The following "Management's Discussion and Analysis of Financial Condition and Results of Operations" is provided to assist readers in understanding our financial performance during the periods presented and significant trends which may impact our future performance. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes thereto included within "Item 8. Financial Statements and Supplementary Data."

CB&I is an integrated EPC provider and major process technology licensor. Founded in 1889, CB&I provides conceptual design, technology, engineering, procurement, fabrication, construction, commissioning and associated maintenance services to customers in the energy and natural resource industries.

RESULTS OF OPERATIONS

Our new awards, revenue and income from operations by reporting segment are as follows:

                                                 Years Ended December 31,
                                        2008               2007              2006
                                                      (In thousands)

    New Awards (1)
    EPC
    North America                    $ 2,215,890     $      1,958,368     $ 2,753,121
    Europe, Africa and Middle East       694,178            1,082,524       1,143,941
    Asia Pacific                         480,065              610,340         324,445
    Central and South America            391,456            2,540,511         207,776
    Lummus Technology                    505,203               11,500               -

    Total new awards                 $ 4,286,792     $      6,203,243     $ 4,429,283

    Revenue
    EPC
    North America                    $ 2,195,479     $      1,946,484     $ 1,676,694
    Europe, Africa and Middle East     1,515,950            1,307,578       1,101,813
    Asia Pacific                         496,422              442,042         234,764
    Central and South America          1,298,458              626,415         112,036
    Lummus Technology                    438,672               40,973               -

    Total revenue                    $ 5,944,981     $      4,363,492     $ 3,125,307

    Income (Loss) From Operations
    EPC
    North America                    $   136,430     $        138,722     $    79,164
    Europe, Africa and Middle East      (364,235 )            (28,359 )        46,079
    Asia Pacific                          37,054               35,427          16,219
    Central and South America            115,202               53,289           4,177
    Lummus Technology                    110,759                6,487               -

    Total income from operations     $    35,210     $        205,566     $   145,639

(1) New awards represent the value of new project commitments received by us during a given period. These commitments are included in backlog until work is performed and revenue is recognized or until cancellation.

2008 VERSUS 2007

Current Market Conditions - As a result of the current volatility and uncertainty in the world markets and difficulties associated with obtaining financing, our clients may be re-evaluating the timing of, or need for, proposed projects. Although our identified 2009 opportunities indicate that a significant portion of our prospective projects are with international and national oil companies, the majority of which are capable of funding projects from their internal resources, given the market volatility and uncertainty, there is a risk that our current and prospective projects may be delayed or canceled.

We continue to have a broad diversity within the entire energy project spectrum, with over half of our 2008 and anticipated 2009 revenue coming from outside the United States. In 2008, LNG projects totaled approximately 44% of revenues, Energy Processes projects accounted for nearly 28%, Steel Plate Structure revenues accounted for 21%, and the remaining 7% of revenues were from Lummus Technology. This revenue mix will continue to evolve consistent with changes in our backlog mix as well as shifts in future global demand. With the reduced price of crude oil and the drop in gasoline consumption in the United States, refinery investments projected for 2009 have slowed. However, we currently anticipate that investment in Steel Plate Structures and Energy Processes projects will remain strong in many parts of the world. LNG investment also continues, with liquefaction projects increasing in comparison to regasification projects in certain geographies.

While our bank lines remain in place to provide us the necessary flexibility and availability to take advantage of the global market for our services, the availability of such lending facilities and our ability to remain in compliance with our lending covenants could be impacted by the economic crisis.

Results Overview - We realized revenue of approximately $5.9 billion for 2008, representing an approximate 36% increase over 2007, with growth in all segments. Over half of this increase was a result of our acquired Lummus operations. Our new awards of $4.3 billion were lower than both 2007 new awards of $6.2 billion and our expectations for the current year, primarily due to delay of several expected opportunities to 2009, including an anticipated Colombian refinery project award within our CSA segment. This anticipated award is expected to be valued in excess of $1.0 billion.

During 2008 we recognized a $457.0 million charge associated with additional projected costs to complete the U.K. Projects, as described below. Our gross profit, excluding these charges, was $690.2 million, or approximately 11.0% of revenue, representing solid execution of beginning of the year backlog and 2008 new awards, and the contribution of our higher gross profit Lummus Technology business acquired in the fourth quarter of 2007.

