SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 1-16129

FLUOR CORPORATION

(949) 349-2000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act:
None

     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, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

     Based upon the closing price of the registrant’s common stock as of June 30, 2004, the aggregate market value of the common stock held by non-affiliates was $3,905,716,254.

     As of March 1, 2005, there were 85,555,812 shares of Fluor common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the annual meeting of shareholders to be held on April 27, 2005, which proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2004.

FLUOR CORPORATION

INDEX TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2004

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     From time to time, Fluor^® Corporation makes certain comments and disclosures in reports and statements, including this report, or statements made by its officers or directors that are not based on historical facts and which may be forward-looking in nature. Under the Private Securities Litigation Reform Act of 1995, a “safe harbor” may be provided to us for certain of these forward-looking statements. We wish to caution readers that forward-looking statements, including disclosures which use words such as the company “believes,” “anticipates,” “expects,” “estimates” and similar statements, are subject to certain risks and uncertainties which could cause actual results of operations to differ materially from expectations.

     Any forward-looking statements that we may make are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those anticipated by us. Any forward-looking statements are subject to the risks and uncertainties that could cause actual results of operations, financial condition, cost reductions, acquisitions, dispositions, financing transactions, operations, expansion, consolidation and other events to differ materially from those expressed or implied in such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements. As a result, the reader is cautioned not to rely on these forward-looking statements. In addition, any forward-looking statements should be considered in context with the various disclosures made by us about our businesses, including without limitation the risk factors more specifically described below in Item 1. Business, under the heading “Company Risk Factors.”

     Except as the context otherwise requires, the terms “Fluor” or the “Registrant” as used herein are references to Fluor Corporation and its predecessors and references to the “company,” “we,” “us,” or “our” as used herein shall include Fluor Corporation, its consolidated subsidiaries and divisions.

PART I

Item 1. Business

     Fluor Corporation was incorporated in Delaware on September 11, 2000 prior to a reverse spin-off transaction which separated us from our coal business which now operates as Massey Energy Company. However, through various of our predecessors, we have been in business for more than 100 years. Our executive offices are located at One Enterprise Drive, Aliso Viejo, California 92656, telephone number (949) 349-2000. Our common stock currently trades on the New York Stock Exchange under the ticker symbol “FLR”.

     The company is structured as a holding company which owns the stock of a number of subsidiaries. It is through these subsidiaries that we perform our business. We operate globally, with workforce of nearly 35,000 employees located in offices in 25 countries across six continents. We define our business as providing engineering, procurement, construction and maintenance services. We serve a diverse set of industries worldwide including chemical and petrochemicals, life sciences, manufacturing, oil and gas, power, telecommunications and transportation infrastructure. We are also a primary service provider to the United States federal government. We perform operations and maintenance activities for major industrial clients. We believe that due to the diversity of the services we provide, coupled with our broad geographic scope and experience across a broad array of markets, we are able to deliver solid returns, more consistent growth and better shareholder value.

     We are one of the largest professional services firms, providing services on a global basis in the fields of engineering, procurement, construction and maintenance services. We are aligned into five principal operating segments (each, a “segment”). The five segments are Oil & Gas, Industrial & Infrastructure, Government, Global Services and Power. Fluor Constructors International, Inc. which is organized and operates separately from our business segments, provides unionized management and construction services in the United States and Canada, both independently and as a subcontractor on projects to our segments.

     One of our core values and a fundamental business strategy is our constant pursuit of safety. Both for us and our clients, the maintenance of a safe workplace is a key business driver. In the areas in which we provide our services, we have and continue to deliver excellent safety performance, with our safety record being significantly better than the national industry average. We believe that our safety record is one of our most distinguishing features.

     During the third quarter of 2004, we moved our Mexican and Central American operations, which we perform through our partnership with Grupo ICA known as ICA Fluor Daniel (“ICA Fluor”), from our Power segment to our Oil & Gas

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segment. This move reflects a shift toward an increasing dominance of oil and gas-based projects and services being performed by ICA Fluor.

     A summary of our operations and activities by business segment and geographical area is set forth below.

General Operations

     On a general basis, our services fall into four broad categories: engineering, procurement, construction and maintenance. We offer these services independently and on a fully integrated basis. Our services can range from basic consulting activities, often at the early stages of a project to complete, sole-responsibility, design build contracts.

	•	In the engineering area, our expertise ranges from traditional engineering disciplines such as piping, mechanical, electrical, civil, structural and architectural to emerging engineering specialties including simulation, enterprise integration, integrated automation processes and interactive 3-D modeling. As part of these services, we often provide conceptual design services, which allow us to align each project’s function, scope, cost and schedule with the customer’s objectives in order to optimize project success. Also included within these services are such activities as feasibility studies, project development planning, technology evaluation, risk management assessment, global siting, constructability reviews, asset optimization and front-end engineering.
	•	Our procurement team offers traditional procurement services as well as new strategic sourcing and supply processes that are aimed at improving product quality and performance while also reducing project cost and schedule. Our clients benefit from our global sourcing and supply expertise, global purchasing volume, access, technical knowledge, competitive pricing and attention to service. Our activities include sourcing, material control, buying, procurement management, expediting, supplier quality inspection, logistics and field material management.
	•	In the construction area, we mobilize, execute, commission and demobilize projects on a self-perform or subcontracted basis or through construction management as the owner’s agent. Generally, we are responsible for the completion of a project, often in difficult locations and under difficult circumstances. Often, we are designated as a program manager, where a client has facilities in multiple locations, complex phases in a single project location, or a large-scale investment in a facility. Depending upon the project, we may be the primary contractor or we may act as a subcontractor to another party.
	•	Under our operations and maintenance contracts, we deliver total maintenance services, facility management, plant readiness, commissioning, start-up and maintenance technology, small capital projects and turnaround and outage services, on a global basis.

We operate in five basic business segments, as described below:

Oil & Gas

     The Oil & Gas segment is an integrated service provider offering a full range of design, engineering, procurement, construction and project management services to a broad spectrum of energy-related industries. We serve a number of specific industries which include upstream oil and gas production, and downstream refining and integrated petrochemicals. We also continue to focus on oil sands development, where we see continuing growth prospects especially in Canada, gas field and natural gas projects, where the increase in demand for natural gas has driven growth in areas such as Liquefied Natural Gas and gas-to-liquids projects and in the clean fuels market, both domestically and internationally, where an increasing number of countries continue to implement stronger environmental policies. Our role in each project can vary, but may involve us providing front-end engineering, program management and final design services, construction management services, self-perform construction, or oversight of other contractors and the responsibility for the procurement of labor, materials, equipment and subcontractors. Our typical projects include new facilities, upgrades and revamps of existing facilities, fire and explosion rebuilds, expansions for refineries, pipeline and offshore facility installations. With our partner Grupo ICA, we maintain a joint venture known as ICA Fluor where we continue to participate in the Mexican oil and gas market.

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Industrial & Infrastructure

     The Industrial & Infrastructure segment provides design, engineering, procurement and construction services to the manufacturing, life sciences, commercial and institutional, chemicals, mining, microelectronics, telecommunications and transportation sectors. We provide our clients with the resources of architecture, industrial design, engineering, construction, construction management and commissioning (including validation) for new construction and refurbishment of existing facilities. These projects often require state-of-the-art application of our client’s process and intellectual knowledge. We focus on providing our clients with solutions to reduce and contain costs, and to compress delivery schedules. By doing so, our clients are able to begin to use their facilities on a quicker, more cost efficient basis.

     Key areas of focus in this market during 2004 included life sciences, especially with regard to commercial scale biologics facilities, mining due to strengthening in commodity markets during 2004, chemicals largely in the Middle East and China, and transportation infrastructure projects, mostly with large-scale, complex design-build and public/private partnership opportunities where we can demonstrate our competitive strengths.

Government

     The Government segment is a leading provider of project management services to the United States government, particularly to the Department of Energy. This segment is presently providing environmental restoration, engineering, construction, site operations and maintenance services at two major Department of Energy project sites.

     We also provide engineering and construction services, as well as contingency operations support to the Departments of Defense, State and Transportation and to agencies such as the Federal Emergency Management Agency. Our contingency operations activities, which support military logistical and infrastructure needs around the world, are evidenced by our recent task orders for the U.S. Army Central Command to upgrade military facilities and electrical infrastructure in Iraq. Through our subsidiary, Del-Jen, Inc., and as a result of its acquisition in February 2004 of Trend Western, Inc., we are a leading provider of outsourced services to the federal government. Del-Jen provides operations and maintenance services at military bases and education and training services to the Department of Labor, particularly through its Job Corps programs. Through our J. A. Jones International subsidiary, we are one of the largest providers for the Department of State’s embassy and consulate market. During 2004, we placed focus on successfully growing our Government business and we will continue to explore further growth and expansion opportunities in this segment. We also continue to focus on opportunities with the Department of Homeland Security and the Federal Emergency Management Agency.

Global Services

     The Global Services segment brings together a variety of customized service capabilities that complement and support our core businesses. Service areas within this segment include operations and maintenance activities, construction and maintenance site services and industrial fleet outsourcing, plant turnaround services, temporary staffing, materials and subcontract procurement, and construction-related support. These markets are largely driven by the growing demand from clients to outsource non-core services. Global Services’ activities in the operations and maintenance markets include providing facility management, maintenance, operations and asset management services to the oil and gas, chemicals and life sciences, fossil and nuclear power, and manufacturing industries. We are a leading supplier of integrated facility management services, including on-site maintenance and operation support services. Included within Global Services is Plant Performance Services, which we also refer to as P2S^SM. P2S is one of the largest specialty, rapid response service providers in the United States, performing small capital construction projects, specialty welding, electrical and instrumentation services, fabrication, mechanical and turnaround services.

     We also provide Site Services^SM and Fleet Outsourcing^SM through our American Equipment Company, Inc. (“AMECO”) subsidiary. AMECO provides integrated construction equipment, tool and fleet outsourcing solutions on a global basis for construction projects and plant sites. With locations throughout North and South America, AMECO supports some of the largest construction projects and plant locations in the world. We serve the temporary staffing market through our TRS^® Staffing Solutions (“TRS”) subsidiary. TRS is a global enterprise of staffing specialists that provide clients with recruiting and placement of temporary, contract and direct hire technical professionals. Our construction and global sourcing and supply organizations provide global resources, processes and technology, market knowledge and experience, and volume-leveraged pricing to the company and third parties.

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Power

     In the Power segment, we design and construct new power generation facilities, mostly in the fossil fuel power industry. We perform a full range of services, including engineering, procurement, construction, start-up, and maintenance. We also provide the design and installation of emissions equipment to comply with environmental guidelines. In addition, we have been successfully increasing the in-plant services we provide to the power market where, for example, we can assist clients in operational improvements, predictive and preventative maintenance and turbine fleet management. Previously, we performed the vast majority of our power work through our joint venture with Duke Energy in a venture known as Duke Fluor Daniel. As the power market has cycled down over the past year from historical highs during the past few years, we elected to discontinue this joint venture; however, we continue to complete previously contracted projects as we work towards the liquidation of this venture. We will continue to pursue power generation opportunities, and any new projects will be performed 100% by us.

Discontinued Coal Segment

     On November 30, 2000 (the “Distribution Date”), Fluor Corporation (“Old Fluor”), a corporation incorporated in Delaware in 1978 as successor in interest to a California corporation of the same name incorporated in 1924, announced that it had completed a reverse spin-off transaction where Old Fluor’s Coal segment, which previously operated as a subsidiary under the name of A. T. Massey Coal Company, Inc., was separated from the other business segments of Old Fluor.

     The separation of the two companies was accomplished through a tax-free dividend (the “Distribution”) by Old Fluor of the company. As a result of the Distribution, we became a new entity comprised of all of Old Fluor’s business segments, other than those involving the Coal segment (the “New Fluor Businesses”). Old Fluor, the continuing entity consisting of the Coal segment of Old Fluor, changed its name to Massey Energy Company (“Massey”). As a result, two publicly-traded companies were created: Massey Energy Company, and a “new” Fluor Corporation which is the company that is the subject of this report. Massey Energy is a publicly-traded company that is listed on the New York Stock Exchange as “MEE”, and files its own reports with the Securities and Exchange Commission. Due to the relative significance of the New Fluor Businesses, the New Fluor Businesses have been treated as the “accounting successor” for financial reporting purposes, and the Coal segment has been classified by us as discontinued operations despite the legal form of the separation resulting from the Distribution.

Other Matters

   Backlog

     Backlog in the engineering and construction industry is a measure of the total dollar value of work to be performed on contracts awarded and in progress. The following table sets forth the consolidated backlog of the Oil & Gas, Industrial & Infrastructure, Government, Global Services and Power segments at December 31, 2004 and 2003.

     The following table sets forth the consolidated backlog of the Oil & Gas, Industrial & Infrastructure, Government, Global Services and Power segments at December 31, 2004 and 2003 by region.

