossage
Vilma S. Martinez
Dean R. O'Hare
Robin W. Renwick
Martha R. Seger
James C. Stein
(c) Matters Voted Upon. Ratification of the appointment of Ernst &
Young LLP as independent auditors for 1999:
65,124,670 FOR
288,700 AGAINST
280,296 ABSTAIN
-0- BROKER NON-VOTE
24
<PAGE> 26
Approval of Fluor Corporation 1999 Executive Performance
Incentive Plan:
59,700,705 FOR
5,311,184 AGAINST
681,777 ABSTAIN
-0- BROKER NON-VOTE
(d) Terms of settlement between registrant and any other
participant. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Fluor Corporation 1999 Executive Performance
Incentive Plan.
27.1 Financial Data Schedule as of and for the six
months ended April 30, 1999.
(b) Reports on Form 8-K.
None.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLUOR CORPORATION
------------------
(Registrant)
Date: June 14, 1999 /s/ J. O. Rollans
------------- ----------------------------------------
J. O. Rollans, Senior Vice President
and Chief Financial Officer
/s/V. L. Prechtl
----------------------------------------
V. L. Prechtl, Vice President and
Controller
26
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
10.1 Fluor Corporation 1999 Executive Performance Incentive Plan.
27.1 Financial Data Schedule as of and for the six months ended April
30, 1999.
</TABLE>
<PAGE> 1
EXHIBIT A
FLUOR CORPORATION
1999 EXECUTIVE PERFORMANCE INCENTIVE PLAN
SECTION 1. Purpose of Plan
The purpose of this "Fluor Corporation 1999 Executive Performance Incentive
Plan" ("Plan") of Fluor Corporation, a Delaware corporation, is to enable the
Company, as defined in Section 2.2(a)(ii) hereof, to attract, retain and
motivate its officers, management and other key personnel, and to further align
the interests of such persons with those of the shareholders of the Company, by
providing for or increasing their proprietary interest in the Company.
SECTION 2. Administration of the Plan
2.1 Composition of Committee. The Plan shall be administered by the
Organization and Compensation Committee of the Board of Directors, and/or by the
Board of Directors or another committee of the Board of Directors of the
Company, as appointed from time to time by the Board of Directors (any such
administrative body, the "Committee"). The Board of Directors shall fill
vacancies on, and from time to time may remove or add members to, the Committee.
The Committee shall act pursuant to a majority vote or unanimous written
consent. Notwithstanding the foregoing, with respect to any Award that is not
intended to satisfy the conditions of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended (the "Code"), the Committee may
appoint one or more separate committees (any such committee, a "Subcommittee")
composed of one or more directors of the Company (who may but need not be
members of the Committee) and may delegate to any such Subcommittee(s) the
authority to grant Awards, as defined in Section 5.1 hereof, under the Plan to
Employees, to determine all terms of such Awards, and/or to administer the Plan
or any aspect of it. Any action by any such Subcommittee within the scope of
such delegation shall be deemed for all purposes to have been taken by the
Committee. The Committee may designate the Secretary of the Company or other
Company employees to assist the Committee in the administration of the Plan, and
may grant authority to such persons to execute agreements evidencing Awards made
under this Plan or other documents entered into under this Plan on behalf of the
Committee or the Company.
2.2 Powers of the Committee. Subject to the express provisions of this
Plan, the Committee shall be authorized and empowered to do all things necessary
or desirable in connection with the administration of this Plan with respect to
the Awards over which such Committee has authority, including, without
limitation, the following:
(a) to prescribe, amend and rescind rules and regulations relating to
this Plan and to define terms not otherwise defined herein; provided that,
unless the Committee shall specify otherwise, for purposes of this Plan (i)
the term "fair market value" shall mean, as of any date, the average of the
highest price and the lowest price per share at which the Shares (as
defined in Section 3.1 hereof) are sold in the regular way on the New York
Stock Exchange or, if no Shares traded on the New York Stock Exchange on
the date in question, then for the next preceding date for which Shares
traded on the New York Stock Exchange; and (ii) the term "Company" shall
mean Fluor Corporation and its subsidiaries and affiliates, unless the
context otherwise requires.
(b) to determine which persons are Eligible Employees (as defined in
Section 4 hereof), to which of such Eligible Employees, if any, Awards
shall be granted hereunder, to make Awards under the Plan and to determine
the terms of such Awards and the timing of any such Awards;
(c) to determine the number of Shares subject to Awards and the
exercise or purchase price of such Shares;
(d) to establish and verify the extent of satisfaction of any
performance goals applicable to Awards;
A-1
<PAGE> 2
(e) to prescribe and amend the terms of the agreements or other
documents evidencing Awards made under this Plan (which need not be
identical);
(f) to determine whether, and the extent to which, adjustments are
required pursuant to Section 11 hereof;
(g) to interpret and construe this Plan, any rules and regulations
under the Plan and the terms and conditions of any Award granted hereunder,
and to make exceptions to any such provisions in good faith and for the
benefit of the Company; and
(h) to make all other determinations deemed necessary or advisable for
the administration of the Plan.
