Fluor Corporation Business Information, Profile, and History

History of Fluor Corporation

Fluor Corporation is one of the world's largest engineering and construction companies. Fluor Daniel, the company's largest unit, provides design, engineering, procurement, construction, and other services for a broad range of industries. Fluor Global Services provides an array of services outside of those offered by Fluor Daniel, including construction and industrial equipment rental, sales, and service (through American Equipment Company); staffing services--temporary, contract, and direct hire; operations, maintenance, and consulting services; and services for the governmental and telecommunications sectors. Through the A.T. Massey Coal Company unit, Fluor also has considerable investments in the coal industry, producing steam coal for the electric generating industry and metallurgical coal for the steel industry.

Early Decades of Foundation Building

Fluor's story begins with a Swiss émigré who, upon arriving in the United States knew only one English word--'hello.' Born in 1867, John Simon Fluor was a carpenter who had gained engineering experience while serving in the Swiss army. Fluor left his native country in 1888 at the age of 21, joining his two older brothers who had settled in Oshkosh, Wisconsin. The three pooled their money in 1890 to start a saw and paper mill called Rudolph Fluor & Brother. J. Simon Fluor's contribution was $100; he served as manager at the mill.

In 1903 the company name changed to Fluor Brothers Construction Company, with J. Simon Fluor as president. Nine years later he traveled on his own to California and started a general construction business in Santa Ana under his own name. With innovative methods and precise work, Fluor built his venture's reputation quickly. The Southern California Gas Company asked him to build an office and numerous meter shops in 1915, and afterward Fluor received a contract for a compressor station from Industrial Fuel Supply Company. Fluor recognized that the emerging California petroleum industry held enormous potential, so in 1921 he began to tailor his engineering and construction work to meet the demands of the field.

Fluor received a contract to erect a cooling tower in 1921. Believing that those in use at the time were inefficient and wasteful, he designed the 'Buddha tower,' a radical advancement which not only cooled water more efficiently but reduced water loss. The name came from the tower's resemblance to Buddhist shrines. Fluor soon began manufacturing the towers. The oil and gas companies quickly recognized the Buddha towers' merit, and used them at many installations.

Fluor incorporated his business as Fluor Construction Company in 1924 with a capital investment of $100,000. He began manufacturing large engine mufflers, expanding the company from strictly engineering to engineering and construction. After outgrowing two different facilities, Fluor built new quarters in Los Angeles and consolidated all general offices in one building in 1927.

In the mid-1920s, Fluor started involving his sons in the family business. He retained the presidency until 1943, although his sons ran the company. Fluor's eldest son, Peter Earl, became executive vice-president and general manager. Peter Fluor seemed to be a born salesman, and associates called him 'the company engine.' He led Fluor's development through the Great Depression and World War II.

Fluor's business continued increasing until the stock market crashed in October 1929. Between 1924 and 1929 annual sales grew from $100,000 to $1.5 million. In need of additional capital in 1929, the company reincorporated and changed its name to Fluor Corporation, Ltd. to reflect its involvement in fields outside construction. At the time of the reincorporation, Peter Fluor and his brother J. Simon Fluor, Jr., encouraged company employees to take advantage of the company's success by offering them Fluor stock at one dollar per month per share. The brothers initiated many employee benefit programs and were considered enlightened employers.

Until 1930 Fluor operated primarily within California. That year, Peter Fluor pushed for expansion, contrary to his father's wishes, and sold Fluor's services to the Panhandle Eastern Pipeline Company. The contract was for construction of compressor stations on an oil pipeline from Texas to Indiana. The company also opened a Kansas City office. Fluor's expansion got another boost later that year when the Shell Oil Company hired the firm to build a $100,000 refining unit in Illinois. It was the company's largest refining contract to date and helped establish Fluor as a major competitor in the refining construction field.

Fluor's business decreased sharply during the Depression years, but the company's leadership wanted to keep its skilled personnel on the payroll. Thus many Fluor employees with sophisticated expertise worked as laborers until business improved. Also during the Depression, Fluor registered patents on two of the company founder's inventions. They were the Fluor aerator tower, patented in 1932; and the Fluor air-cooler muffler, patented in 1938.

The pressures and energy needs of World War II led Fluor into more new work areas. Early in the war years, Fluor had only a few months to develop facilities and personnel capable of producing high-octane gasoline and synthetic rubber. Later, Sinclair Oil Company selected Fluor to design and build a sulfuric alkylation plant at its California refinery. Between 1940 and 1943, Fluor facilities produced more than a third of all 100 percent octane gasoline in the United States, and the Fluor staff developed three patented procedures to improve oil and gas processing.

