UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2012
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ____________ to _____________

Commission file number 1-7567

URS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	94-1381538
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
600 Montgomery Street, 26th Floor
San Francisco, California	94111-2728
(Address of principal executive offices)	(Zip Code)

(415) 774-2700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer oNon-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at April 30, 2012
Common Stock, $.01 par value	75,731,876

URS CORPORATION AND SUBSIDIARIES

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “potential,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and similar terms used in reference to our future revenues, services, project awards and business trends; future accounting, goodwill and actuarial estimates; future contract gains or losses; future acquisition of Flint Energy Services Ltd.; future backlog and book of business conversion and debookings; future income taxes; future stock-based compensation expenses; future dividends; future bonus, pension and post-retirement expenses; future compliance with regulations; future legal proceedings and accruals; future bonding and insurance coverage; future debt payments; future capital expenditures and commitments; future effectiveness of our disclosure and internal controls over financial reporting and future economic and industry conditions.  We believe that our expectations are reasonable and are based on reasonable assumptions, however, we caution against relying on any of our forward-looking statements as such forward-looking statements by their nature involve risks and uncertainties.  A variety of factors, including but not limited to the following, could cause our business and financial results, as well as the timing of events, to differ materially from those expressed or implied in our forward-looking statements:  declines in the economy or client spending; changes in our book of business; our compliance with government contract procurement regulations; impairment of our goodwill; integration of acquisitions; employee, agent or partner misconduct; our ability to procure government contracts; liabilities for pending and future litigation; environmental liabilities; availability of bonding and insurance; our reliance on government appropriations; unilateral termination provisions in government contracts; our ability to make accurate estimates and assumptions; our accounting policies; workforce utilization; our and our partners’ ability to bid on, win, perform and renew contracts and projects; liquidated damages; our dependence on partners, subcontractors and suppliers; customer payment defaults; our ability to recover on claims; impact of target and fixed-priced contracts on earnings; the inherent dangers at our project sites; the impact of changes in laws and regulations; nuclear indemnifications and insurance; misstatements in expert reports; a decline in defense spending; industry competition; our ability to attract and retain key individuals; retirement plan obligations; our leveraged position and the ability to service our debt; restrictive covenants in our credit agreement; risks associated with international operations; business activities in high security risk countries; information technology risks; natural and man-made disaster risks; our relationships with labor unions; our ability to protect our intellectual property rights; anti-takeover risks and other factors discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operationsbeginning on page 30, Risk Factors beginning on page 55, as well as in other reports subsequently filed from time to time with the United States Securities and Exchange Commission.  We assume no obligation to revise or update any forward-looking statements.

PART I.  FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets
		March 30, 2012 and December 30, 2011	2
	Condensed Consolidated Statements of Operations
		Three ended March 30, 2012 and April 1, 2011	3
	Condensed Consolidated Statements of Comprehensive Income
		Three ended March 30, 2012 and April 1, 2011	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity
		Three months ended March 30, 2012 and April 1, 2011	5
	Condensed Consolidated Statements of Cash Flows
		Three months ended March 30, 2012 and April 1, 2011	7
	Notes to Condensed Consolidated Financial Statements		9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operation		30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		53
Item 4.	Controls and Procedures		54
PART II.  OTHER INFORMATION:
Item 1.	Legal Proceedings		54
Item 1A.	Risk Factors		55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		71
Item 3.	Defaults Upon Senior Securities		71
Item 4.	Mine Safety Disclosure		71
Item 5.	Other Information		71
Item 6.	Exhibits		72

1

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED6

(In millions, except per share data)

	March 30, 2012			December 30, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	1,309.5		$	436.0
Accounts receivable, including retentions of $66.1 and $67.5, respectively		1,091.2			1,114.7
Costs and accrued earnings in excess of billings on contracts		1,415.6			1,317.1
Less receivable allowances		(38.7	)		(43.1	)
Net accounts receivable		2,468.1			2,388.7
Deferred tax assets		65.5			63.0
Other current assets		166.8			201.2
Total current assets		4,009.9			3,088.9
Investments in and advances to unconsolidated joint ventures		129.1			107.7
Property and equipment at cost, net		270.9			269.4
Intangible assets, net		508.9			522.0
Goodwill		2,784.2			2,773.0
Other assets		104.4			101.6
Total assets	$	7,807.4		$	6,862.6
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	62.4		$	61.5
Accounts payable and subcontractors payable, including retentions of $39.0 and $39.6, respectively		641.1			659.1
Accrued salaries and employee benefits		542.9			527.0
Billings in excess of costs and accrued earnings on contracts		250.6			310.8
Other current liabilities		158.3			176.5
Total current liabilities		1,655.3			1,734.9
Long-term debt		1,703.2			737.0
Deferred tax liabilities		281.8			276.5
Self-insurance reserves		135.6			132.7
Pension and post-retirement benefit obligations		274.5			276.0
Other long-term liabilities		202.5			221.1
Total liabilities		4,252.9			3,378.2
Commitments and contingencies (Note 14)
URS stockholders’ equity:
Preferred stock, authorized 3.0 shares; no shares outstanding		—			—
Common stock, par value $.01; authorized 200.0 shares; 88.0 and    87.8 shares issued, respectively; and 75.9 and 76.7 shares    outstanding, respectively		0.9			0.9
Treasury stock, 12.1 and 11.1 shares at cost, respectively		(494.9	)		(454.9	)
Additional paid-in capital		2,979.4			2,966.8
Accumulated other comprehensive loss		(89.3	)		(110.8	)
Retained earnings		1,039.7			975.2
Total URS stockholders’ equity		3,435.8			3,377.2
Noncontrolling interests		118.7			107.2
Total stockholders’ equity		3,554.5			3,484.4
Total liabilities and stockholders’ equity	$	7,807.4		$	6,862.6

See Notes to Condensed Consolidated Financial Statements

2

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED6

(In millions, except per share data)

 

