Introduction

The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, the Consolidated Financial Statements and accompanying Notes. 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.

Results of Operations

Summary of Overall Company Results

Consolidated revenue in 2008 increased to $22.3 billion compared to $16.7 billion in 2007. While all business segments contributed to the increase in revenue in 2008, the Oil & Gas segment was the primary driver, growing by 55 percent when compared to the prior year. Over the past several years, the company has benefited from the long-term growth in global demand for oil and gas and the capital spending of our clients to support this growth. However, the global credit crisis and falling oil prices have reduced the demand for oil and gas, which is impacting the near-term capital investment plans of some of our Oil & Gas clients. Similarly, the company's other business segments could be impacted by the global recession and credit crisis.

Consolidated revenue in 2007 increased by 18 percent when compared to 2006, primarily due to the 56 percent higher volume of work performed in the Oil & Gas segment and higher project execution activities in the Industrial & Infrastructure, Global Services and Power segments. Revenue for the Power segment increased in 2007 when compared to 2006 primarily due to work on a coal fired power plant in Texas that was released for full execution in 2007. Revenue for the Government segment declined in 2007 when compared to 2006 due to lower embassy and Iraq construction work in 2007 and the substantial completion of environmental work on a large Department of Energy ("DOE") project and hurricane relief efforts for the Federal Emergency Management Agency ("FEMA") in 2006.

Earnings before taxes were $1.1 billion in 2008, $649 million in 2007 and $382 million in 2006. Earnings before taxes for 2008 increased 72 percent compared to 2007 primarily as a result of a 61 percent improvement in business segment operating profit. All business segments experienced improvements in operating profit due to increases in the level of project execution activities. The 2008 operating profit of the Industrial & Infrastructure segment included a pre-tax gain from the sale of a joint venture interest in a wind power project in the United Kingdom partially offset by provisions for a fixed-price telecommunications project in the United Kingdom, both discussed under "-Industrial & Infrastructure" below. The 2008 operating profit of the Government segment also improved compared to the prior year due to the absence of charges associated with the Bagram Air Base in Afghanistan which negatively impacted the operating performance of the segment in 2007, as discussed under "-Government" below. The 2008 operating profit of the Power segment included a provision for an uncollectible retention receivable, discussed under "-Power" below. The improved operating performance of the business segments in 2008 was offset somewhat by higher corporate general and administrative expense, including higher compensation-related costs and a loss on the sale of a building and the associated legal entity in the United Kingdom. Earnings before taxes in 2008 were also higher when compared to 2007 due to lower interest expense that resulted from the deconsolidation of non-recourse project finance debt in the fourth quarter of 2007 and the reduction of outstanding principal resulting from the conversion of convertible notes in 2008.

Earnings before taxes for 2007 increased by 70 percent compared to 2006 primarily from the 44 percent overall improvement in business segment operating profit and a significant increase in net interest income from higher cash balances and interest rates in 2007. All business segments, except Government, had improvements in operating profit primarily due to increases in revenue from work performed. Operating profit in the Government segment improved primarily due to the absence of charges

associated with certain embassy projects which significantly impacted results in 2006, as discussed below. Incentive and stock-price based compensation expense, which is included in corporate administrative and general expense, was higher in 2007 compared to 2006. Net interest income increased significantly in 2007 primarily as a result of higher cash balances and interest rates during the year.

The effective tax rate for 2008 was 35.4 percent which includes a favorable benefit resulting from the reversal of certain valuation allowances, statute expirations and tax settlements. The effective tax rates for 2007 and 2006 were 17.8 percent and 31.0 percent, respectively. The lower effective tax rate for 2007 includes the impact of the final resolution with the U.S. Internal Revenue Service ("IRS") of a tax audit relating to tax years 1996 through 2000. The reduction in tax expense associated with the settlement totaled $123 million. The settlement lowered the effective tax rate for 2007 by 19 percentage points. Variability in effective tax rates in recent years is discussed below under "- Corporate, Tax and Other Matters."

The company had net earnings of $3.93 per share in 2008 compared to $2.93 per share in 2007 and $1.48 per share in 2006. The 34 percent increase in 2008 earnings per share is primarily the result of increases in the level of project execution activities and includes the pre-tax gain of $79 million ($0.27 per share) from the sale of a joint venture interest in a wind power project in the Industrial & Infrastructure segment. The significant increase in 2007 earnings per share includes the impact of increased project execution activities and the $123 million ($0.68 per share) settlement with the IRS discussed above. Excluding the impact of the settlement, 2007 earnings per share increased 52 percent compared to 2006.