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     For purposes of the preceding tables, we include our operations and maintenance activities when we compute our backlog for our Global Services segment; however, the equipment, temporary staffing and global sourcing and procurement operations of our Global Services segment do not report backlog due to the quick turnaround between the receipt of new awards and the recognition of revenue. With respect to backlog in our Government segment, if a contract covers multiple years, we only include the amounts for which Congressional funding has been approved and then only for that portion of the work to be completed in the next twelve months. For projects related to unconsolidated or partially consolidated joint ventures, we include only percentage membership of each joint venture’s backlog.

     We expect to perform 45% of our backlog in 2005. The dollar amount of the backlog is not necessarily indicative of our future earnings related to the performance of such work. Although backlog represents only business which is considered to be firm, there can be no assurance that cancellations or scope adjustments will not occur. Due to additional factors outside of our control, such as changes in project schedules, we cannot predict with certainty the portion of our December 31, 2004 backlog estimated to be performed subsequent to 2005.

     For additional information with respect to our backlog, please refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation, below.

Types of Contracts

     While the basic terms and conditions of the contracts that we perform may vary considerably, generally we perform our work under two groups of contracts: cost reimbursable, and guaranteed maximum and fixed price contracts. As of December 31, 2004, the following table breaks down the percentage and amount of revenue associated with these types of contracts for our existing backlog:

     Under cost reimbursable contracts, the client reimburses our costs in developing a project and pays us a pre-determined fee or a fee based upon a percentage of the costs incurred in completing the project. Our profit may be in the form of a fee, a simple mark-up applied to labor costs incurred in the contract, or a combination of the two. The fee element may also vary. The fee may be an incentive fee based upon achieving certain performance factors, milestones or targets; it may be a fixed amount in the contract; or it may be based upon a percentage of the costs incurred.

     Our Government segment, as a prime contractor or a major subcontractor for a number of United States government programs, generally performs its services under cost reimbursable contracts although subject to applicable statutes and regulations. In many cases, these contracts include incentive-fee arrangements. The programs in question often take many years to complete and may be implemented by the award of many different contracts. Despite the fact that these programs are generally awarded on a multi-year basis, the funding for the programs is generally approved on an annual basis by Congress. The government is under no obligation to maintain funding at any specific level, or funds for a program may even be eliminated thereby significantly curtailing or stopping a program.

     Some of our government contracts are known as Indefinite Delivery Indefinite Quantity agreements. Under these arrangements, we work closely with the government to define the scope and amount of work required based upon an estimate of the maximum amount that the government desires to spend. While the scope is often not initially fully defined or requires any specific amount of work, once the project scope is determined, additional work may be awarded to us without the need for further competitive bidding.

     Guaranteed maximum price contracts, or GMAX contracts, are performed in a manner similar to cost reimbursable contracts except that the total fee plus the total cost cannot exceed an agreed upon guaranteed maximum price. We can be responsible for some or all of the total cost of the project if the cost exceeds the guaranteed maximum price. Where the total cost is less than the negotiated guaranteed maximum price, we will receive the benefit of the cost savings based upon a negotiated agreement with the client.

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     Fixed price contracts include both negotiated fixed price contracts and lump sum contracts. Under negotiated fixed price contracts, we are selected as contractor first, and then we negotiate price with the client. These types of contracts generally occur where we commence work before a final price is agreed upon. Under lump sum contracts, we competitively bid based upon specifications provided by the client, agreeing to develop a project at a fixed price. Another type of fixed price contract is a so-called unit price contract under which we are paid a set amount for every “unit” of work performed. In some fixed price contracts, we can benefit from some of the cost savings depending upon whether the client is willing to bear some of the risk if the actual cost exceeds the contract award. As a result, if we perform well, we can benefit from cost savings; however, if the project does not proceed as originally planned, we cannot recover for cost overruns except in certain limited situations.

Competition

     We are one of the world’s larger providers of engineering, procurement and construction services. The markets served by our business are highly competitive and for the most part require substantial resources, particularly highly skilled and experienced technical personnel. A large number of companies are competing in the markets served by the business, including U.S.-based companies such as the Bechtel Group, Inc., Jacobs Engineering Group, Halliburton’s Kellogg Brown & Root, CB&I, CH2M Hill Companies, Parsons Engineering and Washington Group International, and international companies such as Foster-Wheeler, Technip and AMEC.

     In the engineering and construction arena, our competition is primarily centered on performance and the ability to provide the design, engineering, planning, management and project execution skills required to complete complex projects in a safe, timely and cost-efficient manner. Our engineering, procurement and construction business derives its competitive strength from our diversity, reputation for quality, technology, cost-effectiveness, worldwide procurement capability, project management expertise, geographic coverage and ability to meet client requirements by performing construction on either a union or an open shop basis, ability to execute projects of varying sizes, strong safety record and lengthy experience with a wide range of services and technologies.

     The various markets served by the Global Services segment, while containing some similarities, tend also to have discrete issues particularly impacting that unit. Each of the markets we serve has a large number of companies competing in its markets. In the equipment sector, which operates in numerous markets, the equipment industry is highly fragmented and very competitive, with most competitors operating in specific geographic areas. The competition for larger capital project services is more narrow and limited to only those capable of providing comprehensive equipment, tool and management services. Temporary staffing is a highly fragmented market with over 1,000 companies competing nationally. The key competitive factors in this business line are price, service, quality, breadth of service, and the ability to identify and retain qualified personnel and geographical coverage. The barriers to entry in operations and maintenance are both financially and logistically low with the result that the industry is highly fragmented with no single company being dominant. Competition is generally driven by reputation, price and the capacity to perform.

     Key competitive factors in our Government segment are primarily centered on performance and the ability to provide the design, engineering, planning, management and project execution skills required to complete complex projects in a safe, timely and cost-efficient manner.

Significant Customers

     For 2004, 2003 and 2002, revenues earned directly or indirectly from agencies of the United States Federal Government accounted for 24%, 16%, and 10%, respectively, of our total revenues. However, we are not dependent on any single federal agency or upon any other single customer on an on-going basis, and the loss of any single customer would not have a material adverse effect on our business. Except for the United States Federal Government, no other single customer accounted for over 10% of our revenues in either of the last two years.

Raw Materials

     The principal raw materials we use in our business include structural steel, metal plate and concrete. These and the other raw materials and the components we use and which are necessary for the conduct of our business are generally available from numerous sources. We do not foresee any unavailability of raw materials and components that would have a material adverse effect on our business in the near term. However, the price and availability of these raw materials and components

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may vary significantly from year to year due to various factors including customer demand, producer capacity, market conditions and material shortages and costs.

Research and Development

     While we engage in research and development efforts in the development of new products and services, during the past three fiscal years, we have not incurred costs for company-sponsored research and development activities which would be material, special or unusual in any of our business segments.

Patents

     We hold patents and licenses for certain items that we use in our operations. However, none is so essential that its loss would materially effect our business.

Environmental, Safety and Health Matters

     We believe, based upon present information available to us, that our accruals with respect to future environmental costs are adequate and any future costs will not have a material effect on our consolidated financial position, results of operations or liquidity. Some factors, however could result in additional expenditures or the provision of additional accruals in expectation of such expenditures. These include the imposition of more stringent requirements under environmental laws or regulations, new developments or changes regarding site cleanup costs or the allocation of such costs among potentially responsible parties, or a determination that we are potentially responsible for the release of hazardous substances at sites other than those currently identified.

Number of Employees

     The following table sets forth the number of employees of Fluor and its subsidiaries engaged in our continuing business segments as of December 31, 2004:

     With respect to our total number of employees, as of December 31, 2004 we had 17,344 salaried employees and 17,455 craft and hourly employees. The number of craft and hourly employees varies in relation to the number and size of projects we have in process at any particular time.

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Executive Officers of the Registrant

     Pursuant to the requirements of Item 401(b) and 401(e) of Regulation S-K, the following information is being furnished with respect to the company’s executive officers:

Alan L. Boeckmann

     Chairman and Chief Executive Officer, since February 2002; member of the Board since 2001; formerly, Chief Operating Officer from 2000; President and Chief Executive Officer, Fluor Daniel (now known as Fluor Enterprises, Inc.), a subsidiary of the company, from 1999; joined the company in 1979 with previous service from 1974 to 1977.

   Stephen B. Dobbs

     Group President, Industrial and Infrastructure, since November 2004; formerly, Group President, Infrastructure, from October 2003; President, Infrastructure from 2002; President, Transportation, from 2001; formerly Vice President, Sales, Infrastructure from 1999; joined the company in 1980.

   Jeffery L. Faulk

     Group President, Energy & Chemicals, since October 2003; formerly President and Chief Executive Officer of Duke/Fluor Daniel, a joint venture between the company and Duke Energy, from 2001; formerly Senior Vice President Operations, Energy & Chemicals and Vice President Operations, Oil & Gas since 1996; joined the company in 1973.

   Lawrence N. Fisher

     Chief Legal Officer and Secretary since 1996; joined the company in 1974.

    H. Steven Gilbert

     Senior Vice President, Human Resources and Administration since February 2002; formerly, Senior Vice President, Business and Work Process Integration from 1999; joined the company in 1970.

    Kirk D. Grimes

     Group President, Global Services since October 2003; formerly, Group Executive, Oil & Gas from 2001; formerly President, Telecommunications from 1998; joined the company in 1980.

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   John L. Hopkins

     Group President, Government since October 2003; formerly, Group Executive, Sales, Marketing and Strategic Planning from 2002; formerly Group Executive, Fluor Global Services from September 2001; formerly President and Chief Executive Officer, TradeMC, a developer and promoter of supplier networks for the procurement of capital goods, and an affiliate of the company, from March 2000; Group President, Sales & Marketing from 1988; joined the company in 1984 as a result of the company’s acquisition of Strategic Organizational Systems, Inc.

   Robert A. McNamara

     Senior Group Executive since November 2004; formerly, Group President, Industrial, since October 2003; formerly, Group Executive, Industrial & Infrastructure from 2002; formerly, Group Executive, Industrial since 2001; formerly, President, Manufacturing and Life Sciences from 1998; President, ADP Marshall, Inc., a construction subsidiary of the company which was acquired by the company in 1996, which he originally joined in 1978.

    Victor L. Prechtl

     Vice President and Controller since 1994; joined the company in 1981.

    D. Michael Steuert

     Senior Vice President and Chief Financial Officer since May 2001; formerly Senior Vice President and Chief Financial Officer, Litton Industries Inc, a major defense contractor from 1999 to 2001; joined the company in May 2001.

    Mark A. Stevens

     Group Executive, Project Risk since November 2004; formerly, Group Executive, Commercial Strategy & Risk since October, 2003; formerly Group Executive, Global Services from 2002; formerly Senior Executive, Sales, Marketing & Strategic Planning from 2001; formerly, President, Energy & Chemicals from 1997; joined the company in 1975.

Available Information

     Our web site address is www.fluor.com. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on our “Investor Relations” portion of our website, http://investor.fluor.com/Edgar.cfm, under the heading “SEC Filings.” These reports are available on our web site as soon as reasonably practicable after we electronically file them with the Securities and Exchange Commission. These reports, and any amendments to them, are also available at the internet web site of the Securities and Exchange Commission, http://www.sec.gov. The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room located at 450 Fifth Street, NW, Washington, DC, 20549. In order to obtain information about the operation of the Public Reference Room, you may call 1-800-732-0330. We also maintain various matters related to our corporate governance including our Corporate Governance Guidelines, our Board Committee Charters and our Codes of Conduct at the “Investor Relations” portions of our website, http://investor.fluor.com.

Company Risk Factors

We bear the risk of cost overruns in approximately 27% of the dollar-value of our contracts. We may experience reduced profits or, in some cases, losses under these contracts if costs increase above our estimates.

     We conduct our business under various types of contractual arrangements. In terms of dollar-value, the majority of our contracts allocate the risk of cost overruns to our client by requiring our client to reimburse us for our costs. Approximately 27% of the dollar-value of our contracts, however, are guaranteed maximum price or fixed price contracts, where we bear a significant portion of the risk for cost overruns. Under these fixed price contracts, contract prices are established in part on cost and scheduling estimates which are based on a number of assumptions, including assumptions about future economic conditions, prices and availability of labor, equipment and materials, and other exigencies. If these estimates prove

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inaccurate, or circumstances change such as unanticipated technical problems, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather delays, cost of raw materials, our suppliers’ or subcontractors’ inability to perform, cost overruns may occur, and we could experience reduced profits or, in some cases, a loss for that project. From time to time, we may also assume a project’s technical risk, which means that we may have to satisfy certain technical requirements of a project despite the fact that at the time of project award, we may not have previously produced the system or product in question.

Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future earnings.

     As of December 31, 2004, our backlog was approximately $14.8 billion. We cannot guarantee that the revenues projected in our backlog will be realized or, if realized, will result in profits. Projects may remain in our backlog for an extended period of time. In addition, project cancellations or scope adjustments may occur, from time to time, with respect to contracts reflected in our backlog. Backlog reductions can adversely affect the revenue and profit we actually receive from contracts reflected in our backlog. Future project cancellations and scope adjustments could further reduce the dollar amount of our backlog and the revenues and profits that we actually receive. Finally, poor project or contract performance could also impact our profits.