2.3 Determinations of the Committee. All decisions, determinations and
interpretations by the Committee or the Board regarding the Plan shall be final
and binding on all Eligible Employees and Participants, as defined in Section 4
hereof. The Committee or the Board, as applicable, shall consider such factors
as it deems relevant, in its sole and absolute discretion, to making such
decisions, determinations and interpretations including, without limitation, the
recommendations or advice of any officer of the Company or Eligible Employee and
such attorneys, consultants and accountants as it may select.
SECTION 3. Stock Subject to Plan
3.1 Aggregate Limits. Subject to adjustment as provided in Section 11, at
any time, the aggregate number of shares of the Company's common stock, $0.625
par value ("Shares"), issued pursuant to all Awards (including all ISOs (as
defined in Section 5.1 hereof)) granted under this Plan shall not exceed
3,700,000; provided that no more than 1,000,000 of such Shares may be issued
pursuant to all Restricted Stock Awards, Incentive Awards, and Stock Units
(other than Stock Units issued upon exercise of Options) granted under the Plan.
The Shares subject to the Plan may be either Shares reacquired by the Company,
including Shares purchased in the open market, or authorized but unissued
Shares.
3.2 Code Section 162(m) Limits. The aggregate number of Shares subject to
Options granted under this Plan during any calendar year to any one Eligible
Employee shall not exceed 500,000. The aggregate number of Shares issued or
issuable under any Restricted Stock Awards, Incentive Awards or Stock Unit
Awards (other than Stock Units issued or issuable upon exercise of Options)
granted under this Plan during any calendar year to any one Eligible Employee
shall not exceed 75,000. Notwithstanding anything to the contrary in the Plan,
the foregoing limitations shall be subject to adjustment under Section 11 only
to the extent that such adjustment will not affect the status of any Award
intended to qualify as "performance based compensation" under Code Section
162(m).
3.3 Issuance of Shares. For purposes of Section 3.1, the aggregate number
of Shares issued under this Plan at any time shall equal only the number of
Shares actually issued upon exercise or settlement of an Award and not returned
to the Company upon cancellation, expiration or forfeiture of an Award or
delivered (either actually or by attestation) in payment or satisfaction of the
purchase price, exercise price or tax obligation of an Award.
SECTION 4. Persons Eligible Under Plan
Any person who is an (i) employee and who also is an officer, key employee
or member of the Executive Management Team ("EMT"), (ii) prospective employee
who is to be an officer, key employee or member of the EMT, (iii) consultant, or
(iv) advisor of the Company (an "Eligible Employee") shall be eligible to be
considered for the grant of Awards hereunder. For purposes of this Plan, the
Chairman of the Board's status as an Employee shall be determined by the Board.
For purposes of the administration of Awards, the term "Eligible Employee" shall
also include a former Eligible Employee or any person (including any estate) who
is a beneficiary of a former Eligible Employee. A "Participant" is any Eligible
Employee to whom an Award has been made and any person (including any estate) to
whom an Award has been assigned or transferred pursuant to Section 10.1.
A-2
<PAGE> 3
SECTION 5. Plan Awards
5.1 Award Types. The Committee, on behalf of the Company, is authorized
under this Plan to enter into certain types of arrangements with Eligible
Employees and to confer certain benefits on them. The following such
arrangements or benefits are authorized under the Plan if their terms and
conditions are not inconsistent with the provisions of the Plan: Stock Options,
Restricted Stock, Incentive Awards and Stock Units. Such arrangements and
benefits are sometimes referred to herein as "Awards." The authorized types of
arrangements and benefits for which Awards may be granted are defined as
follows:
Stock Option Awards: A Stock Option is a right granted under Section 6
to purchase a number of Shares at such exercise price, at such times, and
on such other terms and conditions as are specified in or determined
pursuant to the document(s) evidencing the Award (the "Option Agreement").
Options intended to qualify as Incentive Stock Options ("ISOs") pursuant to
Code Section 422 and Options which are not intended to qualify as ISOs
("Non-qualified Options") may be granted under Section 6 as the Committee
in its sole discretion shall determine.
Restricted Stock Awards: Restricted Stock is an award of Shares made
under Section 7, the grant, issuance, retention and/or vesting of which is
subject to such performance and other conditions as are expressed in the
document(s) evidencing the Award (the "Restricted Stock Agreement").
Incentive Awards: An Incentive Award is a bonus opportunity awarded
under Section 8 pursuant to which a Participant may become entitled to
receive an amount (which may be payable in cash, Shares or other property)
based on satisfaction of such performance criteria as are specified in the
document(s) evidencing the Award (the "Incentive Bonus Agreement").