Consolidated new awards for 2008 were $25.1 billion, compared to $22.6 billion in 2007, and $19.3 billion in 2006. The increase in new award activity in 2008 was primarily attributable to the Oil & Gas and Industrial & Infrastructure segments, partially offset by lower new awards for Power. The Oil & Gas, Global Services and Power segments had increases in new awards during 2007, partially offset by decreases in new awards in the Industrial & Infrastructure and Government segments. Approximately 45 percent of consolidated new awards for 2008 were for projects located outside of the United States.

Consolidated backlog was $33.2 billion at December 31, 2008, $30.2 billion at December 31, 2007 and $21.9 billion at December 31, 2006. The trend of growing backlog is primarily attributable to strong demand for capital investment in Oil & Gas markets and large awards in Industrial & Infrastructure. As of December 31, 2008, approximately 50 percent of consolidated backlog relates to projects located outside of the United States.

For a more detailed discussion of operating performance of each business segment, corporate administrative and general expense and other items, see "-Segment Operations" and "-Corporate, Tax and Other Matters" below.

Discussion of Critical Accounting Policies

The company's discussion and analysis of its financial condition and results of operations is based upon its Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The company's significant accounting policies are described in the Notes to Consolidated Financial Statements. The preparation of the Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the financial statements and, accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the Consolidated Financial Statements apply the following critical accounting policies.

Engineering and Construction Contracts Engineering and construction contract revenue is recognized on the percentage-of-completion method based on contract cost incurred to date compared to total estimated contract cost. Contracts are segmented between types of services, such as engineering and construction, and accordingly, gross margin related to each activity is recognized as those separate services are rendered. The percentage-of-completion method of revenue recognition requires the company to

prepare estimates of cost to complete contracts in progress. In making such estimates, judgments are required to evaluate contingencies such as potential variances in schedule and the cost of materials, labor cost and productivity, the impact of change orders, liability claims, contract disputes and achievement of contractual performance standards. Changes in total estimated contract cost and losses, if any, are recognized in the period they are determined. Pre-contract costs are expensed as incurred. The majority of the company's engineering and construction contracts provide for reimbursement of cost plus a fixed or percentage fee. In the highly competitive markets served by the company, there is an increasing trend for cost-reimbursable contracts with incentive fee arrangements. As of December 31, 2008, 75 percent of the company's backlog is cost reimbursable while 25 percent is for guaranteed maximum, fixed or unit price contracts. In certain instances, the company provides guaranteed completion dates and/or achievement of other performance criteria. Failure to meet schedule or performance guarantees could result in unrealized incentive fees or liquidated damages. In addition, increases in contract cost can result in non-recoverable cost which could exceed revenue realized from the projects.

Claims arising from engineering and construction contracts have been made against the company by clients, and the company has made claims against clients for cost incurred in excess of current contract provisions. The company recognizes certain significant claims for recovery of incurred cost when it is probable that the claim will result in additional contract revenue and when the amount of the claim can be reliably estimated. Recognized claims amounted to $202 million and $246 million at December 31, 2008 and 2007, respectively. Unapproved change orders are accounted for in revenue and cost when it is probable that the cost will be recovered through a change in the contract price. In circumstances where recovery is considered probable, but the revenue cannot be reliably estimated, cost attributable to change orders is deferred pending determination of the impact on contract price.

Backlog in the engineering and construction industry is a measure of the total dollar value of work to be performed on contracts awarded and in progress. Although backlog reflects business that is considered to be firm, cancellations or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, revisions to project scope and cost, and deferrals, as appropriate.

Engineering and Construction Partnerships and Joint Ventures Certain contracts are executed jointly through partnerships and joint ventures with unrelated third parties. The company accounts for its interests in the operations of these ventures on a proportionate consolidation basis. Under this method of accounting, the company consolidates its proportionate share of venture revenue, cost and operating profit in the Consolidated Statement of Earnings and generally uses the one-line equity method of accounting in the Consolidated Balance Sheet. The most significant application of the proportionate consolidation method is in the Oil & Gas, Industrial & Infrastructure and Government segments.