	Three Months Ended
	March 30,			April 1,
	2012			2011
				As Revised
Revenues	$	2,361.5		$	2,319.8
Cost of revenues		(2,203.2	)		(2,202.7	)
General and administrative expenses		(17.5	)		(22.4	)
Acquisition-related expenses (Note 7)		(5.6	)		—
Equity in income of unconsolidated joint ventures		28.7			37.4
Operating income		163.9			132.1
Interest expense		(9.8	)		(5.2	)
Income before income taxes		154.1			126.9
Income tax expense		(48.6	)		(39.0	)
Net income including noncontrolling interests		105.5			87.9
Noncontrolling interests in income of consolidated subsidiaries		(25.8	)		(25.8	)
Net income attributable to URS	$	79.7		$	62.1
Earnings per share (Note 3):
Basic	$	1.08		$	0.79
Diluted	$	1.07		$	0.79
Weighted-average shares outstanding (Note 3):
Basic		74.0			78.4
Diluted		74.3			78.8
Cash dividends declared per share (Note 12)	$	0.20		$	—

See Notes to Condensed Consolidated Financial Statements

3

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

(In millions)

	Three Months Ended
	March 30,			April 1,
	2012			2011
Comprehensive income:				As Revised
Net income including noncontrolling interests	$	105.5			$	87.9
Pension and post-retirement related adjustments, net of tax		1.1				0.6
Foreign currency translation adjustments		21.1				13.1
Loss on derivative instruments, net of tax		(0.7	)			—
Comprehensive income		127.0				101.6
Noncontrolling interests in comprehensive income of consolidated subsidiaries		(25.8	)			(25.8	)
Comprehensive income attributable to URS	$	101.2			$	75.8

See Notes to Condensed Consolidated Financial Statements

4

Table of contents

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - UNAUDITED

(In millions)

												Accumulated
									Additional			Other					Total URS
	Common Stock					Treasury			Paid-in			Comprehensive			Retained		Stockholders’			Noncontrolling			Total
	Shares			Amount		Stock			Capital			Income (Loss)			Earnings		Equity			Interests			Equity
																				As Revised
Balances, December 31, 2010		81.9		$	0.9	$	(212.1	)	$	2,924.3		$	(36.9	)	$	1,441.0	$	4,117.2		$	83.8		$	4,201.0
Employee stock purchases and exercises of stock options		0.1			—		—			1.5			—			—		1.5			—			1.5
Stock repurchased in  connection with exercises of stock options and vesting of restricted stock awards		(0.3	)		—		—			(14.3	)		—			—		(14.3	)		—			(14.3	)
Stock-based compensation		—			—		—			12.0			—			—		12.0			—			12.0
Excess tax benefits from stock-based compensation		—			—		—			0.7			—			—		0.7			—			0.7
Foreign currency translation adjustments		—			—		—			—			13.1			—		13.1			—			13.1
Pension and post-retirement related adjustments, net of tax		—			—		—			—			0.6			—		0.6			—			0.6
Repurchases of common stock		(3.0	)		—		(136.7	)		—			—			—		(136.7	)		—			(136.7	)
Distributions to noncontrolling interests		—			—		—			—			—			—		—			(15.6	)		(15.6	)
Contributions and advances from noncontrolling interests		—			—		—			—			—			—		—			3.1			3.1
Other transactions with noncontrolling interests		—			—		—			—			—			—		—			0.5			0.5
Net income including noncontrolling interests		—			—		—			—			—			62.1		62.1			25.8			87.9
Balances, April 1, 2011		78.7		$	0.9	$	(348.8	)	$	2,924.2		$	(23.2	)	$	1,503.1	$	4,056.2		$	97.6		$	4,153.8

See Notes to Condensed Consolidated Financial Statements

5

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY  – UNAUDITED (continued)

(In millions)

												Accumulated
									Additional			Other						Total URS
	Common Stock					Treasury			Paid-in			Comprehensive			Retained			Stockholders’			Noncontrolling			Total
	Shares			Amount		Stock			Capital			Income (Loss)			Earnings			Equity			Interests			Equity
Balances, December 30, 2011		76.7		$	0.9	$	(454.9	)	$	2,966.8		$	(110.8	)	$	975.2		$	3,377.2		$	107.2		$	3,484.4
Employee stock purchases and exercises of stock options		—			—		—			1.0			—			—			1.0			—			1.0
Stock repurchased in connection with exercises of stock options and vesting of restricted stock awards		—			—		—			(0.1	)		—			—			(0.1	)		—			(0.1	)
Stock-based compensation		0.2			—		—			11.3			—			—			11.3			—			11.3
Excess tax benefits from stock-based compensation		—			—		—			0.4			—			—			0.4			—			0.4
Foreign currency translation adjustments		—			—		—			—			21.1			—			21.1			—			21.1
Pension and post-retirement related adjustments, net of tax		—			—		—			—			1.1			—			1.1			—			1.1
Loss on derivative instruments, net of tax		—			—		—			—			(0.7	)		—			(0.7	)		—			(0.7	)
Repurchases of common stock		(1.0	)		—		(40.0	)		—			—			—			(40.0	)		—			(40.0	)
Cash dividends declared		—			—		—			—			—			(15.2	)		(15.2	)		—			(15.2	)
Distributions to noncontrolling interests		—			—		—			—			—			—			—			(15.5	)		(15.5	)
Contributions and advances from noncontrolling interests		—			—		—			—			—			—			—			0.5			0.5
Other transactions with noncontrolling interests		—			—		—			—			—			—			—			0.7			0.7
Net income including noncontrolling interests		—			—		—			—			—			79.7			79.7			25.8			105.5
Balances, March 30, 2012		75.9		$	0.9	$	(494.9	)	$	2,979.4		$	(89.3	)	$	1,039.7		$	3,435.8		$	118.7		$	3,554.5

See Notes to Condensed Consolidated Financial Statements

6

Table of contents

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In millions)