Stock Unit Awards: A Stock Unit Award is an award of a right to
receive the fair market value of one share of Common Stock made under
Section 9, the grant, issuance, retention and/or vesting of which is
subject to such performance and other conditions as are expressed in the
document(s) evidencing the Award (the "Stock Unit Agreement").
5.2 Grants of Awards. An Award may consist of one such arrangement or
benefit or two or more of them in tandem or in the alternative.
SECTION 6. Stock Option Awards
The Committee may grant an Option or provide for the grant of an Option,
either from time-to-time in the discretion of the Committee or automatically
upon the occurrence of specified events, including, without limitation, the
achievement of performance goals, the satisfaction of an event or condition
within the control of the recipient of the Award, within the control of others
or not within any person's control.
6.1 Option Agreement. Each Option Agreement shall contain provisions
regarding (a) the number of Shares which may be issued upon exercise of the
Option, (b) the purchase price of the Shares and the means of payment for the
Shares, (c) the term of the Option, (d) such terms and conditions of
exercisability as may be determined from time to time by the Committee, (e)
restrictions on the transfer of the Option and forfeiture provisions, and (f)
such further terms and conditions, in each case not inconsistent with the Plan
as may be determined from time to time by the Committee. Option Agreements
evidencing ISOs shall contain such terms and conditions as may be necessary to
comply with the applicable provisions of Section 422 of the Code.
6.2 Option Price. The purchase price per Share of the Shares subject to
each Option granted under the Plan shall equal or exceed 100% of the fair market
value of such Stock on the date the Option is granted, except that (i) the
Committee may specifically provide that the exercise price of an Option may be
higher or lower in the case of an Option granted to employees of a company
acquired by the Company in assumption and substitution of options held by such
employees at the time such company is acquired, and (ii) in the event an
Eligible Employee is required to pay or forego the receipt of any cash amount in
consideration of receipt of an Option, the exercise price plus such cash amount
shall equal or exceed 100% of the fair market value of such Stock on the date
the Option is granted.
A-3
<PAGE> 4
6.3 Option Term. The "Term" of each Option granted under the Plan,
including any ISOs, shall not exceed ten (10) years from the date of its grant.
6.4 Option Vesting. Options granted under the Plan shall be exercisable at
such time and in such installments during the period prior to the expiration of
the Option's Term as determined by the Committee in its sole discretion. The
Committee shall have the right to make the timing of the ability to exercise any
Option granted under the Plan subject to such performance requirements as deemed
appropriate by the Committee. At any time after the grant of an Option the
Committee may, in its sole discretion, reduce or eliminate any restrictions
surrounding any Participant's right to exercise all or part of the Option,
except that no Option shall first become exercisable within one (1) year from
its date of grant, other than upon death, disability, a Change of Control (as
defined in Section 12.2 hereof) or upon satisfaction of such performance
requirements as deemed appropriate by the Committee.
6.5 Option Exercise.
(a) Partial Exercise. An exercisable Option may be exercised in whole or in
part. However, an Option shall not be exercisable with respect to fractional
Shares and the Committee may require, by the terms of the Option Agreement, a
partial exercise to include a minimum number of Shares.
(b) Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery to the representative of the Company designated
for such purpose by the Committee all of the following: (i) notice of exercise
in such form as the Committee authorizes specifying the number of Shares to be
purchased by the Participant, (ii) payment or provision for payment of the
exercise price for such number of Shares, (iii) such representations and
documents as the Committee, in its sole discretion, deems necessary or advisable
to effect compliance with all applicable provisions of the Securities Act of
1933, as amended, and any other federal, state or foreign securities laws or
regulations, (iv) in the event that the Option shall be exercised pursuant to
Section 10.1 by any person or persons other than the Eligible Employee,
appropriate proof of the right of such person or persons to exercise the Option,
and (v) such representations and documents as the Committee, in its sole
discretion, deems necessary or advisable to provide for the tax withholding
pursuant to Section 13. Unless provided otherwise by the Committee, no
Participant shall have any right as a shareholder with respect to any Shares
purchased pursuant to any Option until the registration of Shares in the name of
such person, and no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such Shares are
so registered.
(c) Payment of Exercise Price. To the extent authorized by the Committee,
the exercise price of an Option may be paid in the form of one of more of the
following, either through the terms of the Option Agreement or at the time of
exercise of an Option: (i) cash or certified or cashiers' check, (ii) shares of
capital stock of the Company that have been held by the Participant for such
period of time as the Committee may specify, (iii) other property deemed
acceptable by the Committee, (iv) a reduction in the number of Shares or other
property otherwise issuable pursuant to such Option, (v) a promissory note of or
other commitment to pay by the Participant or of a third party, the terms and
conditions of which shall be determined by the Committee, or (vi) any
combination of (i) through (v).