If we guarantee the timely completion or performance standards of a project, we could incur additional costs to cover our guarantee obligations.

     In some instances and in many of our fixed price contracts, we guarantee a customer that we will complete a project by a scheduled date. We sometimes provide that the project, when completed, will also achieve certain performance standards. If we subsequently fail to complete the project as scheduled, or if the project subsequently fails to meet guaranteed performance standards, we may be held responsible for cost impacts to the client resulting from any delay or the costs to cause the project to achieve the performance standards, generally in the form of contractually agreed-upon liquidated damages. To the extent that these events occur, the total costs of the project would exceed our original estimates and we could experience reduced profits or, in some cases, a loss for that project.

The nature of our engineering and construction business exposes us to potential liability claims and contract disputes which may reduce our profits.

     We engage in engineering and construction activities for large facilities where design, construction or systems failures can result in substantial injury or damage to third parties. We have been and may in future be named as a defendant in legal proceedings where parties may make a claim for damages or other remedies with respect to our projects or other matters. These claims generally arise in the normal course of our business. When it is determined that we have liability, we may not be covered by insurance or, if covered, the dollar amount of these liabilities may exceed our policy limits. Our professional liability coverage is on a “claims-made” basis covering only claims actually made during the policy period currently in effect. In addition, even where insurance is maintained for such exposures, the policies have deductibles resulting in our assuming exposure for a layer of coverage with respect to any such claims. Any liability not covered by our insurance, in excess of our insurance limits or, if covered by insurance but subject to a high deductible, could result in a significant loss for us, which may reduce our profits and cash available for operations.

We have seen an increase in our claims against project owners for payment and our failure to recover adequately on these and future claims could have a material effect on us.

     We have over the past few years seen an increase in the volume and the amount of claims brought by us against project owners for additional costs exceeding the contract price or for amounts not included in the original contract price. These types of claims occur due to matters such as owner-caused delays or changes from the initial project scope, which result in additional costs, both direct and indirect. Often, these claims can be the subject of lengthy arbitration or litigation proceedings, and it is difficult to accurately predict when these claims will be fully resolved. When these types of events occur and unresolved claims are pending, we have used significant working capital in projects to cover cost overruns pending the resolution of the relevant claims, as in the case of our Hamaca project. In connection with disputes relating to the Hamaca project, we have deferred approximately $249.7 million of incurred costs, as of December 31, 2004. If we fail to obtain a favorable judgment or are unable to collect any awards from a favorable judgment, our profits and financial

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condition could be materially and adversely affected. A failure to promptly recover on these types of claims could have a material adverse impact on our liquidity and financial condition.

We are vulnerable to the cyclical nature of the markets we serve.

     The demand for our services and products is dependent upon the existence of projects with engineering, procurement, construction and management needs. Although downturns can impact our entire business, our telecommunications and power markets exemplify businesses that are cyclical in nature and continue to be affected by a decrease in worldwide demand for these projects during the past year. Industries such as these and many of the others we serve have historically been and will continue to be vulnerable to general downturns and are cyclical in nature. As a result, our past results have varied considerably and may continue to vary depending upon the demand for future projects in these industries.

We have international operations that are subject to foreign economic and political uncertainties. Unexpected and adverse changes in the foreign countries in which we operate could result in project disruptions, increased costs and potential losses.

     Our business is subject to fluctuations in demand and to changing domestic and international economic and political conditions which are beyond our control. As of December 31, 2004, approximately 63% of our projected backlog consisted of engineering and construction revenues to be derived from facilities to be constructed in other countries; we expect that a significant portion of our revenues and profits will continue to come from international projects for the foreseeable future.

     Operating in the international marketplace exposes us to a number of risks including:

	•	abrupt changes in foreign government policies and regulations,
	•	embargoes,
	•	United States government policies, and
	•	international hostilities.

     The lack of a well-developed legal system in some of these countries may make it difficult to enforce our contractual rights. We also face significant risks due to civil strife, acts of war, terrorism and insurrection. Our level of exposure to these risks will vary with respect to each project, depending on the particular stage of each such project. For example, our risk exposure with respect to a project in an early development stage will generally be less than our risk exposure with respect to a project in the middle of construction. To the extent that our international business is affected by unexpected and adverse foreign economic and political conditions, we may experience project disruptions and losses. Project disruptions and losses could significantly reduce our revenues and profits.

We work in international locations where there are high security risks, which could result in harm to our employees or unanticipated costs.

     Some of our services are performed in high risk locations, such as Iraq and Venezuela, where the country or location is suffering from political, social or economic issues, or war or civil unrest. In those locations where we have employees or operations, we may incur substantial costs such as security costs to maintain the safety of our personnel. Moreover, despite these activities, in these locations, we cannot guarantee the safety of our personnel.

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Our government contracts may be terminated at any time. Also, if we do not comply with restrictions and regulations imposed by the government, our government contracts may be terminated and we may be unable to enter into future government contracts. The termination of our government contracts could significantly reduce our expected revenues.

     We enter into significant government contracts, from time to time, such as those that we have with the U.S. Department of Energy at Fernald and Hanford. Government contracts are subject to various uncertainties, restrictions and regulations, including oversight audits by government representatives and profit and cost controls. Government contracts are also exposed to uncertainties associated with Congressional funding. The government is under no obligation to maintain funding at any specific level and funds for a program may even be eliminated.

     In addition, government contracts are subject to specific procurement regulations and a variety of other socio-economic requirements. For example, we must comply with the Federal Acquisition Regulation (“FAR”), the Truth in Negotiations Act, the Cost Accounting Standards (“CAS”), the Service Contract Act and Department of Defense security regulations. We must also comply with various other government regulations and requirements as well as various statutes related to employment practices, environmental protection, recordkeeping and accounting. If we fail to comply with any of these regulations, requirements or statutes, our existing government contracts could be terminated, and we could be temporarily suspended or even debarred from government contracting or subcontracting.

     We also run the risk of the impact of government audits, investigations and proceedings, and so-called “qui tam” actions that, if an unfavorable result occurs, could impact our profits and financial condition, as well as our ability to obtain future government work. For example, government agencies such as the U.S. Defense Contract Audit Agency (the “DCAA”) routinely review and audit government contractors. If these agencies determine that a rule or regulation has been violated, a variety of penalties can be imposed including criminal and civil penalties all of which would harm our reputation with the government or even debar us from future government activities. The DCAA has the ability to review how we have accounted for costs under the FAR and CAS, and if they believe that we have engaged in inappropriate accounting or other activities, payments to us may be disallowed.

     If one or more of our government contracts are terminated for any reason, if we are suspended from government contract work, or if payment of our costs is disallowed, we could suffer a significant reduction in expected revenues and profits.

Our use of the percentage-of-completion method of accounting could result in a reduction or reversal of previously recorded revenues or profits.

     Under our accounting procedures, we measure and recognize a large portion of our profits and revenues under the percentage of completion accounting methodology. This methodology allows us to recognize revenues and profits ratably over the life of a contract by comparing the amount of the costs incurred to date against the total amount of costs expected to be incurred. The effect of revisions to revenues and estimated costs is recorded when the amounts are known and can be reasonably estimated, and these revisions can occur at any time and could be material. On a historical basis, we believe that we have made reasonably reliable estimates of the progress towards completion on our long term contracts. However, given the uncertainties associated with these types of contracts, it is possible for actual costs to vary from estimates previously made, which may result in reductions or reversals of previously recorded revenues and profits.

We continue to expand our business in areas where bonding is required, but bonding capacity is limited.

     We continue to expand our business in areas where the underlying contract must be bonded, especially in the transportation infrastructure arena. Because of the overall lack of worldwide bonding capacity, we can find it difficult to find sureties who will provide the contract-required bonding. In addition, these contracts are often very large and extremely complex, which often necessitates the use of a joint venture, often with a competitor, to bid on and perform these types of contracts, especially since it may be easier to jointly pursue the necessary bonding. However, entering into these types of joint ventures or partnerships exposes us to the credit and performance risks of third parties, many of whom are not as financially strong as we are. If our joint venturers or partners fail to perform, we could suffer negative results.

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Our international operations expose us to foreign currency fluctuations that could increase our U.S. dollar costs or reduce our U.S. dollar revenues.

     Because our functional currency is the U.S. dollar, we generally try to denominate our contracts in United States dollars. However, from time to time our contracts are denominated in foreign currencies, which results in our foreign operations facing the additional risk of fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. Changes in the value of foreign currencies could increase our U.S. dollar costs for, or reduce our U.S. dollar revenues from, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency fluctuations could affect our profits.

Intense competition in the engineering and construction industry could reduce our market share and profits.

     We serve markets that are highly competitive and in which a large number of multinational companies compete, such as the Bechtel Group, Inc., Jacobs Engineering Group, Halliburton’s Kellogg Brown & Root, Washington Group International, Parsons Engineering, CH2M Hill Companies, CB&I, Foster Wheeler, Technip and AMEC. In particular, the engineering and construction markets are highly competitive and require substantial resources and capital investment in equipment, technology and skilled personnel. Competition also places downward pressure on our contract prices and profit margins. Intense competition is expected to continue in these markets, presenting us with significant challenges in our ability to maintain strong growth rates and acceptable profit margins. If we are unable to meet these competitive challenges, we could lose market share to our competitors and experience an overall reduction in our profits.

The success of our joint ventures depend on the satisfactory performance by our joint venture partners of their joint venture obligations. The failure of our joint venture partners to perform their joint venture obligations could impose on us additional financial and performance obligations that could result in reduced profits or, in some cases, significant losses for us with respect to the joint venture.

     We enter into various joint ventures as part of our engineering, procurement and construction businesses, such as ICA Fluor and project specific joint ventures. The success of these and other joint ventures depend, in large part, on the satisfactory performance of our joint venture partners of their joint venture obligations. If our joint venture partners fail to satisfactorily perform their joint venture obligations as a result of financial or other difficulties, the joint venture may be unable to adequately perform or deliver its contracted services. Under these circumstances, we may be required to make additional investments and provide additional services to ensure the adequate performance and delivery of the contracted services. These additional obligations could result in reduced profits or, in some cases, significant losses for us with respect to the joint venture.

We could incur substantial tax liabilities if certain representations and warranties made by our predecessor-in-interest are inaccurate.

     Prior to the reverse spin-off involving our former coal segment, our predecessor-in-interest received a ruling from the Internal Revenue Service that the reverse spin-off qualified as a tax-free spin-off under Section 355 of the Internal Revenue Code of 1986, as amended. The ruling was granted based upon certain representations made by our predecessor-in-interest. While we are not aware of any facts or circumstances that would cause those representations to be incorrect or incomplete, if those representations were inaccurate, it is possible that the ruling would no longer be valid. In such event, we could incur a significant corporate tax liability that could have a material adverse effect on our financial condition.

Past and future environmental, safety and health regulations could impose significant additional costs on us that reduce our profits.

     We are subject to numerous environmental laws and health and safety regulations. Our projects can involve the handling of hazardous and other highly regulated materials which, if improperly handled or disposed of, could subject us to civil and criminal liabilities. It is impossible to reliably predict the full nature and effect of judicial, legislative or regulatory developments relating to health and safety regulations and environmental protection regulations applicable to our operations. The applicable regulations, as well as the technology and length of time available to comply with those regulations, continue to develop and change. In addition, past activities could also have a material impact on us. For example, when we sold our mining business formerly conducted through St. Joe Minerals Corporation, we retained responsibility for certain non-lead related environmental liabilities, but only to the extent that such liabilities were not covered by St. Joe’s comprehensive

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general liability insurance. While we are not currently aware of any material exposure arising from our former St. Joe’s business or otherwise, the costs of complying with rulings and regulations or satisfying any environmental remediation requirements for which we are found responsible could be substantial and could reduce our profits. We are also subject to a number of asbestos-related lawsuits.

If we experience delays and/or defaults in customer payments, we could suffer liquidity problems or we could be unable to recover all expenditures.

     Because of the nature of our contracts, at times we commit resources to projects prior to receiving payments from the customer in amounts sufficient to cover expenditures on client projects as they are incurred. Delays in customer payments may require us to make a working capital investment. If a customer defaults in making its payments on a project in which we have devoted significant resources, it could have a material negative effect on our results of operations.

Our recent and any future acquisitions may not be successful.

     We expect to continue to pursue selective acquisitions of businesses. We cannot assure you that we will be able to locate suitable acquisitions or that we will be able to consummate any such transactions on terms and conditions acceptable to us, or that such transactions will be successful. Acquisitions may bring us into businesses we have not previously conducted and expose us to additional business risks that are different than those we have traditionally experienced. We also may encounter difficulties integrating acquisitions and successfully managing the growth we expect to experience from these acquisitions.

Delaware law and our charter documents may impede or discourage a takeover or change of control.