New Awards/Backlog - The $4.3 billion of 2008 new awards represented a decrease of $1.9 billion, or 31%, compared with 2007. North America's new awards, which comprised more than half of our total 2008 awards, increased 13% over 2007 due to the impact of significant awards in Canada and the U.S. Significant awards in Canada included a $400.0 million oil sands storage terminal and a $150.0 million LNG peak shaving facility, while the U.S. benefited from the award of two nuclear containment vessels, valued at $336.0 million. New awards in our EAME segment decreased 36% due to 2007 including a significant U.K. LNG terminal award, valued at approximately $500.0 million, partly offset by 2008 awards within the acquired EPC business of Lummus. New awards in our Asia Pacific ("AP") segment decreased 21% due to 2007 including a large Australian LNG storage facility award, valued in excess of $373.0 million, partly offset by 2008 awards including a steel plate structures project in Australia and additional tanks at an LNG import terminal in China. Lummus Technology's 2008 awards included heat transfer equipment for a petrochemical complex in the Middle East, valued at approximately $140.0 million, and licensing and engineering for a petrochemical complex in India. New awards in our CSA segment decreased 85% due to the impact of the significant Peru LNG liquefaction and Chile LNG regasification terminal awards during 2007.

We have experienced a move in the marketplace away from lump-sum turnkey as the preferred approach for major EPC energy projects and a shift to a combination of cost reimbursable, modular fabrication, engineering services and "hybrid" contracts, which provide for risk-sharing between the owner and the contractor. Our new awards have reflected this shift, in addition to smaller steel plate structure and energy processes projects.

Backlog at December 31, 2008 was $5.7 billion, compared to approximately $7.7 billion at December 31, 2007.

Revenue - Revenue in 2008 of $5.9 billion represented an increase of $1.6 billion, or 36%, compared with 2007. Revenue increased in all reporting segments, representing growth of $249.0 million, or 13%, in the North America segment, $208.4 million, or 16%, in the EAME segment, $54.4 million, or 12%, in the AP segment, $672.0 million, or 107%, in the CSA segment and $397.7 million in the Lummus Technology segment. The following factors contributed to our revenue increase when compared to 2007, dispite the wind-down of the U.K. Projects' revenue in our EAME segment:

• Approximately 57% of the revenue increase, or $897.2 million, is attributable to the results of our November 2007 Lummus acquisition. Total Lummus Technology revenue during 2008 of $438.7 million reflects the strength of proprietary equipment sales and process licensing to the gas, refining and petrochemical sectors. The balance of Lummus' 2008 revenue of $563.2 million is included primarily within our EAME segment.

• We began the year with significant LNG backlog, contributing to the revenue growth in our CSA, North America and AP segments.

• Our CSA segment experienced growth in energy processes work in South America.

• We experienced growth of steel plate structure work in Canada.

• We experienced increased steel plate structure growth in the Middle East and engineering projects in the U.K.

Gross Profit - Gross profit in 2008 was $233.2 million, or 3.9% of revenue, compared with gross profit of $356.8 million, or 8.2% of revenue, in 2007. The decrease in gross profit as a percentage of revenue is primarily attributable to the following factors:

• Continued poor labor productivity, significant weather delays and the need to supplement critical subcontractor areas adversely impacted the schedules for the U.K. Projects and necessitated substantial expenditures during 2008 well above previous estimates. Consequently, the schedule for achieving first gas for the South Hook LNG project was delayed to early 2009 and projected costs increased. The project is currently ready for first gas and is awaiting its first LNG delivery. While experiencing similar issues during 2008, the Isle of Grain II LNG project received first gas in line with our revised schedule in November 2008 and achieved gas out in late December 2008. As a result of the aforementioned, we recognized charges to earnings of $358.0 million and $99.0 million during 2008 for South Hook and Isle of Grain II, respectively. If weather factors, labor productivity and subcontractor performance on the South Hook LNG project were to decline from amounts utilized in our current estimates, our schedule for gas out and project completion, and our future results of operations would be negatively impacted. Charges for the South Hook project during 2007 totaled approximately $97.7 million.

• Gross profit in the North America segment was unfavorably impacted by increased forecasted materials and associated construction labor costs on a project in the U.S., the majority of which were incurred during the first quarter of 2008. Additionally, gross profit in our North America segment was favorably impacted during 2007 by a cancellation provision on an LNG tank project in Canada.

