origina pled - securities class action...

\./5561\'1 MILBERG WEISS BERSHAD L PLEDORIGINA

HYNES & LERACH LLP r------------12 WILLIAM S. LERACH (68581)

PATRICK J. COUGHLIN (111070) sEp Z 1991'3 DARREN J. ROBBINS (168593)

S.600 West Broadway, Suite 1800 DISTRICT COURTaERK, U.4 San Diego, CA 92101Telephone: 619/231-1058

5

27.ranr FCAUS1KAPLAN, KILSHEIMER & FOX, LLP

6 ROBERT N. KAPLAN685 Third Avenue, 26th Floor

7 New York, NY 10017Telephone: 212/687-1980

8SOLTAN & ASSOCIATES SCHIFFRIN & CRAIG, LTD.

9 VENUS SOLTAN (99144) RICHARD S. SCHIFFRIN660 Newport Center Drive Three Bala Plaza East

10 Suite 320 Suite 400Newport Beach, CA 92660 Bala Cynwyd, PA 19004

11 Telephone: 714/729-3100 Telephone: 610/667-7706

12 Attorneys for Plaintiff

13UNITED STATES DISTRICT COURT

14CENTRAL DISTRICT OF CALIFORNIA

r(),<) 15SOUTHERN DIVISION

16 5/%41C4)17 DOROTHY M. McMULLEN, On Behalf of ) Civ. I -I

Herself and All Others Similarly ) IEMSE5C.)

18 Situated, ) CLASS ACTION)

19 Plaintiff, )) COMPLAINT FOR VIOLATION OF

20 vs. ) THE SECURITIES EXCHANGE ACT) OF 1934

21 FLUOR CORPORATION, LESLIE G. )McCRAW, HUGH K. COBLE, DENNIS W. )

22 BENNER, DENNIS G. BERNHART, J. )

MICHAEL CONAWAY, JIM STEIN and )

23 JAMES O. ROLLINS, ))

24 Defendants. ) Plaintiff Demands A ) Trial By Jury

25- • • ;

2 6 • - ; "" •

2 7,

28 • ,

,

ENTERED ICMS

1 SUMMARY AND OVERVIEW

2 1. This is a class action on behalf of all persons who

3 purchased the common stock of Fluor Corporation ("Fluor" or the

4 "Company") between May 22, 1996 and Feb. 18, 1997 (the "Class

5 Period"). This action arises out of a fraudulent scheme and course

6 of business by Fluor and certain of its top executives to

7 artificially inflate Fluor's reported profits and the price of its

8 common stock so that those top executives could collect millions of

9 dollars of incentive and bonus compensation under Fluor's unique

10 executive compensation plan which provided such special bonus

11 compensation to its top executives if, but only if, Fluor's profits

12 met certain predetermined levels and its stock price traded at

13 certain high levels as well. As a result of defendants falsifying

14 Fluor's Fiscal 1996 ("F96") net income and earnings per share

15 ("EPS") and their false and misleading statements assuring

16 investors that the "re-engineering and restructuring'.' of Fluor's

17 largest and most important business unit, the Fluor Daniel

18 Engineering and Construction ("E&C") unit in 1994 had succeeded,

19 that the Fluor Daniel E&C unit's expansion was succeeding and its

20 business was very strong, Fluor reported record net income and EPS

21 of $268 million and $3.17 for F96 ended Oct. 31, 1996. Defendants

22 also assured investors that the success of Fluor's Fluor Daniel E&C

23 unit would enable Fluor to meet its 15%-20% per year growth target

24 in F97 to end Oct. 31, 1997, leading to sharply increased EPS for

25 Fluor in F97 and F98. As a result, Fluor's stock climbed to an

26 all-time high of $75 -7/8 on Feb. 18, 1997, and Fluor's top

27 executives collected millions in special incentive and bonus

, 28 compensation for F96. However, after close of trading on Feb. 18,

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1 1997, defendants stunned the markets by revealing that Fluor's

2 actual operating earnings for the lstQ F97 -- the quarter ended

3 Jan. 31, 1997 -- were much worse than earlier forecast, in

4 significant part due to huge cost overruns on two Fluor Daniel E&C

5 unit's fixed-price power plant construction Projects which Fluor

6 refused to identify or quantify, as well as soaring overhead costs

7 in its Fluor Daniel unit. Fluor's common stock collapsed from over

8 $75 to $62 on huge volume of 6.7 million shares, the largest one-

9 day price decline on the largest one-day trading volume in Fluor's

10 history -- thus wiping out in one trading day approximately $1

11 billion of Fluor common shareholder market value! Fluor's stock

12 continued to collapse to as low as $46-1/2, as Fluor revealed that

13 its re-engineering and restructuring of the Fluor Daniel E&C unit

14 had failed, it was abandoning its expansion of that unit, was

15 undertaking a huge cost-reduction program involving over $100

16 million in spending cuts, requiring Fluor Daniel office closings

17 and lay-offs and that it had suffered a stupefying $70+ million

18 2ndO F97 loss, the quarter ended April 30, 1997, due to further

19 huge cost overruns on one of the two Fluor Daniel E&C unit's fixed-

20 price power plant construction projects it still refused to

21 identify, as well as millions in cost overruns/losses on other

22 Fluor Daniel E&C construction projects which aggregated over $115

23 million and it was abandoning its plan of achieving 15%-20% EPS

24 growth.

25 2. After increasing from less than $20 per share in the late

26 1980s to more than $50 per share in the early 1990s, Fluor' s stock

27 price stagnated in 1993-1994. Fluor's F93 Annual Report contained

28 a letter from Leslie McCraw that stated that "despite [Fluor's]

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1 record performance our stock has languished." As a result of this

2 poor performance of Fluor's stock, in the Spring of 1994, Fluor

3 announced a major re-engineering and restructuring of its Fluor

4 Daniel E&C unit. According to Fluor, this re-engineering and

5 restructuring would make the Fluor Daniel E&C unit more efficient

6 and effective, permit it to grow rapidly worldwide and for Fluor to

7 achieve 15%-20% EPS growth going forward. Fluor's top executives

8 also created a new compensation system which gave them an

9 opportunity to earn huge amounts of special incentive or bonus

10 compensation if, but only if, Fluor met certain earnings growth

11 targets and its common stock traded at certain high levels, which

12 they knew could only be achieved if the Fluor Daniel E&C unit

13 achieved substantial profitable growth over the next several years.

14 Fluor's Chairman, Leslie McCraw ("McCraw"), stated this plan

15 created "opportunities that can dramatically affect [Fluor

16 executives'] income."

17 3. During F94-F95, Fluor implemented the "re-engineering,"

18 i.e., decentralization and expansion of its Fluor Daniel E&C unit.

19 In Fluor's F94-F95 years ended Oct. 31, 1994 and 1995,

20 respectively, Fluor achieved record earnings and its stock price

21 reached a then all-time high of $59 per share, which resulted in

22 Fluor's top executives receiving at least $15 million in special

23 incentive and bonus compensation under the new Fluor Executive

24 Compensation Program. Fluor's top executives anticipated further

25 EPS gains, stock appreciation and huge incentive/bonus payments for

26 themselves for F96 to end Oct. 31, 1996. However, by May 1996,

27 Fluor's top executives realized that in fact the Fluor Daniel E&C

28 unit was in horrible trouble and the re-engineering of that unit

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1 had failed catastrophically, as it was suffering from escalating

2 and out-of-control overhead expenses; in order to absorb some of

3 its escalating overhead it had undertaken many projects on which it

4 could not make any meaningful profit and was suffering losses on

5 several projects due to cost overruns, including two fixed-price

6 power plant projects (one in Taft, Louisiana and the other in

7 Rabigh, Saudi Arabia) which were suffering losses then aggregating

8 $50 million and which were continuing to mount. Fluor's top

9 executives were covering up these losses and the true adverse

10 impact of the Fluor Daniel E&C unit's excessive costs by very

11 aggressively recognizing profits on its Rayong, Thailand refinery

12 construction project, in a manner inconsistent with its claimed

13 conservative income recognition practices. Because revealing this

14 negative information would result in Fluor's earnings suffering a

15 horrible penalty and the collapse of its common stock, which would

16 eliminate any possibility of Fluor's top executives receiving

17 millions in incentive/bonus compensation for F96 to end Oct. 31,

18 1996, the defendants concealed this adverse information, hoping

19 that it would receive large incentive payments on certain contracts

20 later in F96 which would overcome these losses. Instead of

21 disclosing the truth to the market, they lied. They told the

22 market that Fluor's Fluor Daniel E&C unit's re-engineering,

23 decentralization and expansion had succeeded, that the unit was

24 enjoying strong business conditions and growth, was being selective

25 about the contracts it accepted to assure acceptance only of

26 contracts that provided for adequate profit margins, was operating

27 profitably, was not suffering from any serious problems on any of

28 its major construction projects, and that, while Fluor Daniel E&C

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,

r

1 unit's cost structure had increased significantly as a result of

2 its expansion, these costs were under control and were leading to

3 the securing of large contracts at an increasing pace, which would

4 benefit Fluor's EPS going forward. Thus, they told investors Fluor

5 was on track to achieve 15%-20% EPS growth in F97 and F98, with F97

6 EPS to reach approximately $3.65-$3.75, followed by further EPS

7 gains in F98 to $4.20-$4.30.

8 4. These statements were all false and misleading when made.

9 In fact, Fluor's restructuring and reorganization of its Fluor

10 Daniel E&C unit and decentralizing its management structure had

11 failed badly. The overhead costs in the Fluor , Daniel E&C unit had

12 escalated (and were continuing to escalate) out of control, and in

13 order to help absorb this excess overhead, the Fluor Daniel E&C

14 unit had accepted several contracts on which it had little if any

15 chance to earn a profit while several large Fluor Daniel E&C

16 construction projects were actually suffering large losses,

17 including two fixed-price power plant contracts -- one in Taft,

18 Louisiana and another in Rabigh, Saudi Arabia -- that were

19 suffering cost overruns/losses that by the end of the Class Period

20 aggregated approximately $200 million. While Fluor had been able

21 to conceal the losses on several of its construction projects and

22 the true adverse impact of the Fluor Daniel E&C unit's excessive

23 costs and overhead by aggressively recognizing income from its

24 Rayong contract in Thailand, defendants knew by May 1996 that these

25 cost overruns and losses combined with the Fluor Daniel E&C unit's

26 out-of-control overhead costs, would result in Fluor suffering huge

27 losses in the near term. However, defendants avoided reporting

28 these losses during F96 by falsifying Fluor's F96 financial

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•

1 results, including its net income and EPS, thus enabling them to

2 collect millions in special bonus/incentive compensation based on

3 these inflated EPS and Fluor's artificially inflated stock price.

4 5. Due to defendants' false and misleading statements about

5 the Fluor Daniel E&C unit and Fluor's falsified F96 results, by

6 Feb. 18, 1997 Fluor's stock reached $75-3/4 -- its all-time high.

7 On Feb. 18, 1997, after the close of trading, Fluor stunned the

8 securities markets by reporting lstQ F97 results well below

9 expectations, in large part due to what it described to be large

10 cost overruns/losses on two power construction projects it refused

11 to identify, or quantify. Fluor also revealed that in order to

12 report the EPS of $.73 it did report, it had more than offset the

13 adverse impact of these large Fluor Daniel E&C losses by reversing

14 millions in insurance expense accrual/reserves, generating millions

15 in non-operating earnings. Analysts immediately perceived this as

16 a tactic to attempt to cover-up the fact that Fluor's operating

17 margins, especially in the Fluor Daniel E&C unit, had fallen.

18 precipitously. As a result of these shocking revelations, on Feb.

19 19, 1997, Fluor's stock was suspended from trading; then, when it

20 opened, it collapsed from $75-3/4 per share (its all-time high

21 reached the day before) to just $62 per share on volume of 6.7

22 million shares -- the largest one-day price decline and trading

23 volume in Fluor's history -- a 19% one-day fall, which wiped out

24 over $1 billion of Fluor stockholder value! Shortly thereafter,

25 Fluor admitted that its Fluor Daniel E&C unit's "re-engineering,"

26 i.e., expansion and decentralization had failed and that Fluor was

27 going to have to eliminate over $100 million in operating costs by

28 closing many Fluor Daniel E&C offices and by large layoffs. Most

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1 shocking of all, Fluor later revealed a 2ndQ F97 loss of over $70

2 million, the first quarterly loss Fluor had reported in many years,

3 which was due to huge losses and cost overruns of over $115 million

4 on several Fluor Daniel E&C construction projects, including a

5 further cost overrun/loss of $70-$90 million on one of the fixed-

6 price power plant projects which had contributed to the

7 disappointing 1stQ F97 results, i.e., the Rabigh, Saudi Arabia

8 power plant project. As a result of this disaster, Fluor has been

9 forced to abandon its 15%-20% EPS growth plan and to completely

10 reorganize its Fluor Daniel E&C unit to re-centralize the unit's

11 management controls to significantly strengthen that unit's

12 financial and accounting internal controls and to pare back that

13 unit's operations in an effort to halt the hemorrhaging that had

14 devastated Fluor's operating results thus far during F97.