	Three Months Ended
	March 30,			April 1,
	2012			2011
Cash flows from operating activities:				As Revised
Net income including noncontrolling interests	$	105.5		$	87.9
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		20.0			20.2
Amortization of intangible assets		17.2			13.0
Amortization of debt issuance costs and discount		0.8			1.6
Normal profit		1.4			1.0
Provision for doubtful accounts		1.4			1.3
Deferred income taxes		2.1			25.6
Stock-based compensation		11.3			12.0
Excess tax benefits from stock-based compensation		(0.4	)		(0.7	)
Equity in income of unconsolidated joint ventures		(28.7	)		(37.4	)
Dividends received from unconsolidated joint ventures		18.6			11.9
Changes in operating assets, liabilities and other:
Accounts receivable and costs and accrued earnings in excess of billings on contracts		(78.5	)		(1.1	)
Other current assets		(5.9	)		(4.0	)
Advances to unconsolidated joint ventures		(5.7	)		(9.3	)
Accounts payable, accrued salaries and employee benefits, and other current liabilities		(20.1	)		(3.3	)
Billings in excess of costs and accrued earnings on contracts		(65.5	)		3.3
Other long-term liabilities		(4.1	)		(12.3	)
Other assets		14.2			1.2
Total adjustments and changes		(121.9	)		23.0
Net cash from operating activities		(16.4	)		110.9
Cash flows from investing activities:
Payments for exercised shares in connection with a business acquisition		—			(2.9	)
Proceeds from disposal of property and equipment		9.5			1.5
Investments in unconsolidated joint ventures		(4.0	)		(7.2	)
Changes in restricted cash		1.7			(0.3	)
Capital expenditures, less equipment purchased through capital leases and equipment notes		(17.8	)		(11.0	)
Net cash from investing activities		(10.6	)		(19.9	)

See Notes to Condensed Consolidated Financial Statements

7

Table of contents

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED (continued)

(In millions)

	Three Months Ended
	March 30,			April 1,
	2012			2011
Cash flows from financing activities:
Borrowings from long-term debt		998.9			—
Payments on long-term debt		(1.6	)		—
Borrowings from revolving line of credit		50.0			—
Payments on revolving line of credit		(73.6	)		(2.1	)
Net payments under foreign lines of credit and short-term notes		(8.9	)		(7.5	)
Net change in overdrafts		0.6			(18.6	)
Payments on capital lease obligations		(2.6	)		(2.1	)
Payments of debt issuance costs		(8.7	)		—
Excess tax benefits from stock-based compensation		0.4			0.7
Proceeds from employee stock purchases and exercises of stock options		1.0			1.5
Distributions to noncontrolling interests		(15.5	)		(15.6	)
Contributions and advances from noncontrolling interests		0.5			3.2
Repurchases of common stock		(40.0	)		(136.7	)
Net cash from financing activities		900.5			(177.2	)
Net change in cash and cash equivalents		873.5			(86.2	)
Cash and cash equivalents at beginning of period		436.0			573.8
Cash and cash equivalents at end of period	$	1,309.5		$	487.6
Supplemental information:
Interest paid	$	7.3		$	4.1
Taxes paid	$	8.8		$	57.2
Supplemental schedule of non-cash investing and financing activities:
Equipment acquired with capital lease obligations and equipment note obligations	$	3.9		$	2.4
Cash dividends declared but not paid	$	15.2		$	—

See Notes to Condensed Consolidated Financial Statements

8

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

NOTE 1.  BUSINESS, BASIS OF PRESENTATION, AND ACCOUNTING POLICIES

Overview

The terms “we,” “us,” and “our” used in these financial statements refer to URS Corporation and its consolidated subsidiaries unless otherwise indicated.  We are a leading international provider of engineering, construction and technical services.  We offer a broad range of program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to public agencies and private sector clients around the world.  We also are a United States (“U.S.”) federal government contractor in the areas of systems engineering and technical assistance, operations and maintenance, and information technology (“IT”) services.  Headquartered in San Francisco, we have more than 46,000 employees in a global network of offices and contract-specific job sites in nearly 50 countries.  We operate through three reporting segments:  the Infrastructure & Environment Division, the Federal Services Division and the Energy & Construction Division.

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

You should read our unaudited condensed consolidated financial statements in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 30, 2011.  The results of operations for the three months ended March 30, 2012 are not indicative of the operating results for the full year or for future years.

In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments that are necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented.

The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the balance sheet dates as well as the reported amounts of revenues and costs during the reporting periods.  Actual results could differ from those estimates.  On an ongoing basis, we review our estimates based on information that is currently available.  Changes in facts and circumstances may cause us to revise our estimates.

Principles of Consolidation and Basis of Presentation

Our condensed consolidated financial statements include the financial position, results of operations and cash flows of URS Corporation and our majority-owned subsidiaries and joint ventures that are required to be consolidated.

Investments in unconsolidated joint ventures are accounted for using the equity method and are included as investments in and advances to unconsolidated joint ventures on our Condensed Consolidated Balance Sheets.  All significant intercompany transactions and accounts have been eliminated in consolidation.

Revision of Previously Issued Financial Statements

During fiscal year 2011, we identified an error related to the calculation and presentation of income tax expense.  Historically, we included income tax expense related to the noncontrolling interests’ share of all of our consolidated joint ventures, including both taxable entities and entities that pass taxable income through to their partners (“pass-through entities”).  After further analysis, we concluded that income tax expense should not include amounts related to the noncontrolling interests’ share of consolidated joint ventures that are pass-through entities.  Our past treatment resulted in an overstatement of income tax expense with an identical offset to net income attributable to noncontrolling interests.  As a result, income tax expense was overstated and noncontrolling interests in income of consolidated subsidiaries was understated for the three months ended April 1, 2011 by $5.0 million.  Our effective income tax rate for the three months ended April 1, 2011 was overstated by 4.0 percentage points.

9

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

This revision had no impact on operating income, income before taxes, net income attributable to URS or earnings per share (“EPS”).  There was also no impact on our Condensed Consolidated Balance Sheets, or on cash flows from operating, investing or financing activities; however, there were misclassifications that impacted line items within cash flows from operating activities.  Similarly, there were misclassifications within our Condensed Consolidated Statements of Comprehensive Income and our Condensed Consolidated Statements of Changes in Stockholders’ Equity that had no impact on previously reported comprehensive income attributable to URS or total stockholders’ equity.