International Expansion in the Postwar Era

In 1944 J. Simon Fluor died. Peter Fluor succeeded him as president, and J. Simon Fluor, Jr., became executive vice-president. Peter Fluor died unexpectedly in 1947 at age 52. An interim officer followed him in the presidency, and in 1949 the permanent successor, Donald Darnell, took over. The following year, the company's stock began trading over the counter. After a few years of declines in business, Fluor turned to the U.S. government for contracts in the early 1950s, and thus entered another new area of work. The company participated in construction of a large materials testing reactor for the Atomic Energy Commission in Arco, Idaho. Many more assignments in the nuclear field followed.

The immediate postwar years were a time of significant international expansion for the company; the firm secured contracts for refineries and natural gas plants in Canada and Venezuela. In 1946 a contract for a grassroots refinery in Montana solidified Fluor's reputation as a refinery engineering firm and helped lead to an assignment to expand the Aramco facilities in Saudi Arabia. The company formed its Gas-Gasoline Division in Houston in 1948.

By the time the Korean War created massive petroleum product needs in 1950, Fluor's reputation was so widespread that it was a natural choice for many energy-producing projects. In the first half of the decade, Fluor actively diversified its operations, contracting work for the U.S. Air Force at Dhahran Air Base and for refineries in Puerto Rico. In the early 1950s Fluor introduced a new technique that has since become standard in the industry: using scale models in the design of process facilities. The models helped Fluor staff become specialists in lifting large vessels at job sites. More projects followed, including designing and building plants for the petrochemical industry in Canada, Scotland, Australia, and South Africa. A London office opened in 1957. In the late 1950s Fluor's expertise in building helium plants gained the company contracts with Britain's Bureau of Mines and Office of Saline Water.

During this period of rapid expansion and large international contracts, Darnell became chairman of the company, J. Simon Fluor, Jr., became president and chief executive officer, and J. Robert Fluor, grandson of the founder, became executive vice-president.

As the company grew, Fluor's leadership recognized the critical value of recruiting a staff trained in the most current, sophisticated construction methods. Because the marketplace during the 1950s was short of workers with the skills Fluor demanded, the company established in-house training and college tuition reimbursement programs, both of which are still in use. Meanwhile, in 1957, the company's stock began trading on the New York and Pacific exchanges.

Diversification into Offshore Oil and Mining in the 1960s and 1970s

In 1962 J. Robert Fluor, an engineer and former U.S. Air Force pilot who bred thoroughbred horses, became president and chief executive officer of the company. His tenure was significant for Fluor Corporation in four major ways: internationalization, computerization, acquisitions in the offshore oil drilling industry, and mining acquisitions. In the first case, Fluor built refineries in Korea and Iran, extending its operations into two more nations. In the computerization area, the company began using computers throughout its offices for both engineering projects and management needs during the 1960s.

Fluor's extensive diversification into offshore drilling began in 1967 with the merger of five companies into Fluor under the divisional name Coral Drilling. Around the same time Fluor established a new subsidiary called Deep Oil Technology for deep-ocean recovery of oil. In 1968 the company created Fluor Ocean Services, an umbrella management company headquartered in Houston. Ocean Services quickly became a worldwide company. Fluor's largest offshore drilling acquisition occurred in 1969, when the company took over the Pike Corporation of America. Pike's operations had been consolidated under three separate companies--Western Offshore Drilling and Exploration Company, Republic Supply Company of California, an equipment distributor, and the specialty tubing and pipe distributor Kilsby Tubesupply.

Fluor's involvement with the mining and metals industry also began in 1969. The company purchased Utah Construction and Mining Company, forming the subsidiary Fluor Mining & Metals, Inc. Fluor Australia, another mining interest, was set up soon afterward. In later years mining would become a significant interest for Fluor. In the meantime, Fluor consolidated its engineering and construction activities into Fluor Engineers and Constructors, Inc. in 1971.

The company's activities in the 1970s focused heavily on the international natural resources industries: oil, gas, and nuclear power. Fluor also set up subsidiaries and management organizations in Europe, Indonesia, South Africa, Alaska, and Saudi Arabia, the last being a $5 billion gas program. In 1973 Fluor consolidated its oil and gas activities to form Fluor Oil and Gas Corporation. It completed the world's largest offshore facility for natural gas in Java in 1976.

The financial figures for three consecutive years demonstrate the rate of the company's expansion: 1973, $1.3 billion; 1974, $4.4 billion; 1975, $9 billion. New corporate offices opened in Houston and Irvine to accommodate the company's rapidly growing staff. Fluor executives attributed a large part of the company's success to its task force management concept, under which every Fluor project received all the tools, personnel, and resources to get the job done, and the project director had full authority and responsibility for the entire project.