• Our gross profit excluding the $457.0 million charge for the U.K. Projects was $690.2 million or approximately 11.0% of revenue. The improvement over 2007 is primarily a result of the contribution of the Lummus Technology business and solid project execution on existing backlog.

Equity Earnings - Equity earnings of $41.1 million during 2008 were generated from technology licensing and catalyst sales for various proprietary technologies in joint venture investments within our Lummus Technology business.

Selling and Administrative Expenses - Selling and administrative expenses were $215.5 million, or 3.6% of revenue, in 2008, compared with $153.7 million, or 3.5% of revenue, in 2007. The increase in absolute dollars relates to incremental costs associated with our Lummus business and growth in global administrative support costs, partly offset by lower 2008 performance based compensation expense.

Income from Operations - Income from operations during 2008 was $35.2 million compared to $205.6 million during 2007. As described above, our 2008 results were unfavorably impacted by charges for the U.K. Projects

in our EAME segment. Additionally, higher selling and administrative costs and intangibles amortization expense were partially offset by significant equity earnings during 2008.

Interest Expense and Interest Income - Interest expense for 2008 was $21.1 million, compared with $7.3 million for 2007. The increase of $13.8 million is primarily due to higher average debt levels resulting from borrowings utilized to fund a portion of our Lummus acquisition. Borrowings associated with the Lummus acquisition included a $200.0 million five-year term loan and periodic borrowings under our revolving credit facility. Interest income for 2008 was $8.4 million, compared with $31.1 million for 2007. The decrease of $22.7 million is due to lower short-term investment levels resulting from cash utilized to fund U.K. project costs and the balance of our Lummus acquisition.

Income Tax Expense - Income tax expense for 2008 was $37.5 million, or 166.3% of pre-tax income, versus $57.4 million, or 25.0% of pre-tax income, for 2007. We did not provide an income tax benefit for $128.0 million of our net losses realized in the U.K. during the second half of 2008, which has significantly increased our tax rate compared to 2007. We expect our 2009 rate to fall within the range of 30% to 34%.

We operate in more than 80 locations worldwide and, therefore, are subject to the jurisdiction of multiple taxing authorities. Determination of taxable income in any given jurisdiction requires the interpretation of applicable tax laws, regulations, treaties, tax pronouncements and other tax agreements. As a result, we are subject to tax assessments in such jurisdictions, including assessments related to the determination of taxable income, transfer pricing and the application of tax treaties, among others. We believe we have adequately provided for any such known or anticipated assessments. We believe that the majority of the amount currently provided under Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes" ("FIN 48") will not be settled in the next twelve months and such possible settlement will not have a significant impact on our liquidity.

Minority Interest in Income - Minority interest in income for 2008 and 2007 was $6.2 million and $6.4 million, respectively. The changes compared with 2007 are commensurate with the levels of operating income for the contracting entities.

Prospective Change in Reporting Segments - Over the past several years, we have experienced worldwide demand in our end markets. With the addition of the Lummus organization last year, our ability to respond to that demand has placed us in the tier of global contractors who have the unique capability to meet customers' needs across a broad spectrum of technology and project services.

As a result of the aforementioned, beginning in the first quarter 2009, our management structure and internal and public segment reporting will be aligned based upon three distinct project business sectors, rather than our historical practice of reporting based upon discrete geographic regions. These three project business sectors will be CB&I Lummus (which includes Energy Processes and LNG terminal projects), CB&I Steel Plate Structures, and Lummus Technology.

Our 2008 results discussed above have been reported in accordance with the geographic segment structure that was in place during 2008.

2007 VERSUS 2006

New Awards/Backlog - New awards in 2007 of $6.2 billion, increased $1.8 billion, or 40% compared with 2006. Approximately 41% of our new awards during 2007 were for contracts awarded within our CSA segment, while 32% were for contracts awarded in North America. North America's new awards decreased 29% due to the impact of a significant LNG import terminal award in the U.S. during 2006, valued at $1.1 billion. Significant awards in North America during 2007 included two refinery expansion projects and an LNG expansion project, all awarded in the U.S. New awards in our EAME segment decreased 5% as a result of the impact of growth on the U.K. LNG import terminals and major awards in the Middle East during 2006, partly offset by a U.K. LNG terminal award during 2007, valued at approximately $500.0 million. New awards in our AP segment increased 88% primarily due to an LNG storage facility award in Australia, valued in excess of $373.0 million. New awards in our CSA segment increased 1123%, due to an LNG liquefaction award in Peru, valued in excess of $1.5 billion, and an LNG regasification terminal award in Chile, valued at approximately $775.0 million.

