The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, the Condensed Consolidated Financial Statements and notes and the company's December 31, 2007 annual report on Form 10-K. For purposes of reviewing this document, "operating profit" is calculated as revenue less cost of revenue excluding: corporate administrative and general expense; interest expense; interest income; domestic and foreign income taxes; and other non-operating income and expense items.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made herein, including statements regarding the company's projected revenue and earnings levels, new awards and backlog levels and the implementation of strategic initiatives and organizational changes are forward-looking in nature. These forward-looking statements reflect current analysis of existing information and are subject to various risks and uncertainties. As a result, caution must be exercised in relying on forward-looking statements. Due to known and unknown risks, the company's actual results may differ materially from its expectations or projections. Factors potentially contributing to such differences include, among others:

† The cyclical nature of many of the markets the company serves and its vulnerability to downturns;
† Difficulties or delays incurred in the execution of contracts, including performance by our joint venture or teaming partners, resulting in cost overruns or liabilities;
† The company's ability to hire and retain qualified personnel;
† Customer cancellations of, or scope adjustments to, existing contracts, including our government contracts that may be terminated at any time;
† Failure to meet timely completion or performance standards that could result in higher cost and reduced profits or, in some cases losses on projects;
† The company's failure to receive anticipated new contract awards and the related impacts on staffing levels and cost;
† Competition in the global engineering, procurement and construction industry;
† A failure to obtain favorable results in existing or future litigation or dispute resolution proceedings;
† The potential impact of certain tax matters including, but not limited to, those from foreign operations and the ongoing audits by tax authorities;
† Changes in global business, economic (including currency risk), political and social conditions;
† Civil unrest, security issues, labor conditions and other unforeseeable events in the countries in which we do business, resulting in unanticipated losses on fixed price projects;
† Decreased capital investment or expenditures, or a failure to make anticipated increased capital investment or expenditures, by the company's clients;
† The impact of past and future environmental, health and safety regulations;
† Customer delays or defaults in making payments;
† The impact of anti-bribery and international trade laws and regulations;
† The availability of credit and restrictions imposed by credit facilities;
† Possible limitations of bonding capacity;
† The company's ability to secure appropriate insurance;
† Limitations on cash transfers from subsidiaries that may restrict the company's ability to satisfy financial obligations or to pay interest or principal when due on outstanding debt;
† The company's ability to identify and successfully integrate acquisitions;
† Restrictions on possible transactions imposed by Delaware law; and
† Possible systems and information technology interruptions.

While most risks affect only future cost or revenue anticipated by the company, some risks may relate to accruals that have already been reflected in earnings. The company's failure to receive payments of accrued amounts or incurrence of liabilities in excess of amounts previously recognized, could result in a charge against future earnings.

Additional information concerning these and other factors can be found in our press releases as well as our periodic filings with the Securities and Exchange Commission, including the discussion under the heading "Item 1A. Risk Factors" in the company's Form 10-K filed February 29, 2008. These filings are available publicly on the SEC's website at http://www.sec.gov, on Fluor's website at http://investor.fluor.com or upon request from Fluor's Investor Relations Department: (469) 398-7220. Except as otherwise required by law, the company undertakes no obligation to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS

Net earnings for the three and six months ended June 30, 2008 were $209.3 million, or $1.13 per diluted share, and $347.3 million, or $1.88 per diluted share, respectively. These results compare with net earnings of $95.6 million, or $0.53 per diluted share, and $180.2 million, or $1.00 per diluted share, respectively, for the corresponding periods of 2007.

Consolidated revenue for the three and six months ended June 30, 2008 was $5.8 billion and $10.6 billion, respectively, compared to $4.2 billion and $7.9 billion for the corresponding periods in 2007. All segments but Government reported increases in revenue.

The effective tax rate, based on the company's actual operating results for the three and six months ended June 30, 2008 was approximately 39 percent, compared to approximately 33 percent and 36 percent, respectively, for the corresponding periods of 2007. The lower effective tax rate for the three and six months ended June 30, 2007 was primarily attributable to the recognition of previously unrecognized tax benefits and the reversal of certain valuation allowances associated with foreign net operating losses.

Consolidated new awards for the three and six months ended June 30, 2008 were $6.4 billion and $12.1 billion, respectively, compared to $5.8 billion and $10.3 billion in the corresponding 2007 periods. The increase in new award activity was primarily attributable to the Oil & Gas and Industrial & Infrastructure segments, partially offset by lower new awards for Power. Approximately 48 percent of consolidated new awards for the six months ended June 30, 2008 were for projects located outside of the United States.