SECTION 7. Restricted Stock Awards
Restricted Stock consists of an award of Shares, the grant, issuance,
retention and/or vesting of which shall be subject to such performance
conditions and to such further terms and conditions as the Committee deems
appropriate.
7.1 Restricted Stock Award. Each Restricted Stock Award shall reflect, to
the extent applicable (a) the number of Shares subject to such Award or a
formula for determining such, (b) the time or times at which Shares shall be
granted or issued and/or become retainable or vested, and the conditions or
restrictions on such Shares, (c) the performance criteria and level of
achievement versus these criteria which shall determine the number of Shares
granted, issued, retainable and/or vested, (d) the period as to which
performance shall be measured for determining achievement of performance, (e)
forfeiture provisions, and
A-4
<PAGE> 5
(f) such further terms and conditions, in each case not inconsistent with the
Plan as may be determined from time to time by the Committee.
7.2 Restrictions and Performance Criteria. The grant, issuance, retention
and/or vesting of each Restricted Stock Award may be subject to such performance
criteria and level of achievement versus these criteria as the Committee shall
determine, which criteria may be based on financial performance, personal
performance evaluations and/or completion of service by the Participant;
provided, however, that no Restricted Stock Award shall first vest within one
year from its date of grant, other than upon death, disability, a Change of
Control (as defined in Section 12.2 hereof) or upon satisfaction of such
performance requirements as deemed appropriate by the Committee. Notwithstanding
anything to the contrary herein, the performance criteria for any Restricted
Stock Award that is intended by the Committee to satisfy the requirements for
"performance-based compensation" under Code Section 162(m) shall be a measure
based on one or more Qualifying Performance Criteria (as defined in Section 10.2
hereof) selected by the Committee.
7.3 Timing and Form of Award. The Committee shall determine the timing of
award of any Restricted Stock Award. The Committee may provide for or, subject
to such terms and conditions as the Committee may specify, may permit a
Participant to elect for the award or vesting of any Restricted Stock to be
deferred to a specified date or event. The Committee may provide for a
Participant to have the option for his or her Restricted Stock, or such portion
thereof as the Committee may specify, to be granted in whole or in part in Stock
Units.
7.4 Discretionary Adjustments. Notwithstanding satisfaction of any
completion of service or performance goals, the number of Shares granted,
issued, retainable and/or vested under a Restricted Stock Award on account of
either financial performance or personal performance evaluations may be reduced
by the Committee on the basis of such further considerations as the Committee in
its sole discretion shall determine.
SECTION 8. Incentive Awards
Each Incentive Award will confer upon the Eligible Employee the opportunity
to earn a future payment tied to the level of achievement with respect to one or
more performance criteria established for a performance period of not less than
one year.
8.1 Incentive Award. Each Incentive Award shall contain provisions
regarding (a) the target and maximum amount payable to the Participant as an
Incentive Award, (b) the performance criteria and level of achievement versus
these criteria which shall determine the amount of such payment, (c) the period
as to which performance shall be measured for establishing the amount of any
payment, (d) the timing of any payment earned by virtue of performance, (e)
restrictions on the alienation or transfer of the Incentive Award prior to
actual payment, (f) forfeiture provisions, and (g) such further terms and
conditions, in each case not inconsistent with the Plan as may be determined
from time to time by the Committee. In establishing the provisions of Incentive
Awards, the Committee may refer to categories of such Awards as parts of
"Programs" or "Plans", which names will not affect the applicability of this
Plan. The maximum amount payable as an Incentive Award may be a multiple of the
target amount payable, but the maximum amount payable pursuant to that portion
of an Incentive Award granted under this Plan for any fiscal year to any
Participant that is intended to satisfy the requirements for "performance based
compensation" under Code Section 162(m) shall not exceed Three million dollars
($3,000,000).
8.2 Performance Criteria. The Committee shall establish the performance
criteria and level of achievement versus these criteria which shall determine
the target and the minimum and maximum amount payable under an Incentive Award,
which criteria may be based on financial performance and/or personal performance
evaluations. The Committee may specify the percentage of the target Incentive
Award that is intended to satisfy the requirements for "performance-based
compensation" under Code Section 162(m). Notwithstanding anything to the
contrary herein, the performance criteria for any portion of an Incentive Award
that is intended by the Committee to satisfy the requirements for
"performance-based compensation" under Code Section 162(m) shall be a measure
based on one or more Qualifying Performance Criteria (as
A-5
<PAGE> 6
defined in Section 10.2 hereof) selected by the Committee and specified at the
time required under Code Section 162(m).
8.3 Timing and Form of Payment. The Committee shall determine the timing
of payment of any Incentive Award. The Committee may provide for or, subject to
such terms and conditions as the Committee may specify, may permit a Participant
to elect for the payment of any Incentive Award to be deferred to a specified
date or event. The Committee may specify the form of payment of Incentive
Awards, which may be cash, shares or other property, or may provide for a
Participant to have the option for his or her Incentive Award, or such portion
thereof as the Committee may specify, to be paid in whole or in part in Shares
or Stock Units.