15 Ultimately, Fluor's stock fell to just $46-1/2 per share -- 36%

16 lower than its Class Period high of $75-7/8 -- a loss of over $2

17 billion in common shareholder value, due to the.blunders and deceit

18 of corporate executives who paid themselves millions in special

19 bonus and incentive compensation.

20 6. Market participants were shocked and furious over these

21 revelations and the collapse of Fluor's stock because they had been

22 misled as to the success of Fluor's business and because Fluor has

23 refused to identify which Fluor Daniel E&C unit's projects were

24 involved or provide other details about other Fluor Daniel troubled

25 projects that were suffering losses. According to the financial

26 media, these revelations "stunned" shareholders and came as "a

27 shock to analysts and investors." "People were definitely caught

28 by surprise" said one analyst, "the chancre hadn't been anticipated"

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1 and "expectations of a good quarter turned into a nightmare," the

2 "lstO earnings announcement was a surprise to everyone," said

3 others. Another added, "there is no excuse for the cost overrun

4 surprise -- FLR's controls should have been much better than that,

5 and management deserves to be criticized for the slip." The Los

6 Angeles Times reported "Fluor's financial report raised questions

7 about management's grip on internal operations. . . and shattered

8 a nearly universal belief that the international engineering and

9 construction services company would continue chalking up a double-

10 digit annual growth rate. . . . The company's first-quarter

11 results missed analysts' expectations 'by a country mile!"

12 Referring to the huge 2ndQ F97 loss, one analyst stated: "[T]his

13 charge is astounding," "a shock" and concluded:

14 It is obvious that management's effort to pursue an

15 accelerated growth strategy beginning in 1993-1994 has

16 lead to:

17 • a bloated cost structure

18 • an organizational structure that has been stretched

19 too thin

20 * * *

21 In essence, to pursue growth which was evidenced by

22 the rapid expansion in new orders and backlog, FLR

23 pursued all types of work, irrespective of potential

24 profitability, executed poorly on a number of prolects

25 and in the process created a bloated cost and overhead

26 structure throughout the world.

27 One analyst bluntly summed it up: "The decision . . . to

28 reengineer Fluor in order to dramatically accelerate the growth

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1 rate . . . was an unmitigated disaster." Instead of achieving 15%-

2 20% EPS growth during F97 as forecast during the Class Period, for

3 the nine months ended July 31, 1997, Fluor had net earnings of only

4 $58.1 million or $.69 per share, a sharp decline from its net

5 income of $189.2 million or $2.24 per share in the same nine-month

6 period in F96 and far less than the $2.59 per share which had been

7 forecast for that nine month period as recently as Feb. 12, 1997.

8 Also, as Fluor stopped accepting marginally profitable or

9 unprofitable contracts, the Fluor Daniel E&C unit's volume of new

10 contracts fell precipitously -- down 15% from prior periods.

11 7. Fluor officials admitted "the company has pushed hard for

12 profit growth and . . . demanded too much of certain operating

13 executives," "they rightfully acknowledgefd] the mistakes," "we

14 tried some things and they didn't work out," "Fluor's ballyhooed

15 corporate 'reengineering' three years ago . . . enabled the Company

16 to grow, but it has grown too freely with too many overlapping

17 support units," "Top management has been too removed from the

18 Company . . . and Fluor has become entangled in too many pursuits

19 that don't bring in much profit," and "We were trying to do too

20 many things in too many countries in too many industries."

21 8. The positive, optimistic statements made by defendants

22 during the Class Period were each false and misleading statements

23 when made. The true facts, including the following adverse

24 internal conditions at Fluor, which contradicted their positive/

25 optimistic public statements and were known to each of the

26 individual defendants, were:

27 (a) That Fluor's Fluor Daniel E&C unit had encountered

28 a huge cost overrun on its Taft, Louisiana power plant project,

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1 which exceeded $50 million by the end of the Class Period and would

2 result in a major loss on that project;

3 (b) That Fluor's Fluor Daniel E&C unit had encountered

4 a major cost overrun on its Rabigh, Saudi Arabia power plant

5 project, which exceeded $100 million by the end of the Class Period

6 and would result in Fluor's suffering a major loss on that project;

7 (c) That Fluor's Fluor Daniel E&C unit was suffering

8 from losses exceeding $35-$45 million on other construction

9 projects;

10 (d) That Fluor had been concealing the troubled nature

11 of a large number of projects in its Fluor Daniel E&C unit and the

12 true adverse impact of that unit's excessive overhead costs, by

13 recording income from its Rayong, Thailand project earlier and in

14 amounts larger than was consistent with its stated conservative

15 profit recognition practices with respect to large construction

16 projects;

17 (e) That Fluor had materially overstated its net income

18 and EPS for the 4thQ F96 and F96 ended Oct. 31, 1996 by failing to

19 properly recognize in a timely manner the large losses it knew

20 would result from its fixed-price power plant contracts in Taft,

21 Louisiana and Rabigh, Saudi Arabia, as detailed in ¶158-71;

22 (f) That the decentralized Fluor Daniel E&C unit's

23 management structure did not have in place adequate internal

24 controls and management information systems to enable top manage-

25 ment to detect losses on large projects at an early stage when

26 senior management intervention could have minimized or limited

27 those losses and, as a result, by the time top management learned

28 of the losses being suffered at the Taft, Louisiana and Rabigh,

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1 Saudi Arabia projects in the Spring-Summer of 1996, they already

2 exceeded $50 million and were escalating rapidly;

3 (g) That Fluor's rapid expansion of its Fluor Daniel E&C

4 unit and utilization of a decentralized management structure had

5 failed and, as a result, the Fluor Daniel E&C unit's costs had

6 escalated out of control which was having an adverse impact on that

7 unit's actual results;

8 (h) In order to cover-up the true adverse impact of the

9 rapidly escalating overhead and bidding "costs" in the Fluor Daniel

10 E&C unit, the Fluor Daniel E&C unit had accepted and was accepting

11 a large number of contracts on which it could not earn any

12 significant profit and was actually encountering material losses on

13 a number of projects, including the Taft, Louisiana and Rabigh,

14 Saudi Arabia projects;

15 (i) That overhead costs at Fluor's Fluor Daniel E&C unit

16 had escalated out of control and were resulting in serious adverse

17 impact on Fluor Daniel's actual results from operations;

18 (j) That in order to try to help absorb more of the

19 escalating overhead of its Fluor Daniel E&C unit, Fluor was

20 accepting contract awards which it knew would generate little, if

21 any, profit, just to obtain some revenue and thus justify Fluor

22 Daniel's expansion into certain geographic areas, even though the

23 defendants knew this practice would have an adverse impact on

24 Fluor's profit margins going forward;

25 (k) That, as a result of the foregoing, defendants

26 actually knew that Fluor could not achieve the 15%-20% growth

27 target it had established, had publicly committed itself to

28

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1 achieving and represented it was on target to achieve in F97 and

2 F98;

3 (1) That, as a result of the foregoing, defendants

4 actually knew that Fluor's forecasts of F97 EPS of $3.60-$3.70 and

5 F98 EPS of $4.20-$4.30 or above were false and could not and would

6 not be achieved, given the serious problems defendants knew were

7 impacting Fluor's Fluor Daniel E&C unit; and

8 (m) That, as a result of the foregoing, statements by

9 Fluor's executives that they were "comfortable" with EPS estimates

10 made by analysts of $3.60-$3.70 for F97 and $4.20-$4.30 for F98

11 were known by defendants to be false when made, as those EPS gains

12 were unachievable, given the serious problems defendants knew were

13 impacting Fluor's Fluor Daniel E&C unit.

14 9. The chart below show Fluor's stock price action during

15 the Class Period: Fluor Corp (FLR)

16 March 13, 1996 - May 7, 1997Daily Common Stock Price

8

170

1875 —

19

20 70 —a)

2165 -

22 get

23 60 --6

2 455

25

2 6 50 —

2 7

45

28 03/13/96 07/16/96 11/14/96 03/20/9705/14/96 09/16/96 01/17/97

— 13 —

1 JURISDICTION AND VENUE

2 10. Plaintiff brings this action pursuant to §§10(b) and

3 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),

4 as amended (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5

5 promulgated thereunder (17 C.F.R. §240.10b-5).

6 11. This Court has jurisdiction over the subject matter of

7 this action pursuant to §27 of the Exchange Act (15 U.S.C. §78aa)

8 and 28 U.S.C. §1331, as amended.

9 12. Venue is proper in this District pursuant to §27 of the

10 Exchange Act, 15 U.S.C. §78aa and 28 U.S.C. §1391(b). Many of the

11 acts and transactions giving rise to the violations of law

12 complained of herein, including the preparation and dissemination

13 to the investing public of false and misleading information,

14 occurred in this District.

15 13. In connection with the acts, conduct and other wrongs

16 complained of herein, the defendants, directly or indirectly, used

17 the means and instrumentalities of interstate commerce, including

18 the United States mails and interstate telephone communications,

19 and the facilities of the national securities exchanges.

20 THE PARTIES

21 14. Plaintiff Dorothy M. McMullen purchased 20 shares of

22 Fluor common stock on Dec. 12, 1996, at $64.79 per share, and has

23 been damaged as a result of defendants' conduct.

24 15. Defendant Fluor Corporation ("Fluor") is an international

25 engineering and construction firm with a low-sulphur coal opera-

26 tion. Its Fluor Daniel E&C unit is by far its biggest and most

27 important unit, generating the vast majority of its revenue and net

28 income. Fluor is headquartered in Irvine, California. The Company

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1 has over 80 million shares of common stook outstanding. During the

2 Class Period, Fluor's common stock was actively traded on the New

3 York, Midwest, Pacific, Amsterdam, London and Swiss Stock Exchanges

4 in an efficient market.

5 16. (a) Defendant Leslie G. McCraw ("McCraw") was Chairman

6 and Chief Executive Officer of Fluor. McCraw had access to the

7 adverse non-public information about Fluor's businesses and

8 finances via access to internal corporate documents (including

9 Fluor's operating plans, budgets and forecasts and reports of

10 actual operations compared thereto), conversations and connections

11 with other corporate officers and employees, attendance at

12 management and Board of Directors' meetings and committees thereof

13 and via reports and other information provided to him in connection

14 therewith. Defendant McCraw personally profited from his

15 participation in the fraudulent scheme by receiving millions of

16 dollars in special incentive and bonus compensation in F96 by

17 artificially inflating ' Fluor's reported profits and stock price.

18 (b) Defendant Hugh K. Coble ("Coble") was Vice Chairman

19 of Fluor. Coble had access to the adverse non-public information

20 about Fluor's businesses and finances via access to internal

21 corporate documents (including Fluor's operating plans, budgets and

22 forecasts and reports of actual operations compared thereto),

23 conversations and connections with other corporate officers and

24 employees, attendance at management and Board of Directors'

25 meetings and committees thereof and via reports and other

26 information provided to him in connection therewith. Defendant

27 Coble personally profited from his participation in the fraudulent

28 scheme by receiving millions of dollars in special incentive and

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1 bonus compensation in F96 by artificially inflating Fluor's

2 reported profits and stock price.

3 (c) Defendant Dennis W. Benner ("Benner") is Vice

4 President and Chief Information Officer of Fluor. Benner had

5 access to the adverse non-public information about Fluor's business

6 and finances via access to internal corporate documents (including






12 therewith. Defendant Benner personally profited from his



15 artificially inflating Fluor's reported profits and stock price.

16 (d) Defendant Dennis G. Bernhart ("Bernhart") is Fluor

17 Daniel Group President -- America. Bernhart had access to the

18 adverse non-public information about Fluor's business and finances

19 via access to internal corporate documents (including Fluor's

20 operating plans, budgets and forecasts and reports of actual

21 operations compared thereto), conversations and connections with

22 other corporate officers and employees, attendance at management

23 meetings and via reports and other information provided to him in

24 connection therewith. Defendant Bernhart personally profited from

25 his participation in the fraudulent scheme by receiving millions of



28

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1 (e) Defendant Jim Stein ("Stein") is Fluor Daniel Group

2 President -- Diversified Services. Stein had access to the adverse

3 non-public information about Fluor's business and finances via

4 access to internal corporate documents (including Fluor's operating

5 plans, budgets and forecasts and reports of actual operations

6 compared thereto), conversations and connections with other

7 corporate officers and employees, attendance at management meetings


9 therewith. Defendant Stein personally profited from his




13 (f) Defendant J. Michael Conaway ("Conaway") is Senior

14 Vice President and Chief Financial Officer of Fluor. Conaway had

15 access to the adverse non-public information about Fluor's business

16 and finances via access to internal corporate documents (including .






22 therewith. Defendant Conaway personally profited from his parti-

23 cipation in the fraudulent scheme by receiving millions of dollars

24, in special incentive and bonus compensation in F96 by artificially

25 inflating Fluor's reported profits and stock price.