     We are a Delaware corporation. Various anti-takeover provisions under Delaware law impose impediments on the ability of others to acquire control of us, even if a change of control would be beneficial to our stockholders. In addition, certain provisions of our bylaws may impede or discourage a takeover. For example:

	•	our Board of Directors is divided into three classes serving staggered three year terms;
	•	vacancies on the board can only be filled by other directors;
	•	there are various restrictions on the ability of a shareholder to nominate a director for election; and
	•	our Board of Directors can authorize the issuance of preference shares.

     These types of provisions could make it more difficult for a third party to acquire control of us, even if the acquisition would be beneficial to our shareholders. Accordingly, shareholders may be limited in the ability to obtain a premium for their shares.

As a holding company, we are dependent on our subsidiaries for cash distributions to fund debt payments.

     Because we are a holding company, we have no true operations nor significant assets other than the stock we own of our subsidiaries. We depend on dividends, loans and other distributions from these subsidiaries for us to be able to pay our debt and other financial obligations. Contractual limitations and legal regulations may restrict the ability of our subsidiaries to make such distributions or loans to us or, if made, may be insufficient to cover our financial obligations, or to pay interest or principal when due on our debt.

We maintain a workforce based upon current and anticipated workloads. If we do not receive future contract awards or if these awards are delayed, significant costs may result.

     Our estimates of future performance depend on, among other matters, whether and when we will receive certain new contract awards. While our estimates are based upon our good faith judgment, these estimates can be unreliable and may frequently change based on newly available information. In the case of large-scale domestic and international projects where timing is often uncertain, it is particularly difficult to predict whether and when we will receive a contract award. The uncertainty of contract award timing can present difficulties in matching our workforce size with our contract needs. If an expected contract award is delayed or not received, we could incur costs resulting from reductions in staff or redundancy of facilities that would have the effect of reducing our profits.

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Our credit facilities restrict our ability and the ability of some of our subsidiaries to engage in certain business activities.

     On July 28, 2004, we entered into a new senior unsecured credit facility which provides for the financing of our business operations for up to $800 million in both loans and other financial commitments. This credit facility places certain limitations on our ability and the ability of our subsidiaries to, among other things, incur additional debt beyond specified limits, create or permit liens, consolidate or merge, make material changes in the nature or conduct of our business, or transfer or sell assets. This credit facility contains relatively standard provisions for companies similar to us in size and credit rating. Our ability to continue to borrow under this credit facility depends upon the satisfaction of covenants, some of which are beyond our control to satisfy. If we fail to comply with the terms and conditions of this credit facility, we could be called into default which, if not cured or waived, would allow the lender to accelerate repayment of the debt. We cannot be certain that we can remedy all defaults, and if our debt repayment is accelerated, we may not have the ability to either pay back or refinance the debt.

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Item 2. Properties

Major Facilities

     Operations of Fluor and its subsidiaries are conducted in both owned and leased properties totaling approximately six (6) million square feet. The offices referenced below are used for general office and engineering purposes; our office located in Aliso Viejo, California also contains our executive offices. As our business and the mix of structures is constantly changing, the extent of utilization of the facilities cannot be accurately stated. In addition, certain owned or leased properties of Fluor and its subsidiaries are leased or subleased to third party tenants. The following table describes the location and general character of the major existing facilities:

     In addition to the offices referenced above, we also lease or own a number of sales, administrative and field construction offices, warehouses and equipment yards strategically located throughout the world.

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Item 3. Legal Proceedings

     Fluor and its subsidiaries, as part of their normal business activities, are parties to a number of legal proceedings and other matters in various stages of development. While we cannot predict the outcome of these proceedings, in our opinion and based on reports of counsel, any liability arising from these matters individually and in the aggregate will not have a material adverse effect upon the consolidated financial position, or the results of operations of the company, after giving effect to provisions already recorded.

     In addition to the matters described above, we are involved in disputes with respect to the Hamaca Crude Upgrader Project located in Jose, Venezuela. We are part of a joint venture which is actively proceeding on a number of issues under binding arbitration to recover certain costs we have incurred with respect to this project and, if we are not successful in this arbitration, it could have a material adverse effect on us. For additional information on the Hamaca disputes and certain other matters in dispute, see the section entitled “Matters in Dispute Resolution” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation, below.

Item 4. Submission of Matters to a Vote of Security Holders

     The company did not submit any matters to a vote of security holders during the fourth quarter of 2004.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Our common stock is traded on the New York Stock Exchange under the symbol “FLR.” The following table sets forth for the quarters indicated the high and low sales prices of our common stock, as reported in the Consolidated Transactions Reporting System, and the cash dividends paid per share of common stock.

     With respect to the dividends referenced above, we expect to pay comparable dividends in the future. However, any future cash dividends will depend upon our results of operations, financial condition, cash requirements, availability of surplus and such other factors as our Board of Directors may deem relevant. See “Risk Factors.”

     At March 1, 2005, there were 85,555,812 shares outstanding and approximately 10,182 shareholders of record of the company’s common stock.

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Equity Compensation Plan Information

     The following table provides information as of December 31, 2004 with respect to the shares of common stock that may be issued under the Company’s equity compensation plans.

Issuer Purchases of Equity Securities

     The following table provides information as of the three (3) months ending December 31, 2004 about purchases by the company of equity securities that are registered by the company pursuant to Section 12 of the Exchange Act. Amounts are expressed in thousands, except per share amounts:

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Item 6. Selected Financial Data

     The following table presents selected financial data for the last five fiscal years. This selected financial data should be read in conjunction with the consolidated financial statements and related notes included in Item 8 of this Form 10-K. Amounts are expressed in millions, except for per share information:

     In November 2000, a spin-off distribution to shareholders was effected which separated then existing Fluor Corporation into two publicly traded companies — new Fluor (“Fluor” or the “company”) and Massey Energy Company (“Massey”). Massey’s results of operations for all periods prior to the spin-off are presented as discontinued operations.

     In September 2001, the company adopted a plan to dispose of certain non-core construction equipment and temporary staffing businesses. The assets and liabilities (including debt) and results of operations of Massey and the non-core businesses for all periods presented have been reclassified and are presented as discontinued operations. In addition, the company changed to a calendar-year basis of reporting financial results in connection with the spin-off.

     See Management’s Discussion and Analysis on pages 20 to 35 and Notes to Consolidated Financial Statements on pages F-9 to F-36 for information relating to significant items affecting the results of operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

     The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, the Consolidated Financial Statements and accompanying Notes. 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; other non-operating income and expense items; earnings or loss from discontinued operations; and the cumulative effect of a change in accounting principle.

Accounting Pronouncements

     Following is a discussion of the impact of accounting and financial reporting pronouncements that have been applied in the preparation of the company’s Consolidated Financial Statements and accompanying Notes. This information is provided to assist in an understanding of the impact such changes have had on the company’s financial reporting. Unless a specific reference is made to a new pronouncement, the company has determined that the pronouncement either does not apply to its business or that the impact of applying the pronouncement is not significant.

     In November 2002, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45 or the “Interpretation”). FIN 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. Disclosures required by the Interpretation are provided below in the Financial Position and Liquidity section of this Management’s Discussion and Analysis and in the footnotes to the accompanying financial statements. The accounting requirements of the Interpretation are applicable to transactions entered into beginning January 1, 2003. Application of this Interpretation did not have a significant effect on the company’s consolidated results of operations or financial position in 2004 or 2003.

     In December 2003, the FASB issued Interpretation No. 46 (Revised), “Consolidation of Variable Interest Entities” (FIN 46-R). FIN 46-R provides the principles to consider in determining when variable interest entities must be consolidated in the financial statements of the primary beneficiary. In general, a variable interest entity is an entity used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that are not required to provide sufficient financial resources for the entity to support its activities without additional subordinated financial support. FIN 46-R requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity.

     The company’s engineering office facilities in Aliso Viejo, California (“Aliso Viejo”) and Calgary, Canada (“Calgary”) were leased through arrangements involving variable interest entities. Beginning in the first quarter of 2003, the company consolidated these entities in its financial statements as prescribed by FIN 46-R. At December 31, 2003, the effect of this consolidation resulted in an increase of $100 million and $27 million in reported short-term and long-term debt, respectively, and an increase in Property, Plant and Equipment of $107 million. None of the terms of the leasing arrangements or the company’s obligations as a lessee were impacted by this change in accounting. The cumulative impact of the difference in earnings, amounting to a charge of $10.4 million net of tax, relating to prior years was reported in the first quarter of 2003 as the cumulative effect of a change in accounting principle.

     During 2004, the company exercised options to purchase both the Aliso Viejo ($100 million) and Calgary ($29 million) engineering and office facilities. These amounts are reported as repayments of facilities financing in the accompanying Consolidated Statement of Cash Flows.

     Contracts that are executed jointly through partnerships and joint ventures are proportionally consolidated in accordance with Emerging Issues Task Force (“EITF”) Issue 00-01, “Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures” (EITF 00-01) and Statement of Position 81-1, “Accounting for Performance of Construction Type and Certain Production Type Contracts” (SOP 81-1) issued by the American Institute of Certified Public Accountants. The company evaluates the applicability of FIN 46-R to partnerships and joint ventures at the inception of its participation to ensure its accounting is in accordance with the appropriate standards.

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     On December 8, 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act introduced a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In May 2004, the FASB issued Staff Position 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”) providing guidance on accounting for the effects of the Act and specific disclosure requirements. Based on an analysis of the Act, the company has concluded that its retiree medical plans provide benefits that are at least actuarially equivalent to Medicare Part D. The company adopted the provisions of FSP 106-2 as of July 1, 2004 and recorded the effects of the subsidy in measuring net periodic postretirement benefit cost during the quarter ended September 30, 2004. This resulted in a reduction in the accumulated postretirement benefit obligation for the subsidy related to benefits attributed to past service of $2.9 million and a pretax reduction in net periodic postretirement benefit costs of $0.3 million for the second half of the year.

     In September 2004, the EITF reached a final consensus on Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” (“Issue 04-8”), that became effective for the company on December 31, 2004. Contingently convertible debt instruments (commonly referred to as Co-Cos) are financial instruments that add a contingent feature to a convertible debt instrument. The conversion feature is triggered when one or more specified contingencies occur and at least one of these contingencies is based on market price. Prior to the issuance of the final consensus on Issue No. 04-8 by the EITF, the company applied a widely held interpretation that Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share,” allowed the exclusion of common shares underlying contingently convertible debt instruments from the calculation of diluted earnings per share (“EPS”) in instances where conversion depends on the achievement of a specified market price of the issuer’s shares and such price had not been attained.

     Issue 04-8 requires that these underlying common shares be included in the diluted EPS computations, if dilutive, regardless of whether the market price contingency or any other contingent factor has been met. However, principal amounts that must be settled entirely in cash may be excluded from the computations. Prior to the end of 2004, the company irrevocably elected to pay the principal amount of the convertible debentures in cash, and therefore, there will be no dilutive impact until the average price of the company’s stock exceeds the conversion price of $55.94. Subsequent to December 31, 2004, the conversion price has been exceeded. If the company’s stock price is in excess of the conversion price as of March 31, 2005, the company will then use the treasury stock method of accounting for the excess of the market stock price over $55.94 in calculating diluted EPS. Upon conversion, any stock appreciation amount above the conversion price of $55.94 will be satisfied by the company through the issuance of common stock which thereafter will be included in calculating both basic and diluted EPS. Because the company has irrevocably elected to pay the principal amount of the debt in cash, previously reported diluted EPS for the first, second, and third quarters of 2004 will not change as a result of the consensus on Issue 04-8.

     In December 2004, the FASB issued SFAS 123 (revised 2004), “Share-Based Payment” (SFAS 123-R), which is a revision of SFAS 123, “Accounting for Stock-Based Compensation.” SFAS 123-R supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and amends SFAS 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123-R is similar to the approach described in SFAS 123. However, SFAS 123-R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Upon adoption of SFAS 123-R, pro forma disclosure of the impact of share-based payments to employees is no longer permitted.

     SFAS 123-R must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. The company expects to adopt SFAS 123-R on January 1, 2005, using the “modified retrospective” method. Under this method, compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123-R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123-R that remain unvested on the effective date.

     As permitted by SFAS 123, the company currently accounts for share-based payments to employees using the intrinsic value method pursuant to APB 25 and, as such, recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123-R’s fair value method will have an impact on results of operations, although it will have no impact on overall financial position. The impact of adoption of SFAS 123-R will not be material based on unvested options outstanding at December 31, 2004. Had SFAS 123-R been adopted in prior periods, the impact would be as presented in the disclosure of pro forma earnings and earnings per share in the Stock Plan footnote under Major Accounting Policies in the

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accompanying Consolidated Financial Statements. SFAS 123-R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as currently required. This requirement will generally impact cash provided or utilized by operating activities with offsets in cash flows from financing activities in periods after adoption. While the company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $14 million, $4 million, and $2 million in 2004, 2003 and 2002, respectively.

Discussion of Critical Accounting Policies

     The company’s discussion and analysis of its financial condition and results of operations is based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The company’s significant accounting policies are described in the Notes to Consolidated Financial Statements. The preparation of the Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the financial statements, and accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the Consolidated Financial Statements apply the following critical accounting policies.