In the late 1970s the Saudi Arabian minister of industry asked company president J. Robert Fluor to help improve Saudi Arabia's poor image in the United States. At that time Fluor chaired the board of trustees at the University of Southern California. He asked executives of 40 major companies that dealt with the Saudis to fund a $22 million Middle East Studies Center at the university. The center was to be run by a former oil company employee and controlled by the donors. The university faculty and the Los Angeles Jewish community blocked the project because of the irregularity of its intended relationship with its fund sources. Fluor Corporation's public relations department claimed the affair had been distorted by the 'Jewish Press.'

Along with Fluor's extensive and sometimes controversial international involvement, the company also made a significant domestic expansion by acquiring the Daniel International Corporation in 1977. Daniel was an industrial contractor with revenues over $1 billion a year that in many ways complemented the Fluor portfolio. Daniel's operations were primarily based in the United States, whereas Fluor worked largely overseas. The two had different client lists and were involved in different kinds of projects. Most Fluor employees were members of labor unions, but most of Daniel's employees were not. Despite, and in some cases because of, their differences, the two companies integrated efficiently.

Restructuring in the 1980s

This was not the case, however, with the purchase of St. Joe Minerals Corporation in 1981. The acquisition happened at a time when Fluor had a healthy cash flow from its growing engineering and construction sectors. Management knew about the mining industry from its experience building facilities for mines. Fluor executives determined that metals prices ran counter-cyclically to the market variations in the construction industry, making mining the perfect complement to building. Thus the company successfully bid $2.2 billion for St. Joe, which included A.T. Massey Coal Company, Inc.

In the next several years Fluor posted significant losses. The company was not prepared for the crash in metals prices of the early 1980s. The fall was compounded by a deep recession, a reduced inflation rate, and a collapse in petrochemical plant building because of the oversupply of oil. From a high of $71 in 1981, Fluor stock fell to lower than $20 by 1985, and the company accumulated $724 million in debt.

After J. Robert Fluor's death in 1984, David S. Tappan, Jr., moved up from the Fluor presidency to become chief executive officer. Tappan brought a great deal of international experience to the position and looked for ways to ease the company's dependence on oil contracts. As the company continued to lose money from 1983 through 1986, it earnestly sought a return to profitability, finally deciding it must divest some of its holdings and restructure the entire enterprise. Fluor sold all the oil properties and some of the gold affiliated with its St. Joe Minerals operation, all its offshore drilling facilities, and some of the corporate offices it had built during the 1970s.

The company also divested its South African operations in 1986. Fluor's stated political position on the issue was that the company 'still believes sanctions and withdrawal of U.S. firms from South Africa are counterproductive to achieving a peaceful solution to the problems of racial inequality. But as uncertainties of continued operation in South Africa escalate, we felt that an orderly transfer of ownership at this time would be in the best interests of all concerned.' Fluor retained a repurchase option on the divested South African assets.

Concurrent with Fluor's divestiture of its South African operations in 1986, the company underwent extensive restructuring. The dramatic losses incurred throughout the early 1980s had convinced Tappan that Fluor's survival would not be assured if the company remained almost entirely dependent upon the cyclical oil industry for its business. The collapse of oil prices in the beginning of the decade marked the end of Fluor's $1 billion-plus contracts to construct oil refineries and petrochemical facilities, and the company began to suffer disastrous losses, recording its largest at $633 million in 1985. In order to lessen its dependence on the oil market and to develop a more diversified clientele, Tappan decided in 1986 to merge Daniel International with Fluor Engineers and Constructors to create Fluor Daniel Inc. Operating as the major subsidiary of Fluor Corporation, Fluor Daniel enabled the company to capitalize on the industrial business that had been Daniel's strength. Instead of almost exclusively constructing facilities for the petroleum industry, Fluor now began to contract for plant modernizations, chemical plant constructions, factory retrofits, and high-tech plant construction. To further strengthen its move toward diversification, Tappan reorganized Fluor into five market sectors: process, power, industrial, hydrocarbon, and government.

The transformation proved successful. After losing $60 million in 1986, Fluor posted a profit the following year of $26 million and by the end of the decade had bolstered its earnings to $147 million, on over $7 billion in sales. Although Fluor continued to construct petroleum refineries for $1 billion and upwards--most notably in Saudi Arabia--the company's recovery was due to the diversity of its clientele. Fluor now designed, constructed, and maintained buildings and equipment in more than 30 industries.