26 (g) Defendant James 0. Rollins ("Rollins") is Senior

27 Vice President and Chief Administration Officer of Fluor. Rollins

28 had access to the adverse non-public information about Fluor's

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1 business and finances via access to internal corporate documents

2 (including Fluor's operating plans, budgets and forecasts and

3 reports of actual operations compared thereto), conversations and

4 connections with other corporate officers and employees, attendance

5 at management and Board of Directors' meetings and committees

6 thereof and via reports and other information provided to him in

7 connection therewith. Defendant Rollins personally profited from

8 his participation in the fraudulent scheme by receiving millions of



11 (h) The defendants named in ¶16(a)-(g) are referenced

12 herein as the "Individual Defendants."

13 17. By reason of his stock ownership, management position,

14 and membership on Fluor's Board of Directors,' and his ability to

15 make public statements in the name of Fluor, McCraw was a

16 controlling person and had the power and influence to cause Fluor

17 to engage in the unlawful conduct complained of herein. Because of

18 their Board membership and/or executive and managerial positions

19 with Fluor, each of the Individual Defendants had access to the

20 adverse non-public information about the business, finances,

21 products, markets and present and future business prospects of

22 Fluor particularized herein via access to internal corporate

23 documents, conversations or connections with corporate officers or

24 employees, attendance at management and/or Board of Directors'

25 meetings and committees thereof and/or via reports and other

26 information provided to them in connection therewith.

27 18. Defendants had a duty to promptly disseminate accurate

28 and truthful information with respect to Fluor's operations and

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1 financial condition or to cause and direct that such information be

2 disseminated and to promptly correct any previously disseminated

3 information that was misleading to the market. As a result of

4 their failure to do so, the value of Fluor common stock was

5 artificially inflated during the Class Period, damaging plaintiff

6 and the Class.

7 19. The Individual Defendants, because of their positions

8 with Fluor, controlled the contents of quarterly and annual

9 reports, press releases and presentations to securities analysts.

10 Each Individual Defendant was provided with copies of the reports

11 and press releases alleged herein to be misleading prior to or

12 shortly after their issuance and had the ability and opportunity to

13. prevent their issuance or cause them to be corrected. Because of

14 their positions and access to material non-public information

15 available to them but not the public, each of these defendants knew

16 or recklessly disregarded that the adverse facts specified herein

17 had not been disclosed to and were being concealed from the public

18 and that the positive representations which were being made were

19 then false and misleading. As a result, each of the Individual

20 Defendants is responsible for the accuracy of Fluor's 4thQ F96 and

21 F96 financial statements and the corporate reports, filings and

22 releases detailed herein at ¶133, 36, 37, 40, 44, 49, 61 and 63 as

23 "group-published" information and is therefore responsible and

24 liable for the representations contained therein.

25 20. Each of the defendants is liable as a primary violator in

26 making false and misleading statements, and for participating in a

27 fraudulent scheme and course of business that operated as a fraud

28 or deceit on purchasers of Fluor stock during the Class Period.

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1 All of the defendants pursued a fraudulent scheme in furtherance of

2 their common goal, i.e., inflating the reported profits of Fluor

3 and the trading price of Fluor stock by making false and misleading

4 statements and concealing material adverse information. The

5 fraudulent scheme and course of business was designed to and did:

6 (i) deceive the investing public, including plaintiff and other

7 Class members; (ii) artificially inflate the price of Fluor stock

8 during the Class Period; (iii) cause plaintiff and other members of

9 the Class to purchase Fluor stock at inflated prices; and (iv)

10 conceal and coverup the Individual Defendants' mismanagement of

11 Fluor, including their disastrous "reengineering" of the Fluor

12 Daniel E&C unit; (v) increase the value, of options to purchase

13 Fluor stock owned by the Individual Defendants, as well as their

14 own Fluor shareholdings; and (vi) permit them to collect millions

15 of dollars in unjustified bonus and special incentive compensation

16 and thus personally profit from the fraudulent scheme and course of

17 business they were pursuing and participating in.

18 MOTIVE AND OPPORTUNITY

19 21. Each defendant had the opportunity to commit and partici-

20 pate in the fraud described herein. The Individual Defendants were

21 top officers and directors of Fluor and they controlled the

22 Company's press releases, corporate reports, SEC filings and/or

23 communications with analysts, as well as the preparation of its

24 financial statements. Thus, they controlled the public

25 dissemination of, and could falsify, the information about Fluor's

26 business and products that reached the public and impacted the

27 price of Fluor stock. Also, because Fluor's Fluor Daniel E&C unit

28 was its most important source of revenue and profit growth, Fluor's

-20-

1 financial future was very much dependent upon the success of its

2 Fluor Daniel E&C business, which was by far the largest part of

3 Fluor's business. Fluor's top executives were fully aware of the

4 problems with Fluor's Fluor Daniel E&C unit's business as they were

5 vitally concerned with how the re-engineering and vast expansion of

6 that business, was working out and, as hands-on managers, they were

7 aware of the serious problems in the Fluor Daniel E&C unit as

8 alleged herein.

9 22. The Individual Defendants, because of their positions

10 with the Company, controlled and/or possessed the power and

11 authority to control the contents of its quarterly and annual

12 reports, press releases and presentations to securities analysts

13 and thereby the investing public. Each defendant was provided with

14 copies of the Company's reports and press releases alleged herein

15 to be misleading prior to or shortly after their issuance and had

16 the ability and opportunity to prevent their issuance or cause them

17 to be corrected. Because of their positions and access to material

18 non-public information available to them but not to the public,

19 each of these defendants knew or recklessly disregarded that the

20 adverse facts specified herein had not been disclosed to and were

21 being concealed from the public and that the positive representa-

22 tions which were being made were then materially false and

23 misleading.

24 23. Each of the Individual Defendants also had the motive to

25 commit and participate in the fraud. The defendants' motive to

26 engage in this conduct included a desire to inflate the price of

27 Fluor stock and to cause it to report inflated profits to: (i)

28 cover up and conceal their mismanagement of Fluor, including the

- 21 -

1 disastrous re-engineering, restructuring and expansion of the Fluor

2 Daniel E&C unit which they conceived and implemented, thus

3 protecting and enhancing their executive positions and the

4 substantial compensation and prestige they obtained thereby; (ii)

5 enhance the value of their holdings of Fluor stock and/or options

6 to purchase Fluor stock; (iii) inflate Fluor's reported profits and

7 stock price of Fluor in order to obtain larger payments under the

8 Company's unique executive bonus compensation plan; and (iv) permit

9 Fluor to complete a $200-$400 million offering of debt securities

10 on more favorable terms if the price of Fluor stock could be

11 inflated long enough, at high enough levels, to complete the debt

12 offering before the revelations of Feb. 18, 1997 took place.

13 24. Fluor's 1996 Proxy described the direct hands-on

14 involvement of Fluor's top executives in the day-to-day operation

15 of the Fluor Daniel E&C unit and Fluor's unique executive incentive

16 compensation program:

17 [T]he Company made substantial changes in its management

18 and organizational structure during fiscal 1994 . . . .

19 A Leadership Team, which consists of all of the Company's

20 executive officers, is focused on overall Company

21 performance and monitors the progress of the operating

22 units in relation to their strategic and operating

23 objectives. . . .

24 . . . The Company's executive compensation program

25 consists of three main components: (1) base salary; (2)

26 potential for an annual bonus based on overall Company

27 performance as well as individual performance; and (3)

28 the opportunity to earn long-term cash and stock-based

- 22 -

1 incentives which are intended to encourage the

2 achievement of superior results over time . . . . [T]he

3 Company . . . has adopted stock ownership tarqets for its

4 officers. These target guidelines are intended to

5 encourage stock ownership by the company's management

6 group. . . .

7 . . . Total compensation is . . . based upon stock price

8 appreciation and achievement of earnings exceeding target

9 levels, with the potential for additional compensation

10 for extraordinary performance as measured by the achieve-

11 ment of specific earnings growth and/or stock price

12 oblectives set by this Committee.

13 Under the Company's Executive Incentive Compensation

14 Plan . . bonuses may not be paid unless net earnings,

15 excluding extraordinary, unusual or infrequently

16 occurring items, exceed a return on average stockholders'

17 equity that is calculated on the basis of average yield

18 for the year on one year United States Treasury

19 Bills. . . .

20 All Leadership Team members participate in the

21 Company's long-term incentive program. This program's

22 primary purpose is to offer an incentive for the

23 achievement of superior operating results . . . .

24 Under the long-term incentive program, the Committee

25 each year may make grants of the following: (a) cash

26 incentive awards which are based upon meeting three-year

27 earnings targets established by the Committee; (b) stock

28 options which become exercisable over a four year period

- 23 -

1 and which have value only if shareholder value is

2 increased and (c) restricted stock which may be awarded

3 only if return on equity targets are achieved. The

4 weighing of awards between the earnings-based cash

5 portion and the stock portion is primarily a function of

6 responsibility with the more senior executives having a

7 greater portion of their awards dependent on stock

8 performance. The 1995 awards to Mr. McCraw and other

9 Leadership Team members were based on placing each of

10 their total compensation levels in the mid-range of the

11 general industry group if target performance was

12 achieved. To achieve higher than mid-range compensation

13 up to the 75th percentile range would require performance

14 in excess of the established targets. Also for 1995,

15 participating Leadership Team members received a payout

16 of a previously granted cash incentive award which was

17 based upon achieving 108% of the target amount for fiscal

18 1993 through 1995 earnings performance.

19 [E]arly in fiscal 1995, a new Director's Achievement

20 Award Program was . . . approved by the Board. The

21 program provides for performance-contingent cash and

22 stock-based awards for members of the Leadership Team

23 which become payable only if the very aggressive earnings

24 growth and stock price performance goals established by

25 this Committee are achieved within a limited time frame.

26 25. The very large compensation of Fluor executives based on

27 their meeting earnings targets and pushing up Fluor's stock price

28 received particular attention from the financial press, which was

- 24 -

1 reported in 1996 and 1997. On Feb. 20, 1996, the Dow Jones News

2 Service reported:

3 Fluor Corp. is seeking to change its long-term

4 stock-incentive plan by increasing the number of shares

5 available for stock options or restricted stock awards.

6 In a proxy statement filed with the Securities and

7 Exchange Commission, the company said it has asked

8 shareholders to approve making available an additional 4

9 million shares for the exercise of options or the award

10 of restricted stock.

11 * * *

12 Separately, Chairman and Chief Executive Leslie G.

13 McCraw received a 1995 bonus of $840,000 in addition to

14 his $754,800 salary, up from his 1994 bonus of $700,000

15 and salary of $710,061. McCraw was also granted $159,794

16 worth of restricted company stock, down substantially

17 from $488,019 in 1994.

18 Hugh K. Coble, the company's vice chairman, was paid

19 $720,020 in 1995 salary and bonus, up from $690,020 in

20 1994. His restricted-stock award jumped to $379,427 from

21 $209,028.

22 26. In early 1997, The Los Angeles Times reported:

23 Fluor Corp., whose annual profit rose nearly 16% to

24 a record $268.1 million in 1996, rewarded Chairman and

25 Chief Executive Leslie G. McCraw with a 15% hike in his

26 annual salary and bonus that pushed his basic pay package

27 to lust over $1.8 million.

28

- 25 -

1 McCraw also received nearly $2.8 million worth of

2 stock and stock options, a payout of $464,160 under the

3 company's loncf-term compensation plan, and a company-paid

4 income tax benefit worth $219,133, bringing his total

5 compensation for the year to $5.3 million . . . .

6 * * *

7 Hugh K. Coble, Fluor's vice chairman, received a

8 $420,000 base salary, up 5% from 1995; a $340,000 bonus

9 that was up 6.25% for the year; $1.4 million in

10 restricted stock and stock options; $198,722 in long-term

11 compensation; and a $99,266 income tax benefit.

12 * * *

13 Fluor paid chief administrative officer J.O. Rollans

14 [sic] a $360,000 salary in 1996, up 7.5%. He also

15 received a $295,000 bonus that was 5% above last year's,

16 stock options and restricted shares worth $513,000,

17 $130,259 in long term compensation and a $56,393 tax

18 benefit.

19 * * *

20 [T]he list of highly paid executives with a salary of

21 $325,020 that was 6.5% above last year's and a $235,000

22 bonus that was up 6.8%. Stock options and restricted

23 shares were worth $276,799 to Stein, who also received

24 $154,334 in long-term compensation and a $32,638 tax

25 benefit.

26 27. In fact, when Fluor reported its 1stQ F96 results in Feb.

27 1996, one of the reasons those results were somewhat below Street

28 expectations was the large amount of bonus and incentive compensa-

- 26 -

,

1 tion paid to Fluor executives during that quarter based on Fluor's

2 F95 results and stock price appreciation. Analysts wrote:

3 The strength of FLR's stock price, which closed the

4 quarter at $67 per share, caused an additional $3 million

5 accrual related to the company's . stock incentive

6 compensation program (including its stock appreciation

7 rights plan) which is designed to better align manage-

8 ment's compensation with stock price performance. This

9 additional accrual impacted earnings by more than 2 cents

10 per share.