Consolidated backlog at June 30, 2008 of $33.0 billion was approximately 28 percent higher compared to backlog at June 30, 2007 and approximately 9 percent higher than backlog at the end of 2007. As of June 30, 2008, approximately 55 percent of consolidated backlog relates to international projects. Although backlog reflects business which is considered to be firm, cancellations or scope adjustments may occur. Backlog may be increased or decreased to reflect the impact of project cancellations, deferrals or changes to project scope or cost.

OIL & GAS



Revenue and operating profit for the Oil & Gas segment are summarized as
follows:



                    Three Months Ended           Six Months Ended
                          June 30                     June 30
(in millions)        2008        2007            2008        2007

Revenue            $ 3,342.2   $ 2,140.9       $ 5,945.5   $ 3,822.5
Operating profit       169.0       100.5           306.5       188.8

Revenue has increased 56 percent for both the three and six months ended June 30, 2008 compared to the corresponding periods in 2007 as a result of higher project execution activities from the significant number of new projects awarded over the last few years. The current year revenue growth has been accompanied by substantial operating profit increases.

New awards for the three months ended June 30, 2008 were $3.0 billion, compared to $2.1 billion for the corresponding period of 2007. New awards during the 2008 period included major projects in the United States and Russia. Backlog at June 30, 2008 increased 49 percent to $20.9 billion compared to $14.0 billion at June 30, 2007. The increase in backlog reflects the broad-based strength of the segment's various markets, particularly the high world-wide demand for new capacity in oil and gas exploration and refining, as well as for polysilicon.

Total assets in the segment increased to $1.2 billion at June 30, 2008 from $891 million at December 31, 2007 primarily due to the increased level of project execution activities.

INDUSTRIAL & INFRASTRUCTURE



Revenue and operating profit for the Industrial & Infrastructure segment are
summarized as follows:



                    Three Months Ended          Six Months Ended
                         June 30                     June 30
(in millions)         2008       2007           2008        2007

Revenue             $   912.5   $ 877.2       $ 1,708.7   $ 1,650.6
Operating profit        121.4      22.6           150.8        43.7

Revenue for the three and six months ended June 30, 2008 increased over the respective prior year periods primarily due to growth in the mining and metals business line. Operating profit for the three and six months ended June 30, 2008 was favorably impacted by substantially improved performance by the mining and metals and manufacturing and life sciences business lines, as well as a pre-tax gain of $79.2 million from the sale of a joint venture interest in a wind power project in the United Kingdom.

New awards for the three months ended June 30, 2008 were $2.4 billion compared to $1.1 billion for the 2007 comparison period. The increase in new awards is largely attributable to the wind power project in the United Kingdom. Backlog increased to $7.1 billion at June 30, 2008 compared to $5.7 billion at June 30, 2007. The increase is attributable to large infrastructure project awards in the fourth quarter of 2007 and the second quarter of 2008.

GOVERNMENT



Revenue and operating profit for the Government segment are summarized as
follows:



                    Three Months Ended         Six Months Ended
                         June 30                   June 30
(in millions)         2008       2007           2008      2007

Revenue             $   300.4   $ 325.1        $ 580.1   $ 671.0
Operating profit         11.1       9.4           18.8      25.8

Revenue for the three and six months ended June 30, 2008 decreased compared to the corresponding periods in the prior year primarily due to reduced contributions from embassy projects and Iraq-related work. The slight improvement in operating profit for the three months ended June 30, 2008 when compared to the same period in 2007 was primarily attributable to embassies. Operating profit for the six months ended June 30, 2008 was 27 percent lower compared to the six months ended June 30, 2007 due to higher contributions from FEMA hurricane relief task orders and Iraq-related work in the 2007 period. In addition, the prior year period included performance incentives earned on the Hanford contract.

New awards were $87 million for the three months ended June 30, 2008 compared to $181 million for the three months ended June 30, 2007, with the decrease primarily due to reduced new awards for Iraq-related contracts. Backlog at June 30, 2008 was $316 million compared to $428 million at June 30, 2007. During the second quarter of 2008, the formal protests regarding the Savannah River and LOGCAP IV contract awards were favorably resolved. Pending a successful transition period, the company will book a new award for the first year of the Savannah River contract in the third quarter of 2008. The company will record backlog for LOGCAP IV as individual task orders are awarded.

GLOBAL SERVICES



Revenue and operating profit for the Global Services segment are summarized as
follows:



                    Three Months Ended          Six Months Ended
                         June 30                     June 30
(in millions)         2008       2007           2008        2007

Revenue             $   696.1   $ 598.1       $ 1,402.3   $ 1,232.7
Operating profit         66.1      48.2           119.6        95.1

Revenue, operating profit and operating profit margin increased during the three and six months ended June 30, 2008 compared to the same periods in 2007, primarily driven by the performance of the operations and maintenance, equipment and supply chain solutions business lines.

