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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

OR

(   ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File Number: 1-16129

FLUOR CORPORATION

One Enterprise Drive, Aliso Viejo, CA 92656

(949) 349-2000

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  (   )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes  (X)       No  (   )

As of July 31, 2003, there were 81,645,165 shares of common stock outstanding.

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FLUOR CORPORATION

FORM 10-Q

June 30, 2003

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PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended June 30, 2003 and 2002

UNAUDITED

See Accompanying Notes

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FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Six Months Ended June 30, 2003 and 2002

UNAUDITED

See Accompanying Notes

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FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2003 and December 31, 2002

UNAUDITED

*

Amounts at December 31, 2002 have been derived from audited financial statements.

See Accompanying Notes

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FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2003 and 2002

UNAUDITED

See Accompanying Notes

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FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

(1)		The condensed consolidated financial statements do not include footnotes and certain financial information normally presented annually under accounting principles generally accepted in the United States and, therefore, should be read in conjunction with the company’s December 31, 2002 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 June 30, 2003 are not necessarily indicative of results that can be expected for a 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 June 30, 2003, its consolidated results of operations for the three and six months ended June 30, 2003 and 2002 and its cash flows for the six months ended June 30, 2003 and 2002.
		Certain 2002 amounts have been reclassified to conform with the 2003 presentation.
(2)		Advances from affiliate relate to cash received by Duke/Fluor Daniel, a joint venture entity, from advance billings on contracts, which are made available to the partners. Such advances are classified as an operating liability of the company.
(3)		The components of comprehensive income, net of related tax, are as follows:

		In the three and six months ended June 30, 2003, exchange rates for functional currencies for most of the company’s international operations strengthened against the U.S. dollar resulting in unrealized translation gains that are reflected in the cumulative translation component of other comprehensive income. Most of these unrealized gains relate to cash balances held in currencies other than the U.S. dollar.
(4)		Cash paid for interest was $6.3 million and $5.6 million for the six-month periods ended June 30, 2003 and 2002, respectively. Included in cash paid for interest for the six months ended June 30, 2003 is $1.5 million related to debt resulting from the consolidation of variable interest entities. The comparable prior year amount of $1.6 million was recognized as rent expense. For further discussion on consolidation of variable interest entities see note 10. Income tax payments, net of receipts, were $6.6 million and $23.7 million during the six-month periods ended June 30, 2003 and 2002, respectively.

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FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

UNAUDITED

(5)		During the first quarter of 2003, the company realigned certain operations to increase focus on the downstream bulk and specialty chemicals markets. Projects in these markets were formerly in the Energy & Chemicals segment and will now be executed and reported in the Industrial & Infrastructure segment. The Energy & Chemicals segment was renamed Oil & Gas and all prior periods have been restated to reflect this change.
		Following the realignment, operations are now organized in five industry segments: Oil & Gas, Industrial & Infrastructure, Power, Global Services and Government. The Oil & Gas segment provides engineering and construction professional services for upstream oil and gas production, downstream refining, and certain petrochemicals markets. The Industrial & Infrastructure segment provides engineering and construction professional services for manufacturing and life sciences facilities, commercial and institutional buildings, mining, downstream bulk and specialty chemicals, telecommunications and transportation projects and other facilities. The Power segment provides professional services to engineer, construct and maintain power generation facilities. Services provided by the Power segment are primarily conducted through two jointly owned groups; Duke/Fluor Daniel, 50 percent owned partnerships with Duke Energy, and ICA Fluor Daniel, 49 percent jointly owned companies with Grupo ICA, a Mexican company. The Global Services segment includes operations and maintenance, equipment and temporary staffing services and the company’s global sourcing and procurement services business. The Government segment provides project management, engineering, construction, and contingency response services to the United States government.
		On July 9, 2003, the company jointly announced with Duke Energy Corporation their decision to terminate the Duke/Fluor Daniel partnership as a result of the significant decline in the construction of new power plants. A joint plan among the partners is being developed to dissolve the business over the next two years. The dissolution is not expected to have a material impact on results of operations or financial position of the company.
		Operating information by segment for the company’s continuing operations are as follows for the three and six months ended June 30, 2003 and 2002:

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FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