11 * * *

12 [C]orporate G&A of $13.3 million included about $3.0

13 million ($0.02 of EPS) of stock price-related compensa-

14 tion adiustments (2/3 tied to stock appreciation rights).

15 In essence, each $1 increase in FLR's stock price causes

16 roughly a $300,000 incremental pretax expense for FLR.

17 Thus, tying management compensation to the stock price

18 has its downside as well.

19 28. Thus, Fluor's top executives were uniquely motivated to

20 cause Fluor to conceal, and avoid recognizing, losses on its Taft,

21 Louisiana and Rabigh, Saudi Arabia construction projects, as well

22 as other Fluor Daniel E&C construction projects during F96, so that

23 Fluor would appear to achieve certain earnings targets and so its

24 stock would trade at high levels and they could receive the huge

25 bonus compensation available to them (and which they wanted). Very

26 few other public companies have a compensation program by which the

27 compensation of its top executives is directly tied to the

28 quarterly price performance of the company's stock or where extra

- 27 -

1 bonus compensation is paid for reaching extra-aggressive earnings

2 goals, as such compensation structure obviously incentivizes top

3 executives to make false and misleading statements to push the

4 company's stock higher and to conceal adverse information from the

5 markets for the same reason and also incentivizes them to

6 manipulate the company's earnings so that the reported earnings

7 will reach targeted levels and enable them to pocket huge bonuses.

8 STATUTORY SAFE HARBOR

9 29. The federal statutory safe harbor provided for forward-

10 looking statements under certain circumstances does not apply to

11 any of the allegedly false statements pleaded in this Complaint.

12 Further, none of the statements pleaded at 11[33-41, 43-45 and 48-51

13 that were forward-looking statements were identified as "forward-

14 looking statements" when made. Nor was it stated that actual

15 results "could differ materially from those projected." Nor were

16 the forward-looking statements made in IT33-41, 43-45 and 48-51

17 accompanied by meaningful cautionary statements identifying

18 important factors that could cause actual results to differ

19 materially from the statements made therein. Defendants are liable

20 for the forward-looking statements in TT33-41, 43-45 and 48-51

21 because, at the time each of those forward-looking statements was

22 made, the speaker knew the forward-looking statement was false and

23 the forward-looking statement was authorized and/or approved by an

24 executive officer of Fluor who knew that those statements were

25 false when made.

26 EVENTS LEADING UP TO THE CLASS PERIOD

27 30. By the outset of the Class Period in May 1996, Fluor had

28 been publicly discussing the impact of the re-engineering,

- 28 -

1 expansion and decentralization of its Fluor Daniel E&C unit for

2 about two years.

3 31. (a) Fluor's 1994 Annual Report discussed the "re-

4 engineering" of Fluor's Fluor Daniel E&C unit in glowing terms:

5 • A major reengineering effort was initiated through-

6 out Fluor Daniel. Both organizational structures and

7 work processes were streamlined to . . . reduce

8 costs . . . .

9 * * *

10 Two senior levels of [management] structure were

11 eliminated. An organization was put in place to

12 capitalize on our vast industry and geographic diversity.

13 Senior executives were reassigned based on their unique

14 skills and experience. . . . This decentralized approach

15 allows us to make better decisions . . . .

16 Elsewhere, Fluor's 1994 Annual Report stated:

17 What Changes Are Being Made To Ensure Continued Success?

18 This is where the reengineering that we announced in

19 1994 primarily applies. We have made a number of

20 structural changes to flatten the organization, making it

21 more effective . . . .

22 (b) Fluor's F95 Annual Report again discussed the Fluor

23 Daniel E&C re-engineering and restructuring, stating:

24 Speaking for both the Leadership Team and the board

25 of directors, I am delighted to report to you that your

26 company has completed the best year in its 106-year

27 history! Net earnings advanced 20 percent over last

28 year's record performance to $232 million or $2.78 per

- 29 -

1 share. This marks the eighth year that earnings from

2 continuing operations have grown on average 15 percent or

3 better. Let me quickly add that, in spite of this record

4 performance, our team believes that we've only scratched

5 the surface of our future potential!

6 * * *

7 In last year's report, we talked about some of the

8 cultural and structural changes we were making in order

9 to improve our performance in a quantum way. We said

10 these changes were being implemented in order to ensure

11 we would be well positioned to capitalize on the wealth

12 of business opportunities we saw ahead of us -- not only

13 for the balance of this decade, but well into the next

14 century. We've seen some gratifying progress . . . .

15 Elsewhere, Fluor's 1995 Annual Report stated:

16 Fluor has achieved consistent growth with earnings

17 from continuing operations growing on average 15 percent

18 or better for the past eight years.

19 * * *

20 At Fluor, we believe we've put a winning strategy in

21 place and have done so during a time when we are already

22 achieving great success.

23 * * *

24 Engineering, Construction and Diversified Services

25 In 1995, Fluor Daniel experienced its eighth

26 consecutive year of double-digit earnings growth.

27 Operating profit was a record $286 million, up 10

28 percent. The improvement in profit margins and earnings

- 30 -

1 was moderated by heavy investments for expansion and

2 strategic business development to enhance future growth

3 . . . and the outlook for new business remains strong.

4 Fluor Daniel's strategy of diversification is

5 designed to expand the company's growth potential . . . .

6 Our broad diversity provides a wide range of oppor-

7 tunities which allow us to be selective in pursuing

8 projects which offer the best return on our resources and

9 where we have a competitive advantage. . . . Addi-

10 tionally, our global network is enhancing our cost

11 competitiveness by allowing greater use of high-value

12 engineering centers located in low-cost areas of the

13 world.

14 32. (a) Thus, during F94-F95, Fluor had reported increasing

15 earnings which had reached all-time record levels and its common

16 stock had advanced to an all-time high of $71 per share in March

17 1996. Fluor had repeatedly told the markets that the restructuring

18 and expansion of its Fluor Daniel E&C unit had succeeded, that the

19 decentralization of its management structure had led to increased

20 efficiencies and competitiveness, that Fluor Daniel was being

21 selective in accepting contracts to ensure only accepting jobs that

22 provided an adequate profitable return, and that the increased

23 spending on Fluor Daniel E&C unit's infrastructure, while

24 moderating the profit growth of that unit, was under control and

25 resulting in the Fluor Daniel E&C unit receiving an increasing

26 number of large contract awards around the world that would result

27 in strong revenue growth, leading to increased EPS and Fluor

28 meeting its target of ongoing EPS growth of 15%-20% per year.

- 31 -

1 Thus, by the Spring of 1996, there was no reason for anyone outside

2 of Fluor to believe that Fluor's re-engineering, expansion and

3 decentralization of its Fluor Daniel E&C unit was anything other

4 than a success.

5 (b) However, in the Spring of 1996, Fluor's stock fell

6 from its all-time high of $71-1/2 on March 13, 1996, to as low as

7 $60 per share on May 8, 1996, due to investor concerns that the

8 increasing costs of Fluor's Fluor Daniel E&C unit might penalize

9 that unit's earnings growth to such an extent that it would prevent

10 Fluor from achieving its 15%-20% EPS growth goal going forward.

11 This stock price decline caused great concern to Fluor's top

12 executives, as that decline jeopardized their ability to get

13 special bonus incentive compensation in F96 like they did in F95.

14 Thus, they "leaked" to the market that Fluor's 2ndQ F96 results

15 would be good and when they announced Fluor's 2ndQ F96 results on

16 May 22, 1996, Fluor's top executives were determined to put a very

17 positive spin on those results, to further convince the market that

18 all was well at Fluor, especially at its Fluor Daniel E&C unit, and

19 to thus drive its stock price higher.

20 FALSE AND MISLEADING STATEMENTSDURING THE CLASS PERIOD

2133. On May 22, 1996, Fluor announced its results for the 2ndQ

22F96, i.e., the three months ended April 30, 1996, via a release

23that stated:

24Fluor Corporation today announced net earnings

25increased 15 percent to $63.7 million, or 75 cents per

26share, for the second quarter ended April 30, 1996,

27compared with $55.3 million, or 66 cents per share for

28

- 32 -

1 the same period a year ago. Revenues advanced 16 percent

2 to $2.6 billion compared with $2.2 billion in the second

3 quarter of 1995.

4 For the first six months of 1996, net earnings were

5 $121.1 million, or $1.43 per share, an increase of 15

6 percent compared with $105.6 million, or $1.27 per share,

7 for the same period in 1995. Revenues for the first half

8 of 1996 increased 16 percent to $5.0 billion compared

9 with $4.3 billion a year ago.

10 Fluor Daniel, the company's core engineering,

11 construction and diversified services business, increased

12 operating profits by 7 percent in the second quarter and

13 11 percent through the first half of 1996, compared with

14 the same periods last year. Fluor Daniel's profit margin

15 and earnings growth were moderated by extensive marketing

16 and proposal costs. These expenditures, which are

17 recognized as they are incurred, reflect strong business

18 opportunities across numerous global markets. New

19 engineering and construction awards for the second

20 quarter increased 9 percent to $3,0 billion, compared

21 with $2.7 billion a year ago. Through the first six

22 months, new awards were $6.0 billion, up 20 percent over

23 the same period in 1995. Backlog rose 7 percent to $15.4

24 billion compared with $14.4 billion last year.

25 * * *

26 Les McCraw, Chairman and Chief Executive Officer of

27 Fluor Corporation, said: "The prospects for continued

28 growth by . . . Fluor Daniel . . . remain encouraging.

- 33 -

1 • • • The industry and geographic breadth of Fluor

2 Daniel's technical services has positioned us to

3 capitalize on these global business opportunities.

4 34. Subsequent to the release of Fluor's 2ndQ F96 results,

5 Fluor held a conference call for securities analysts, money and

6 portfolio managers, institutional investors, large Fluor share-

7 holders and stock traders to discuss Fluor's business. During the

8 call, McCraw, Conaway and Stein made presentations and answered

9 questions, directly disseminating important information to the

10 market, by stating:

11 • Fluor Daniel E&C unit's business was very strong and,

12 while its profit margins were slightly lower than expected,

13 this was due to aggressive marketing and proposal costs that

14 were resulting in an increasing number of contract awards and

15 would lead to accelerating EPS growth, especially during F97.

16 • The Fluor Daniel E&C unit was not pursuing "growth for

17 growth's sake" and was being selective in accepting contracts

18 only if they provided a realistic opportunity for significant

19 profits.

20 • The Fluor Daniel E&C unit was not encountering any

21 serious problems on any of its major construction projects.

22 • Corporate expenses and overhead were under control and

23 Fluor was on track for strong EPS growth meeting its stated

24 15%-20% goal.

25 • Fluor Daniel E&C unit's profit margins would increase

26 during the balance of F96 and during F97, as results would

27 benefit from the completion of several large profitable

28 projects.

- 34 -

1 • Fluor's realignment and decentralization of its Fluor -

2 Daniel E&C unit was continuing to produce positive results.

3 • Fluor expected to achieve 15%-20% EPS growth in F97 over

4 F96, with F97 EPS to reach $3.60-$3.75 per share.

5 35. On June 12, 1996, Fluor held a meeting for analysts in

6 New York City during which Fluor senior executives McCraw, Coble,

7 Conaway and Stein made presentations about Fluor's business,

8 reviewed Fluor's first half F96 results, discussed the trends of

9 Fluor's business and answered questions. The presentations were

10 very positive. The executives directly disseminated important

11 information to the market during this conference by stating:

12 • Fluor's realignment and reorganization of its Fluor

13 Daniel E&C unit had succeeded.

14 • Fluor's Fluor Daniel E&C business was very strong and

- 15 benefiting from strong business conditions.

16 • Fluor Daniel. was making progress in controlling its

17 overhead costs, and as a result, Fluor's EPS growth would

18 accelerate in the second half of F96 and during F97.

19 • Fluor Daniel E&C unit's high bidding and marketing costs

20 were paying off in the award trend of an increasing number of

21 large contracts that would contribute to strong EPS growth in

22 F97.

23 • The Fluor Daniel E&C unit was being selective in

24 accepting contracts only if they provided a realistic

25 opportunity for significant profits.

26 • Fluor was on target to continue to meet its EPS growth

27 objective of 15%-20% due to the strength of its Fluor Daniel

28 E&C business.

- 35 -

1 • Analysts' estimates of F97 EPS of $3.60-$3.75 were

2 reasonable and management was comfortable with those

3 estimates.

4 36. During the Class Period through approximately Oct. 1996,

5 Fluor repeatedly publicly distributed a "FACTCARD" entitled "Fluor

6 -- Sustaining Dynamic Global Growth," which stated:

7 As one of the world's largest engineering, construction

8 and diversified services firms, Fluor is positioned to

9 benefit significantly from this growth. Having demon-

10 strated the success of its diversification strategy with

11 eight years of consistent rapid growth, Fluor is now

12 implementing additional actions to ensure continuing

13 growth into the future.

14 The "FACTCARD" also stated:

15 Reasons To Invest In Fluor

16 * * *

17 • Pursuing a clearly defined diversification strategy

18 with the objective of generating consistent earnings

19 growth at high levels of return on equity.