8.4 Discretionary Adjustments. Notwithstanding satisfaction of any
performance goals, the amount paid under an Incentive Award on account of either
financial performance or personal performance evaluations may be reduced by the
Committee on the basis of such further considerations as the Committee in its
sole discretion shall determine.
SECTION 9. Stock Units
9.1 Stock Units. A "Stock Unit" is a bookkeeping entry representing an
amount equivalent to the fair market value of one share of Common Stock, also
sometimes referred to as a "restricted unit" or "shadow stock". Stock Units
represent an unfunded and unsecured obligation of the Company, except as
otherwise provided for by the Committee.
9.2 Stock Unit Awards. Each Stock Unit Award shall reflect, to the extent
applicable (a) the number of Stock Units subject to such Award or a formula for
determining such, (b) the time or times at which Stock Units shall be granted or
issued and/or become retainable or vested, and the conditions or restrictions on
such Stock Units, (c) the performance criteria and level of achievement versus
these criteria which shall determine the number of Stock Units granted, issued,
retainable and/or vested, (d) the period as to which performance shall be
measured for determining achievement of performance, (e) forfeiture provisions,
and (f) such further terms and conditions, in each case not inconsistent with
the Plan as may be determined from time to time by the Committee. Stock Units
may also be issued upon exercise of Options, may be granted in payment and
satisfaction of Incentive Awards and may be issued in lieu of Restricted Stock
or any other Award that the Committee elects to be paid in the form of Stock
Units.
9.3 Performance Criteria. The grant, issuance, retention and or vesting of
each Stock Unit may be subject to such performance criteria and level of
achievement versus these criteria as the Committee shall determine, which
criteria may be based on financial performance, personal performance evaluations
and/or completion of service by the Participant; provided, however, that no
Stock Unit shall first vest within one (1) year from its date of grant, other
than upon death, disability, a Change of Control (as defined in Section 12.2
hereof) or upon satisfaction of such performance requirements as deemed
appropriate by the Committee. Notwithstanding anything to the contrary herein,
the performance criteria for any Stock Unit that is intended by the Committee to
satisfy the requirements for "performance-based compensation" under Code Section
162(m) shall be a measure based on one or more Qualifying Performance Criteria
(as defined in Section 10.2 hereof) selected by the Committee and specified at
the time the Stock Unit is granted.
9.4 Timing and Form of Award. The Committee shall determine the timing of
award of any Stock Unit. The Committee may provide for or, subject to such terms
and conditions as the Committee may specify, may permit a Participant to elect
for the award or vesting of any Stock Unit to be deferred to a specified date or
event. The Committee may provide for a Participant to have the option for his or
her Stock Unit, or such portion thereof as the Committee may specify, to be
granted in whole or in part in Shares.
9.5 Settlement of Stock Units. The Committee may provide for Stock Units
to be settled in cash or Shares (at the election of the Company or the
Participant, as specified by the Committee) and to be made at such other times
as it determines appropriate or as it permits a Participant to choose. The
amount of cash or Shares, or other settlement medium, to be so distributed may
be increased by an interest factor or by dividend
A-6
<PAGE> 7
equivalents, as the case may be, which may be valued as if reinvested in Shares.
Until a Stock Unit is settled, the number of Shares represented by a Stock Unit
shall be subject to adjustment pursuant to Section 11.
9.6 Discretionary Adjustments. Notwithstanding satisfaction of any
completion of service or performance goals, the number of Stock Units granted,
issued, retainable and/or vested under a Stock Unit Award on account of either
financial performance or personal performance evaluations may be reduced by the
Committee on the basis of such further considerations as the Committee in its
sole discretion shall determine.
SECTION 10. Other Provisions Applicable to Awards
10.1 Transferability. Unless the agreement evidencing an Award (or an
amendment thereto authorized by the Committee) expressly states that it is
transferable as provided hereunder, no Award granted under the Plan, nor any
interest in such Award, may be sold, assigned, conveyed, gifted, pledged,
hypothecated or otherwise transferred in any manner, other than by will or the
laws of descent and distribution, prior to the vesting or lapse of any and all
restrictions applicable to any Shares issued under an Award. The Committee may
in its sole discretion grant an Award or amend an outstanding Award to provide
that the Award is transferable or assignable to a member or members of the
Eligible Employee's "immediate family", as such term is defined under Exchange
Act Rule 16a-1(e), or to a trust for the benefit solely of a member or members
of the Eligible Employee's immediate family, or to a partnership or other entity
whose only owners are members of the Eligible Employee's family, provided that
following any such transfer or assignment the Award will remain subject to
substantially the same terms applicable to the Award while held by the Eligible
Employee, as modified as the Committee in its sole discretion shall determine
appropriate, and the Participant shall execute an agreement agreeing to be bound
by such terms.