We assessed the materiality of this error in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin 99 and concluded that the previously issued financial statements were not materially misstated.  In accordance with the SEC’s Staff Accounting Bulletin 108, we have corrected these immaterial errors by revising the previously issued financial statements included in this document.

Accordingly, the condensed consolidated financial statements for the three months ended April 1, 2011 have been revised to correct the immaterial errors described above.

The effects of these revisions on the line items within our condensed consolidated financial statements and on the effective tax rates for the three months ended April 1, 2011 are as follows:

	Three Months Ended
	April 1, 2011
	As Reported			Adjustment			As Revised
(In millions, except for percentages)
Condensed Consolidated Statement of Operations Data:
Income before income taxes	$	126.9		$	—		$	126.9
Income tax expense		(44.0	)		5.0			(39.0	)
Net income including noncontrolling interests		82.9			5.0			87.9
Noncontrolling interests in income of consolidated subsidiaries		(20.8	)		(5.0	)		(25.8	)
Net income attributable to URS	$	62.1		$	—		$	62.1
Effective income tax rate		34.7	%		4.0	%		30.7	%
Condensed Consolidated Statement of Comprehensive Income Data:
Net income including noncontrolling interests	$	82.9		$	5.0		$	87.9
Comprehensive income	$	96.6		$	5.0		$	101.6
Noncontrolling interests in comprehensive income of consolidated subsidiaries	$	(20.8	)	$	(5.0	)	$	(25.8	)
Condensed Consolidated Statement of Changes in Stockholders' Equity Data:
Distributions to noncontrolling interests	$	(10.6	)	$	(5.0	)	$	(15.6	)
Noncontrolling interests in comprehensive income of consolidated subsidiaries	$	20.8		$	5.0		$	25.8
Condensed Consolidated Statement of Cash Flows Data:
Cash flows from operating activities:
Net income including noncontrolling interests	$	82.9		$	5.0		$	87.9
Accounts payable, accrued salaries and employee benefits, and other current liabilities	$	1.2		$	(4.5	)	$	(3.3	)
Other long-term liabilities	$	(11.8	)	$	(0.5	)	$	(12.3	)

10

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

Reclassifications

We made reclassifications to the prior years’ financial statements to conform them to the current period’s presentation.  These reclassifications have no effect on our consolidated net assets or net cash flows.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with maturities of 90 days or less at the date of purchase and include interest-bearing bank deposits and money market funds.  At March 30, 2012 and December 30, 2011, restricted cash balances were $19.3 million and $21.0 million, respectively.  These amounts were included in “Other current assets” on our Condensed Consolidated Balance Sheets.  For cash held by our consolidated joint ventures, see Note 5, “Joint Ventures.”

NOTE 2.  ADOPTED AND OTHER RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

An accounting standard update related to goodwill impairment testing was issued.  The update provides companies with the option to proceed directly to the first step of the two-step goodwill impairment test or perform a qualitative assessment to first assess whether the fair value of a reporting unit is less than its carrying amount, referred to as “step zero.”  If an entity determines it is more likely than not that the fair value of the reporting unit is more than its carrying amount, then performing the two-step impairment test is unnecessary.  The update was effective for us beginning with our first interim period of fiscal year 2012.  The adoption of the standard is not expected to have a material impact on our condensed consolidated financial statements.

An accounting standard related to the presentation of other comprehensive income was issued to increase the prominence of items reported in other comprehensive income.  The standard requires, among other disclosures, the components of net income and the components of other comprehensive income to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  Among the new provisions of this standard was a requirement for entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented (for both interim and annual financial statements); however, a subsequent accounting standard update was issued, which indefinitely deferred the requirement to present reclassification adjustments.  Excluding the deferred requirement, the remaining portion of the standard was effective for us beginning with our first interim period of fiscal year 2012. However, because we have historically presented the components of net income and the components of other comprehensive income in two separate but consecutive statements, the adoption of this standard did not have a material impact on our condensed consolidated financial statements.

An accounting standard update regarding fair value measurement was issued to conform the definition of fair value and common requirements for measurement of and disclosure about fair value under U.S. GAAP and International Financial Reporting Standards.  The standard also clarifies the application of existing fair value measurement requirements and expands the disclosure requirements for fair value measurements that are estimated using significant unobservable Level 3 inputs.  The standard update was effective for us beginning with our first interim period of fiscal year 2012. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

An accounting standard update was issued related to new disclosures on offsetting assets and liabilities of financial and derivative instruments.  The amendments require the disclosure of gross asset and liability amounts, amounts offset on the balance sheet and amounts subject to the offsetting requirements, but not offset on the balance sheet.  The standard update is effective for us beginning with our first interim period in fiscal year 2013.  This standard does not amend the existing guidance on when it is appropriate to offset.  We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements.

11

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

NOTE 3.  EARNINGS PER SHARE

In our computation of diluted EPS, we exclude the potential shares related to stock options that are issued and unexercised where the exercise price exceeds the average market price of our common stock during the period.  We also exclude nonvested restricted stock awards and units that have an anti-dilutive effect on EPS or that currently have not met performance conditions.

The following table summarizes the components of weighted-average shares of common stock outstanding for both basic and diluted EPS:

	Three Months Ended
	March 30,		April 1,
	2012		2011
(In millions)
Weighted-average shares of common stock outstanding (1)		74.0		78.4
Effect of dilutive stock options, restricted stock awards and units and employee stock purchase plan shares		0.3		0.4
Weighted-average shares of common stock outstanding – Diluted		74.3		78.8

(1)   Weighted-average shares of common stock outstanding is net of treasury stock.

	March 30,		April 1,
(In millions)	2012		2011
Anti-dilutive equity awards not included above		1.1		0.3

NOTE 4.  ACCOUNTS RECEIVABLE AND COSTS AND ACCRUED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS

Accounts receivable in the accompanying Condensed Consolidated Balance Sheets are primarily comprised of amounts billed to clients for services already provided, but which have not yet been collected.  Occasionally, under the terms of specific contracts, we are permitted to submit invoices in advance of providing our services to our clients and to the extent they have not been collected, these amounts are also included in accounts receivable.