Broad Expansion, Then Retrenchment: 1990s

This diverse customer base served Fluor well in the early 1990s when a recession crippled many construction companies. The company increased its operating profit throughout the downturn, benefiting from a $5 billion contract to manage and construct the production facilities of Saudi Aramco and other work in the Middle East resulting from the destruction of petroleum facilities during the war in the Persian Gulf.

In 1992, under the stewardship of Leslie G. McCraw, a former vice-president of Fluor who replaced Tappan a year earlier, Fluor continued to increase its profits in the engineering and construction business and augment its investment in the coal industry. For the fifth consecutive year Fluor Daniel recorded an operating profit, increasing 15 percent from 1991 to $191 million. Revenues for the year were buoyed by a $4 billion U.S. Department of Energy contract to manage the cleanup and dismantling of a plutonium plant in Fernald, Ohio. The company's coal mining concern, A.T. Massey Coal Company, increased its reserves of high-quality, low-sulfur coal to nearly one billion tons, ranking it among the five largest U.S. coal companies. While Fluor's coal business thrived, generating an operating profit of $80 million, the company's lead concern, the Doe Run Company, suffered from a considerable drop in the price of lead. By the end of the year, McCraw decided to end Fluor's presence in the lead industry, designating the Doe Run operation as a discontinued operation. He was finally able to sell the unit in April 1994.

McCraw also oversaw a speeding up of the diversification program started by his predecessor, with 1994 standing out as a key turning point. That year Fluor Daniel aggressively expanded into new industry markets and geographic regions; by early 1995 the unit had operations in more than 80 countries and in 25 industry areas. The corporation also created a new unit, the Diversified Services Group, which began providing a variety of engineering- and construction-related services, including procurement, temporary staffing, and equipment rental and sales. Revenues subsequently soared, from $7.85 billion in 1993 to $11.02 billion in 1996 (an increase of more than 40 percent), while net income climbed from $166.8 million to $268.1 million over the same period (more than 60 percent). Among the major projects that Fluor Daniel was contracted to build during this period--either alone or through a consortium--were a $1 billion petrochemical complex in Kuwait; a $5 billion cleanup effort at a former U.S. Department of Energy plutonium production facility in Hanford, Washington; the $1.6 million Batu Hijau copper and gold mining project in Indonesia; and a $4.8 billion high-speed rail system in Florida.

The big expansion push engineered by McCraw hit a snag in early 1997 when Fluor's profits began suffering from a spate of low-margin contracts and increased competition stemming from industry overcapacity. In February 1997 the company announced that it would take a $140 million pretax charge to cover cost overruns on two major contracts and would launch a restructuring aimed at cutting $100 million out of its bloated overhead, which had reached nearly $700 million because of McCraw's worldwide expansion. A number of new overseas offices that had been opened were shuttered and more than 100 executives left the company. As 1997 continued, however, Fluor's situation worsened thanks to the Asian economic crisis that erupted that summer. In late 1997 the company announced another restructuring. Continuing to pull back from the diversification program, Fluor Daniel was reorganized into four market-focused segments: energy and chemicals; government, environment, and telecommunications; industrial; and mining and minerals. It also began to be more selective about the projects it took on. In early 1998 McCraw took early retirement for health reasons.

After several months of management by an executive committee, Fluor installed a new chairman and CEO in July 1998, Philip J. Carroll, who became the first outsider named chairman in company history. Carroll took the position after a company policy requiring top executives to retire at age 60 forced him to leave his job as president and CEO of Shell Oil Company, the U.S. unit of Anglo-Dutch petroleum giant Royal Dutch/Shell Group. The appointment of an outsider surprised many observers, but Carroll's experience turning Shell around appeared key. In October 1998, soon after Carroll came on board, Fluor abandoned its attempt to sell American Equipment Company, its equipment rental and sales unit, having announced its intention to divest the unit only the previous March. The decision followed the collapse of negotiations with the leading bidder.

Carroll then initiated a much more significant restructuring, which was announced in March 1999. Fluor was reorganized into five semiautonomous business units, the three most important of which were: Fluor Daniel, A.T. Massey Coal, and Fluor Global Services. The last of these was a successor to the Diversified Services Group, and included American Equipment, staffing services, operations and maintenance services, consulting services, and services for the governmental and telecommunications sectors. The restructuring also involved a large-scale overhaul of the Fluor Daniel unit. In order to slash an additional $160 million from Fluor's still bloated overhead, 15 of Fluor Daniel's 75 domestic and overseas offices were closed and about 5,000 jobs were eliminated from the workforce. While not abandoning any existing contracts, Fluor Daniel planned to concentrate on five core areas in the future: chemicals and process (including pharmaceuticals and biotechnology); oil, gas, and power; infrastructure (transportation); mining; and manufacturing (particularly consumer products, food and beverage, microelectronics, and light metals). Fluor Daniel aimed to focus on its 200 largest customers and those industries in which its projects achieved the largest profit margins. For the fiscal year ending in October 1999, a $130 million charge contributed to a 56 percent drop in profits, to $104.2 million. Revenues fell for the second straight year, reflecting the narrowing scope of the company's engineering and construction operations.