New awards for the three months ended June 30, 2008 were $673 million compared to $570 million for the same period in 2007. Current year new awards primarily relate to renewals and expanded scope of existing customer contracts. Backlog at June 30, 2008 was $2.7 billion, up slightly from $2.6 billion at June 30, 2007.

Operations and maintenance activities that have yet to be performed comprise Global Services backlog. The equipment, temporary staffing and supply chain solutions business lines do not report backlog or new awards. In recent years, Global Services has derived larger percentages of its revenue and operating profit from short-duration operations and maintenance activities and from these non-backlog reporting business lines. Therefore, Global Services revenue and profit increases may outpace backlog growth.

POWER



Revenue and operating profit for the Power segment are summarized as follows:



                    Three Months Ended         Six Months Ended
                         June 30                   June 30
(in millions)         2008       2007           2008      2007

Revenue             $   522.4   $ 280.2        $ 944.0   $ 486.5
Operating profit         24.8       6.5           45.8      11.3

Revenue and operating profit for the three and six months ended June 30, 2008 have increased compared to the corresponding periods of 2007 as the result of higher levels of project execution activities. The increase in 2008 operating profit margin is primarily due to the performance of the segment's key projects, including a large coal-fired power plant that was awarded in the second quarter of 2007.

New awards for the three months ended June 30, 2008 were $206 million, compared to $1.8 billion for the 2007 comparison period, which included a large coal-fired power plant. Backlog at June 30, 2008 decreased to $1.9

billion compared to $3.0 billion at June 30, 2007. Both new award activity and backlog have been impacted by delays in obtaining air permits for certain coal-fired power plants.

OTHER

Corporate administrative and general expense for the three and six months ended June 30, 2008 was $61.7 million and $101.2 million, respectively, compared to $51.7 million and $97.1 million in the corresponding periods of 2007. The increase in corporate administrative and general expense for the three and six months ended June 30, 2008 compared to the corresponding periods of 2007, is primarily due to increased compensation cost, as a result of the strong 2008 operating performance and increase in the company's share price, which affects the expense associated with share-based plans.

Net interest income of $14.3 million and $26.4 million during the three and six month periods ended June 30, 2008 compares with net interest income of $8.1 million and $12.3 million during the corresponding periods of 2007. This improvement is the primary result of higher cash balances that were deposited in interest bearing accounts or invested in marketable securities.

Income tax expense for the three and six months ended June 30, 2008 and 2007 is discussed above under "Results of Operations."

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 of the Notes to Condensed Consolidated Financial Statements.

LITIGATION AND MATTERS IN DISPUTE RESOLUTION

As of June 30, 2008, the following matters relating to completed and in progress projects were in the dispute resolution process:

Infrastructure Joint Venture Project

London Connect Project

Embassy Projects

Fluor Daniel International and Fluor Arabia Ltd. v. General Electric Company, et al

Conex International vs. Fluor Enterprises, Inc.

Discussion of the status of these projects is included in Footnote 12 to the Condensed Consolidated Financial Statements.

FINANCIAL POSITION AND LIQUIDITY

During the six months ended June 30, 2008, cash generated by operating activities of $681.6 million resulted from earnings sources and increases in advance billings.

Cash utilized by investing activities was $373.9 million in the first half of 2008 compared to $327.5 million in the 2007 comparison period. The company invests excess cash in marketable securities. Investments in marketable securities are governed by the company's investment policy, which focuses on, in order of priority, the preservation of capital, maintenance of liquidity and maximization of yield. Capital expenditures were $127.1 million in the six months ended June 30, 2008 compared to $120.6 million during the 2007 period. Expenditures during the current year include significant amounts relating to equipment operations and investments in computer infrastructure

upgrades. Also included in the cash flow for investing activities during the six months ended June 30, 2008 were proceeds of $79.2 million from the sale of a joint venture interest in a wind power project in the United Kingdom.

Financing activities in the first six months of 2007 include non-recourse project financing of GeneSYS Communications Limited, which is no longer consolidated in the company's financial statements. Impacting cash flows in the first six months of both 2008 and 2007 was $12.2 million and $6.4 million, respectively, in cash received from the exercise of stock options. In the first quarter of 2008, the company's Board of Directors authorized an increase in the quarterly dividend payable April 2, 2008 to $0.125 per share (split adjusted) from $0.10 per share (split adjusted). Second quarter dividends were declared at the pre-split price, but future quarterly dividends, if any, will be on a post-split basis of $0.125 per share. Declared dividends are typically paid during the month following the quarter in which they are declared. The payment and level of future cash dividends will be subject to the discretion of the company's Board of Directors. The company's total debt to total capitalization ("debt-to-capital") ratio at June 30, 2008 was 10.9 percent compared to 12.5 percent at December 31, 2007.

During the six months ended June 30, 2008, exchange rates for functional currencies for most of the company's international operations continued to strengthen against the U.S. dollar, resulting in unrealized translation gains that are reflected in the cumulative translation component of other comprehensive loss. Because most of the cash held in foreign currencies will be used for project related expenditures in those currencies, the company's exposure to realized exchange gains and losses is considered nominal.

Liquidity is provided by cash generated from operations, advance billings on contracts in progress and access to financial markets. As customer advances are reduced through use in project execution and if not replaced by advances on new projects, the company's cash position would be reduced. For the next 12 months, cash generated from operations and additional advance billings, along with unused credit capacity and the option to issue debt or equity securities, if required, is expected to be sufficient to fund operating requirements.

In February 2004, the company issued $330 million of 1.5 percent Convertible Senior Notes (the "Notes") due February 15, 2024 and received proceeds of $323 million, net of underwriting discounts. In December 2004, the company irrevocably elected to pay the principal amount of the Notes in cash. Notes are convertible if a specified trading price of the company's common stock (the "trigger price") is achieved and maintained for a specified period. The trigger price condition has been satisfied during each period since the fourth quarter of 2005 and the Notes have therefore been classified as short-term debt as of June 30, 2008 and December 31, 2007. During the three and six months ended June 30, 2008, holders converted $5.1 million of the Notes in exchange for the principal balance owed in cash plus 114,756 shares of the company's common stock. Subsequently, in July 2008, holders converted an additional $58 million of the Notes in exchange for the principal balance owed in cash plus 1,429,173 shares of the company's common stock. The company does not know the timing or principal amount of the remaining Notes that may be presented for conversion in the future. Available cash balances will be used to satisfy any principal and interest payments. Shares of the company stock will be issued to satisfy any appreciation between the conversion price and the market price on the date of conversion.

Off-Balance Sheet Arrangements

The company maintains a variety of commercial commitments that are generally made available to provide support for various commercial provisions in its engineering and construction contracts. The company has $2.3 billion in committed and uncommitted lines of credit to support letters of credit. Letters of credit are provided to clients in the ordinary course of business in lieu of retention or performance and completion guarantees on engineering and construction contracts. At June 30, 2008, the company had utilized $1.0 billion of its credit capacity. The company has $110 million in credit lines for general purposes in addition to the amount above. The company also posts surety bonds as generally required by commercial terms, primarily on state and local government projects to guarantee its performance on contracts.

In the ordinary course of business, the company enters into various agreements providing financial or performance assurances to clients on behalf of certain unconsolidated partnerships, joint ventures and other jointly executed contracts. These agreements are entered into primarily to support the project execution commitments of these entities. The guarantees have various expiration dates ranging from mechanical completion of the facilities being

constructed to a period extending beyond contract completion in certain circumstances. The maximum potential payment amount of an outstanding performance guarantee is the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts. In most cases any amounts expended on behalf of a partner or joint venture participant pursuant to performance guarantees would be recovered from the client or other third party for work performed in the ordinary course of contract execution. As of June 30, 2008, there were no material guarantees outstanding.

Financial guarantees, made in the ordinary course of business on behalf of clients and others in certain limited circumstances, are entered into with financial institutions and other credit grantors and generally obligate the company to make payment in the event of a default by the borrower. Most arrangements require the borrower to pledge collateral in the form of property, plant and equipment which is deemed adequate to recover amounts the company might be required to pay. As of June 30, 2008, no material changes to financial guarantees of the debt of third parties had occurred since the filing of the company's December 31, 2007 annual report on Form 10-K and the carrying value of recorded guarantee obligations was not significant as of either of these dates.

Financial Instruments

The company utilizes foreign exchange forward or options contracts to hedge foreign currency transactions entered into in the ordinary course of business and not to engage in currency speculation. At June 30, 2008, the company had forward foreign exchange contracts of less than 2 months duration to exchange major world currencies for U.S. dollars. The total gross notional amount of these contracts was $15 million. In addition to foreign exchange forward option contracts, the company from time to time enters into price-risk management transactions (e.g., commodity swaps) to minimize the volatility of project cost. At June 30, 2008 the company had commodity swap contracts of less than 3 years duration and a total gross notional amount of $15 million.