     Engineering and Construction Contracts Engineering and construction contract revenues are recognized on the percentage-of-completion method based on contract costs incurred to date compared with total estimated contract costs. This method of revenue recognition requires the company to prepare estimates of costs to complete contracts in progress. In making such estimates, judgments are required to evaluate contingencies such as potential variances in schedule and the cost of materials, labor costs and productivity, the impact of change orders, liability claims, contract disputes, or achievement of contractual performance standards. Changes in total estimated contract costs and losses, if any, are recognized in the period they are determined. The majority of the company’s engineering and construction contracts provide for reimbursement of costs plus a fixed or percentage fee. In the highly competitive markets served by the company, there is an increasing trend for cost-reimbursable contracts with incentive-fee arrangements. As of December 31, 2004, 73 percent of the company’s backlog was cost reimbursable while 27 percent was for guaranteed maximum, fixed or unit price contracts. In certain instances, the company has provided guaranteed completion dates and/or achievement of other performance criteria. Failure to meet schedule or performance guarantees or increases in contract costs can result in unrealized incentive fees or non-recoverable costs, which could exceed revenues realized from the projects.

     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. The company recognizes certain 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 amounted to $105 million and $24 million at December 31, 2004 and 2003, respectively. Unapproved change orders are accounted for in revenue and cost when it is probable that the costs will be recovered through a change in the contract price. In circumstances where recovery is considered probable but the revenues cannot be reliably estimated, costs attributable to change orders are deferred pending determination of the impact on contract price.

     Backlog in the engineering and construction industry is a measure of the total dollar value of work to be performed on contracts awarded and in progress. Although backlog reflects business that is considered to be firm, cancellations or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, deferrals and revised project scope and costs, both upward and downward.

     Engineering and Construction Partnerships and Joint Ventures Certain contracts are executed jointly through partnerships and joint ventures with unrelated third parties. The company accounts for its interests in the operations of these ventures on a proportional consolidation basis. Under this method of accounting, the company consolidates its proportional share of venture revenues, costs and operating profits in the Consolidated Statement of Earnings and generally uses the one-line equity method of accounting in the Consolidated Balance Sheet. The most significant application of the proportional consolidation method is in the Power, Oil & Gas and Industrial & Infrastructure segments.

     The company’s accounting for project specific joint venture or consortium arrangements is closely integrated with the accounting for the underlying engineering and construction project for which the joint venture was established. The company

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engages in project specific joint venture or consortium arrangements in the ordinary course of business to share risks and/or to secure specialty skills required for project execution. Frequently, these arrangements are characterized by a 50 percent or less ownership or participation interest that requires only a small initial investment. Execution of a project is generally the single business purpose of these joint venture arrangements. When the company is the primary contractor responsible for execution, the project is accounted for as part of normal operations and included in consolidated revenues using appropriate contract accounting principles.

     Foreign Currency The company generally limits its exposure to foreign currency fluctuations in most of its engineering and construction contracts through provisions that require client payments in U.S. dollars or other currencies corresponding to the currency in which costs are incurred. As a result, the company generally does not need to hedge foreign currency cash flows for contract work performed. Under certain limited circumstances, such foreign currency payment provisions could be deemed embedded derivatives. As of December 31, 2004 and 2003, the company had no significant foreign currency arrangements that constitute embedded derivatives in any of its contracts. Managing foreign currency risk on projects requires estimates of future cash flows and judgments about the timing and distribution of expenditures of foreign currencies.

     The company generally uses forward exchange contracts to hedge foreign currency transactions where contract provisions do not contain foreign currency provisions or the transaction is for a non-contract-related expenditure. The objective of this activity is to hedge the foreign exchange currency risk due to changes in exchange rates for currencies in which anticipated future cash payments will be made. The company does not engage in currency speculation.

     In connection with the Hamaca Crude Upgrader Project located in Jose, Venezuela, the company has incurred foreign currency exposures and related translation losses due to weakness in the Venezuelan Bolivar compared with the U.S. dollar. See additional discussion concerning the Hamaca project below under Results of Operations-Oil & Gas.

     Deferred Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the company’s financial statements or tax returns. At December 31, 2004 the company had deferred tax assets of $272.8 million which were partially offset by a valuation allowance of $57.9 million and further reduced by deferred tax liabilities of $55.4 million. The valuation allowance reduces certain deferred tax assets to amounts that are more likely than not to be realized. This allowance primarily relates to the deferred tax assets established for certain tax credit carryforwards, net operating and capital loss carryforwards for U.S. and non-U.S. subsidiaries, and certain project performance reserves. The company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the company’s effective tax rate on future earnings.

     Retirement Benefits The company accounts for its defined benefit pension plans in accordance with Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions,” as amended (SFAS 87). As permitted by SFAS 87, changes in retirement plan obligations and assets set aside to pay benefits are not recognized as they occur but are recognized over subsequent periods. Assumptions concerning discount rates, long-term rates of return on assets and rates of increase in compensation levels are determined based on the current economic environment in each host country at the end of each respective annual reporting period. The company evaluates the funded status of each of its retirement plans using these current assumptions and determines the appropriate funding level considering applicable regulatory requirements, tax deductibility, reporting considerations and other factors. Recent decreases in long-term interest rates have the effect of increasing plan liabilities and if expected returns on plan assets are not achieved, future funding obligations could increase substantially. Assuming no changes in current assumptions, the company expects to fund between $35 million and $70 million for the calendar year 2005. If the discount rate were reduced by 25 basis points, plan liabilities would increase by approximately $32 million.

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Results of Operations

Summary of Overall Company Results

     During 2004, revenue and earnings from continuing operations increased by 7 percent and 4 percent, respectively, compared with 2003. Revenue of the Oil & Gas segment was favorably impacted during the year by increased work performed associated with the transition to field activities on two major international projects. Additionally, a positive trend for new awards in the Government segment resulted in a significant increase in work performed in Iraq on projects for the U.S. Government in 2004. The company also benefited from increased revenues beginning in the first quarter of 2004 from business acquisitions completed in 2003 and early 2004. Offsetting these improvements has been a continued trend away from power projects. Revenues and earnings from continuing operations were also negatively impacted by the lower level of new project awards in the economically sensitive mining, chemicals and manufacturing markets experienced in 2003. In addition, the company’s 2003 decision to suspend performance on a mining project and withdraw from certain commercial projects had a negative impact on 2003 backlog and the volume of work performed in 2004.

     Revenue declined 12 percent in 2003 compared with 2002 primarily due to declines in the Power and Oil & Gas segments. Earnings from continuing operations increased 6 percent primarily due to the improved performance of the Government, Industrial & Infrastructure and Global Services Segments. Also contributing to the improvement was lower reported corporate administrative and general expense due to the absence of several non-operating charges that were included in 2002, and a lower tax rate on earnings from continuing operations.

     The company experienced a significant decline in Power segment revenue and earnings over the last two years as projects in the segment were completed and the contribution from new awards declined due to the cyclical downward trend in the demand for new power plant construction. Partially offsetting this trend in Power is an increasing trend for new awards in the Industrial & Infrastructure and Government segments. Following a low level in 2002, new awards in the Oil & Gas segment have rebounded in 2003 and 2004. The company believes that the global oil and gas industry is in the early stages of a long-term cycle of investment that will continue to develop over the next three to five years. New awards in the Industrial & Infrastructure segment increased significantly in 2004 and were distributed primarily across the mining, chemicals and life sciences markets, reflecting improved economics supporting capital spending commitments. In addition, the trend for new awards in the Government segment has increased due to awards for work in Iraq as well as the completion of the acquisitions of the International Division of J.A. Jones Construction Company (“J.A. Jones”) and Trend Western Technical Corporation (“Trend Western”). These acquisitions improve the company’s service offering to both the Department of State and Department of Defense.

     Earnings from continuing operations before taxes for the three years ended December 31, 2004 were $281 million, $268 million and $261 million, respectively. Because of the decline in Power segment earnings, which related largely to projects located in the United States, domestic operating profit declined significantly during 2004, offset by increases in foreign operating profits.

     The company had net earnings of $2.25 per share in 2004 compared with $1.95 per share in 2003 and $2.05 in 2002. Results in 2003 were negatively impacted by a loss from discontinued operations of $0.15 per share and a loss of $0.13 per share for the cumulative effect of a change in accounting principle. Results in 2002 include a loss from discontinued operations of $0.08 per share. The results of discontinued operations are further discussed below. The loss from the cumulative effect of a change in accounting principle is discussed above under Accounting Pronouncements.

     Following is a discussion of the operating performance of each business segment, corporate administrative and general expense and other items.

     The company provides professional services on a global basis in the fields of engineering, procurement, construction and maintenance (“EPCM”) and is organized into five business segments: Oil & Gas, Industrial & Infrastructure, Government, Global Services and Power. The Oil & Gas segment provides engineering and construction professional services for upstream oil and gas production, downstream refining and certain petrochemical markets. The Industrial & Infrastructure segment provides engineering and construction professional services for manufacturing and life sciences facilities, commercial and institutional buildings, mining, microelectronics, chemicals, telecommunications and transportation projects and other facilities. The Government segment provides project management, engineering, construction, and contingency response services to the United States government. The Global Services segment includes operations and maintenance,

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construction equipment, temporary staffing and global sourcing and procurement services. The Power segment provides professional services to engineer and construct power generation facilities.

     Through the second quarter of 2004, services provided by the Power segment were conducted through two joint ventures; Duke/Fluor Daniel, a 50 percent owned partnership with Duke Energy, and ICA Fluor Daniel (“ICA Fluor”), a 49 percent owned joint venture with Grupo ICA, a Mexican company. As a result of a shift in the markets served by and the types of projects awarded to ICA Fluor, commencing in the third quarter of 2004, its operating results, new awards and backlog are included in the Oil & Gas segment. Prior periods have not been restated for the change in segment classification of ICA Fluor. In July 2003, the company jointly announced with Duke Energy Corporation the decision to terminate the Duke/Fluor Daniel partnership (“D/FD”) as a result of the significant decline in the construction of new power plants. The dissolution is not expected to have a material impact on results of operations or financial position of the company. The dissolution is in progress and is expected to be completed in 2005 as remaining project activities are concluded. The company has continued to identify and pursue power generation opportunities and future projects will be performed 100 percent by Fluor.

     Oil & Gas Revenue in the Oil & Gas segment amounted to $3.2 billion, $2.6 billion and $3.5 billion for the years ended December 31, 2004, 2003 and 2002, respectively. The 21 percent increase during 2004 resulted from a global increase in project activity which includes the impact of the transition to field activities on two major international projects where the volume of labor, material and subcontract work is greatest. The decrease in revenue during 2003 reflects the completion of several projects during the year and revenue recognition from projects awarded in 2003 that did not fully replace the revenue on the completed projects. Operating profit margin in the Oil & Gas segment increased slightly, to 4.8 percent in 2004 compared with 2003. The operating profit margin in 2003 increased to 4.6 percent compared with 3.7 percent in 2002 due to the higher content of project completions combined with improved execution performance.

     A major project that has reached mechanical completion in the Oil & Gas segment is the Hamaca Crude Upgrader Project (“Hamaca”) located in Jose, Venezuela. Hamaca is a $1.1 billion lump sum project (including $92 million of approved change orders) of Grupo Alvica (“GA”), a joint venture including Fluor Daniel (80 percent) and Inelectra C.A. (20 percent), to design and build a petroleum upgrader for a consortium of owners called Petrolera Ameriven (“PA”) including Petroleos de Venezuela S.A., ChevronTexaco and ConocoPhillips.

     The GA joint venture is pursuing cost and schedule relief through arbitration proceedings for the following three issues:

	•	modifications and extra work arising from differing site soil conditions,
	•	costs arising from the site labor agreement for 2000 called “Acta Convenio” and
	•	events in Venezuela in early 2003, including a national strike and other force majeure incidents.

     Arbitration proceedings were commenced by GA in late 2001. The site soil conditions issue was the subject of arbitration hearings in November 2002. There are no monetary cross-claims by PA in the arbitration. The amount of the claim for site soil conditions of $159 million includes the direct costs as well as significant delay-related and indirect costs. In April 2004, the arbitration panel awarded GA $36 million for direct cost of the site soil conditions remediation work, virtually all of the amounts sought by GA for this issue. The client had previously conditionally accepted responsibility relating to the soil conditions matter and $28 million had been paid. The balance of the award amount was received in April 2004. The award confirmed GA’s methodology for computing the amount of all change orders arising under the contract. In addition, the award also granted GA approximately 14 weeks of schedule relief. The delay and indirect costs were the subject of hearings in June 2004 and a decision is expected shortly.

     The hearings on the fundamental cost differences between the earlier 1998 labor agreement and the 2000 Acta Convenio were held in April 2003 and a decision on this issue is also expected shortly. The amount of the claim for Acta Convenio is $210 million and no payments have been made by the client relating to this matter.

     In accordance with the contract, the joint venture is entitled to cost and schedule relief for the impact of the national strike in Venezuela. A change order relating to the national strike in the approximate amount of $340 million was submitted by GA. This action was followed by the filing of an arbitration claim relating to this issue in January 2004. Hearings on this issue are now scheduled for March and April 2005. Other force majeure incidents occurring prior to the national strike also were the subject of arbitration hearings in October 2003.

