Fundamentally Changing Our Business Profile and Value Proposition
Nearly two years ago, Fluor embarked on its strategic objective to transform the company into a global, knowledge-based, diversified services company. Our intention was to create a portfolio of growth businesses that sell our knowledge and deliver value.

In 1999, we realigned our business activities with specific market focus and clear lines of accountability. Fluor Daniel is focusing on its traditional engineering, procurement and construction (EPC) business, with specific strategies to position the company for enhanced long-term earnings growth. Fluor Global Services (FGS) was created to focus on growth opportunities for expanded value-added services outside the traditional EPC value chain. FGS is focused on providing premier asset solutions for clients across the entire life cycle of their asset base. Additionally, Fluor Signature Services (FSS) was formed, representing a new approach to providing increased quality and cost effective business and administrative services to Fluor operating units, with distinct profit and loss accountability.

During 2000, we continued the process of assessing and refining our business portfolio, resulting in additional strategic actions and decisions. First, was the separation of our Massey Coal operation through a tax-free reverse spin-off to shareholders, creating two publicly held companies. This action was taken to enable the respective management teams to focus more closely on their businesses and to provide flexibility for each company to grow in a way best suited for its industry. Additionally, independent evaluation of the separated companies offers the opportunity for improved market valuation. The decision was also made to divest the dealership operations of AMECO, Fluor’s heavy equipment business. Actions to implement the sale are in progress.

Fixing the Platform
Our first priority in implementing the new strategic direction was to significantly reduce our cost structure. This action was aggressively undertaken in 1999 to address both an industry downturn, as well as accommodate a much tighter market focus on industries and clients where differentiated value could be provided and higher margins achieved. A detailed business model process was also implemented to set priorities, assure financial discipline, enhance accountability and provide performance metrics to measure progress against established objectives.

We also significantly strengthened our sales and marketing work processes, with significantly greater emphasis on selectivity. Most important was the change to an account management philosophy. A more formalized structure and methodology has been implemented throughout the company which places greater emphasis on in-depth analysis and understanding of clients’ fundamental business drivers and their critical success factors. A key criteria in the implementation of the account management approach was to focus on clients where we can bring differentiated value that will translate into rewards proportional to our performance.

The objective of the account management process is to establish and maintain mutually beneficial long-term relationships which extend from identifying business opportunities through delivery of value resulting in customer satisfaction. This approach is designed to achieve increased scope and depth of business activity with targeted clients and to optimize the offering of Fluor’s entire range of capabilities and services, providing enhanced long-term growth potential.

Another important action was initiation of a multi-year implementation of Knowledge@Work^SM initiative , a major revamping of our business work processes and information management systems. This new system will enhance our position through increased capabilities and better leverage of our intellectual capital. These new work processes and systems will provide more timely and greater access to in-depth information. This will allow us to more effectively manage our business activities and enhance our decision making processes, ultimately enhancing our ability to deliver value to customers and achieving improved financial performance.

Tremendous intellectual capital resides within Fluor. To enable Fluor to leverage its global experience and knowledge for every customer, we are providing our people with state-of-the-art tools and information systems. A key component of our Knowledge@Work^SM investment is the creation of on-line “knowledge communities” which facilitate the systematic and effective sharing and application of our collective knowledge and “know-how” to create value for clients.

A major milestone of the Knowledge@Work^SM was achieved in October with the first implementation of Fluor’s new enterprise-wide management information system based on SAP technology. During 2001, we will continue our phased implementation, with completion expected in 2002. Major business work process and system changes such as Knowledge@Work^SM often involve risk. We have mitigated our risk by using our project management approach, including regular management reviews, employing consultants experienced in major system projects and utilizing a custom tailored implementation plan.

With increasing opportunities for profitable growth on risk projects, we have also taken significant steps to enhance our risk management processes through the application of a consistent business risk management framework. Nearly three years ago, we began to strengthen and formalize our use of risk assessment and control mechanisms to more effectively manage and mitigate risk in the selection and execution of projects. We have placed a high priority on continued improvement in our risk management practices, working to raise risk awareness throughout the organization and to enhance our capabilities to explicitly measure, price and mitigate risk. We have increased our audit and control work processes to further strengthen our ability to profitably execute risk projects.

During 2000, two specific actions were taken. First, we created a Change Management group to bring best practices to our prime contract administration activities. This will allow us to better manage changes on risk projects which are an increasing opportunity in several growth markets. Implementation of our Knowledge@Work^SM initiative will provide additional tools to better manage projects. We have begun creating a corporate-wide risk management initiative which will allow us to more effectively measure, price and manage the risk across our entire portfolio. Additionally, we have implemented a risk knowledge community which makes our risk management information accessible to all units of the company.

Our People Make the Difference
A clear understanding of the company’s strategic direction and the performance metrics to measure its success provides the critical framework to achieve our goal to enhance shareholder value. The primary differentiator in the execution of our business plan is the quality and capabilities of our people around the globe in which we take great pride.