20 * * *

21 • Highly respected management team motivated by Pay-

22 for-performance incentive program.

23 • Proven track record; earnings from continuing

24 operations have grown on average 15% or better for the

25 past 8 years.

26

27

28

- 36 -

1 The "FACTCARD" also stated:

2 Strategic Priorities

3 • Superior financial performance that consistently

4 ranks Fluor in the top quartile of the S&P 500 in terms

5 of earnings growth, return on shareholder equity and

6 balance sheet strength.

7 * * *

8 • More aggressive use of Fluor's financial strength in

9 a variety of areas to enhance the capability to deliver

10 sustained, dynamic growth.

11 37. On July 1, 1996, Fluor issued its mid-year F96 report

12 which included a letter signed by McCraw and stated:

13 Your company's net earnings through the first half

14 of this year increased 15 percent to $121 million, or

15 $1.43 per share, compared with $106 million, or $1.27 per

16 share, for the same period in 1995. Revenues for the six

17 months were $5 billion, up 16 percent from $4.3 billion

18 last year.

19 * * *

20 Fluor Daniel New Awards Advance 20 Percent, Global Market

21 Potential Remains Strong

22 Operating profits for Fluor Daniel, the company's.

23 core engineering, construction and diversified services

24 business, were up 11 percent for the first six months of

25 1996 compared with the same period a year ago, primarily

26 due to a higher volume of work performed. New awards for

27 the first six months were $6 billion, up 20 percent

28 compared with $5 billion for the same period last year.

- 37 -

1 At the end of the first half of 1996, backlog was $15.4

2 billion, up 7 percent from a year ago.

3 The global outlook for new capital investment is

4 strong and continues to generate significant potential

5 for Fluor Daniel. In particular, strong economic growth

6 and investment in the developing economies of Asia

7 Pacific and Latin America offer significant opportunities

8 for major capital projects. Because of the current

9 strength of the diverse markets we serve, extensive

10 marketing and proposal costs were incurred during the

11 first half of the year. This moderated Fluor Daniel's

12 profit margin and earnings growth for the period. These

13 investments in securing future business are expected to

14 further enhance Fluor Daniel's growth potential in the

15 future.

16 The outlook for Fluor Daniel's Process Group remains

17 strong. Continuing growth in demand for basic energy and

18 chemicals to fuel the developing economies of Asia

19 Pacific is driving expanding opportunities.

20 * * *

21 Prospects for Continued Growth Remain Strong

22 I'm happy to report that our prospects for the

23 balance of this year and beyond remain strong. . . . Our

24 financial performance through the first half of the year

25 also contributes to continuing confidence in our princi-

2 6 pal strategies for long-term growth. Extending our

27 diversification into new growth markets and expansion of

28

- 38 -

1 services remain the cornerstone for achieving our

2 continuing growth oblectives.

3 38. In the week prior to July 17, 1996, McCraw, Coble and

4 Conaway had conversations with Marc Sulam of Donaldson, Lufkin &

5 Jenrette Securities Corp. ("DLJ") to provide him with information

6 about Fluor for a report he was writing, intending and anticipating

7 that the information they gave him would reach the market. Sulam

8 provided a draft of his report to Fluor prior to issuing it and

9 Fluor assured him the report was accurate. On July 17, 1996, DLJ

10 issued its report on Fluor, written by Sulam. The report repeated

11 information those Fluor executives had provided Sulam, including a

12 forecast of F97 EPS of $3.70 and stated:

13 From our recent conversations with management, new order

14 rates are on track with first half levels of $3 billion

15 per quarter as activity levels, particularly in the

16 developing world remains encouraging. Given the

17 diversity of FLR's end markets and geographic exposure,

18 we expect that backlog will continue to expand in the

19 second half.

20 In its upcoming fiscal third quarter, which will be

21 reported on August 21, management remains comfortable

22 with the lower end of the 80-87 cent estimated range.

23 Our estimate is $0.82 compared with $0.72, a 14% year-

24 over-year growth. However, management also remains

25 comfortable with consensus estimates of $3.20 for fiscal

26 1996, implying a significant step-up in earnings in the

27 fourth quarter to the 93-95 cent range, an increase of

28 18-20%. This incremental growth will be driven by:

- 39 -

1 * * *

2 • the completion of several construction projects that

3 include profit incentives, which are realized at the end

4 of a project upon completion;

5 • a moderation of business development activities

6 which have been penalizing earnings for the past several

7 quarters.

8 39. Shortly after Aug. 15, 1996, Smith Barney analyst T.M.

9 Levkovich communicated with Conaway and McCraw of Fluor, who

10 provided him with information about Fluor for a report he was

11 preparing on Fluor, intending and anticipating that the information

12 they provided him would reach the market. They told him that they

13 were "comfortable" with a F97 EPS forecast of $3.75 because of the

14 strength of Fluor Daniel E&C unit's business. on Aug. 15, 1996,

15 Levkovich and Smith Barney issued a report on Fluor forecasting F97

16 EPS of $3.75, and an EPS growth rate of 15%.

17 40. On Aug. 21, 1996, Fluor reported 3rdQ F96 results for the

18 quarter ended July 31, 1996, via a release which stated:

19 Fluor Corporation today announced net earnings for

20 the third quarter ended July 31, 1996, of $68.1 million,

21 or 81 cents per share, a 13 percent increase compared

22 with $60.2 million, or 72 cents per share, for the same

23 quarter last year. . . .

24 For the first nine months of this year, net earnings

25 were $189.2 million, or $2.24 per share, an increase of

26 14 percent compared with $165.8 million, or $1.99 per

27 share, for the same period last year. . . .

28

- 40 -

1 Fluor Daniel, the company's core engineering,

2 construction and diversified services business, increased

3 its operating profits by 9 percent in the third quarter

4 and 10 percent through the first nine months of this

5 fiscal year, compared with the same periods a year ago.

6 Fluor Daniel's profit margins and earnings growth

7 continued to be moderated by higher levels of ongoing

8 investment spending for expansion and strategic business

9 development which were expensed to the current period.

10 Les McCraw, Chairman and Chief Executive Officer,

11 said, "The investment spending is focused on expanding

12 our market potential to help us achieve our goal to

13 accelerate earnings growth. The positive impact of these

14 investments can already be seen in the increasing rate of

15 new awards this year."

16 New engineering and construction awards for the

17 third quarter were $3.1 billion, up 19 percent over $2.6

18 billion last year. Through the first nine months, new

19 awards totaled $9.1 billion, 20 percent ahead of the same

20 period a year ago. Backlog rose 7 percent to $15.6

21 billion, compared with $14.5 billion in 1995.

22 "New business opportunities have been strong across

23 a number of geographic markets and industries, which

24 supports our strategy to further enhance the diversity of

25 our backlog," said McCraw. "We are seeing strength in

26 both large and smaller project opportunities."

27 41. Subsequent to releasing Fluor's 3rdQ F96 results Fluor

28 held a conference call for securities analysts, money and portfolio

- 41 -

1 managers, institutional investors, large Fluor stockholders and

2 stock traders. During that call, McCraw, Conaway, Coble and Stein

3 made presentations and answered questions, directly disseminating

4 the following information to the market:

5 • Fluor's business strategy was working; its Fluor Daniel

6 E&C business was very strong and its increased overhead costs

7 were under control, resulting in large new contract awards

8 that would lead to accelerating EPS growth for Fluor in F97.

9 • Fluor remained on track to meet its 15%-20% EPS growth

10 target going forward.

11 • While Fluor's high spending on infrastructure to pursue

12 large projects in developing markets constrained its EPS

13 growth, Fluor Daniel E&C unit's expenses were under control

14 and that unit's earnings growth would exceed 15% in future

15 quarters, including, during F97.

16 • Fluor Daniel E&C unit was not pursuing "growth for



19 profits.

20 • Fluor was not encountering any serious problems on any of

21 its major construction projects.

22 • Fluor remained "comfortable" with F97 EPS forecast of

23 $3.60-$3.75 per share.


25 during May 22, 1996 through Aug. 21, 1996, were each false and•

26 misleading statements when made. The true facts, including the

27 following adverse internal conditions at Fluor which contradicted

28

- 42 -

1 their positive/optimistic public statements and were known to each

2 of the Individual Defendants, were:



5 which exceeded $20 million by May1996, and would result in a major

6 loss on that project;



9 project, which exceeded $30 million by May 1996, and would result

10 in Fluor's suffering a major loss on that project;


12 from losses exceeding $25 million on other construction projects;

13 (d) That Fluor had been concealing the troubled nature


15 true adverse impact of that unit's excessive costs and overhead by

16 aggressively recording income from its Rayong,. Thailand project

17 earlier and in amounts larger than was consistent with its stated

18 conservative profit recognition practices with respect to large

19 construction projects;

20 (e) That Fluor's decentralized Fluor Daniel E&C unit's


22 controls and management information systems to enable top manage-

23 ment to detect losses on large projects at an early stage when

24 senior management intervention could have minimized or limited



27 Saudi Arabia projects in May-June 1996, they already exceeded $50

28 million and were escalating rapidly;

- 43 -

1 (f) That Fluor's rapid expansion of its Fluor Daniel E&C





6 (g) That overhead costs at Fluor's Fluor Daniel E&C unit

7 had escalated out of control and were resulting in a serious

8 adverse impact on Fluor Daniel's results from operations;

9 (h) In order to try to absorb the rapidly escalating

10 overhead and bidding "costs" in the Fluor Daniel E&C unit, the

11 Fluor Daniel E&C unit had accepted a large number of contracts on

12 which it could not earn any significant profit and was actually

13 encountering significant and material losses on a number of

14 projects, including the Taft, Louisiana and Rabigh, Saudi Arabia

15 projects;

16 (i) That in order to try to help absorb some of the

17 escalating overhead of its Fluor Daniel E&C unit, Fluor was

18 accepting contract awards which it knew would generate little, if

19 any, profit, just to obtain some revenue and thus justify Fluor

20 Daniel's expansion into certain geographic areas, even though the

21 defendants knew this would have an adverse impact on Fluor's profit

22 margins going forward;

23 (j) That, as a result of the foregoing, defendants



26 achieving and represented that it was on target to achieve in F97

27 and F98;

28

- 44 -



3 F98 EPS of $4.20 or above were false and could not and would not be

4 achieved, due to the serious problems with the Fluor Daniel E&C

5 unit detailed above; and

6 (1) That, as a result of the foregoing, statements by


8 made by analysts of $3.60-$3.65 for F97 and $4.20 for F98 were

9 known by defendants to be false when made, as those earnings gains



12 43. During the first two weeks of Sept. 1996, McCraw, Coble,

13 Rollins and Conaway communicated with P. Gallot, an analyst with

14 Brown Brothers Harriman & Co. ("Brown Brothers Harriman"), who was

15 preparing a major new report on Fluor, intending and anticipating

16 that the information they gave him would reach the market. They

17 provided Gallot with information for his report. Fluor reviewed a

18 draft of the report before it was issued assuring Gallot that the

19 report was accurate. The Brown Brothers Harriman report, issued

20 Sept. 17, 1996, forecast F97 EPS of $3.70 for Fluor and also

21 repeated the following information which the Fluor executives had

22 earlier provided to Gallot:

23 . . . Fluor has above-average earnings growth prospects

24 over the next several years. We expect Fluor to earn

25 $3.70 per share in the year ending October 31, 1997, up

26 almost 17% from this year's estimated $3.17. For the

27 following year, our EPS estimate is $4.20, which would

28 represent a 14% increase. Both the E&C operation and the

- 45 -

1 coal business should contribute to the company's earnings

2 progress.

3 Fluor Daniel, the E&C operation, continues to grow,

4 particularly in overseas markets. At the end of fiscal

5 1996, it should enjoy a backlog of about $16 billion,

6 more than $1 billion higher than a year earlier with a

7 majority generated outside the U.S. Fluor Daniel has

8 positioned itself well in high growth developing areas,

9 especially the Asia/Pacific region and Latin America.

10 Moreover, the company's presence in diversified services

11 is expanding at a good rate, which will have a positive -

12 impact on overall margins.

13 * * *

14 Solid Double-Digit EPS Growth Likely Both in Fiscal 1997

15 and Fiscal 1998

16 [W]e expect Fluor to earn $3.70 per share in fiscal 1997,

17 up almost 1 .7% from our EPS estimate of $3.17 this fiscal

18 year . . and $4.20 in fiscal 1998 (+11%). . . .

19 Fluor Daniel (91% of the 1996 Estimated Revenues and 72%

20 of Estimated Operating income)

21 Fluor Daniel includes Fluor's core Engineering and

22 Construction (E&C) operation as well as its Diversified

23 Services. Its revenues and operating income have

24 expended meaningfully in recent years as the company's

25 diversification strategy -- both in terms of geographical

26 areas and industries -- has proven quite successful.