Early results of the latest revamp were encouraging though tentative. Revenues continued their expected decline but net income was on the increase, resulting in a clear improvement in profit margins. The spike in oil prices during 2000 boded well for Fluor Daniel's energy unit, and the economic recovery in several key markets provided additional early 21st-century optimism for the still globally active Fluor Corporation.

Principal Subsidiaries: ADP Marshall Contractors Inc.; American Equipment Company, Inc.; A.T. Massey Coal Company, Inc.; Fluor Constructors International, Inc.; Fluor Daniel Inc.; Fluor Daniel Williams Brothers; Fluor Daniel Pty. Ltd. (Australia); Fluor Daniel Brasil; Fluor Daniel Canada Inc.; Fluor Daniel Wright Limited (Canada); Fluor Daniel Chile, S.A.; Fluor Daniel China, Inc.; Fluor Daniel India Private Limited; Fluor Daniel Eastern, Inc. (Indonesia); Fluor Daniel (Malaysia) Sdn. Bhd.; ICA Fluor Daniel (Mexico); Fluor Daniel B.V. (Netherlands); Fluor Daniel Consultants B.V. (Netherlands); Fluor Daniel Sucursal del Peru; Fluor Daniel Pacific Inc. (Philippines); Fluor Daniel Eurasia Inc. (Russia); Fluor Daniel Arabia Limited (Saudi Arabia); Fluor Daniel Engineers & Constructors Ltd. (Singapore); Fluor Daniel South Africa Pty. Ltd.; Fluor Daniel España, S.A. (Spain); Fluor Daniel Group Inc. (United Arab Emirates); Fluor Daniel International Limited (U.K.); Fluor Daniel Limited (U.K.); Tecnofluor Inc. (Venezuela).

Principal Operating Units: Fluor Daniel; Fluor Global Services; Fluor Signature Services; A.T. Massey Coal; Fluor Constructors International.

Principal Competitors: ABB Ltd.; AGRA Inc.; Ansaldo; ARCADIS NV; Arch Coal, Inc.; Bechtel Group, Inc.; Black & Veatch; Bouygues S.A.; CH2M Hill Companies, Ltd.; Day & Zimmermann, Inc.; Foster Wheeler Corporation; Groupe GTM; Halliburton Company; Hyundai Group; J.S. Alberici Construction Co., Inc.; Kajima Corporation; Kvaerner ASA; McDermott International, Inc.; Ogden Corporation; Peter Kiewit Sons', Inc.; Philip Services Corp.; Philipp Holzmann Group; Raytheon Company; Samsung Corporation; Stone & Webster, Incorporated; Technip.

Chronology

• Key Dates:

• 1890: John Simon Fluor and his two older brothers start a saw and paper mill called Rudolph Fluor & Brother.
• 1903: The company is renamed Fluor Brothers Construction Company.
• 1912: Fluor travels to California and starts his own general construction business.
• 1924: Fluor incorporates his business as Fluor Construction Company.
• 1929: Company is reincorporated as Fluor Corporation, Ltd.
• 1930: Peter Fluor expands the company's operations outside of California.
• 1950: The company's stock begins trading over the counter.
• 1957: The company's stock begins trading on the New York and Pacific exchanges.
• 1967: Fluor's diversification into offshore drilling commences.
• 1969: Company enters the mining and metals industry through the purchase of Utah Construction and Mining Company.
• 1971: Engineering and construction activities are consolidated into Fluor Engineers and Constructors, Inc.
• 1984: David S. Tappan, Jr., becomes CEO.
• Mid-1980s:Fluor divests all of its oil properties, some gold operations, and all its offshore drilling facilities.
• 1991: Leslie G. McGraw takes over as CEO.
• 1997: Decreasing profits lead to restructuring efforts and a pullback from the expansion program launched three years earlier.
• 1998: McGraw steps down as CEO and is replaced by Philip Carroll, the first outsider named chairman in company history.
• 1999: Major restructuring divides the company into five semiautonomous business units: Fluor Daniel, Fluor Global Services, A.T. Massey Coal, Fluor Constructors International, and Fluor Signature Services; Fluor Daniel is organized into five units, 15 of its offices are closed, and its workforce is reduced by 5,000.