Employee growth and development is a key priority and is supported by a wide range of programs. These include an extensive scope of on-line training courses as well as specific development processes to match people with opportunities to gain valuable experience. For example, the Global Leadership Forum and the Fluor Leadership Institute were created to bring Fluor’s people together to engage them in helping the company chart its future course and to broaden their view of the company and its markets. Fluor is committed to achieving its goal of creating growth in shareholder value which will further strengthen the company’s ability to provide greater opportunities for employee growth, career advancement and an attractive environment for a diversified workforce.

Continuing with its philosophy of pay for performance, Fluor further refined its compensation programs to improve alignment and incentives for people to achieve business and individual goals.

Well Positioned for Growth
With our major restructuring actions completed, including the reverse spin-off of Massey Coal, we are now both strategically and financially well positioned to deliver on our growth objectives. Our strategy of selectivity to focus on added value to clients for margin improvement has achieved meaningful success. While consolidated backlog of $10 billion is below the $14.4 billion level of three years ago, actual gross profit in backlog is 22 percent higher. In addition, market conditions in our traditional EPC business are continuing to strengthen, as reflected by the resumption of growth in new awards and backlog. Further supporting our prospects for growth are encouraging gains in certain of our knowledge-based services offering. Both our Telecommunications and our Operations & Maintenance businesses posted strong growth during the year with continuing favorable outlooks. Early feedback from clients has been quite positive to our new Asset Management Services business unit.

As we move forward to realize our potential and achieve the financial performance that we have committed to delivering for our shareholders, we are also leveraging new information technologies and Internet applications for additional growth opportunities. A number of initiatives are underway or in development in this area.

Consolidated Backlog and Backlog Gross Margin %

Backlog ($ in billions) Backlog Gross Margin ($ in billions)

For example, during the year, Fluor teamed with IBM to form a global business-to-business e-market named TradeMC, which will leverage our global sourcing and supply activities for improved schedule and cost efficiencies for our project procurement needs. This new venture is also expected to increasingly generate incremental revenue and earnings by providing these services to others. This new venture is the only e-commerce company serving the capital goods marketplace, by providing goods and services that are common to a variety of industries. The technology platform to execute procurement transactions is in place and is operational. One additional equity partner has joined the new venture and discussions are continuing with other interested parties.

Another initiative undertaken during the year was Fluor Daniel’s equity participation in Citadon, the recent combination of the two leading Web-based project management platform service providers. Fluor Daniel is working with Citadon to develop a standardized industry model to drive efficiencies across the EPC industry. Fluor Daniel has already begun executing projects utilizing the system which enhances the company’s ability to manage complex projects, reduce risk and create accountability. Additionally, it increases adherence to established work processes for improved execution schedules, cost efficiency and greater value to clients.

A third Web-based business was launched in December 2000, called GlobEquip, designed to facilitate the sale of surplus heavy construction and mining equipment to high-demand regions of the world. Leveraging AMECO’s logistical support capabilities and linkage to the global equipment market, Fluor’s strategic partners in the new venture include Citibank, which will provide global banking services, and Stukes-Atwood, which will provide commodity exchange services.

Fluor Safety Performance (lost workday incidence rates)

*55 times better than the national industry average.

Commitment to Safety and Social Responsibility
Fluor’s dedication to value creation encompasses its long-standing commitment to safety and to being a good corporate citizen.

Safety remains a core value at Fluor and is a clear competitive differentiator for the company. Long recognized as the safest contractor in the world, Fluor met or exceeded expectations in all safety performance measurement categories. Record lows were achieved during the year in the number of lost workdays and total recordable cases, as well as in the number of workers’ compensation claims. In addition to the distinct value that providing a safe working environment represents for our employees, clients and subcontractors, Fluor’s excellent safety performance provides tangible financial returns through reduced worker compensation expenses and lower insurance rates.

Fluor’s commitment to safety excellence on its projects around the world continues to set the standard for global construction safety. We incorporate leading-edge approaches to injury prevention and management. Every year, we challenge ourselves to attain improving performance in all aspects of safety.

Fluor also has a long tradition of charitable giving and service to the communities in which we work. Since the creation of the Fluor Foundation in 1952, Fluor has contributed more than $85 million to education, community and cultural organizations throughout the world. Our people also annually add their contributions through United Way and our Matching Gifts Program. We take great pride in our employees’ participation in their communities through the volunteering of their time and knowledge, a tradition which was strengthened in 1976 with the formation of the Fluor Community Involvement Team. Additionally, Fluor has a number of programs which actively support various education and human and services initiatives.

Fluor Foundation Contributions ($ in millions)

Summary
In 2000, Fluor made significant progress in implementing its new strategic direction, strengthening the company’s execution platform and expanding into new service markets that offer meaningful growth prospects. The new Fluor is well positioned to capitalize on diverse opportunities in a favorable global marketplace. Initiatives that have been successfully completed or are currently underway should further enhance our competitive position.

As we move forward, the knowledge and dedication of our people will enable us to create increasing value for clients. We will continually look for new ways to leverage our extensive intellectual capital, creating new businesses, capitalizing on opportunities in the new economy and delivering differentiated value to all of Fluor’s stakeholders.