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     Incurred costs associated with delay and indirect costs related to the soil conditions, Acta Convenio, the national strike and other claims are probable of being recovered and thus are being deferred. These costs will be recognized in revenue when a change order is approved or payment is received. As of December 31, 2004, incurred costs amounting to $249.7 million have been deferred. Subcontractor close-outs will result in additional costs as contracts are settled. The company believes that schedule relief awarded in connection with the direct costs of the site soil conditions, along with other delay days requested on the other issues, will be sufficient to avoid the imposition of liquidated damages. If costs relating to Acta Convenio, soil conditions, the national strike or other claims are determined to be not recoverable or liquidated damages are assessed, the company could face materially reduced profits or losses on this project, along with lower levels of cash and additional borrowings.

     New awards in the Oil & Gas segment were $3.6 billion in 2004, roughly equal to the $3.7 billion in 2003. New awards in 2003 increased 89 percent compared with $1.9 billion in 2002. New project awards in 2004 included a $570 million oil sands project and a $244 million clean fuels project, which are both in Canada, a $346 million refinery complex modernization project in Mexico and a $176 million refinery upgrade project in South Africa. New project awards in 2003 include the Tengizchevroil (“TCO”) project, a major oil and gas development in Kazakhstan. The increase in 2003 new awards is partly attributable to the TCO project which was expected to be awarded in 2002 but was temporarily suspended due to funding considerations that were resolved early in 2003. Also included in new awards in 2003 is the Sakhalin I program and construction management project led by ExxonMobil and a project for Lukoil, a major Russian oil company. The lower level of new awards in 2002 was primarily due to the previously mentioned temporary suspension of the TCO project. The large size and uncertain timing of complex, international projects can create variability in the segment’s award pattern; consequently, future award trends are difficult to predict with certainty.

     Backlog for the Oil & Gas segment was $4.8 billion at December 31, 2004, an increase of 40 percent compared with $3.4 billion at December 31, 2003. The 2004 backlog growth included the impacts of new awards and the reclassification of ICA Fluor during the year. The $3.4 billion backlog at December 31, 2003 compared with $2.3 billion at December 31, 2002. This increase was due to the higher level of new awards in 2003 and the lower level of work performed on these new awards that were in the early stages of project execution where activity is focused on engineering and project planning.

     Total assets in the Oil & Gas segment increased to $665 million at December 31, 2004 compared with $508 million at December 31, 2003. The increase includes the impact of the growth in segment revenues, as well as increased deferred costs on the Hamaca project of $70 million.

     Industrial & Infrastructure The Industrial & Infrastructure segment had revenues of $2.3 billion, $2.6 billion and $2.4 billion for the years ended December 31, 2004, 2003 and 2002, respectively. The 12 percent decline in revenues during 2004 resulted from slow start-up progress on recently awarded projects and a lower level of new awards in the latter half of 2003. In addition, as discussed below, certain projects that were removed from backlog in the third quarter of 2003 also had a negative impact on the volume of work performed in 2004. The 8 percent increase in revenues during 2003 primarily reflects the higher volume of work performed on life sciences projects awarded in 2002 partially offset by lower volume of work performed on mining projects as a number of projects were completed in 2002.

     Operating profit margin for the Industrial & Infrastructure segment increased to 3.0 percent in 2004 compared with 2.4 percent in 2003. Operating profit for the segment has been impacted in all three years by provisions relating to specific projects. During 2004, a $28 million provision due to estimated cost overruns resulting in a loss on a transportation infrastructure project was partially offset by a $7.2 million positive impact from recovery of insurance proceeds relating to the Verde Gold project, which is further discussed below. In 2003 operating profit was negatively impacted by a $7.4 million charge relating to the write-down of an equity investment in a magnesium smelter project in Australia. The investment was committed in previous years as part of a consulting arrangement with the client wherein the company agreed to be compensated for its services in shares of the client’s capital stock. Due to funding considerations, continued development of the project was suspended, resulting in the client seeking bankruptcy protection. Because the company was not the execution contractor there was no impact on backlog or operating results from project execution.

     The 2003 operating profit margin in the Industrial & Infrastructure segment was essentially flat with 2002. In 2003 margins were reduced by the equity investment write-down discussed above, a higher volume of construction management work which has reduced margins due to lower risk and lack of project margin on projects that were removed from backlog which are discussed further below. A $26 million dispute resolution provision in 2002 primarily relates to an unfavorable

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arbitration ruling on the Verde Gold project in Chile, a gold ore processing facility completed in 1996. During the second quarter of 2002, the company recognized a loss provision from Verde Gold of $20 million representing the arbitration award plus applicable interest, less a $3 million reserve provided in prior years and expected insurance recoveries. The net impact on results of operations for 2002 was a charge of $14 million.

     New awards in the Industrial & Infrastructure segment increased to $5.0 billion during 2004, compared with $2.6 billion during 2003 and $3.5 billion in 2002. New awards in 2004 include a variety of mining, pharmaceuticals, chemicals and manufacturing projects throughout the world. The decline in new awards in 2003 resulted from economic weakness in the mining, telecommunications and manufacturing markets reflecting overcapacity and poor commodity pricing in these industries. New awards in 2002 included a substantial award for the SH 130 toll road project in Texas.

     Backlog for the Industrial & Infrastructure segment grew to $5.7 billion during 2004 following a decline to $3.3 billion at the end of 2003, compared with $4.2 billion at December 31, 2002. The growth during 2004 was reflective of the substantial new awards during the year. Contributing to the 2003 decline was the removal of $750 million for three projects that had been booked during the previous two years. One of these was a mining project that was removed due to considerations relating to ongoing financing. The other two were commercial projects that the company decided not to execute due to evolving changes in industry liability.

     Government The Government segment had revenues of $2.3 billion, $1.7 billion and $1.0 billion for the years ended December 31, 2004, 2003 and 2002, respectively. The 34 percent increase in revenue during 2004 resulted principally from reconstruction activity in Iraq, strong performance on environmental remediation programs for the Department of Energy (“DOE”), and businesses acquired over the last two years. Del-Jen, Inc. (“Del-Jen”) was acquired late in the first quarter of 2003 and J.A. Jones was acquired in the fourth quarter of 2003. In addition, Trend Western was acquired by Del-Jen in the first quarter of 2004. In total, these acquired businesses contributed $371.1 million of revenue in 2004, compared with $153.1 million from the acquired businesses in 2003. In addition to the impact of business acquisitions, the 78 percent increase during 2003 included a substantial increase in work performed for the Department of Defense on the Midcourse Missile Defense test bed facilities in Alaska, the Department of State for an embassy project in Brazil and new awards for task orders in Iraq. Revenue in all periods includes work for ongoing environmental restoration, engineering, construction, site operations and maintenance services at two major DOE sites: the Fernald Environmental Management Project (“Fernald”) in Ohio and the Hanford Environmental Management Project in Washington.

     The operating profit margin for the Government segment was 3.7 percent during 2004, up from 2.8 percent during 2003. This improvement reflects improved contract performance and a higher level of costs related to proposal activity in the prior year. Operating profit margin for the Government segment declined to 2.8 percent in 2003 compared with 3.1 percent in 2002. Contributing to this decline was the impact of a particularly high level of proposal costs during 2003 as the segment pursued a number of new opportunities. Many projects performed on behalf of U.S. government clients under multi-year contracts provide for annual funding. As a result, new awards for the Government segment only reflect the annual award of work to be performed over the ensuing 12 months.

     Total assets in the Government segment increased to $654 million at December 31, 2004 compared with $475 million at December 31, 2003. The segment has recognized unbilled fees totaling $91.1 million related to the Fernald project. The project has moved into the closeout stage and contract terms provide that a portion of the earned fees will not be billed until project completion in 2007. Deferred fees recognized in revenue in 2004, 2003 and 2002 were $36.8 million, $21.9 million and $6.0 million, respectively. Also contributing to the increase in segment assets was a significant increase in accounts receivable and contract work in progress relating to projects performed in the Middle East.

     Global Services The Global Services segment had revenues of $1.3 billion, $1.1 billion and $1.0 billion for the years ended December 31, 2004, 2003 and 2002, respectively. The 16 percent growth during 2004 was primarily the result of increased operations and maintenance activity. The 15 percent increase in revenue in 2003 includes $151.6 million from Plant Performance Services (“P2S”), which was acquired at the end of the first quarter of that year. Revenue during 2002 also reflects the impact of selectivity to improve margins and depressed economic conditions resulting in lower operations and maintenance activity in the manufacturing sector during that year.

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     Operating profit margin in the Global Services segment was 7.8 percent, 8.7 percent and 9.7 percent 2004, 2003 and 2002, respectively. The declines during 2004 and 2003 were the combined result of lower levels of company-wide construction activity, which impacted the segment’s construction equipment business, and reduced margins that resulted from competitive factors in the operations and maintenance business.

     New awards in the Global Services segment for operations and maintenance projects increased 23 percent, to $1.5 billion during 2004, compared to $1.3 billion during 2003. A significant multi-year contract for a new client in the United Kingdom was awarded during the fourth quarter of 2004. New awards for 2003 of $1.3 billion represented an increase of 23 percent over 2002. This increase is primarily due to the contribution from P2S, as well as a lower level of new awards in 2002 that was attributable to increased selectivity and the depressed economic conditions in the manufacturing sector.

     Backlog for the Global Services segment increased by 24 percent, to $2.3 billion, at December 31, 2004, compared with $1.8 billion at December 31, 2003. This growth was principally the result of the large new award discussed in the preceding paragraph. In previous years, backlog was fairly stable at $1.8 billion at December 31, 2003 and $1.6 billion as of December 31, 2002. This relative stability is due in part to the multi-year nature of operations and maintenance contracts where consistent and efficient performance results in long-term client relationships. The equipment, temporary staffing and global sourcing and procurement operations do not report backlog due to the short turnaround between the receipt of new awards and the recognition of revenue. Accordingly, new awards and backlog for the segment relate to the operations and maintenance activities only.

     Power The Power segment has experienced significant declines in revenue during recent years, to $326 million during 2004 from $759 million for the year ended December 31, 2003 and $2.2 billion in 2002. This decline is due to the substantial work-off of projects in backlog that were awarded in prior years. The segment has experienced a substantial reduction in new awards over the last several years as demand for new power generation has diminished following a strong cycle of power plant construction activity.

     As a result of a shift in the markets served by and the types of projects awarded to ICA Fluor, commencing in the third quarter of 2004, its operating results, new awards and backlog are included in the Oil & Gas segment rather than the Power segment where it was previously reported.

     Operating profit margin in the Power segment declined to 4.2 percent during 2004 from a very strong 10.2 percent for the year ended December 31, 2003. The current year performance was negatively impacted by the completion of a major cycle of investment in power projects and unexpected costs associated with the start-up and commissioning of a waste-coal power plant during the third quarter of the year. Operating profit margin during 2002 was 4.9 percent. Although operating profit declined in 2003 to $77 million compared to $107 million in 2002 due to the decline in the power market, the strong margin performance in 2003 was attributable to highly successful execution resulting in early completion of projects. Projects in the Power segment are primarily bid and awarded on a fixed price basis. This method of contracting exposes the segment to the risk of cost overruns due to factors such as material cost and labor productivity variances or schedule delays.

     New awards in the Power segment recovered somewhat during 2004, to $612 million from $485 million for 2003. Two awards during the fourth quarter 2004 were the largest contributors to this growth. One was for the recommissioning of a power plant in South Africa and the other was for the completion of a partially-constructed natural gas-fired plant in Nevada. New awards declined to $485 million for the year ended December 31, 2003, compared with $1.1 billion in 2002. Backlog for the Power segment decreased to $552 million at December 31, 2004 compared with $605 million at December 31, 2003 and $841 million at December 31, 2002. The 2004 decline includes the impact of the movement of ICA Fluor to the Oil & Gas segment. Most of the projects awarded in prior years have now been completed. New award activity for the near term future is expected to be modest as existing power generation capacity is expected to meet anticipated demand.

     Corporate For the year ended December 31, 2004 corporate administrative and general expenses were $142.4 million, compared with $141.5 million in the prior year. Included in the 2004 amount are non-operating pretax gains of $5.5 million related to the final disposal of a residual interest in a property that was sold by the company in 1985 and $7.1 million from real estate sales. Those real estate gains, in addition to savings from successful expense reduction programs and favorable pension adjustments, were offset by higher executive incentives and costs of complying with the provisions of the Sarbanes-Oxley Act of 2002. Corporate administrative and general expense, excluding non-operating items, increased four percent in 2003

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compared with 2002 primarily due to higher management incentive compensation costs. Non-operating items in 2002 included charges relating to the reevaluation of the company’s enterprise resource management (“ERM”) system, recognition of a provision for a guarantee obligation and a provision to recognize impairment related to an investment in The Beacon Group Energy Investment Fund, L.P. that were recognized in that year. Partially offsetting these charges in 2002 was the recognition of a gain relating to the demutualization of an insurance company in which the company had an investment.