Due to our strong performance in new awards and approximately $1.2 billion of backlog acquired with our acquisition of Lummus, our backlog increased from $4.6 billion in 2006 to $7.7 billion in 2007.

Revenue - Revenue in 2007 of $4.4 billion increased $1.2 billion, or 40%, compared with 2006. During 2007, revenue increased 16% in the North America segment, 19% in the EAME segment, 88% in the AP segment, and more than fourfold in the CSA segment. The increase in our North America segment was primarily a result of progress on the U.S. LNG import terminal awarded in the second half of 2006. Increased revenue within our EAME segment resulted from the impact of growth on an existing LNG project in the U.K. and stronger steel plate structure activity in the Middle East. Revenue growth in the AP segment was a result of progress on a significant project in Australia. CSA's increase was a result of the significant increase in new awards during the year. Total 2007 revenue contributed by our acquisition of Lummus was approximately $104.6 million.

Gross Profit - Gross profit in 2007 was $356.8 million, or 8.2% of revenue, compared with $281.8 million, or 9.0% of revenue, in 2006. The 2007 and 2006 results were impacted by several key factors including the following:

• Our North America segment was favorably impacted during 2007 by the strong steel plate structure markets in the U.S. and Canada and a cancellation provision associated with an LNG tank project in Canada. These favorable impacts were partially offset by charges to earnings during the first half of 2007 of approximately $19.8 million associated with costs on a project that closed in a loss position. These charges related primarily to higher than anticipated labor costs and modifications to our field execution approach. Our 2006 results were impacted by increased forecasted construction costs to complete several projects.

• Our EAME segment was unfavorably impacted by increased forecasted construction costs on a project in the U.K. We increased our forecasted costs to complete the project during 2007 primarily as a result of lower than expected labor productivity and schedule impacts, which increased our project management and field labor estimates and associated subcontract costs. As a result of the cumulative revisions to its estimated costs to complete, the project incurred charges to earnings of $97.7 million during 2007.

• The impact of the above project was partly offset by stronger steel plate structure activity in the Middle East during 2007.

• Our AP segment was favorably impacted by the higher level of revenue in the region.

• Our CSA segment benefited from the significant new awards in the first half of 2007, while 2006 was impacted by negative cost adjustments on several projects.

• The results of our acquired Lummus business contributed to our 2007 gross profit.

Selling and Administrative Expenses - Selling and administrative expenses were $153.7 million, or 3.5% of revenue, in 2007, compared with $133.8 million, or 4.3% of revenue, in 2006. Despite a 40% increase in revenue during 2007, our selling and administrative expenses increased only $19.9 million, including $10.2 million associated with the operations of our acquisition of Lummus, as a result of effective cost controls.

Income from Operations - During 2007, income from operations was $205.6 million, representing a $59.9 million increase compared with 2006. As described above, our results were favorably impacted by higher revenue volume, partially offset by lower gross profit percentage levels and increased selling and administrative expenses.

Interest Expense and Interest Income - Interest expense increased $2.5 million from 2006 to $7.3 million, due to higher average debt levels resulting from borrowings to fund a portion of our acquisition of Lummus and the impact of a favorable settlement of contingent tax obligations during 2006. Borrowings associated with the acquisition of Lummus included short-term revolver borrowings (which were fully repaid as of December 31, 2007) and a $200.0 million five-year term loan. The final of three equal annual installments of $25.0 million was paid in mid-2007 associated with our senior notes. Interest income increased $10.7 million from 2006 to $31.1 million primarily due to higher short-term investment levels prior to the acquisition of Lummus in November 2007 and higher associated yields.

Income Tax Expense - Income tax expense for 2007 and 2006 was $57.4 million, or 25.0% of pre-tax income, and $38.1 million, or 23.6% of pre-tax income, respectively. The rate increase compared with 2006 was primarily due to the U.S./non-U.S. income mix and the recording of tax reserves.