27 Chart 3 shows the recent trend as well as our forecasts

28 for the next few years. We note upfront that such

- 46 -

1 forecasts can only be imprecise in such an industry due

2 to the involvement in many long-term projects, the delays

3 and cancellations which plague certain projects and the

4 use of the percentage-of-completion method of accounting.

5 . Four specific characteristics limit this risk in Fluor

6 Daniel's case: sheer size, bidding discipline,

7 conservative booking and accounting practices, and

8 generally excellent project execution.

9 * * *

10 In terms of margins, we expect a gradual improvement

11 over the next couple of years due to progress in the

12 basic E&C business . . . .

13 * * *

14 All in all, we expect an improvement in the

15 operating margin of 10 to 20 basis points in each of the

16 next two years, bringing it closer to 4% of revenues.

17 Such an expectation does not appear unduly aggressive,

18 considering the margins relative to revenues were

19 consistently in the 4% to 5% range in the early 1980s, a

20 time when technology was much less advanced (particularly

21 in the computer-aided design area) and Fluor was not

22 marketing Diversified Services on a standalone basis.

23 * * *

24 An Extremely Experienced Management Team

25 * * *

26 As a whole, Fluor's management team clearly appears

27 to possess a large pool of experience and a great deal of

28 expertise. . . .

- 47

1 Record Earnings, "Rock Solid" Financial Condition

• 2 * * *

3 As we discussed previously, Fluor's streak of earnings

4 records is unlikely to stop anytime soon. Following

5 another successful year in fiscal 1996, we expect above-

6 average double-digit earnings growth in each of the next

7 two years, thanks to top-line growth, margin expansion

8 and positive cash-flow generation at both Fluor Daniel

9 and A.T. Massey. In our view, EPS should rise 17% in

10 fiscal 1997 to $3.70 and another 14% in fiscal 1998 to

11 $4.20.

12 44. On Nov. 20, 1996, Fluor reported its results for the 4thQ

13 of F96 and F96 ended Oct. 31, 1996 via a release that stated:

14 FLUOR ANNOUNCES RECORD EARNINGS FOR 1996

15 Fluor Corporation today announced record net

16 earnings of $268.1 million, or $3.17 per share. For the

17 fiscal year ended October 31, up 16 percent compared with

18 $231.8 million, or $2.78 per share in 1995.

19 * * *

20 Fluor Daniel, the company's core engineering

21 construction and diversified services business, reported

22 operating profits of $320 million, the highest in its

23 history and up 12 percent compared with 1995. This

24 strength was primarily due to an increase in the volume

25 of work performed. These results included expenses to

26 enhance future growth through expansion, market diversi-

27 fication and strategic business development. New awards

28 in 1996 increased 22 percent to a record $12.5 billion

- 48 -

1 compared with $10.3 billion last year. Backlog rose 7

2 percent to $15.8 billion from $14.7 billion in 1995.

3 * * *

4 Les McCraw, chairman and chief executive officer of

5 Fluor Corporation, said, "This is the fourth straight

6 year the company as a whole has surpassed previous

7 historic highs. This performance is consistent with our

8 commitment to achieve superior growth while continuing to

9 expand the company through increased internal invest-

10 ments, acquisitions and capital expenditures. These

11 investments have enhanced our competitiveness and

12 positioned us to capitalize on new business oppor-

13 tunities, which remain strong across many of our global

14 markets."

15 45. Subsequent to releasing its F96 results Fluor held a

16 conference call for securities analysts, money and portfolio

17 managers, institutional investors, large Fluor stockholders and

18 stock traders. During the call, McCraw, Coble, Conaway and Stein

19 made presentations and answered questions during which they

20 directly disseminated to the market important information about

21 Fluor's business and prospects by stating:

22 • Fluor's Fluor Daniel E&C business was strengthening and

23 enjoying robust demand worldwide which would lead to 20%

24 growth in Fluor's Fluor Daniel E&C business in F97, higher

25 than the 15%-17% forecast earlier.

26 • Due to the success of its Fluor Daniel E&C unit, Fluor

27 was increasingly confident of its ability to achieve 15%-20%

28 EPS growth going forward.

- 49 -

1 • Fluor was not encountering any major difficulty with any

2 of its major construction projects.

3 • Fluor expected F97 EPS of $3.60-3.70, with further

4 increases in F98 to over $4.20 EPS.


6 during Sept. 1996 through Nov. 1996, were each false and misleading

7 when made. The true facts, including the following adverse

8 internal conditions at Fluor which contradicted their positive/

9 optimistic public statements and were known to each of the

10 Individual Defendants, were:



13 which exceeded $40 million by this point in the Class Period and

14 would result in a major Loss on that project;



17 project, which exceeded $60 million by this point in the Class

18 Period and would result in Fluor's suffering a major loss on that

19 project;


21 from losses exceeding $30 million by this point in the Class Period

22 on other construction projects;

23 (d) Fluor was covering up and concealing the losses in

24 its Fluor Daniel E&C unit by aggressively recognizing profits on

25 its Rayong, Thailand refinery project much more aggressively than

26 was consistent with its claimed conservative income recognition

27 practices;

28

- 50 -

1 (e) That Fluor had been concealing the troubled nature


3 true impact of that unit's excessive costs and overhead by

4 aggressively and prematurely recording income from its Rayong,

5 Thailand project earlier and in amounts larger than was consistent

6 with its stated conservative profit recognition practices with

7 respect to large construction projects;

8 (f) That Fluor had materially overstated its net income


10 properly recognize in a timely manner the large losses it had then

11 incurred on its Taft, Louisiana and Rabigh, Saudi Arabia projects,

12 as detailed in 11[58-71;

13 (g) That Fluor's decentralized Fluor Daniel E&C unit's


15 controls and management information systems to enable top

16 management to detect losses on large projects at an early stage

17 when senior management intervention could have minimized or limited



20 Saudi Arabia projects, they already exceeded $50 million and were

21 escalating rapidly;

22 (h) That Fluor's rapid expansion of its Fluor Daniel E&C





27

28

- 51 -

1 (i) That overhead costs at Fluor's Fluor Daniel E&C unit


3 impact on Fluor Daniel's results from operations;

4 (j) In order to try to absorb some of the rapidly

5 escalating overhead and bidding "costs" in the Fluor Daniel E&C

6 unit, the Fluor Daniel E&C unit had accepted a large number of

7 contracts on which it could not earn any significant profit and was

8 actually encountering significant and material losses on a number

9 of projects, including the Taft, Louisiana and Rabigh, Saudi Arabia

10 projects;

11 (k) That in order to try to cover-up the escalating

12 overhead of its Fluor Daniel E&C unit, Fluor was accepting contract

13 awards which it knew would generate little, if any, profit, just to

14 obtain some revenue and thus justify Fluor Daniel's expansion into

15 certain geographic areas, even though the defendants knew this

16 practice would have an adverse impact on Fluor's profit margins

17 going forward;





22 and F98;

23 (m) That, as a result of the foregoing, defendants


25 F98 EPS of $4.20 or above were false and could not and would not be

26 achieved due to the serious problems defendants knew were impacting

27 Fluor's Fluor Daniel E&C unit; and

28

- 52 -

1 (n) That, as a result of the foregoing, statements by


3 made by analysts of $3.60-$3.70 for F97 and $4.20 for F98 were

4 known by defendants to be false when made, as those earnings gains



7 47. During Oct. through Nov. 1996, Fluor's top executives

8 began working on a $200-$400 million debt offering which they hoped

9 to complete as quickly as possible and before the market learned of

10 the serious problems with Fluor's Fluor Daniel E&C unit and Fluor's

11 diminished earnings prospects. One of the factors used to "price"

12 a debt issue is the issuer's ratio of earnings to fixed charges,

13 which shows the safety of the interest payments on the issuer's

14 debt, and must be disclosed in the Registration Statement and

15 Prospectus. Thus, strong earnings and a strong, positive growth

16 trend are important to an issuer of debt securities. On Dec. 20,

17 1996, Fluor filed a Registration Statement to cover the sale of

18 these debt securities and which would permit the sale of these

19 securities when that Registration Statement became effective which

20 included a ratio of earnings-to-fixed-charges based on Fluor's F96

21 results.

22 48. On Dec. 12, 1996, senior management of Fluor (including

23 McCraw, Coble, Rollins, Conaway and Stein) held breakfast and lunch

24 meetings in New York City to brief securities analysts about

25 Fluor's business and its F97 outlook. On Dec. 13, 1996, the same

26 persons held meetings in Boston with securities analysts and mutual

27 fund investment managers there. During these meetings Fluor's

28

- 53 -

1 management was very bullish and upbeat and directly disseminated

2 important information to the market by stating:

3 • Fluor's Fluor Daniel E&C business continued to strengthen

4 with increased orders and backlog.

5 • The Fluor Daniel E&C unit was not pursuing "growth for



8 profits.

9 • Fluor's Fluor Daniel E&C unit's decentralized operation

10 and expansion was successful in generating new orders and

11 higher backlog. While overhead costs were somewhat higher

12 than management wanted them to be, those costs were under

13 control, Fluor had put in place a process that would reduce

14 those costs going forward, which would assist Fluor in

15 exceeding its 15%-20% EPS growth target.

16 • Fluor's Fluor Daniel E&C unit's business was

17 strengthening and enjoying robust demand worldwide, which

18 would lead to 20% growth in profits from Fluor's Fluor Daniel

19 E&C business in F97, higher than the 15%-17% forecast earlier.

20 • Fluor was increasingly confident of its ability to

21 achieve 15%-20% EPS growth going forward.

22 • Fluor was not encountering any major difficulty with any

23 of its major construction projects.

24 • Fluor was forecasting for F97 EPS of $3.60-3.70, with

25 further increases in F98 EPS to over $4.20-$4.30.

26 49. On Jan. 16, 1997, Fluor issued its F96 Annual Report,

27 again reporting its "record" F96 results. Fluor represented in a

28

- 54 -

1 letter signed by McCraw and Conaway included in its Form 10-K and

2 1996 Annual Report to Shareholders:

3 The company is responsible for preparation of the

4 accompanying consolidated balance sheet and the related

5 consolidated statements of earnings, cash flows and

6 shareholders' equity. These statements have been

7 prepared inconformity with generally accepted accounting

8 principles and management believes that they present

9 fairly the company's consolidated financial position and

10 results of operations.

11 The 1996 Annual Report also included a letter from McCraw which

12 stated:

13 Your company just completed the best year in its

14 history. Records were set in four key areas: earnings

15 up 16 percent; revenues up 18 percent; new awards up a

16 strong 22 percent . . . .

17 * * *

18 Results from continuing operations have now grown on

19 average 15 percent for the past nine years, ranking us

20 among the best performing of all U.S. industry. Yet we

21 believe we can do better in both growth rate and return

22 on shareholders' equity. As we continually remind

23 employees worldwide, this company has only scratched the

24 surface of its potential.

25 As we look ahead, we are very encouraged about our

26 prospects.

27 * * *

28

- 55 -

1 Throughout 1997, we will take steps to strengthen our

2 margins through achievement of greater cost efficiencies

3 in our operations and projects and continue to be highly

4 selective in those projects we choose to pursue.

5 50. In late Jan. 1997, Fluor executives McCraw, Rollins,

6 Conaway and Stein communicated with analyst Levkovich of Smith

7 Barney and provided him with information for a report he was

8 preparing about Fluor, intending and anticipating that the

9 information they gave him would reach the market. They told him

10 Fluor was on track to achieve F97 EPS of $3.70 and F98 EPS of

11 $4.30, that Fluor's Fluor Daniel E&C business was very strong and

12 accelerating, that Fluor's costs were under control and a strong

13 second half F97 increase in earnings would result. On Jan. 27,

14 1997, Smith Barney issued a report repeating this information. The

15 report forecast the following quarterly EPS for Fluor:

16 01 F97 Q2 F97 03 F97 04 F97 F97 $.78 $.87 $.94 $1.12 $3.70

17The report also stated:

18Lastly, despite come concerns that heavy bid

19activity could dampen profits, management continues to

20believe that a 2H97 ramp up in earnings is likely and

21that some concerns that have been raised of late that the

22bid costs could slow the growth seems a bit overdone.

2351. After this report was issued, the price of Fluor's stock

24increased from $67 to $74 per share on Feb. 12, 1997, and analysts

25from Smith Barney again spoke to Fluor management. Fluor

26management reiterated that Fluor Daniel E&C operating margins were

27healthy and strong, and on track to generate EPS of $3.70 in F97

28

- 56 -

1 for Fluor. Smith Barney issued a report on Feb. 12, 1997,

2 repeating this information and stating: "[T]he company remains

3 committed to a 2H97 EPS ramp up."