UNAUDITED

		Total assets for the Oil & Gas segment at June 30, 2003 were $421.7 million compared with $338.7 million at December 31, 2002. The increase is primarily attributable to the deferral of costs related to Hamaca. For further discussion on this matter see note 11. In addition, total assets for the Government segment were $237.5 million compared with $128.6 million at December 31, 2002. The increase is primarily attributable to the acquisition of Del-Jen with total assets of $56.2 million as of June 30, 2003.
		A reconciliation of the segment information to consolidated amounts for the three and six months ended June 30, 2003 and 2002 is as follows:

(6)		In September 2001, the Board of Directors approved a plan to dispose of certain non-core operations of the company’s construction equipment and temporary staffing operations. In June 2003, the company completed the sale of the last equipment dealership operation resulting in cash proceeds of $31.9 million, which approximated its carrying value. Prior to completion of the sale, the company recorded an additional after-tax impairment provision in the first quarter of $13.5 million, which included adjustments to deferred taxes, to recognize further deterioration in its fair value due to continued severely depressed conditions in the equipment rental industry.
		The revenues and earnings (loss) from discontinued operations for the three and six months ended June 30, 2003 and 2002 are as follows:

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FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

UNAUDITED

The net assets of discontinued operations consisted of the following:

Certain remaining accruals have been reclassified to other accrued liabilities relating to the dealership and temporary staffing operations. These accruals are primarily for lease payments in excess of expected sublease recoveries for facility leases extending through 2007.

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FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

UNAUDITED

(7)		During the first quarter of 2003, the company completed two strategic acquisitions to strengthen and expand specific business segments.
		In January 2003, the company acquired Del-Jen, Inc. (“Del-Jen”), a leading provider of services to the Departments of Defense and Labor. The acquisition will expand the company’s ability to provide services in the government outsourcing market and will be reported in the company’s Government segment. Del-Jen was acquired for $33.3 million in cash, of which a purchase price adjustment of $0.7 million was paid in the second quarter. In connection with this acquisition, the company recorded goodwill of $24.0 million and intangible assets of $3.2 million. Goodwill is no longer amortized but is reviewed periodically for impairment in accordance with SFAS 142. The intangible assets are being amortized over useful lives ranging from three to seven years.
		In March 2003, the company acquired five specialty operations and maintenance (“O&M”) business groups from Philip Services Corporation. The acquired businesses, which have been named Plant Performance Services (“P2S”), will expand and strengthen the O&M services business component of the Global Services segment and complement the company’s core engineering, procurement, and construction business. The business groups were acquired for $21.2 million in cash. The seller retained the working capital for these businesses. During the period from the date of acquisition through June 30, 2003, approximately $40 million of working capital has been provided to the business to fund normal operations. The company has obtained independent appraisals and is in the process of completing its determination of the fair values of the acquired assets. As of June 30, 2003, the allocation of the purchase price has not been finalized.
		The company’s consolidated financial statements include the operating results of both businesses from the date of acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions were not material on either an individual or aggregate basis to the company’s results.
(8)		The company accounts for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. Compensation cost for stock appreciation rights and performance equity units is recorded based on the quoted market price of the company’s stock at the end of the period. Compensation cost for these plans totaled $3.4 million and $2.3 million for the six months ended June 30, 2003 and 2002, respectively.
		In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure” (SFAS 148). This statement amends the disclosure requirements of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123) to require more prominent disclosures in financial statements about the effects of stock-based compensation. SFAS 148 also amends the disclosure provisions of APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in interim financial statements.
		Under APB Opinion No. 25, no compensation cost is recognized for the option plans where vesting provisions are based only on the passage of time. Had the company recorded compensation expense using the accounting method recommended by SFAS 123, net earnings and earnings per share would have been reduced to the pro forma amounts as follows:

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FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