Minority Interest in Income - Minority interest in income in 2007 was $6.4 million compared with minority interest in income of $6.2 million in 2006. The changes compared with 2006 were commensurate with the levels of operating income for the contracting entities.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2008, cash and cash equivalents totaled $88.2 million.

Operating - During 2008, our operations generated $26.3 million of cash flows due primarily to higher payable levels across all geographic regions as well as lower receivable balances within our EAME segment. These increases were partially offset by an increase in unbilled revenue balances in North America and payments to fund the losses on the U.K. Projects.

The recent turmoil in the worldwide financial markets caused a significant decrease in the value of assets held by our pension plans as of December 31, 2008. Lower than anticipated rates of return on certain plan investments has resulted in the recording of deferred losses within accumulated other comprehensive loss in shareholder's equity on the Consolidated Balance Sheet, in accordance with the applicable provisions of SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("SFAS No. 158"). As a result, our future pension costs and contributions could increase over historical levels.

Investing - During 2008, we incurred $124.6 million for capital expenditures, primarily in support of projects and facilities in our North America and EAME segments.

We continue to evaluate and selectively pursue opportunities for additional expansion of our business through acquisition of complementary businesses. These acquisitions, if they arise, may involve the use of cash or may require further debt or equity financing.

Financing - During 2008, net cash flows used in financing activities totaled $122.7 million, including stock repurchases totaling $80.6 million. Uses of cash also included $15.4 million for the payment of dividends and an installment payment on our term loan in the fourth quarter totaling $40.0 million. Cash provided by financing activities included $10.5 million from the issuance of shares for stock-based compensation and $3.1 million of benefits associated with tax deductions in excess of recognized stock-based compensation cost.

Our primary internal source of liquidity is cash flow generated from operations. Capacity under a revolving credit facility is also available, if necessary, to fund operating or investing activities. We have a five-year $1.1 billion, committed and unsecured revolving credit facility, which terminates in October 2011. As of December 31, 2008, no direct borrowings were outstanding under the revolving credit facility, but we had issued $294.9 million of letters of credit under the five-year facility. Such letters of credit are generally issued to customers in the ordinary course of business to support advance payments, as performance guarantees, or in lieu of retention on our contracts. As of December 31, 2008, we had $805.1 million of available capacity under this facility. The facility contains a borrowing sublimit of $550.0 million and certain restrictive covenants, the most restrictive of which include a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum net worth level, among other restrictions. The facility also places restrictions on us with regard to subsidiary indebtedness, sales of assets, liens, investments, type of business conducted, and mergers and acquisitions, among other restrictions.

In addition to the revolving credit facility, we have three committed and unsecured letter of credit and term loan agreements (the "LC Agreements") with Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, National Association, and various private placement note investors. Under the terms of the LC Agreements, either banking institution can issue letters of credit (the "LC Issuers"). In the aggregate, the LC Agreements provide up to $275.0 million of capacity. As of December 31, 2008, no direct borrowings were outstanding under the LC Agreements, but we had issued $273.4 million of letters of credit among all three tranches of the LC Agreements. Tranche A, a $50.0 million facility, and Tranche B, a $100.0 million facility, are both five-year facilities which

terminate in November 2011 and were fully utilized at December 31, 2008. Tranche C, an eight-year, $125.0 million facility expiring in November 2014, had $1.6 million of available capacity at December 31, 2008. The LC Agreements contain certain restrictive covenants, the most restrictive of which include a minimum net worth level, a minimum fixed charge coverage ratio and a maximum leverage ratio. The LC Agreements also include restrictions with regard to subsidiary indebtedness, sales of assets, liens, investments, type of business conducted, affiliate transactions, sales and leasebacks, and mergers and acquisitions, among other restrictions. In the event of default under the LC Agreements, including our failure to reimburse a draw against an issued letter of credit, the LC Issuer could transfer its claim against us, to the extent such amount is due and payable by us under the LC Agreements, to the private placement lenders, creating a term loan that is due and payable no later than the stated maturity of the respective LC Agreement. In addition to quarterly letter of credit fees and, to the extent that a term loan is in effect, we would be assessed a floating rate of interest over LIBOR.

We also have various short-term, uncommitted revolving credit facilities across several geographic regions of approximately $1.3 billion. These facilities are generally used to provide letters of credit or bank guarantees to customers in . . .