Costs and accrued earnings in excess of billings on contracts (also referred to as “Unbilled Accounts Receivable”) in the accompanying Condensed Consolidated Balance Sheets represent unbilled amounts earned and reimbursable under contracts.  These amounts become billable according to the contract terms, which usually consider the passage of time, achievement of milestones or completion of the project.  Generally, such unbilled amounts will be billed and collected over the next twelve months.

Accounts receivable and Unbilled Accounts Receivable include certain amounts recognized related to unapproved change orders (amounts representing the value of proposed contract modifications, but which are unapproved as to both price and scope) and claims, (amounts in excess of agreed contract prices that we seek to collect from our clients or others) that have not been collected and, in the case of balances included in accrued earnings in excess of billings on contracts, may not be billable until an agreement, or in the case of claims, a settlement is reached.  Most of those balances are not material and are typically resolved in the ordinary course of business.

12

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

Our accounts receivable include retentions associated with long-term contracts, which are generally not billable until near or at the completion of the projects or milestones and/or delivery of services.  As such, these amounts will generally be billed for contracts with terms in excess of one year from the service date.  Our Unbilled Accounts Receivable includes amounts related to milestone payment clauses, which provide for payments to be received beyond a year from the date service occurs.  Based on our historical experience, we generally consider the collection risk related to these amounts to be low.  When events or conditions indicate that the amounts outstanding may become uncollectible, an allowance is estimated and recorded.  As of March 30, 2012 and December 30, 2011, we had receivables with contractual terms in excess of one year of $276.9 million and $257.0 million, respectively.

The following table summarizes the components of our accounts receivable and Unbilled Accounts Receivable with the U.S. federal government and with other customers as of March 30, 2012 and December 30, 2011:

	March 30,		December 30,
(In millions)	2012		2011
Accounts receivable:
U.S. federal government	$	383.8	$	391.2
Others		707.4		723.5
Total accounts receivable	$	1,091.2	$	1,114.7
Unbilled Accounts Receivable:
U.S. federal government	$	811.2	$	758.9
Others		604.4		558.2
Total costs and accrued earnings in excess of billings on contracts	$	1,415.6	$	1,317.1

NOTE 5.  JOINT VENTURES

The following are examples of activities currently being performed by our significant consolidated and unconsolidated joint ventures:

·   Engineering, procurement and construction of a concrete dam;

·   Liquid waste management services, including the decontamination of a former nuclear fuel reprocessing facility and nuclear hazardous waste processing;

·   Management of ongoing tank cleanup effort, including retrieving, treating, storing and disposing of nuclear waste that is stored at tank farms; and

·   Management, operation and cleanup services, including commercial operations, decontamination, decommissioning, and waste management of a nuclear facility in the United Kingdom (“U.K.”).

In accordance with the current consolidation standard, we analyzed all of our joint ventures and classified them into two groups:

·   Joint ventures that must be consolidated because they are either not variable interest entities (“VIEs”) and we hold the majority voting interest, or because they are VIEs of which we are the primary beneficiary; and

·   Joint ventures that do not need to be consolidated because they are either not VIEs and we do not hold a majority voting interest, or because they are VIEs of which we are not the primary beneficiary.

We perform a quarterly review of our joint ventures to determine whether there were any changes in the status of the VIEs or changes to the primary beneficiary designation of each VIE.  We determined that no such changes occurred during the three months ended March 30, 2012.

In the table below, we have aggregated financial information relating to our VIEs because their nature and risk and reward characteristics are similar.  None of our current joint ventures that meets the characteristics of a VIE is individually significant to our consolidated financial statements.

13

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

Consolidated Joint Ventures

The following table presents the total assets and liabilities of our consolidated joint ventures:

	March 30,		December 30,
(In millions)	2012		2011
Cash and cash equivalents	$	77.1	$	91.4
Net accounts receivable		345.1		313.3
Other current assets		1.4		1.5
Noncurrent assets		48.3		36.9
Total assets	$	471.9	$	443.1
Accounts and subcontractors payable	$	172.9	$	151.9
Billings in excess of costs and accrued earnings on contracts		20.2		35.2
Accrued expenses and other		30.7		30.6
Noncurrent liabilities		14.4		15.2
Total liabilities		238.2		232.9
Total URS equity		115.0		103.0
Noncontrolling interests		118.7		107.2
Total owners’ equity		233.7		210.2
Total liabilities and owners’ equity	$	471.9	$	443.1

Total revenues of the consolidated joint ventures were $359.5 million and $444.4 million for the three months ended March 30, 2012 and April 1, 2011, respectively.

The assets of our consolidated joint ventures are restricted for use only by the particular joint venture and are not available for our general operations.

Unconsolidated Joint Ventures

We use the equity method of accounting for our unconsolidated joint ventures.  Under the equity method, we recognize our proportionate share of the net earnings of these joint ventures as a single line item under “Equity in income of unconsolidated joint ventures” in our Condensed Consolidated Statements of Operations.

The table below presents financial information, derived from the most recent financial statements provided to us, in aggregate, for our unconsolidated joint ventures:

14

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

	Unconsolidated
(In millions)	VIEs
March 30, 2012
Current assets	$	549.7
Noncurrent assets	$	4.7
Current liabilities	$	310.0
Noncurrent liabilities	$	14.7
December 30, 2011
Current assets	$	457.6
Noncurrent assets	$	8.8
Current liabilities	$	288.1
Noncurrent liabilities	$	0.1
Three months ended March 30, 2012 (1)
Revenues	$	363.9
Cost of revenues	$	(299.9)
Income from continuing operations before tax	$	64.0
Net income	$	58.2
Three months ended April 1, 2011 (1)
Revenues	$	355.9
Cost of revenues	$	(279.6)
Income from continuing operations before tax	$	76.3
Net income	$	67.5

(1)   Income from unconsolidated U.S. joint ventures is generally not taxable in most tax jurisdictions in the United States.  The tax expenses on our other unconsolidated joint ventures are primarily related to foreign taxes.