10.2 Qualifying Performance Criteria. For purposes of this Plan, the term
"Qualifying Performance Criteria" shall mean any one or more of the following
performance criteria, either individually, alternatively or in any combination,
applied to either the Company as a whole or to a business unit, subsidiary or
business segment, either individually, alternatively or in any combination, and
measured either annually or cumulatively over a period of years, on an absolute
basis or relative to a pre-established target, to previous years' results or to
a designated comparison group, in each case as specified by the Committee in the
Award: (a) cash flow, (b) earnings (including gross margin, earnings before
interest and taxes ("EBIT"), earnings before taxes ("EBT"), and net earnings),
(c) earnings per share, (d) growth in earnings or earnings per share, (e) stock
price, (f) return on equity or average stockholders' equity, (g) total
stockholder return, (h) return on capital, (i) return on assets or net assets,
(j) return on investment, (k) revenue, (l) income or net income, (m) operating
income or net operating income, (n) operating profit or net operating profit,
(o) operating margin, (p) return on operating revenue, (q) market share, (r)
contract awards or backlog, (s) overhead or other expense reduction, (t) growth
in stockholder value relative to the two-year moving average of the S&P 500
Index, (u) growth in stockholder value relative to the two-year moving average
of the Dow Jones Heavy Construction Index, (v) credit rating, (w) strategic plan
development and implementation, (x) succession plan development and
implementation, (y) retention of executive talent, (z) improvement in workforce
diversity, (aa) return on average stockholders' equity relative to the Ten Year
Treasury Yield (as hereinafter defined), (bb) improvement in safety records,
(cc) capital resource management plan development and implementation, (dd)
improved internal financial controls plan development and implementation, (ee)
corporate tax savings, (ff) corporate cost of capital reduction, (gg) investor
relations program development and implementation, (hh) corporate relations
program development and implementation, (ii) executive performance plan
development and implementation, and (jj) tax provision rate for financial
statement purposes. The Committee may appropriately adjust any evaluation of
performance under a Qualifying Performance Criteria to exclude any of the
following events that occurs during a performance period: (i) asset write-downs,
(ii) litigation or claim judgments or settlements, (iii) the effect of changes
in tax law, accounting principles or other such laws or provisions affecting
reported results, (iv) accruals for reorganization and restructuring programs,
and (v) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management's discussion and analysis
of financial condition and results of operations appearing in the Company's
annual report to stockholders for the applicable year. The term "Ten Year
Treasury Yield" shall mean, for any fiscal period, the daily average
A-7
<PAGE> 8
percent per annum yield for U.S. Government Securities -- 10 year Treasury
constant maturities, as published in the Federal Reserve statistical release or
any successor publication. Prior to the payment of any compensation under an
Award intended to qualify as "performance-based compensation" under Code Section
162(m) the Committee shall certify the extent to which any Qualifying
Performance Criteria and any other material terms under such Award have been
satisfied (other than in cases where such relate solely to the increase in the
value of the Company's Common Stock).
10.3 Dividends. Unless otherwise provided by the Committee, no adjustment
shall be made in Shares issuable under Awards on account of cash dividends which
may be paid or other rights which may be issued to the holders of Shares prior
to their issuance under any Award. The Committee shall specify whether dividends
or dividend equivalent amounts shall be paid to any Participant with respect to
the Shares subject to any Award that have not vested or been issued or that are
subject to any restrictions or conditions on the record date for dividends.
10.4 Agreements Evidencing Awards. The Committee shall, subject to
applicable law, determine the date an Award is deemed to be granted, which for
purposes of this Plan shall not be affected by the fact that an Award is
contingent on subsequent stockholder approval of the Plan. The Committee or,
except to the extent prohibited under applicable law, its delegate(s) may
establish the terms of agreements evidencing Awards under this Plan and may, but
need not, require as a condition to any such agreement's effectiveness that such
agreement be executed by the Participant and that such Participant agree to such
further terms and conditions as specified in such agreement. The grant of an
Award under this Plan shall not confer any rights upon the Participant holding
such Award other than such terms, and subject to such conditions, as are
specified in this Plan as being applicable to such type of Award (or to all
Awards) or as are expressly set forth in the Agreement evidencing such Award.
10.5 Tandem Stock or Cash Rights. Either at the time an Award is granted
or by subsequent action, the Committee may, but need not, provide that an Award
shall contain as a term thereof, a right, either in tandem with the other rights
under the Award or as an alternative thereto, of the Participant to receive,
without payment to the Company, a number of Shares, cash or a combination
thereof, the amount of which is determined by reference to the value of the
Award; provided, however, that the number of such rights granted under any Award
shall not exceed the per Eligible Employee share limitation for such Award as
set forth in Section 3.2.