     During 2002 significant cost reductions were realized as a result of the company’s reevaluation of the scope of implementation and deployment of its ERM system (formerly known as Knowledge@Work). As part of this reevaluation effort the company altered the original ERM implementation plan and recognized a charge of $13.0 million in 2002 for abandonment of certain system functionality and to adjust depreciation expense. This charge partially offset the impact of the cost reductions realized upon changing the implementation and deployment plan.

     Net interest income was $3.5 million, $3.2 million and $6.4 million for the years ended December 31, 2004, 2003 and 2002, respectively. Lower net interest income in 2004 and 2003 compared with 2002 is primarily the result of lower cash balances and increased short-term borrowings.

     The effective tax rates on the company’s continuing operations were 33.6 percent, 33.0 percent and 34.8 percent for the years 2004, 2003 and 2002, respectively. The slight rise in the tax rate in 2004 compared with 2003 is primarily due to the increase in non-deductible expenses as well as capital and foreign losses that received no tax benefits. Such increase, however, was partially offset by the decrease in state income taxes largely attributable to the utilization of prior year net operating losses in California, which losses were suspended in 2003 and 2002 due to the state’s deficit position. In addition, during 2004 the company disposed of certain business assets, which resulted in a favorable effective tax rate variance due to certain permanent book/tax basis differences. The tax rate in 2003 compared with 2002 was lower substantially due to the tax benefits from favorable tax return adjustments and settlements.

     On October 22, 2004, the American Jobs Creation Act of 2004 (the “Act”) was signed into law. The Act provides a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. In return, the Act also provides for a two-year phase-out of the existing extraterritorial income exclusion (“ETI”) for foreign sales that is viewed to be inconsistent with international trade protocols by the European Union. The company expects the net effect of the phase-out of the ETI and the phase-in of this new deduction to result in an increase in its effective tax rate for fiscal years 2005 and 2006 of approximately one to two percentage points, based on anticipated earnings levels. In the long-term, the company does not expect to receive significant tax benefits from this new qualified domestic production deduction due to a shift of project mix to more international projects.

     Under the guidance in FASB Staff Position No. FAS 109-1, Application of FASB Statement No. 109, “Accounting for Income Taxes,” to the Tax Deduction on Qualified Production Activities provided by the Act, the deduction will be treated as a “special deduction” as described in FASB Statement No. 109. As such, the special deduction has no effect on the deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on the company’s tax return.

     Also included in the Act is a provision that incentivizes U.S. multinationals to repatriate certain qualified foreign earnings by providing a special one-time 85 percent dividend received deduction, subject to specific reinvestment and repatriation guidelines and certain limitations. The company may elect to apply this provision in 2005 and is in the process of evaluating its effect on the company, taking into account its reinvestment options and its operational working capital needs worldwide. The amount of the qualified dividend to be repatriated under this provision is yet to be determined, pending the completion of this evaluation, the passage of the Technical Corrections Bill by Congress and the issuance of additional guidance by the United States Department of the Treasury.

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     Matters in Dispute Resolution During 2004, several matters relating to certain significant completed and in progress projects were in the dispute resolution process. The following discussion provides a background and current status of these matters:

  Murrin Murrin

     On May 5, 2004, Fluor Australia and its client, Anaconda Nickel (“Anaconda”) entered into a settlement agreement resolving all disputes related to the Murrin Murrin Nickel Cobalt project located in Western Australia. Fluor Australia paid the equivalent of approximately US$120 million to end all remaining claims under both the first and second phases of arbitration, including any appeals. The payment had no material effect on the company’s consolidated financial position or results of operations as the amount, including defense costs, was funded by the company’s insurers.

     In September 2002, the first phase of arbitration resulted in an amended award to Anaconda of approximately US$84.0 million and an award to Fluor Australia of approximately US$59.9 million for amounts owing from Anaconda under the contract. The company had previously recovered the first phase award plus substantially all defense costs incurred from available insurance.

Fluor Daniel International and Fluor Arabia Ltd. V. General Electric Company, et al
U.S.D.C., Southern District Court, New York

     In October 1998, Fluor Daniel International 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 on entitlement is expected shortly and a decision on damages is expected later in 2005.

Dearborn Industrial Project
Duke/Fluor Daniel (D/FD)

     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, Dearborn Industrial Generation (“DIG”), issued substantial change orders enlarging the scope of the project.

     The Project was severely delayed with completion of Phase II. DIG unilaterally took over completion and operation of Phase II and commissioned that portion of the plant. Shortly thereafter, DIG drew upon a $30 million letter of credit which Duke/Fluor Daniel (“D/FD”) expects to recover upon resolution of the dispute. D/FD retains lien rights (in fee) against the project. In October 2001, D/FD commenced an action in Michigan State Court to foreclose on the lien interest.

     In December 2001, DIG filed a responsive pleading denying liability and simultaneously served a demand for arbitration to D/FD claiming, among other things, that D/FD is liable to DIG for alleged construction delays and defective engineering and construction work at the Dearborn plant. The court has ordered the matter to arbitration. The lien action remains stayed pending completion of the arbitration of D/FD’s claims against DIG and DIG’s claims against D/FD. An arbitration panel has been appointed and the arbitration is scheduled to begin in October 2005.

Hamaca Crude Upgrader

     See discussion regarding the Hamaca project above under Oil & Gas.

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     Discontinued Operations In September 2001, the Board of Directors approved a plan to dispose of certain non-core operations of the company’s construction equipment and non-EPCM components of its temporary staffing businesses. An active program to consummate such disposal was initiated and completed as of the end of 2003. Operating results for these non-core businesses have been reclassified and are reported as discontinued operations in the accompanying Consolidated Statement of Earnings.

     During 2003 the last remaining dealership operation was sold generating proceeds of $31.9 million. In 2002, the sale of one dealership subsidiary resulted in cash proceeds of $45.9 million. Other dealership asset disposals during 2002 produced proceeds of $51 million.

     During the second quarter of 2002, the Australian operations of the temporary staffing business that was sold resulted in cash proceeds of $5.1 million. The temporary staffing industry experienced severe competition in 2002 due to depressed economic conditions, which resulted in significant erosion in the fair value of those businesses. As a result, the company recognized adjustments to the carrying value of the U.S. and U.K. based disposal groups. The sales of the U.S. and U.K. operations were completed in the fourth quarter of 2002, resulting in proceeds of $2 million.

     Disposal of the construction equipment operations in Argentina and Peru were finalized in 2002 resulting in proceeds of $5.1 million primarily from collection of accounts receivable and sales of inventory and equipment.

     Interest expense was not reclassified to discontinued operations in connection with the non-core businesses because disposal of these operations did not include any debt to be assumed by the buyers.

     Revenue and the results of operations, including loss on disposal, for all discontinued operations are as follows:

     There have been no results of operations reported as discontinued operations for any period subsequent to June 30, 2003.

     The loss on disposal in all periods presented above is for impairment provisions to adjust the carrying value of the assets held for sale of the various individual non-core businesses to fair value. Impairment provisions for the equipment operations included adjustments to the carrying value of equipment inventories, fixed assets and goodwill. Impairment provisions for the temporary staffing operations primarily included adjustments to the carrying value of goodwill.

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Financial Position and Liquidity

     Cash utilized by operating activities in 2004 and 2003 was primarily due to the significant use of cash to fund project operations. This compares to cash provided by operating activities in 2002. Significant cash was used in 2004, 2003 and 2002 to fund projects in the Power segment resulting in a reduction in advances from affiliate of $44.5 million, $212.8 million and $282.1 million, respectively. These advances represented the company’s proportional share of excess cash from Duke/Fluor Daniel that was generated from client advance payments received in 2001 and prior years upon award of projects. The joint venture partners managed excess cash of Duke/Fluor Daniel through these proportional advances. Client advances on Duke/Fluor Daniel projects have been a normal condition of contracts in the power industry where most of the projects are negotiated on a fixed price basis. As these projects progress, the expenditures for labor and materials are partially funded from these advance payments. With the completion of nearly all work on Duke/Fluor Daniel projects as of December 31, 2004, the amounts advanced to the company have been substantially repaid to the partnership and used in project execution. The company jointly announced with Duke Energy Corporation in July 2003, the decision to dissolve the Duke/Fluor Daniel partnership as a result of the significant decline in the construction of new power plants. The dissolution is not expected to have a material impact on future operating cash flows.

     The company also used significant cash in 2004 and 2003 to fund ongoing work and the change orders that are in the dispute resolution process relating to the Hamaca project in Venezuela. The company has incurred substantial costs relating to the change orders for which it is not currently being paid pending resolution through arbitration. As of December 31, 2004 and 2003, the company had incurred $249.7 million and $179.6 million, respectively, in deferred costs on this project. During 2004 and 2003, ongoing work on Hamaca not associated with change orders used approximately $59 million and $80 million, respectively, of cash from advances received in prior years.

     Excluding the impact of the repayment of advances relating to power projects and the funding for the Hamaca project, cash was used to fund other changes in net operating assets and liabilities primarily associated with engineering and construction activities. There has also been a significant increase in operating assets and liabilities totaling approximately $56 million in 2004 and $126 million in 2003 relating to work in the Government segment, primarily in connection with start-up and ongoing activities on the CETAC and AFCAP projects in the Middle East in 2004 and 2003, as well as the Missile Defense work in Alaska in 2003. The projects in the Middle East required rapid deployment starting late in the fourth quarter of 2003, which resulted in substantial initial investment of working capital. Reconstruction activity in Iraq during 2004 required additional working capital. Working capital of the Industrial & Infrastructure segment increased by $108 million during 2004 due to the startup of several large projects in the latter part of the year. Early start-up activities and ongoing progress on major Oil & Gas projects other than Hamaca required investments in operating working capital of $83 million in 2003. During 2003, approximately $44 million of working capital was provided to P2S, which was acquired early in that year.

     The levels of operating assets and liabilities vary from year to year and are affected by the mix, stage of completion and commercial terms of engineering and construction projects.

     Cash utilized by operating activities is also impacted by contributions to the company’s defined benefit retirement plans. Contributions in 2004 amounted to $30 million compared with $52 million and $110 million in 2003 and 2002, respectively. The large contributions in 2003 and 2002 were due in part to lower than expected investment results on plan assets coupled with the business objective to utilize available resources to maintain full funding of accumulated benefits in most of the plans. One plan was not fully funded in 2004 and 2003 and the minimum pension liability amounts were $34 million and $28 million, respectively, for this plan. The company recognized a minimum liability plus elimination of $12 million of pension assets in 2002, resulting in an after-tax charge of $29 million in the accumulated other comprehensive loss component of shareholders’ equity.

     During 2003 and 2002, the receipt of funds from insurance claims relating to the Murrin Murrin project amounted to $84.1 million and $35.4 million, respectively. As of December 31, 2003, amounts due from the insurance companies for claims submitted had been collected except for minor amounts of arbitration defense costs. Activities in 2002 associated with the disposal of certain discontinued equipment and temporary staffing businesses generated $24 million of cash from liquidation of operating assets and liabilities, primarily from accounts receivable and inventories.

     Business acquisitions utilized cash of $33.0 million during 2004 (for the acquisition of Trend Western) and $54.5 million during 2003 (for the acquisition of Del-Jen, P2S and J.A. Jones International). Cash flows from investing activities during

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2004 included $58.6 million from the sale of three excess real estate assets and a residual property interest and $22.2 million from the disposal of other property, plant and equipment. During 2003 the company realized $26.1 million from the disposal of property, plant and equipment and $31.9 million in proceeds from the sale of the last discontinued equipment dealership operation. Cash provided by investing activities in 2002 was benefited by the sale and liquidation activities associated with discontinued operations. Sales of discontinued businesses during that year generated $101 million in proceeds from the liquidation of property, plant and equipment and sales of dealership and temporary staffing businesses. Partially offsetting these proceeds were capital expenditures of $16 million primarily for the one remaining equipment dealership that was sold later in 2003.

     Cash utilized by investing activities in 2004, 2003 and 2002 included capital expenditures of $104.4 million, $79.2 million and $63.0 million, respectively, for continuing operations. Capital expenditures for continuing operations primarily relate to the equipment operations in the Global Services segment that support engineering and construction projects. The increase in these capital expenditures from 2003 to 2004 related largely to rental equipment to support reconstruction activity in Iraq. The decision to divest certain equipment operations substantially reduced the company’s capital investment requirements. Capital expenditures in future periods will include equipment purchases for the equipment operations of the Global Services segment, facility renewal and refurbishment, and computer infrastructure in support of the company’s continuing investment in automated systems.

     In July 2004, the company entered into a new, five-year, $800 million Senior Credit Facility. The agreement replaced existing facilities totaling $700 million. Of the total capacity, $300 million is dedicated to commercial paper back-up lines. The balance is available for letters of credit and funded loans. As of December 31, 2004 and 2003, primarily in response to significant increases in funds required for project operations, the company had outstanding borrowings of $129.9 million and $121.5 million, respectively, in the commercial paper market.