UNAUDITED

(9)		In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FASI 45). FASI 45 expands on the accounting and disclosure requirements under existing accounting standards. It clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation. The company adopted the accounting provisions of FASI 45 as of January 1, 2003 without material effect to either its financial position or results of operations.
(10)		In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Pursuant to the requirements of this Interpretation, the company has consolidated two entities that own certain engineering office facilities, which are leased to the company. The company has no ownership interest in the companies that own the facilities but is deemed to be the primary beneficiary of the variable interests in these entities. The leases contain residual value guarantees, which totaled approximately $105 million at December 31, 2002. None of the terms of the leasing arrangements or the company’s obligations as a lessee will be impacted by this change in accounting. If the company defaults on the lease payments or were to fail to meet its obligation under the residual value guarantee, the lenders and owners of the entities could proceed with recourse actions against the company to enforce payment.
		The company recognized an after-tax provision of $10.4 million for the cumulative effect of a change in accounting principle in the first quarter of 2003. The provision consists of the after-tax cumulative difference of rent expense previously recognized, compared with depreciation expense on the facilities and interest expense on the underlying financing, from inception of the leases through December 31, 2002. The impact to the company’s balance sheet at June 30, 2003 was an increase in Property, Plant and Equipment of $109.0 million and an increase in long-term debt of $126.8 million. The long-term debt provides for interest only payments at interest rates based on a reference rate (LIBOR for the Aliso Viejo facility and Canadian banker’s acceptance for the Calgary facility) plus a margin. Maturity on the debt coincides with the term of the leases, which expire in 2004 for facilities in Aliso Viejo and 2006 for facilities in Calgary. Rent payments are equal to the debt service on the underlying financing.
(11)		The company and certain of its subsidiaries are involved in litigation in the ordinary course of business. In addition, the company and certain of its subsidiaries are contingently liable for commitments and performance guarantees arising in the ordinary course of business. While we

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FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

UNAUDITED

		cannot predict the outcome of these matters, in the company’s opinion and based on reports of counsel, any liability arising from these matters individually and in the aggregate is not expected to have a material effect upon the consolidated financial position, results of operations or cash flows of the company, after giving effect to provisions already recorded.
		Claims arising from engineering and construction contracts have been made against the company by clients, and the company has made certain claims against clients for costs incurred in excess of the contract provisions. The company recognizes significant claims for recovery of incurred costs when it is probable that the claim will result in additional contract revenue and when the amount of the claim can be reliably estimated. Recognized claims against clients amounted to $16 million at both June 30, 2003 and December 31, 2002. While amounts ultimately realized from claims could differ materially from the balances included in the financial statements, the company does not expect that claim recoveries will have a material effect on its consolidated financial position or results of operations.
		The current status on matters in the dispute resolution process is as follows:
		Murrin Murrin
		Disputes between Fluor Australia and its client, Anaconda Nickel (“Anaconda”), over the Murrin Murrin Nickel Cobalt project located in Western Australia were partially resolved through arbitration during the third quarter of 2002. The first phase of the arbitration hearing was completed in May 2002 and a decision was rendered in September 2002 resulting in an award to Anaconda of A$147 million (subsequently amended to A$150 million [US$84.0 million at the time of the award]) and an award to Fluor of A$107 million [US$59.9 million at the time of the award] for amounts owing from Anaconda under the contract. The company has recovered a portion of the first phase award plus substantially all defense costs incurred to date from available insurance. On July 28, 2003, the Supreme Court of Victoria, Australia granted Anaconda’s appeal of an issue that had been decided in favor of Fluor by the arbitration panel in the first phase. This decision sends the arbitration panel’s denial of Anaconda’s claim for the cost of a fifth autoclave train back to the panel for further reconsideration. Fluor intends to appeal the Supreme Court’s decision to the State of Victoria Court of Appeal.
		The second phase of the arbitration is currently scheduled to be heard in late 2003. The company does not anticipate that there will be any material impact to the company from proceedings under either the first or the second phase of arbitration regardless of the outcome of the appeal.
		Fluor Daniel Intercontinental and Fluor Arabia Ltd. v. General Electric Company, et al
		In October 1998, Fluor Daniel Intercontinental and Fluor Arabia Ltd. filed a complaint in the United States District Court for the Southern District of New York against General Electric Company and certain operating subsidiaries as well as Saudi American General Electric, a Saudi Arabian corporation. The complaint seeks damages in connection with the procurement, engineering and construction of the Rabigh Combined Cycle Power Plant in Saudi Arabia. Subsequent to a motion to compel arbitration of the matter the company initiated arbitration proceedings in New York under the American Arbitration Association international rules. The evidentiary phase of the arbitration has been concluded and a decision is expected in early 2004.
		Dearborn Industrial Project
		The Dearborn Industrial Project (the “Project”) started as a co-generation combined cycle power plant project in Dearborn, Michigan. The initial Turnkey Agreement, dated November 24, 1998, consisted of three phases. Commencing shortly after Notice to Proceed, the owner/operator,