The company's accounting for project specific joint venture or consortium arrangements is closely integrated with the accounting for the underlying engineering and construction project for which the joint venture was established. The company engages in project specific joint venture or consortium arrangements in the ordinary course of business to share risks and/or to secure specialty skills required for project execution. Generally, these arrangements are characterized by a 50 percent or less ownership or participation interest that requires only a small initial investment. Execution of a project is generally the single business purpose of these joint venture arrangements. When the company is the primary contractor responsible for execution, the project is accounted for as part of normal operations and included in consolidated revenue using appropriate contract accounting principles.

Financial Accounting Standards Board ("FASB") Interpretation No. 46 (Revised), "Consolidation of Variable Interest Entities" ("FIN 46(R)") provides the principles to consider in determining when variable interest entities must be consolidated in the financial statements of the primary beneficiary. In general, a variable interest entity is an entity used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors who are not required to provide sufficient financial resources for the entity to support its activities without additional subordinated financial support. FIN 46(R) requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's

residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. In December 2008, the FASB issued FASB Staff Position ("FSP") FAS 140-4 and FIN 46(R)-8, "Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities" which requires additional disclosures by public companies with variable interests in variable interest entities.

Contracts that are executed jointly through partnerships and joint ventures are proportionately consolidated in accordance with Emerging Issues Task Force ("EITF") Issue 00-1, "Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures" ("EITF 00-1") and Statement of Position 81-1, "Accounting for Performance of Construction Type and Certain Production Type Contracts" ("SOP 81-1"). The company evaluates the applicability of FIN 46(R) to partnerships and joint ventures at the inception of its participation to ensure its accounting is in accordance with the appropriate standards, and will reevaluate applicability upon the occurrence of certain events.

Deferred Taxes and Tax Contingencies Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the company's financial statements or tax returns. At December 31, 2008, the company had deferred tax assets of $602 million which were partially offset by a valuation allowance of $40 million and further reduced by deferred tax liabilities of $27 million. The valuation allowance reduces certain deferred tax assets to amounts that are more likely than not to be realized. The allowance for 2008 primarily relates to the deferred tax assets on certain net operating and capital loss carryforwards for U.S. and non-U.S. subsidiaries and certain reserves on investments. The company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the company's forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the company's effective tax rate on future earnings.

In the first quarter of 2007, the company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), an interpretation of FASB Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" ("SFAS 109"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in enterprises' financial statements in accordance with SFAS 109. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Also, the interpretation provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the adoption of FIN 48, the company recognized a cumulative-effect adjustment of $45 million, increasing its liability for unrecognized tax benefits, interest and penalties and reducing the January 1, 2007 balance of retained earnings. The company recognizes potential interest and penalties related to unrecognized tax benefits within its global operations in income tax expense.

Retirement Benefits The company accounts for its defined benefit pension plans in accordance with SFAS No. 87, "Employers' Accounting for Pensions," as amended ("SFAS 87"). As permitted by SFAS 87, changes in retirement plan obligations and assets set aside to pay benefits are not recognized as they occur but are recognized over subsequent periods. Assumptions concerning discount rates, long-term rates of return on plan assets and rates of increase in compensation levels are determined based on the current economic environment in each host country at the end of each respective annual reporting period. The company evaluates the funded status of each of its retirement plans using these current assumptions and determines the appropriate funding level considering applicable regulatory requirements, tax deductibility, reporting considerations and other factors. Assuming no changes in current assumptions, the company expects to fund between $40 million and $60 million for the calendar year 2009, which is expected to be substantially in excess of the minimum funding required. If the discount rate were reduced by 25 basis points, plan liabilities would increase by approximately $28 million.

Segment Operations

The company provides professional services on a global basis in the fields of engineering, procurement, construction, maintenance and project management. The company is organized into five business segments: Oil & Gas, Industrial & Infrastructure, Government, Global Services and Power. The Oil & Gas segment provides design, engineering, procurement, construction and project management professional services for upstream oil and gas production, downstream refining and certain integrated petrochemical markets. The Industrial & Infrastructure segment provides design, engineering, procurement and construction professional services for transportation, wind power, mining and metals, life sciences, telecommunications, manufacturing, commercial and institutional development, microelectronics and healthcare clients. The Government segment provides engineering, construction, contingency response, management and operations services to the United States government. The Global Services segment includes operations and maintenance activities, small capital project engineering and execution, site equipment and tool services, industrial fleet outsourcing, plant turnaround services, temporary staffing and supply chain solutions. The Power segment provides engineering, procurement, construction, program management, start-up and commissioning and maintenance services to the gas fueled, solid fueled, renewables, emerging nuclear and plant betterment markets.