10.6 Financing. The Committee may in its discretion provide financing to a
Participant in a principal amount sufficient to pay the purchase price of any
Award and/or to pay the amount of taxes required by law to be withheld with
respect to any Award. Any such loan shall be subject to all applicable legal
requirements and restrictions pertinent thereto, including Regulation G
promulgated by the Federal Reserve Board. The grant of an Award shall in no way
obligate the Company or the Committee to provide any financing whatsoever in
connection therewith.
SECTION 11. Changes in Capital Structure
If the outstanding securities of the class then subject to this Plan are
increased, decreased or exchanged for or converted into cash, property or a
different number or kind of shares or securities, or if cash, property or shares
or securities are distributed in respect of such outstanding securities, in
either case as a result of a reorganization, merger, consolidation,
recapitalization, restructuring, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split, spin-off or the like, or if substantially all of the property and
assets of the Company are sold, then, unless the terms of such transaction shall
provide otherwise, the Committee may make appropriate and proportionate
adjustments in (i) the number and type of shares or other securities or cash or
other property that may be acquired pursuant to Awards theretofore granted under
this Plan and the exercise or settlement price of such Awards, provided,
however, that any such adjustment shall be made in such a manner that will not
affect the status of any Award intended to qualify as an ISO under Code Section
422 or as "performance based compensation" under Code Section 162(m), and (ii)
the maximum number and type of shares or other securities that may be issued
pursuant to such Awards thereafter granted under this Plan.
A-8
<PAGE> 9
SECTION 12. Change of Control
12.1 Effect of Change of Control. The Committee may through the terms of
the Award or otherwise provide that any or all of the following shall occur,
either immediately upon the Change of Control or a Change of Control
Transaction, or upon termination of the Eligible Employee's employment within
twenty-four (24) months following a Change of Control or a Change of Control
Transaction: (a) in the case of an Option, the Participant's ability to exercise
any portion of the Option not previously exercisable, (b) in the case of an
Incentive Award, the right to receive a payment equal to the target amount
payable or, if greater, a payment based on performance through a date determined
by the Committee prior to the Change of Control, and (c) in the case of Shares
issued in payment of any Incentive Award, and/or in the case of Restricted Stock
or Stock Units, the lapse and expiration of any conditions to the grant,
issuance, retention, vesting or transferability of, or any other restrictions
applicable to, such Award. The Committee also may, through the terms of the
Award or otherwise, provide for an absolute or conditional exercise, payment or
lapse of conditions or restrictions on an Award which shall only be effective
if, upon the announcement of a Change of Control Transaction, no provision is
made in such Change of Control Transaction for the exercise, payment or lapse of
conditions or restrictions on the Award, or other procedure whereby the
Participant may realize the full benefit of the Award.
12.2 Definitions. Unless the Committee or the Board shall provide
otherwise, "Change of Control" shall mean an occurrence of any of the following
events (a) a third person, including a "group" as defined in Section 13(d)(3) of
the Exchange Act, acquires shares of the Company having twenty-five percent or
more of the total number of votes that may be cast for the election of directors
of the Company, (b) as the result of any cash tender or exchange offer, merger
or other business combination, or any combination of the foregoing transactions
(a "Transaction"), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the Company or
any successor to the Company; or (c) such other events as the Committee or the
Board from time to time may specify. "Change of Control Transaction" shall
include any tender offer, offer, exchange offer, solicitation, merger,
consolidation, reorganization or other transaction which is intended to or
reasonably expected to result in a Change of Control.
SECTION 13. Taxes
13.1 Withholding Requirements. The Committee may make such provisions or
impose such conditions as it may deem appropriate for the withholding or payment
by the Employee or Participant, as appropriate, of any taxes which it determines
are required in connection with any Awards granted under this Plan, and a
Participant's rights in any Award are subject to satisfaction of such
conditions.
13.2 Payment of Withholding Taxes. Notwithstanding the terms of Section
13.1 hereof, the Committee may provide in the agreement evidencing an Award or
otherwise that all or any portion of the taxes required to be withheld by the
Company or, if permitted by the Committee, desired to be paid by the
Participant, in connection with the exercise of a Non-qualified Option or the
exercise, vesting, settlement or transfer of any other Award shall be paid or,
at the election of the Participant, may be paid by the Company withholding
shares of the Company's capital stock otherwise issuable or subject to such
Award, or by the Participant delivering previously owned shares of the Company's
capital stock, in each case having a fair market value equal to the amount
required or elected to be withheld or paid. Any such elections are subject to
such conditions or procedures as may be established by the Committee and may be
subject to disapproval by the Committee.
SECTION 14. Amendments or Termination
The Board may amend, alter or discontinue the Plan or any agreement
evidencing an Award made under the Plan, but no such amendment shall, without
the approval of the shareholders of the Company:
(a) materially increase the maximum number of shares of Common Stock
for which Awards may be granted under the Plan;
(b) reduce the price at which Options may be granted below the price
provided for in Section 6.2;
A-9
<PAGE> 10
(c) reduce the exercise price of outstanding Options;
(d) after the date of a Change of Control, impair the rights of any
Award holder, without such holder's consent, under any Award granted prior
to the date of any Change of Control;
(e) extend the term of the Plan; or
(f) change the class of persons eligible to be Participants.