We received $18.6 million and $11.9 million, respectively, of distributions from unconsolidated joint ventures for the three months ended March 30, 2012 and April 1, 2011.

Maximum Exposure to Loss

In addition to potential losses arising out of the carrying values of the assets and liabilities of our unconsolidated joint ventures, our maximum exposure to loss also includes performance assurances and guarantees we sometimes provide to clients on behalf of joint ventures that we do not directly control.  We enter into these guarantees primarily to support the contractual obligations associated with the joint ventures’ projects.  The potential payment amount of an outstanding performance guarantee is typically the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts.  However, the nature of these costs are such that we are not able to estimate amounts that may be required to be paid in excess of estimated costs to complete contracts and, accordingly, the exposure to loss as a result of these performance guarantees cannot be calculated.

15

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

NOTE 6.  PROPERTY AND EQUIPMENT

Our property and equipment consisted of the following:

	March 30,			December 30,
(In millions)	2012			2011
Computer software	$	191.7		$	186.3
Computer hardware		189.5			186.8
Leasehold improvements		113.4			109.0
Construction and mining equipment		98.1			95.3
Furniture and fixtures		91.1			91.5
Other equipment		80.3			78.5
Land and buildings		9.9			9.2
Construction in progress		0.4			0.2
		774.4			756.8
Accumulated depreciation and amortization		(503.5	)		(487.4	)
Property and equipment at cost, net (1)	$	270.9		$	269.4

(1)   The unamortized computer software costs were $60.3 million and $60.8 million, respectively, as of March 30, 2012 and December 30, 2011.

NOTE 7.  ACQUISITION

Pending Flint Acquisition

On February 20, 2012, we entered into a definitive agreement to acquire all of the outstanding shares of Flint Energy Services Ltd. (“Flint”), a provider of construction services to the oil and gas industry, for C$25.0 per share in cash, or approximately C$1.25 billion (US$1.25 billion as of February 20, 2012).  We also will assume approximately C$175.0 million (US$175.0 million as of February 20, 2012) in outstanding face value of bonds and other additional indebtedness from Flint.  The fair value to be assigned to the bonds upon closing may be materially different than the current face value. Assuming completion of the acquisition, this transaction, which has been approved by our and Flint’s boards of directors, as well as Flint’s stockholders, will significantly expand our opportunities to serve clients in the oil and gas industry.  Flint has approximately 10,000 employees and a network of approximately 80 office locations in North America.

This acquisition will be implemented through a court-approved Plan of Arrangement under Canadian law and is subject to relevant regulatory approvals and other customary closing conditions.  Upon completion of the acquisition, Flint will operate as a new division of URS.  Assuming receipt of applicable regulatory approvals and satisfaction or waiver of all conditions to closing, we expect to close this transaction during the second quarter of 2012.

On March 15, 2012, we issued two Senior Notes with an aggregate principal amount of $1.0 billion.  We intend to use the net proceeds from the notes together with borrowings from our Senior Secured Credit Facility (“2011 Credit Facility”) to finance our acquisition of Flint.  See Note 8, “Indebtedness,” for more information regarding the notes.

Acquisition-Related Expenses

In connection with the acquisition of Flint, we recognized $5.6 million in “Acquisition-related expenses” for the three months ended March 30, 2012 on our Condensed Consolidated Statements of Operations.

16

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

NOTE 8.  INDEBTEDNESS

Indebtedness consisted of the following:

	March 30,		December 30,
(In millions)	2012		2011
Bank term loan, net of debt issuance costs	$	695.4	$	695.1
3.85% Senior Notes (net of discount)		399.5		—
5.00% Senior Notes (net of discount)		599.4		—
Revolving line of credit		—		23.0
Obligations under capital leases		22.8		27.3
Notes payable, Loan Notes, and foreign credit lines		48.5		53.1
Total indebtedness		1,765.6		798.5
Less:
Current portion of long-term debt		62.4		61.5
Long-term debt	$	1,703.2	$	737.0

2011 Credit Facility

As of each of March 30, 2012 and December 30, 2011, the outstanding balance of the term loan under our 2011 Credit Facility was $700.0 million.  As of March 30, 2012 and December 30, 2011, the interest rates applicable to the term loan were 1.74% and 1.80%, respectively. Loans outstanding under our 2011 Credit Facility bear interest, at our option, at the base rate or at the London Interbank Offered Rate (“LIBOR”) plus, in each case, an applicable per annum margin.  The applicable margin is determined based on the better of our debt ratings or our leverage ratio in accordance with a pricing grid.  The interest rate at which we normally borrow is LIBOR plus 150 basis points.

We were in compliance with the covenants of our 2011 Credit Facility as of March 30, 2012.

Senior Notes

On March 15, 2012, we issued in a private placement $400.0 million aggregate principal amount of 3.85% Senior Notes due on April 1, 2017 and $600.0 million aggregate principal amount of 5.00% Senior Notes due on April 1, 2022 (collectively, the “Senior Notes”).  As of March 30, 2012, the outstanding balance of the Senior Notes was $998.9 million, net of $1.1 million of discount.

Interest on the Senior Notes is payable semi-annually on April 1 and October 1 of each year beginning on October 1, 2012.  The net proceeds of the Senior Notes are intended to be used for the pending acquisition of Flint.  If the pending acquisition is not consummated prior to September 6, 2012, we will be required to redeem the Senior Notes at a price equal to 101% of the principal amount plus accrued and unpaid interest.  We may redeem the Senior Notes, in whole or in part, at any time and from time to time, at a price equal to 100% of the principal amount, plus a "make-whole" premium and accrued and unpaid interest as described in the indenture.  In addition, we may redeem all or a portion of the 5.00% Senior Notes at any time on or after the date that is three months prior to the maturity date of those Senior Notes, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed. We may also, at our option, redeem the Senior Notes, in whole, at 100% of the principal amount and accrued and unpaid interest upon the occurrence of certain events that result in an obligation to pay additional amounts as a result of certain specified changes in tax law described in the indenture.  Additionally, if a change of control triggering event occurs, as defined by the terms of the indenture, we will be required to offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of the purchase.  We are generally not limited under the indenture governing the Senior Notes in our ability to incur additional indebtedness provided we are in compliance with certain restrictive covenants, including restrictions on liens and restrictions on sale and leaseback transactions.

17

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

The Senior Notes are our general unsecured senior obligations and rank equally with our other existing and future unsecured senior indebtedness.  The Senior Notes are fully and unconditionally guaranteed (the “Guarantees”) by each of our current and future domestic subsidiaries that are guarantors under our 2011 Credit Facility or that are wholly owned domestic obligors or wholly owned domestic guarantors, individually or collectively, under any future indebtedness of our subsidiaries in excess of $100.0 million (the “Guarantors”).  The Guarantees are the Guarantors’ unsecured senior obligations and rank equally with the Guarantors’ other existing and future unsecured senior indebtedness.

In connection with the sale of the Senior Notes, we entered into a registration rights agreement to file a registration statement with the SEC offering to exchange any privately placed Senior Notes with substantially similar notes, except that the newly exchanged notes will be unrestricted and freely tradable securities.  We will use commercially reasonable efforts to cause the registration statement to be declared effective by the SEC and complete the exchange offer no later than March 15, 2013; otherwise we may be required to pay additional interest to the holders of the Senior Notes.

We were in compliance with the covenants of our Senior Notes as of March 30, 2012.

Revolving Line of Credit

Our revolving line of credit is used to fund daily operating cash needs and to support our standby letters of credit.  In the ordinary course of business, the use of our revolving line of credit is a function of collection and disbursement activities.  Our daily cash needs generally follow a predictable pattern that parallels our payroll cycles, which dictate, as necessary, our short-term borrowing requirements.

As of March 30, 2012 and December 30, 2011, we had no outstanding debt balance and $23.0 million on our revolving line of credit, respectively.  As of March 30, 2012, we had issued $107.7 million of letters of credit, leaving $892.3 million available under our revolving credit facility.

Other Indebtedness

Notes payable, Loan Notes, and foreign credit lines.  As of March 30, 2012 and December 30, 2011, we had outstanding amounts of $48.5 million and $53.1 million, respectively, in notes payable, five-year loan notes (“Loan Notes”), and foreign lines of credit.  The weighted-average interest rates of the notes were approximately 4.29% and 4.04% as of March 30, 2012 and December 30, 2011, respectively.  Notes payable primarily include notes used to finance the purchase of office equipment, computer equipment and furniture.

As of March 30, 2012 and December 30, 2011, we had $35.1 million and $33.7 million, respectively, in lines of credit available under all foreign facilities.  As of March 30, 2012 and December 30, 2011, the total outstanding debt balance of our foreign credit lines was $6.2 million and $10.5 million, respectively.

Capital Leases.  As of March 30, 2012 and December 30, 2011, we had obligations under our capital leases of approximately $22.8 million and $27.3 million, respectively, consisting primarily of leases for office equipment, computer equipment and furniture.

18

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

NOTE 9.  FAIR VALUE OF DEBT INSTRUMENTS AND DERIVATIVE INSTRUMENTS

2011 Credit Facility

As of March 30, 2012 and December 30, 2011, the estimated fair market value of the term loan under our 2011 Credit Facility was approximately $696.5 million and $697.4 million, respectively.  The carrying value of this term loan on our Condensed Consolidated Balance Sheets as of both March 30, 2012 and December 30, 2011 was $700.0 million, excluding unamortized issuance costs.  The fair value of our term loan was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary loan market and multiplying it by the outstanding balance of our term loan.

Senior Notes

As of March 30, 2012, the estimated fair market value of the Senior Notes was approximately $989.2 million and the carrying value of these notes on our Condensed Consolidated Balance Sheets was $1.0 billion, excluding unamortized discount.  The fair value of the Senior Notes was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary loan market and multiplying it by the outstanding balance of the notes.

Derivative Instruments

We use our derivative instruments as a risk management tool and not for trading or speculative purposes.  The fair value of each derivative instruments is based on mark-to-model measurements that are interpolated from observable market data, including spot and forward rates, as of March 30, 2012 and for the duration of each derivative’s terms.

Foreign Currency Exchange Contracts

We operate our business globally and our foreign subsidiaries conduct businesses in various foreign currencies.  Therefore, we are subject to foreign currency risk.  From time to time, we may purchase derivative financial instruments in the form of foreign currency exchange contracts to manage specific foreign currency exposures.

In March 2012, we entered into five foreign currency forward contracts with an aggregate notional amount of C$1.25 billion (equivalent to US$1.25 billion as of March 30, 2012) with maturity windows ranging from March 7, 2012 to May 31, 2012.  The primary objective of the contracts was to manage our exposure to foreign currency transaction risk related to the funding of our pending acquisition of Flint in Canadian dollars.  We expect to close the pending acquisition, subject to the receipt of regulatory approval and satisfaction or waiver of customary closing conditions, during the second quarter of 2012.

As of March 30, 2012, the estimated fair market value of these foreign currency forward contracts was approximately $2.5 million. The fair value was measured using significant other observable inputs (Level 2) and based on mark-to-model measurements that are interpolated from observable market data, including spot and forward rates, as of March 30, 2012 and for the duration of each derivative’s terms.  The fair value of these contracts was recorded in “Other assets” on our Condensed Consolidated Balance Sheets.

For the three months ended March 30, 2012, we recorded a gain of $2.5 million on our foreign currency forward contracts in “General and administrative expenses” on our Condensed Consolidated Statements of Operations.  We expect to settle our foreign currency forward contracts during the second quarter of 2012.

19

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

NOTE 10.  BILLINGS IN EXCESS OF COSTS AND ACCRUED EARNINGS ON CONTRACTS

Billings in excess of costs and accrued earnings on contracts in the accompanying Condensed Consolidated Balance Sheets consist of cash collected from clients and billings to clients on contracts in advance of work performed, advance payments negotiated as a contract condition, estimated losses on uncompleted contracts, normal profit liabilities, project-related legal liabilities, and other project-related reserves.  The unearned project-related costs will be earned over the next twelve months or over the duration of the contracts.