4 52. On Feb. 14, 1997, Fluor amended its Registration

5 Statement for the possible sale of $200 million in debt securities,

6 in an effort to complete that debt issuance. On Feb. 18, 1997,

7 Fluor reached its all-time high of $75-7/8 per share.


9 during Nov. 1996 through Feb. 1997, were each false and misleading

10 statements when made. The true facts, including the following

11 adverse internal conditions at Fluor which contradicted their

12 positive/ optimistic public statements and were known to each of

13 the Individual Defendants, were:



16 which exceeded $50 million by this time in the Class Period and

17 would result in a major loss on that project;



20 project, which exceeded $70 million by this time in the Class

21 Period and would result in Fluor's suffering a major loss on that

22 project;


24 from losses exceeding $40 million on other construction projects by

25 this point in the Class Period (which it has refused to identify);

26 (d) Fluor was covering up and concealing the troubled

27 nature of a large number of projects in its Fluor Daniel E&C unit

28 and the losses in its Fluor Daniel E&C unit and the true adverse

- 57 -

1 impact of that unit's excessive costs and overhead by aggressively

2 recognizing profits on its Rayong, Thailand refinery project much

3 more aggressively than was consistent with its claimed conservative

4 income recognition practices;

5 (e) That Fluor had materially overstated its net income


7 properly recognize in a timely manner the large losses it had then

8 incurred on its Taft, Louisiana and Rabigh, Saudi Arabia projects,

9 as detailed in 5558-71;

10 (f) That Fluor's decentralized Fluor Daniel E&C unit's


12 controls and management information systems to enable top

13 management to detect losses on large projects at an early stage

14 when senior management intervention could have minimized or limited



17 Saudi Arabia projects in the Spring/Summer of 1996, they already

18 exceeded $50-$75 million and were escalating rapidly;

19 (g) That Fluor's rapid expansion of its Fluor Daniel E&C





24 (h) That overhead costs at Fluor's Fluor Daniel E&C unit


26 impact on Fluor Daniel's results from operations and any improve-

27 ment in 2H F97 earnings would be much smaller than the "ramp up"

28 Fluor had represented to the market would occur;

- 58 -

1 (i) In order to try to absorb some of the rapidly

2 escalating overhead and bidding "costs" in the Fluor Daniel E&C

3 unit, the Fluor Daniel E&C unit had accepted a large number of

4 contracts on which it could not earn any significant profit and was

5 actually encountering significant and material losses on a number

6 of projects, including the Taft, Louisiana and Rabigh, Saudi Arabia

7 projects;

8 (j) That in order to try to cover the escalating

9 overhead of its Fluor Daniel E&C unit, Fluor was accepting contract

10 awards which it knew would generate little, if any, profit, just to

11 obtain some revenue and thus justify Fluor Daniel's expansion into

12 certain geographic areas, even though the defendants knew this

13 practice would have an adverse impact on Fluor's profit margins

14 going forward;





19 and F98;



22 F98 EPS of $4.20-$4.30 or above were false and could not and would

23 not be achieved, given the serious problems defendants knew were

24 impacting Fluor's Fluor Daniel E&C unit; and

25 (m) That, as a result of the foregoing, statements by


27 made by analysts of $3.60-$3.70 for F97 and $4.20-$4.30 for F98

28 were known by defendants to be false when made, as those earnings

- 59 -

1 gains were unachievable, given the serious problems defendants knew

2 were impacting Fluor's Fluor Daniel E&C unit.

3 54. On Feb. 18, 1997, after the close of trading, Fluor

4 reported its 1stQ F97 results and held a conference call for

5 analysts and others. Fluor revealed that its 2ndQ F97 EPS was less

6 than had been forecast due to large cost overruns on "two fixed

7 price power projects," which Fluor refused to identify, or

8 quantify. Worse yet, Fluor admitted that it had achieved the EPS

9 it did report by reversing certain insurance accruals/reserves, in

10 amounts larger than the two cost overruns, thus indicating that

11 Fluor's actual operating results were far worse than reported.

12 When this shocking news was revealed, trading in Fluor's stock had

13 to be delayed on Feb. 19, 1997. When trading began, Fluor's stock

14 collapsed, falling from its high of $75-7/8 per share on Feb. 18,

15 1997, to $62 per share in an unprecedented 19% one-day drop on

16 volume of 6.7 million shares -- wiping out $1 billion in

17 shareholder value in one day!

18 55. Market participants were shocked and furious over these

19 revelations. First of all Fluor refused to identify what projects

20 were involved or provide other details about these troubled

21 projects. According to the financial media, these revelations

22 "stunned" shareholders and came as "a shock to analysts and

23 investors." "People were definitely caught by surprise" said a UBS

24 analyst, "the charge hadn't been anticipated," "expectations of a

25 good quarter turned into a nightmare," and the "1stO earnings

26 announcement was a surprise to everyone," said others, who added

27 "there is no excuse for the cost overrun surprise -- FLR's controls

28 should have been much better than that, and management deserves to

- 60 -

1 be criticized for the slip." The Los Angeles Times reported

2 "Fluor's financial report raised questions about management's grip

3 on internal operations . . . and shattered a nearly universal

4 belief that the international engineering- and construction services

5 company would continue chalking up a double-digit annual growth

6 rate. . . . The company's first-quarter results missed analysts'

7 expectations 'by a country mile!'"

8 56. Shortly thereafter, Fluor announced over $100 million in

9 spending cuts at its Fluor Daniel E&C unit and numerous office

10 closures and lay-offs there, well beyond those earlier disclosed

11 for its Fluor Daniel E&C unit. Fluor's stock continued to fall to

12 as low as $46-1/2 per share. Then, Fluor announced it was going to

13 abandon its corporate headquarters in Irvine to save money and

14 revealed a huge 2ndQ F97 loss of $70 million due to additional cost

15 overruns of $70-$90 million on the power plant project located

16 outside the U.S. and over $45 million in other write-offs and cost

17 overrun losses in its Fluor Daniel E&C unit. Fluor admitted it was

18 abandoning its goal of earnings growth of "approximately 20%."

19 Again analysts were furious stating: "rTlhis charge is

20 astounding," "a shock" and concluded:

21 It is obvious that management's effort to pursue an

22 accelerated growth strategy beginning in 1993-1994 has

23 lead to:

24 • a bloated cost structure

25 • an organizational structure that has been stretched

26 too thin

27 * * *

28

- 61 -

1 In essence, to pursue growth which was evidenced by

2 the rapid expansion in new orders and backlog, FLR

3 pursued all types of work, irrespective of potential

4 profitability, executed poorly on a number of proiects

5 and in the process created a bloated cost and overhead

6 structure throughout the world.

7 One analyst bluntly summed it up: "The decision in 1993-94 to

8 reengineer Fluor in order to dramatically accelerate the growth

9 rate to 20% was an unmitigated disaster." Smith Barney lowered its

10 estimated 4thQ F97 EPS from $1.12 to $.87. Instead of achieving

11 15%-20% EPS growth during F97 as forecast during the Class Period,

12 for the nine months ended July 31, 1997, Fluor had net earnings of

13 only $58.1 million or $.69 per share, a sharp decline from its net

14 income of $189.2 million or $2.24 per share in the same nine-month

15 period in F96 and far less than the $2.59 per share, which had been

16 projected for the nine month period as recently as Feb. 12, 1997.

17 Also, as the Fluor Daniel E&C unit stopped accepting marginally

18 profitable or unprofitable contracts the Fluor Daniel E&C unit's

19 volume of new contracts has fallen precipitously -- down 15% from

20 prior periods.

21 57. Fluor officials admitted "the company has pushed hard for

22 profit growth and in its push, demanded too much of certain

23 operating executives," "they rightfully acknowledgerd] the

24 mistakes," "we tried some things and they didn't work out,"

25 "Fluor's ballyhooed corporate 'reengineering' three years ago . . .

26 enabled the Company to grow, but it has grown too freely with too

27 many overlapping support units," "Top management has been too

28 removed from the Company . . . and Fluor has become entangled in

- 62 -

, ,

1 too many pursuits that don't bring in much profit," and "We were

2 trying to do too many things in too many countries in too many

3 industries."

4 FALSE FINANCIAL RESULTS

5 58. Fluor's F96 and F97 results to date are set forth below:

6 Fluor CorporationQuarterly Results

7 (in thousands, except EPS)

Fiscal 1996 8 01/31/96 04/30/96 07/31/96 10/31/96 Year

9 Revenues $2,402,414 $2,582,229 $2,702,821 $3,327,728 $11,015,192Gross profit 99,072 105,054 112,862 132,755 449,743Gross margin 4.12% 4.07% 4.18% 3.99% 4.09%

10 Net earnings 57,448 63,700 68,077 78,859 268,084EPS $.68 $.75 $.81 $.93 $3.17

11Fiscal 1997

12 01/31/97 04/30/97 * 07/31/97 10/31/97 Year

Revenues $3,434,061 $3,185,833 $3,675,90013 Gross profit 106,774 (73,836) 108,600

Gross margin 3.11% -2.32% 2.95%14 Net earnings 62,035 (70,134) 66,200

EPS $.73 ($-83) $.79

15 * The losses in the 2nd Qtr of 1997 were due to the following Charges:Provisions for estimated losses on certain contracts $ 22,850

16 Provisions for estimated losses on the construction

of a power plant located outside the U.S. $ 68,550

17 Impairment, abandonment and sale of certain project-related investments or joint ventures (includingbad debt provisions) $ 26,800

18 Cost reduction initiatives-implement charges of such $ 19,900 Total $138,100

19

20 59. Fluor's failure to properly and adequately recognize the

21 losses it knew it would inour on certain of its Fluor Daniel E&C

22 contracts as of Oct. 31, 1996, caused its results for the quarter

23 and year then ended to be materially overstated and to be presented

24 in violation of Generally Accepted Accounting Principles ("GAAP").

25 60. GAAP are those principles recognized by the accounting

26 profession as the conventions, rules and procedures necessary to

27 define accepted accounting practice at the particular time.

28 Regulation S-X (17 C.F.R. §210.4-01(a)(1)) states that financial

- 63 -

1 statements filed with the SEC which are not prepared in compliance

2 with GAAP are presumed to be misleading and inaccurate, despite

3 footnote or other disclosure.

4 61. Fluor represented in a letter signed by McCraw and

5 Conaway, included in its Form 10-K and Annual Report to

6 Shareholders for the year ended Oct. 31, 1996, that:

7 The company is responsible for preparation of the

8 accompanying consolidated balance sheet and the related

9 consolidated statements of earnings, cash flows and

10 shareholders' equity. These statements have been

11 prepared in conformity with generally accepted accounting

12 principles and management believes that they present

13 fairly the company's consolidated financial position and

14 results of operations.

15 62. This representation was false as Fluor's F96 financial

16 statements did not "present fairly" its financial position and the

17 financial statements were not prepared in conformity with GAAP due

18 to Fluor's failure to disclose and adequately accrue charges

19 relating to its loss contracts.

20 63. Fluor represented the following with regard to its

21 accounting policy with respect to Fluor Daniel E&C contracts:

22 The company recognizes engineering and construction

23 contract revenues using the percentage-of-completion

24 method, based primarily on contract costs incurred to

25 date compared with total estimated contract costs. . . .

26 Changes to total estimated contract costs or losses, if

27 any, are recognized in the period in which they are

28 determined.

- 64 -

1 64. This statement was false and misleading because Fluor had

2 failed to recognize the losses it had determined it would incur on

3 two fixed-price power plant Fluor Daniel E&C contracts prior to the

4 end of F96. Moreover, the percentage-of-completion method requires

5 that such losses be recognized, and Fluor's failure to do so was

6 contrary to the percentage-of-completion method as prescribed by

7 GAAP.

8 65. Fluor's management's statement that its financial state-

9 ments were prepared in conformity with GAAP and that management

10 believed the financial statements were a fair presentation of its

11 results from operations was also false and misleading due to the

12 Company's failure, in violation of GAAP, to recognize losses on

13 contracts for which costs would exceed revenues.

14 66. GAAP, as set forth in AICPA Statement of Position ("SOP")

15 81-1, Accounting for Performance of Construction-Type and Certain

16 Production-Type Contracts, describes the computation of earnings

17 based on the use of percentage of completion accounting. An

18 important element of SOP 81-1 involves a situation, such as that

19 experienced by Fluor, where after a contract is commenced, current

20 estimates of the costs to complete the contract indicate that the

21 contract as a whole will generate a loss. SOP 81-1.85 states:

22 When the current estimates of total contract revenue and

23 contract cost indicate a loss, a provision for the entire

24 loss on the contract should be made. Provisions for

25 losses should be made in the period in which they become

26 evident . . . .

27 67. Two significant contracts in Fluor Daniel's Power and

28 Government group involved contracts for the procurement,

- 65 -

1 engineering, construction and management of power plants in Taft,

2 Louisiana and Rabigh, Saudi Arabia. By the Summer of 1996, at the

3 latest, Fluor's management was aware that significant construction

4 problems at both sites would eventually lead to losses by Fluor on

5 the contracts:

6 (a) The Taft, Louisiana project, which had been awarded

7 to Fluor by Union Carbide was adversely impacted by labor shortages

8 in Louisiana, which came to the attention of Fluor management in

9 early 1996. Because the contract was for a fixed price of $126

10 million, any increases in costs could not be passed on to Union

11 Carbide and would adversely affect Fluor's margins on the project.

12 By May 1996, Fluor's management learned that the costs of the

13 project would exceed the fixed fee by more than $20 million and by

14 Oct. 31, 1996, the loss was at least $40 million; and

15 (b) The Saudi contract was an especially risky contract

16 to begin with since it was a fixed-price contract where the

17 customer's acceptance criteria was not clearly delineated and Fluor

18 had agreed to build the plant to the sublective satisfaction of the

19 buyer -- an unprecedented construction contract term -- that

20 exposed Fluor to virtually unlimited losses on the contract. By

21 April 1996, it was evident to Fluor's management that cost overruns

22 would severely reduce, if not eliminate Fluor's margins on the

23 project. By May 1996, Fluor's cost overruns on the project

24 exceeded $30 million on the project, indicating to Fluor's

25 management that its losses on the contract would be at least that

26 much by Oct. 31, 1996, the loss on this contract was at least $60

27 million and still escalating.