SECTION 15. Compliance With Other Laws and Regulations
The Plan, the grant and exercise of Awards thereunder, and the obligation
of the Company to sell, issue or deliver Shares under such Awards, shall be
subject to all applicable federal, state and foreign laws, rules and regulations
and to such approvals by any governmental or regulatory agency as may be
required. The Company shall not be required to register in a Participant's name
or deliver any Shares prior to the completion of any registration or
qualification of such Shares under any federal, state or foreign law or any
ruling or regulation of any government body which the Committee shall, in its
sole discretion, determine to be necessary or advisable. This Plan is intended
to constitute an unfunded arrangement for a select group of management or other
key employees.
No Option shall be exercisable unless a registration statement with respect
to the Option is effective or the Company has determined that such registration
is unnecessary. Unless the Awards and Shares covered by this Plan have been
registered under the Securities Act of 1933, as amended, or the Company has
determined that such registration is unnecessary, each person receiving an Award
and/or Shares pursuant to any Award may be required by the Company to give a
representation in writing that such person is acquiring such Shares for his or
her own account for investment and not with a view to, or for sale in connection
with, the distribution of any part thereof.
SECTION 16. Option Grants by Subsidiaries
In the case of a grant of an Option to any Eligible Employee employed by a
subsidiary or affiliate, such grant may, if the Committee so directs, be
implemented by the Company issuing any subject Shares to the subsidiary or
affiliate, for such lawful consideration as the Committee may determine, upon
the condition or understanding that the subsidiary or affiliate will transfer
the Shares to the optionholder in accordance with the terms of the Option
specified by the Committee pursuant to the provisions of the Plan.
Notwithstanding any other provision hereof, such Option may be issued by and in
the name of the subsidiary or affiliate and shall be deemed granted on such date
as the Committee shall determine.
SECTION 17. No Right to Company Employment
Nothing in this Plan or as a result of any Award granted pursuant to this
Plan shall confer on any individual any right to continue in the employ of the
Company or interfere in any way with the right of the Company to terminate an
individual's employment at any time. The Award agreements may contain such
provisions as the Committee may approve with reference to the effect of approved
leaves of absence.
SECTION 18. Effectiveness and Expiration of Plan
The Plan shall be effective on the date the Board adopts the Plan. All
Awards granted under this Plan are subject to, and may not be exercised before,
the approval of this Plan by the shareholders prior to the first anniversary
date of the effective date of the Plan, by the affirmative vote of the holders
of a majority of the outstanding shares of the Company present, or represented
by proxy, and entitled to vote, at a meeting of the Company's shareholders or by
written consent in accordance with the laws of the State of Delaware; provided
that if such approval by the shareholders of the Company is not forthcoming, all
Awards previously granted under this Plan shall be void. No Stock Option Award,
Restricted Stock Award or Incentive Award shall be granted pursuant to the Plan
more than ten (10) years after the effective date of the Plan.
A-10
<PAGE> 11
SECTION 19. Non-Exclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the shareholders of the Company for approval shall be construed as
creating any limitations on the power of the Board or the Committee to adopt
such other incentive arrangements as it or they may deem desirable, including
without limitation, the granting of restricted stock or stock options otherwise
than under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
SECTION 20. Governing Law
This Plan and any agreements hereunder shall be interpreted and construed
in accordance with the laws of the State of Delaware and applicable federal law.
The Committee may provide that any dispute as to any Award shall be presented
and determined in such forum as the Committee may specify, including through
binding arbitration. Any reference in this Plan or in the agreement evidencing
any Award to a provision of law or to a rule or regulation shall be deemed to
include any successor law, rule or regulation of similar effect or
applicability.
A-11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT APRIL 30, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> APR-30-1999
<CASH> 207,871
<SECURITIES> 0
<RECEIVABLES> 945,363
<ALLOWANCES> 0
<INVENTORY> 248,201
<CURRENT-ASSETS> 2,221,186
<PP&E> 3,386,577
<DEPRECIATION> 1,207,501
<TOTAL-ASSETS> 5,013,780
<CURRENT-LIABILITIES> 2,493,141
<BONDS> 300,002
0
0
<COMMON> 47,373
<OTHER-SE> 1,433,332
<TOTAL-LIABILITY-AND-EQUITY> 5,013,780
<SALES> 0
<TOTAL-REVENUES> 6,475,372
<CGS> 0
<TOTAL-COSTS> 6,292,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 136,500
<INTEREST-EXPENSE> 26,012
<INCOME-PRETAX> 10,376
<INCOME-TAX> 32,190
<INCOME-CONTINUING> (21,814)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,814)
<EPS-BASIC> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