     Liquidity is further provided by substantial advance billings on contracts in progress, which, prior to 2004 included the company’s proportional share of excess cash that was advanced to the company by Duke/Fluor Daniel (see discussion above). As customer advances are used in project execution and not replaced by advances on new projects, the company’s cash position will be reduced. Cash has also been required to fund work performed on the Hamaca project in Venezuela. This project incurred significant costs for work relating to change orders that are subject to arbitration proceedings.

     The increase in new awards over the last two years will continue to result in start-up activities where the use of cash is greatest on projects for which cash is not provided by advances from clients. As work progresses on individual projects and client payments on invoiced amounts begin, cash used in start-up activities is recovered and cash flows tend to stabilize through project completion. Over the next 12 months cash required to fund start-up and ongoing project activities is expected to result in an increase in net operating assets and liabilities and may reduce available cash balances or require other sources of funding including additional short- or long-term borrowings or equity offerings.

     During 2004 the company issued $330 million of 1.5 percent Convertible Senior Notes due 2024, realizing net proceeds of $323 million. Proceeds from the Notes were used to pay off all outstanding commercial paper and $100.0 million was used to obtain ownership of the Aliso Viejo engineering and corporate offices through payoff of the lease financing. In December 2004 the company irrevocably elected to pay the principal amount of the Notes in cash. Ownership of the Calgary, Canada facilities was also obtained during 2004 through the payoff of $28.6 million of lease financing using available Canadian cash balances.

     In December 2004, the company filed a “shelf” registration statement for the issuance of up to $500 million of any combination of debt securities or common stock, the proceeds from which could be used for debt retirement, the funding of working capital requirements or other corporate purposes. No securities have been issued under this filing.

     For the years ended December 31, 2004, 2003 and 2002, 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 accumulated other comprehensive income (loss). Unrealized gains amounting to $40.0 million, $45.1 million and $20.9 million in 2004, 2003 and 2002, respectively, relate to cash balances held in currencies other than the U.S. dollar. Because most of the cash held in foreign currencies will be used for project related expenditures in those currencies, the company’s exposure to realized exchange gains and losses is considered nominal.

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     Proceeds from stock option exercises provided cash flow of $61.7 million, $28.5 million and $14.9 million during 2004, 2003 and 2002, respectively. The company has a common stock repurchase program, authorized by the Board of Directors, to purchase shares under certain market conditions. No purchases were made during 2004. During 2003 and 2002, the company purchased 94,000 shares for total consideration of $2.7 million and 726,000 shares for total consideration of $19.2 million, respectively. The maximum number of shares that could be purchased under the existing repurchase program is 4.1 million shares. There is no present plan to purchase any shares under the existing program.

     Cash dividends declared and paid in 2004, 2003 and 2002 were at the rate of $0.64 per share. The payment and level of future cash dividends will be subject to the discretion of the company’s Board of Directors.

     The company has sufficient sources of funds to meet its anticipated operating needs. Cash on hand, short- and long-term lines of credit and potential issuances of debt or equity securities under the shelf registration statement give the company significant operating liquidity. For the next 12 months, cash generated from operations supplemented by borrowings under credit facilities and the issuance of debt or equity securities are expected to be sufficient to fund operations.

     Off-Balance Sheet Arrangements The company maintains a variety of commercial commitments that are generally made available to provide support for various commercial provisions in its engineering and construction contracts. The company has $825 million in committed and uncommitted lines of credit to support letters of credit. In addition, the company has $52 million in uncommitted lines for general cash management purposes. Letters of credit are provided to clients in the ordinary course of business in lieu of retention or for performance and completion guarantees on engineering and construction contracts. At December 31, 2004, the company had utilized $392 million of its letter of credit capacity. The company also posts surety bonds primarily on state and local government projects to guarantee its performance on contracts.

     Contractual obligations at December 31, 2004 are summarized as follows:

     Guarantees In the ordinary course of business, the company enters into various agreements providing financial or performance assurances to clients on behalf of certain unconsolidated joint ventures and other jointly-executed contracts. These agreements are entered into primarily to support the project execution commitments of these entities. The guarantees have various expiration dates ranging from mechanical completion of the facilities being constructed to a period extending beyond contract completion in certain circumstances. The maximum potential payment amount of an outstanding performance guarantee is the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts. The amount of guarantees outstanding measured on this basis totals $1.8 billion as of December 31, 2004. Amounts that may be required to be paid in excess of estimated costs to complete contracts in progress are not estimable. For cost reimbursable contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For lump sum or fixed price contracts, the amount payable under a guarantee is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete. In those cases where costs exceed the remaining amounts payable under the contract the company may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors for claims.

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     Financial guarantees, made in the ordinary course of business on behalf of clients and others in certain limited circumstances, are entered into with financial institutions and other credit grantors and generally obligate the company to make payment in the event of a default by the borrower. Most arrangements require the borrower to pledge collateral in the form of property, plant and equipment which is deemed adequate to recover amounts the company might be required to pay. As of December 31, 2004, the company had extended financial guarantees on behalf of certain clients and other unrelated third parties totaling approximately $4 million. The remaining outstanding amount of a financial guarantee for $7 million of pollution control bonds related to zinc operations that were sold in 1987 has been recognized at the full amount of the underlying obligation. The obligation was recognized by a charge to earnings in 2002 due to the obligor’s bankruptcy filing and inability to meet the current obligation on the bonds without financial assistance from the company.

     Although inflation and cost trends affect the company, its engineering and construction operations are generally protected by the ability to fix costs at the time of bidding or to recover cost increases in cost reimbursable contracts. The company has taken actions to reduce its dependence on external economic conditions; however, management is unable to predict with certainty the amount and mix of future business.

Item 7A. Quantitative and Qualitative Discussions about Market Risk

     The company invests excess cash in short-term securities that carry a floating money market rate of return. Additionally, a substantial portion of the company’s cash balances are maintained in foreign countries. Debt instruments carry a fixed rate coupon on all long-term debt. The company’s exposure to interest rate risk on its long-term debt is not material due to the low fixed interest rates on the obligations. However, commercial paper is issued at current short-term interest rates, which could increase in the future.

     The company does not currently use derivatives, such as swaps, to alter the interest characteristics of its short-term securities or its debt instruments. The company generally utilizes currency options and forward exchange contracts to hedge foreign currency transactions entered into in the ordinary course of business and does not engage in currency speculation. At December 31, 2004, the company had forward foreign exchange contracts of less than 27 months duration, to exchange major world currencies for U.S. dollars. The total gross notional amount of these contracts at December 31, 2004 was $54 million.

     Beginning in 2003 and continuing through 2004, 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. Because it is expected that most of this cash will be used for project execution expenditures in the currency in which it is held, the risk of realized translation losses is mitigated.

     In 2001, the company issued a warrant for the purchase of 460,000 shares, at $36.06 per share, of the company’s common stock to a partner in the company’s e-commerce procurement venture. Any compensation realized by the holder through exercise of the warrant will offset any royalties otherwise payable under a five-year cooperation and services agreement.

Item 8. Financial Statements and Supplementary Data

     The information required by this Item is submitted as a separate section of this Form 10-K beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     There have been no changes in, or disagreements with, accountants on accounting and financial disclosure.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     The term “disclosure controls and procedures” (defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Under the supervision and with the participation of our management,

35

including our chief executive officer and chief financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, 2004. Based on this evaluation, our chief executive office and our chief financial officer concluded that our disclosure controls and procedures were effective as of the Evaluation Date to ensure the timely disclosure of required information in our Securities and Exchange Commission filings.

     Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, the design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all future events, no matter how remote. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.

Management’s Report on Internal Control Over Financial Reporting

     Management’s Report on Internal Control Over Financial Reporting, which appears on page F-2 of this report, is incorporated herein by this reference.

Attestation Report of the Independent Registered Public Accounting Firm

     Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which appears on page F-3 of this report, and which is incorporated herein by this reference.

Changes in Internal Control over Financial Reporting

     There have been no changes in our internal control over financial reporting during the fourth quarter of the fiscal year ending December 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrant

     The information required by paragraph (a), and paragraphs (c) through (j) of Item 401 of Regulation S-K (except for information required by paragraph (b) and (e) of Item 401 to the extent the required information pertains to our executive officers, which is set forth below) is hereby incorporated by reference from our definitive proxy statement for our 2005 annual meeting which will be filed with the Securities and Exchange Commission (the “Commission”). Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is incorporated by reference from the information contained in the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Corporate Governance portion of our Proxy Statement.

Code of Ethics

     We have long maintained and enforced a “Code of Business Conduct and Ethics” which applies to all Fluor officers and employees, including our chief executive officer, chief financial officer, and principal accounting officer and controller. A copy of our Code of Business Conduct and Ethics, as amended has been filed as an exhibit to this Form 10-K and has been posted on the investor relations portion of our website, at www.fluor.com. Shareholders may request a free copy of our Code of Business Conduct and Ethics from:

     We have disclosed and continue to intend to disclose any changes or amendments to our code of ethics or waivers from our code of ethics applicable to our chief executive officer, chief financial officer, and principal accounting officer or controller by posting such changes or waivers to our website.

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Corporate Governance

     We have adopted Corporate Governance Guidelines, which are available on our website at www.fluor.com. Shareholders may also request a free copy of our Corporate Governance Guidelines from the address and phone number set forth under “Code of Ethics.”

Certifications

     On May 20, 2004 we submitted to the New York Stock Exchange certifications of our Chairman and Chief Executive Officer and our Chief Legal Officer that they were not aware of any violation by Fluor Corporation of the New York Stock Exchange’s corporate governance listing standards as of the date of the certification. In addition, we have filed with the Securities and Exchange Commission, as an exhibit to this Form 10-K with respect to fiscal year 2003, the Sarbanes-Oxley Act Section 302 certifications regarding the quality of our public disclosure.

Item 11. Executive Compensation

     Information required by this item is included in the Organization and Compensation Committee Report on Executive Compensation and Executive Compensation and Other Information sections of our Proxy Statement to be filed with the Commission pursuant to Regulation 14A within 120 days following the close of our year, which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     Information required by this item is included in the Stock Ownership and Stock-Based Holdings of Executive Officers and Directors and Executive Compensation and Other Information sections of our Proxy Statement to be filed with the Commission pursuant to Regulation 14A within 120 days following the close of our year, which information is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

     Information required by this item is included in the Other Matters section of the Corporate Governance portion of our Proxy Statement to be filed with the Commission pursuant to Regulation 14A within 120 days following the close of our year, which information is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

     Information required by this item is included in the Ratification of Appointment of Auditors section of our Proxy Statement to be filed with the Commission pursuant to Regulation 14A within 120 days following the close of our year, which information is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as part of this report:

1. Financial Statements:

     Our consolidated financial statements at December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004 and the notes thereto, together with the report of the independent registered accounting firm on those consolidated financial statements are hereby filed as part of this report, beginning on page F-1.

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2. Financial Statement Schedules:

     No financial statement schedules are presented since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

3. Exhibits:

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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FLUOR CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

FLUOR CORPORATION

MANAGEMENT’S REPORT ON

The management of the company is responsible for establishing and maintaining effective internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. The company’s internal control over financial reporting is a process designed, as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

The company’s internal control over financial reporting is supported by written policies and procedures that:

	•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the company’s assets;
	•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of the company’s management and directors; and
	•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of the company’s annual consolidated financial statements, management of the company has undertaken an assessment of the effectiveness of the company’s internal control over financial reporting based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO Framework”). Management’s assessment included an evaluation of the design of the company’s internal control over financial reporting and testing of the operational effectiveness of the company’s internal control over financial reporting.

Based on this assessment, management has concluded that the company’s internal control over financial reporting was effective as of December 31, 2004.

Ernst & Young LLP, the independent registered public accounting firm that audited the company’s consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on management’s assessment of internal control over financial reporting which appears on the following page.

March 3, 2005

F-2

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

Board of Directors and Shareholders
Fluor Corporation

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Fluor Corporation maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Fluor Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Fluor Corporation maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Fluor Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Fluor Corporation as of December 31, 2004 and 2003, and the related consolidated statements of earnings, cash flows, and shareholders’ equity for each of the three years in the period ended December 31, 2004 and our report dated March 3, 2005 expressed an unqualified opinion thereon.

Orange County, California
March 3, 2005

F-3

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
Fluor Corporation

We have audited the accompanying consolidated balance sheets of Fluor Corporation as of December 31, 2004 and 2003, and the related consolidated statements of earnings, cash flows, and shareholders’ equity for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fluor Corporation as of December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Fluor Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2005 expressed an unqualified opinion thereon.

Orange County, California
March 3, 2005

F-4

FLUOR CORPORATION

CONSOLIDATED STATEMENT OF EARNINGS

See Notes to Consolidated Financial Statements.

F-5

FLUOR CORPORATION

CONSOLIDATED BALANCE SHEET

See Notes to Consolidated Financial Statements.

F-6

FLUOR CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

See Notes to Consolidated Financial Statements.

F-7

FLUOR CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY