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 current worldwide financial crisis, which may cause or accelerate a number of the other factors listed below;
† Customer cancellations of, or scope adjustments to, existing contracts, including our government contracts that may be terminated at any time;
† Decreased capital investment or expenditures, or a failure to make anticipated increased capital investment or expenditures, by the company's customers;
† The availability of credit and restrictions imposed by credit facilities, both for the company and our customers;
† Customer delays or defaults in making payments;
† The cyclical nature of many of the markets the company serves and its vulnerability to downturns such as the current worldwide economic downturn;
† The company's failure to receive anticipated new contract awards and the related impacts on staffing levels and cost;
† Difficulties or delays incurred in the execution of contracts, including performance by our joint venture or teaming partners, resulting in cost overruns or liabilities;
† Changes in global business, economic (including currency risk), political and social conditions;
† Failure to meet timely completion or performance standards that could result in higher cost and reduced profits or, in some cases losses on projects;
† Possible limitations of bonding or letter of credit capacity;
† The company's ability to hire and retain qualified personnel;
† 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 company's ability to identify and successfully integrate acquisitions;
† The potential impact of certain tax matters including, but not limited to, those from foreign operations and the ongoing audits by tax authorities;
† 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;
† The impact of past and future environmental, health and safety regulations;
† The impact of anti-bribery and international trade laws and regulations;
† 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;
† 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 this Form 10-Q as well as 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 nine months ended September 30, 2008 were $183.1 million, or $1.01 per diluted share, and $530.4 million, or $2.89 per diluted share, respectively. These results compare with net earnings of $93.7 million, or $0.51 per diluted share, and $273.9 million, or $1.51 per diluted share, respectively, for the corresponding periods of 2007. Earnings before taxes for the three and nine months ended September 30, 2008 included provisions totaling $15.5 million and $32.7 million, respectively, in the Industrial & Infrastructure segment for a fixed-price telecommunications project in the United Kingdom. Earnings before taxes for the nine months ended September 30, 2008 included a pre-tax gain of $79.2 million in the Industrial & Infrastructure segment from the sale of a joint venture interest in a wind power project in the United Kingdom.

Earnings before taxes for the three months ended September 30, 2007 included a provision of $20.9 million in the Government segment for a fixed-price contract in Afghanistan. In addition, the three and nine months ended September 30, 2007 were impacted by provisions totaling $4.7 million and $16.0 million, respectively, for a fixed-price transportation project in California in the Industrial & Infrastructure segment.

Consolidated revenue for the three and nine months ended September 30, 2008 was $5.7 billion and $16.3 billion, respectively, compared to $4.1 billion and $12.0 billion for the corresponding periods in 2007. For the three months ended September 30, 2008 all segments reported increases in revenue compared to the same quarter in 2007. For the nine months ended September 30, 2008, all segments but Government reported increases in revenue.

The effective tax rate, based on the company's actual operating results for the three and nine months ended September 30, 2008 was 38.1 percent and 38.5 percent, respectively, compared to 39.7 percent and 37.1 percent, respectively, for the corresponding periods of 2007. The lower effective tax rate for the three month period ending September 30, 2008 was primarily attributable to an increase in the amount of income eligible for the domestic production activities deduction. The higher effective tax rate for the nine months ended September 30, 2008 was primarily attributable to a change in the ability to use certain foreign losses to reduce worldwide income subject to U.S. income taxes, partially offset by the increase in income on activities eligible for the domestic production activities deduction.

Consolidated new awards for the three and nine months ended September 30, 2008 were $8.8 billion and $20.9 billion, respectively, compared to $6.0 billion and $16.3 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 46 percent of consolidated new awards for the nine months ended September 30, 2008 were for projects located outside of the United States.

Consolidated backlog at September 30, 2008 of $36.5 billion was approximately 31 percent higher compared to backlog at September 30, 2007 and approximately 21 percent higher than backlog at the end of 2007. As of September 30, 2008, approximately 53 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           Nine Months Ended
                       September 30                September 30
(in millions)        2008        2007            2008        2007

Revenue            $ 3,302.9   $ 2,177.9       $ 9,248.4   $ 6,000.4
Operating profit       205.6       111.5           512.1       300.3

Revenue increased 52 percent and 54 percent for the three and nine months ended September 30, 2008, respectively, compared to the corresponding periods in 2007 as a result of continued growth in 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. Operating profit margin for the three and nine months ended September 30, 2008 was 6.2 percent and 5.5 percent, respectively, compared to 5.1 percent and 5.0 percent in the same 2007 periods. Margins are comparatively higher in 2008 for a number of reasons, including the performance of certain large projects in the engineering phase which typically generate higher margins than projects in the construction phase and improved contributions for other major projects of the segment.

New awards for the three months ended September 30, 2008 were $5.1 billion, compared to $4.3 billion for the corresponding period of 2007. New awards during the 2008 period included major projects in the United States and Russia. New awards during the third quarter of 2007 included $2.0 billion for a major refinery project in the Middle East. Backlog at September 30, 2008 increased 39 percent to $22.8 billion compared to $16.4 billion at September 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 September 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          Nine Months Ended
                       September 30               September 30
(in millions)         2008       2007           2008        2007

Revenue             $   878.5   $ 735.4       $ 2,587.2   $ 2,386.0
Operating profit         27.9      26.7           178.7        70.5

Revenue for the three months ended September 30, 2008 increased by 19 percent compared to the same period in 2007, primarily due to growth in the mining and metals and manufacturing and life sciences business lines. Revenue for the nine months ended September 30, 2008 increased 8 percent compared to the corresponding period in the prior year, primarily on the strength of mining and metals project performance.

Operating profit for the three months ended September 30, 2008 increased marginally compared to the same quarter in the prior year, primarily driven by the mining and metals business line, offset by provisions for a telecommunications project discussed below. Operating profit for the nine months ended September 30, 2008 increased significantly compared to the prior year comparison period, as the result of improved performance in the mining and metals and manufacturing and life sciences business lines and 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. Operating profit for the three and nine months ended September 30, 2008 includes the impact of provisions totaling $15.5 million and $32.7 million,

respectively, for a fixed-price telecommunications project in the United Kingdom. The project, which is nearing completion, has been subject to significant delays, resulting in additional cost to the company and claims against the client. Current year performance of the segment has been impacted by the reassessments of the remaining time and cost to complete the project and the probability of recovery of liquidated damages and certain claims. Operating profit for the segment during the 2007 periods included the impact of provisions totaling $4.7 million and $16.0 million for a fixed-price transportation infrastructure project in California.

New awards for the three months ended September 30, 2008 were $2.2 billion compared to $364 million for the 2007 comparison period. The new awards in the 2008 period include a large mining project. Backlog increased to $8.5 billion at September 30, 2008 compared to $5.2 billion at September 30, 2007, due to increased new award activity across all business lines of the segment, particularly infrastructure.

Total assets in the segment increased to $679 million at September 30, 2008 from $576 million at December 31, 2007, due to the increase in volume across all business lines.

GOVERNMENT



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



                    Three Months Ended         Nine Months Ended
                       September 30              September 30
(in millions)         2008       2007          2008       2007

Revenue             $   368.7   $ 336.6       $ 948.8   $ 1,007.7
Operating profit         17.7      (2.1 )        36.5        23.6

Revenue for the three months ended September 30, 2008 increased compared to the corresponding period in the prior year primarily due to the start-up of the Savannah River project. Revenue for the nine months ended September 30, 2008 decreased compared to the same period in 2007, primarily due to reduced contributions from the embassy projects, Iraq-related work, the Fernald cleanup project and Federal Emergency Management Agency ("FEMA") hurricane relief task orders, which were offset somewhat by the start-up of the Savannah River project. Operating profit for the three and nine months ended September 30, 2008 increased significantly compared to the corresponding periods in 2007 because the prior period results include a provision of $20.9 million on a fixed-price project at the Bagram Air Base in Afghanistan.

New project awards for the three months ended September 30, 2008 were $922 million, compared to $708 million for the 2007 period. The Savannah River project's transitional work and first full year of operations was included as a new award in the current year period. Backlog at September 30, 2008 was $886 million, up marginally from $839 million at September 30, 2007.

GLOBAL SERVICES



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



                    Three Months Ended          Nine Months Ended
                       September 30               September 30
(in millions)         2008       2007           2008        2007

Revenue             $   592.9   $ 541.7       $ 1,995.2   $ 1,774.4
Operating profit         49.0      47.5           168.6       142.6

Revenue increased during the three and nine months ended September 30, 2008 compared to the same periods in 2007, primarily due to the performance of the equipment business line. Operating profit has increased in the 2008

periods compared to 2007, primarily as the result of improved performance in the equipment and supply chain solutions business lines. The current year results of the operations and maintenance business line have been impacted by delays in refinery turnarounds and hurricanes in the Gulf Coast region of the United States during the third quarter.

New awards for the three months ended September 30, 2008 were $405 million compared to $540 million for the same period in 2007. Current year new awards primarily relate to renewals and expanded scope of existing customer contracts. Backlog at September 30, 2008 and 2007 was $2.7 billion, unchanged from September 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 these non-backlog reporting business lines and from short-duration operations and maintenance activities. 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         Nine Months Ended
                       September 30              September 30
(in millions)         2008       2007           2008       2007

Revenue             $   530.8   $ 323.6       $ 1,474.8   $ 810.1
Operating profit         24.1       5.9            69.9      17.2

Revenue and operating profit for the three and nine months ended September 30, 2008 have increased substantially compared to the corresponding periods of 2007 as the result of higher levels of project execution activities from projects awarded over the last two years. Operating profit margin for the three and nine months ended September 30, 2008 was 4.5 percent and 4.7 percent, respectively, compared to 1.8 percent and 2.1 percent for the 2007 periods. Margins have increased during 2008 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 September 30, 2008 were $226 million, compared to $71 million for the 2007 comparison period. Backlog at September 30, 2008 decreased to $1.6 billion compared to $2.8 billion at September 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 nine months ended September 30, 2008 was $44.6 million and $145.8 million, respectively, compared to $44.9 million and $142.1 million in the corresponding periods of 2007.

Net interest income of $16.1 million and $42.6 million during the three and nine month periods ended September 30, 2008 compares with net interest income of $10.7 million and $23.0 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 and lower debt levels.

Income tax expense for the three and nine months ended September 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 September 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.

Fluor Corporation v. Citadel Equity Fund Ltd.

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

FINANCIAL POSITION AND LIQUIDITY

During the nine months ended September 30, 2008, cash generated by operating activities of $855.2 million resulted from earnings sources and increases in advance billings. Due to adverse conditions in the equity markets, coupled with the business objective of the company to utilize available resources to maintain or achieve full funding of accumulated benefits in most of its defined benefit pension plans, the company is increasing the range of expected contributions to the plans for 2008. The expected range for total contributions is $125 million to $150 million, which is expected to be in excess of the minimum regulatory funding requirements. Contributions of approximately $37 million were made by the company during the nine months ended September 30, 2008. During the corresponding 2007 period, cash generated by operating activities was $649.0 million, primarily resulting from earnings sources and reduced working capital, which included the billing and collection of fees on the Fernald project.

Cash utilized by investing activities was $295.4 million during the nine months ended September 30, 2008 compared to $555.8 million in the 2007 comparison period. The company invests excess cash in interest bearing accounts and 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. The types of marketable securities in which the company invests include time deposits placed with highly rated banks, short-term fixed income securities, money market funds which invest in U.S. Government related securities and repurchase agreements that are fully collateralized by U.S. Government related securities. Capital expenditures were $211.8 million in the nine months ended September 30, 2008 compared to $200.9 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 nine months ended September 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 nine months of 2007 include non-recourse project financing of GeneSYS TeleCommunications Limited ("GeneSYS"). In September 2007, the joint venture members of GeneySYS paid their required permanent financing commitments in the amount of $44.4 million and were issued subordinated notes by GeneSYS. These funds were used to repay the temporary construction term financing including the company's equity bridge loan. GeneSYS is no longer consolidated in the company's financial statements. Impacting cash flows in the first nine months of both 2008 and 2007 was $12.7 million and $11.0 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 dividends payable to $0.125 per share (split adjusted) from $0.10 per share (split adjusted). Declared dividends are typically paid during the month following the quarter in which they are declared. The payment and level of future cash dividends is subject to the discretion of the company's Board of Directors.

During the nine months ended September 30, 2008, exchange rates for functional currencies for most of the company's international operations weakened against the U.S. dollar, resulting in unrealized translation losses 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. Customer advances are reduced through use in project execution and, if not replaced by advances on new projects, the company's cash position may be reduced. While the impact of continued market volatility cannot be predicted, the company believes that 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. The company's conservative financial strategy and consistent performance have earned it strong credit ratings. The company's total debt to total capitalization ("debt-to-capital") ratio at September 30, 2008 was 5.4 percent compared to 12.5 percent at December 31, 2007.

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 September 30, 2008 and December 31, 2007. During the nine months ended September 30, 2008, holders converted $167.1 million of the Notes in exchange for the principal balance owed in cash plus 3,942,432 shares of the company's common stock. Subsequently, in October 2008, holders converted an additional $6.6 million of the Notes in exchange for the principal balance owed in cash plus 116,360 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 September 30, 2008, the company had utilized $1.1 billion of its credit capacity. The company has $169 million in credit lines for general purposes in addition to the amount above. The company's access to the commercial paper market is currently limited to overnight borrowing only due to the current financial crisis. This limited access is not expected to have an impact on the company's short-term financing needs due to its high cash balances. 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 . . .