28

- 66 -

1 68. In the face of these problems, Fluor's top executives,

2 i.e., the Individual Defendants, determined not to recognize these

3 charges in the Company's financial statements at Oct. 31, 1996, in

4 order to show positive earnings growth for the quarter and year

5 then ended. Fluor issued a press release dated Nov. 20, 1996,

6 announcing the Company's results for the quarter and year ended

7 Oct. 31, 1996, in which it reported net income of $78.9 million and

8 $268.1 million, respectively. Flour later included the F96

9 financial statements in its Annual Report and Form 10-K. The

10 results were materially overstated and presented in violation of

11 GAAP due to the failure recognize the losses evident to Fluor's

12 management.

13 69. Ultimately, as the extent of the problems with both

14 projects intensified Fluor was forced to reveal the problems and

15 record the losses. Fluor's problems in Louisiana developed into a

16 dispute with Union Carbide and Fluor's problems on the Saudi

17 contract progressed to the point where Fluor had stopped working on

18 the contract, thus making it more difficult to conceal the losses

19 it was suffering on the contracts. Thus, in the Form 10-Q for the

20 1stQ F97, ended Jan. 31, 1997, Fluor revealed that it had recorded

21 a provision for losses on two contracts, which was offset by an

22 insurance credit Fluor recorded in the quarter. However, Fluor

23 refused to identify the projects or quantify the losses. In the

24 2ndQ F97 an additional provision was recorded in the amount of more

25 than $65 million for the Saudi contract alone.

26 70. If all of the losses on the two contracts which were

27 recognized in the first two quarters of F97 had been recorded in

28 the 4thQ of F96 (as they properly should have been), Fluor would

- 67 -

1 have reported a loss for the F96 fourth Quarter and half of its F96

2 net income would • have been wiped out and its stock would have

3 plunged. The Individual Defendants would not have achieved the

4 millions in special incentive/bonus compensation they got for F96.

5 71. The undisclosed adverse information concealed by

6 defendants during the Class Period is the type of information

7 which, because of SEC regulations, regulations of the national

8 stock exchanges and customary business practice, is expected by

9 investors and securities analysts to be disclosed and is known by

10 corporate officials and their legal and financial advisors to be

11 the type of information which is expected to be and must be

12 disclosed.

13 COUNT I

14 FOR VIOLATIONS OF SECTION 10(b)OF THEEXCHANGE ACT AND RULE 10b-5 PROMULGATED

15 THEREUNDER AGAINST ALL DEFENDANTS

16 72. Plaintiff incorporates by reference 1[51-71.

17 73. During the Class Period, defendants engaged in a scheme

18 and course of business, pursuant to which they knowingly and/or

19 recklessly engaged in acts, transactions, practices, and courses of

20 business which operated as a fraud upon plaintiff and other members

21 of the Class, and made various untrue statements of material fact

22 and omitted to state material facts necessary in order to make the

23 statements made, in light of the circumstances under which they

24 were made, not misleading, to plaintiff and other Class members as

25 set forth above. The purpose and effect of said scheme was to

26 induce plaintiff and the members of the class to purchase the

27 Company's common stock during the Class Period at artificially

28 inflated prices.

- 68 -

1 74. By reason of the foregoing, the defendants knowingly or

2 recklessly violated §10(b) of the Exchange Act and Rule 10b-5

3 promulgated thereunder in that they themselves or a person whom

4 they controlled: (a) employed devices, schemes and artifices to

5 defraud; (b) made untrue statements of material facts or omitted to

6 state material facts necessary in order to make the statements

7 made, in light of the circumstances under which they were made, not

8 misleading; or (c) engaged in acts, practices and a course of

9 business that operated as a fraud or deceit upon plaintiff and

10 other members of the Class in connection with their purchases of

11 the Company's common stock during the Class Period.

12 75. As a result of the foregoing, the market price of the

13 Company's common stock was artificially inflated during the Class

14 Period. In ignorance of the false and misleading nature of the

15 representations described above, plaintiff and other members of the

16 Class relied, to their damage, directly on the misstatements or on

17 the integrity of the market both as to price and as to whether to

18 purchase these securities. Plaintiff and the other members of the

19 Class would not have purchased Fluor stock at the market prices

20 they paid, or at all, if they had been aware that the market prices

21 had been artificially and falsely inflated by the defendants' false

22 and misleading statements and concealments. At the time of the

23 purchase of Fluor common stock by plaintiff and the other members

24 of the Class, the fair market value of said common stock was

25 substantially less than the prices paid by plaintiff. Plaintiff

26 and other members of the Class have suffered substantial damages as

27 a result.

28

- 69 -

1 COUNT II

2 FOR VIOLATIONS OF SECTION 20(a) OF THEEXCHANGE ACT AGAINST DEFENDANTS FLUOR AND McCRAW

376. Plaintiff incorporates by reference and realleges all

4paragraphs previously alleged herein, asserting these claims

5against defendants Fluor and McCraw.

677. Individual Defendant McCraw is liable under §20(a) as a

7control person of Fluor since, by virtue of his executive and

8directorial positions, his knowledge of and involvement in the

9Company's business, and stock ownership, and his power and ability

10to make public statements on behalf of the Company to shareholders,

11potential investors and the media, he had the power and ability to

12control the actions of the Company. Fluor, in turn, controlled

13each of the Individual Defendants.

14BASIS OF ALLEGATIONS

1578. This Complaint is pleaded in accordance with the Federal

16Rules of Civil Procedure, including Rule 11. Because the PSLRA

17§21D(c), which is §78u-4(c) of the Exchange Act, requires

18complaints to be pleaded in conformance with Federal Rule of Civil

19Procedure 11, plaintiff has alleged the foregoing based upon the

20investigation of her counsel, which included a review of Fluor's

21SEC filings, securities analysts' reports and advisories about the

22Company, press releases issued by the Company, media reports about

23the Company, discussions with former employees and consultants,

24and, pursuant to Rule 11(b)(3), believe that after reasonable

25opportunity for discovery, substantial evidentiary support will

26likely exist for the allegations set forth at ¶118, 42, 46, 53, 62,

2764 and 68.

28

- 70 -

1 CLASS ACTION ALLEGATIONS

2 79. Plaintiff brings this action as a class action pursuant

3 to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on

4 behalf of a class (the "Class") consisting of all persons who

5 purchased the common stock of Fluor between May 22, 1996 and

6 Feb. 18, 1997, inclusive (the "Class Period"). Excluded from the

7 Class are the defendants herein, members of each Individual

8 Defendant's immediate family, any entity in which any defendant has

9 a controlling interest, and the legal affiliates, representatives,

10 heirs, controlling persons, successors, and predecessors in

11 interest or assigns of any such excluded party.

12 80. Because Fluor has millions of shares of common stock

13 outstanding, and because the Company's common stock was actively

14 traded, members of the Class are so numerous that joinder of all

15 members is impracticable. While the exact number of Class members

16 can only be determined by appropriate discovery, plaintiff believes

17 that Class members number at least in the thousands and that they

18 are geographically dispersed.

19 81. Plaintiff's claims are typical of the claims of the

20 members of the Class, because plaintiff and all of the Class

21 members sustained damages arising out of defendants' wrongful

22 conduct complained of herein.

23 82. Plaintiff will fairly and adequately protect the

24 interests of the Class members and has retained counsel who are

25 experienced and competent in class and securities litigation.

26 Plaintiff has no interests that are contrary to or in conflict with

27 the members of the Class plaintiff seeks to represent.

28

- 71 -

1 83. A class action is superior to all other available methods

2 for the fair and efficient adjudication of this controversy, since

3 joinder of all members is impracticable. Furthermore, as the

4 damages suffered by individual members of the Class may be rela-

5 tively small, the expense and burden of individual litigation make

6 it impossible for the members of the Class individually to redress

7 the wrongs done to them. There will be no difficulty in the

8 management of this action as a class action.

9 84. Questions of law and fact common to the members of the

10 Class predominate over any questions that may affect only

11 individual members, in that defendants have acted on grounds

12 generally applicable to the entire Class. Among the questions of

13 law and fact common to the Class are:

14 (a) whether the federal securities laws were violated by

15 defendants' acts as alleged herein;

16 (b) whether the Company's publicly disseminated releases•

17 and statements during the Class Period omitted and/or misrepre-

18 sented material facts and whether defendants breached any duty to

19 convey material facts or to correct material facts previously

20 disseminated;

21 (c) whether defendants participated in and pursued the

22 fraudulent scheme or course of business complained of;

23 (d) whether the defendants acted willfully, with

24 knowledge or recklessly, in omitting and/or misrepresenting

25 material facts;

26 (e) whether the market prices of Fluor common stock

27 during the Class Period were inflated artificially due to the

28

- 72 -

1 material nondisclosures and/or misrepresentations complained of

2 herein; and

(f) whether the members of the Class have sustained

4 damages and, if so, what is the appropriate measure of damages.

5 PRAYER FOR RELIEF

6 WHEREFORE, plaintiff, on her own behalf and on behalf of the

7 Class, pray for judgment as follows:

8 1. Declaring this action to be a class action pursuant to

9 Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on

10 behalf of the Class defined herein;

11 2. Awarding plaintiff and the members of the Class

12 rescissory or compensatory damages in an amount which may be proven

13 at trial, together with interest thereon;

14 3. Awarding plaintiff and the members of the Class pre-

15 judgment and post-judgment interest, as well as their reasonable

16 attorneys' and experts' witness fees and other costs; and

17 4. Awarding such other and further relief as this Court may

18 deem just and proper including any extraordinary equitable and/or

19 injunctive relief as permitted by law or equity to attach, impound

20 or otherwise restrict the defendants' assets to assure plaintiff

21 has an effective remedy.

22

23

24

25

26

27

28

- 73 -

1 JURY DEMAND

2 Plaintiff hereby demands a trial by jury.

3 DATED: September 11, 1997MILBERG WEISS BERSHAD

4 HYNES & LERACH LLPWILLIAM S. LERACH

5 PATRICK J. COUGHLIDARREN J. ROBBIN--

6

7 gd/1/116/0_8 WILLII ERACH

9 600 West Bro,-- Suite 1800San Diego, CA 92101

10 Telephone: 619/231-1058

11 KAPLAN, KILSHEIMER & FOX, LLPROBERT N. KAPLAN

12 685 Third Avenue, 26th FloorNew York, NY 10017

13 Telephone: 212/687-1980

14 SOLTAN & ASSOCIATESVENUS SOLTAN

15 660 Newport Center DriveSuite 320

16 Newport Beach, CA 92660Telephone: 714/729-3100

17SCHIFFRIN & CRAIG, LTD.

18 RICHARD S. SCHIFFRINThree Bala Plaza East

19 Suite 400Bala Cynwyd, PA 19004

20 Telephone: 610/667-7706

21 Attorneys for Plaintiff

22

23

24

25

26

27

28 COMPLNTS \FLUOR.CPT

- 74 -

CERTIFICATION OF NAMED PLAINTIFFPURSUANT TO FEDERAL SECURITIES LAWS

Dorothy M. McMullen ("Plaintiff") declares, as to the claims

asserted under the federal securities laws, that:

1. Plaintiff has reviewed the Complaint and authorized its

filing.

2. Plaintiff did not purchase the security that is the

subject of this action at the direction of Plaintiff's counsel or

in order to participate in any private action.

3. Plaintiff is willing to serve as a representative party

on behalf of the class, including providing testimony at deposition

and trial, if necessary.

4. Plaintiff's transaction in the security that is the

subject of this action during the Class Period is as follows:

PriceSecurity Transaction Date Per Share

Common Stock Purchased 20 shares 12/12/96 $64.79

5. During the three years prior to the date of this

Certification, Plaintiff has sought to serve or served as a

representative party for a class in the following actions filed

under the federal securities laws: N/A

6. Plaintiff will not accept any payment for serving as a

representative party on behalf of the class beyond the Plaintiff's

pro rata share of any recovery, except such reasonable costs and

expenses (including lost wages) directly relating to the

representation of the class as ordered or approved by the Court.

- g"

I declare under penalty of perjury that the foregoing is true

and correct. Executed this 4€1 .1 day of September , 1997.

DOROTHY M. McMU L-FLUOR\MCMULLEN CRT

origina pled - securities class action...

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