Oil & Gas

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

                                         Year Ended December 31,
                 (in millions)         2008        2007        2006

                 Revenue            $ 12,946.3   $ 8,369.9   $ 5,368.0
                 Operating profit        723.8       432.7       305.7

Both revenue and operating profit increased substantially in 2008 when compared to both 2007 and 2006 as a result of continued growth in project execution activities from the significant levels of new project awards over the last few years. Operating profit margin for the segment was 5.6 percent in 2008 compared to 5.2 percent in 2007 and 5.7 percent in 2006. Operating profit margin in 2008 is comparatively higher than in 2007 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 from other projects of the segment. The operating margin in 2007 includes the impact of a higher volume of lower margin construction related activities as a number of large projects moved from the engineering phase into on-site execution.

New awards in the Oil & Gas segment were $15.1 billion in 2008, $13.5 billion in 2007 and $10.4 billion in 2006. The high worldwide demand for new capacity in oil and gas exploration and refining, as well as polysilicon, has driven the increase in new project awards. New awards in 2008 included two refinery expansion projects in the United States valued at $3.4 billion and $1.9 billion, and a $1.0 billion polysilicon project in China. New awards in 2007 included a $2.0 billion award for the utility and offsite facilities for a new refinery in the Middle East and refinery expansion projects in Spain and the United States amounting to $1.3 billion and $1.5 billion, respectively. New awards in 2006 included a $1.8 billion refinery expansion in the United States, a $2.2 billion project in Saudi Arabia and a project in excess of $1.0 billion in Qatar.

The segment has been a participant in an expanding market that includes very large projects in diverse geographical locations, which are well suited to the company's global execution and project management capabilities and strong financial position. However, the global credit crisis and falling oil prices have resulted in some clients reassessing their capital spending plans for 2009. As such, there is some uncertainty as to the sustainability of the high growth and operating profit margins recently experienced by the segment.

Total assets in the segment increased to $1.2 billion at December 31, 2008 from $891 million at December 31, 2007 and $629 million at December 31, 2006 primarily due to the continued increase in the level of project execution activities over the periods.

Industrial & Infrastructure

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

                                          Year Ended December 31,
                  (in millions)        2008        2007        2006

                  Revenue            $ 3,470.3   $ 3,385.0   $ 3,171.1
                  Operating profit       208.2       101.0        76.4

Revenue in 2008 improved slightly from 2007 on the strength of the mining and metals and manufacturing and life sciences business lines. Revenue increased during 2007 compared to 2006 primarily as a result of project execution activities on mining and infrastructure projects.

The 2008 revenue growth for the Industrial & Infrastructure segment has been accompanied by substantial operating profit and operating profit margin increases, primarily as the result of improved performance in mining and a pre-tax gain of $79 million from the sale of a joint venture interest in a wind power project in the United Kingdom. The higher margins for the mining and metals business line in 2008 are largely attributable to an increase in the mix of engineering and consulting projects, which typically generate higher margins than projects in the construction phase. The segment's ability to command more favorable pricing due to its capabilities and project execution performance, along with industry-wide resource constraints, also contributed to the higher mining margins in 2008. Operating profit and operating profit margin increased during 2007 compared to 2006, largely on the strength of performance on mining and infrastructure projects. Operating results for the segment have been impacted in all three years by loss provisions relating to specific projects.

Looking ahead, the segment could be impacted by the global credit crisis and falling commodity prices, as some clients, particularly in the mining and metals business line, are reassessing their capital spending programs for 2009. Projects originally planned for 2009 could be delayed or canceled.

The company is involved in dispute resolution proceedings in connection with its London Connect Project, a $500 million lump-sum project to design and install a telecommunications network that allows transmission and reception throughout the London Underground system. The project, which is now complete, has been subject to significant delays by the owner, resulting in additional cost to the company and claims against the client. The company has recognized an aggregate of $105 million in claims revenue relating to incurred costs attributed to delay and disruption claims that are part of the dispute resolution proceedings, reduced for settlement amounts. Total claims-related cost incurred to date and the value of the claims submitted or identified exceed the amount recorded in claims revenue. In addition, the client withheld $54 million representing the company's share of liquidated damages, a substantial portion of which has been reserved for possible non-collection. During 2008, provisions of $33 million were

recognized as the result of reassessments of the remaining time and cost to complete the project and the probability of recovery of liquidated damages and certain claims.

The company participates in a 50/50 joint venture that is completing a fixed-price transportation infrastructure project in California. The project . . .