The following table summarizes the components of billings in excess of costs and accrued earnings on contracts:

	March 30,		December 30,
(In millions)	2012		2011
Billings in excess of costs and accrued earnings on contracts	$	178.7	$	216.4
Project-related legal liabilities and other project-related reserves		33.2		38.0
Advance payments negotiated as a contract condition		18.3		24.6
Normal profit liabilities		10.4		12.7
Estimated losses on uncompleted contracts		10.0		19.1
Total	$	250.6	$	310.8

NOTE 11.  EMPLOYEE RETIREMENT AND POST-RETIREMENT BENEFIT PLANS

Defined Benefit Plans

We sponsor a number of pension and unfunded supplemental executive retirement plans.

The components of our net periodic pension costs relating to our defined benefit plans for the three months ended March 30, 2012 and April 1, 2011 were as follows:

	Three Months Ended
	Domestic Plans								Foreign Plans
	March 30,				April 1,				March 30,				April 1,
(In millions)	2012				2011				2012				2011
Service cost		$	2.0			$	1.7			$	0.1			$	0.1
Interest cost			4.7				4.7				5.6				6.0
Expected return on plan assets			(4.4	)			(4.1	)			(5.5	)			(5.6	)
Amortization of:
Prior service costs			(0.7	)			(0.8	)			—				—
Net loss			2.4				1.8				—				—
Net periodic pension costs		$	4.0			$	3.3			$	0.2			$	0.5

20

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

During the three months ended March 30, 2012, we made cash contributions, including employer-directed benefit payments, of $9.0 million to the domestic and foreign defined benefit plans.  We expect to make additional cash contributions, including estimated employer-directed benefit payments, of approximately $23.4 million for the remainder of our 2012 fiscal year.

Post-retirement Benefit Plans

We sponsor a number of retiree health and life insurance benefit plans (“post-retirement benefit plans”).  The components of our net periodic benefit cost relating to the post-retirement benefit plans for the three months ended March 30, 2012 and April 1, 2011 were as follows:

	Three Months Ended
	March 30,				April 1,
(In millions)	2012				2011
Interest cost		$	0.5			$	0.5
Expected return on plan assets			(0.1	)			(0.1	)
Net periodic benefit costs		$	0.4			$	0.4

During the three months ended March 30, 2012, we made employer-directed benefit payments of $0.8 million to the post-retirement benefit plans.  We expect to make cash contributions, including estimated employer-directed benefit payments, of approximately $2.7 million for the remainder of our 2012 fiscal year.

NOTE 12.  STOCKHOLDERS' EQUITY

Dividend Program

On February 24, 2012, our Board of Directors approved the initiation of a regular quarterly cash dividend program. The Board authorized an initial $0.20 per common share quarterly dividend, which was equal to $15.2 million in the aggregate with a record date of March 16, 2012 and a payment date of April 6, 2012.

On May 4, 2012, we declared a quarterly cash dividend of $0.20 per common share for the second quarter of 2012 to be paid on July 6, 2012 with a record date of June 15, 2012.    Future dividends are subject to approval by our Board of Directors or, pursuant to delegated authority, the Audit Committee of the Board.

Equity Incentive Plans

As of March 30, 2012, approximately 2.8 million shares had been issued as restricted stock awards and 0.2 million shares were issuable upon the vesting of restricted stock units under our 2008 Equity Incentive Plan (the “2008 Plan”).  In addition, approximately 2.0 million shares remained reserved for future grant under the 2008 Plan.

Stock Repurchase Program

The following table summarizes our stock repurchase activities for the three months ended March 30, 2012 and April 1, 2011:

	Three Months Ended
	March 30,			April 1,
(In millions, except average price paid per share)	2012			2011
Common stock repurchase shares			1.0			3.0
Average price paid per share		$	40.00		$	45.58
Common stock repurchase		$	40.0		$	136.7

21

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

Stock-Based Compensation

We recognize stock-based compensation expense, net of estimated forfeitures, over the vesting periods in “General and administrative expenses” and “Cost of revenues” in our Condensed Consolidated Statements of Operations.

The following table presents our stock-based compensation expense related to restricted stock awards and units and our employee stock purchase plan for the three months ended March 30, 2012 and April 1, 2011:

	Three Months Ended
	March 30,		April 1,
(In millions)	2012		2011
Stock-based compensation expense:
Restricted stock awards and units	$	11.2	$	11.9
Employee stock purchase plan		0.1		0.1
Stock-based compensation expense	$	11.3	$	12.0
Stock-based compensation expense included in:
Cost of revenues	$	8.4	$	8.8
General and administrative expense		2.9		3.2
Stock-based compensation expense	$	11.3	$	12.0

NOTE 13.  SEGMENT AND RELATED INFORMATION

We operate our business through the following three segments:

·   Infrastructure & Environment Division provides program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to the U.S. federal government, state and local government agencies, and private sector clients in the U.S. and internationally.

·   Federal Services Division provides services to various U.S. federal government agencies, primarily the Department of Defense.  These services include program management, planning, design and engineering, systems engineering and technical assistance, construction and construction management, operations and maintenance, IT services, and decommissioning and closure.

·   Energy & ConstructionDivision provides program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to the U.S. federal government, state and local government agencies, and private sector clients in the U.S. and internationally.

These three segments operate under separate management groups and produce discrete financial information.  Their operating results also are reviewed separately by management.  The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in our Annual Report on Form 10-K for the year ended December 30, 2011.  The information disclosed in our condensed consolidated financial statements is based on the three segments that comprise our current organizational structure.

Prior to the beginning of our 2012 fiscal year, we used segment contribution to assess performance and make decisions concerning resource allocation.  Segment contribution was defined as total segment operating income minus noncontrolling interests attributable to that segment, but before allocation of various segment expenses, including stock compensation expenses, amortization of some, but not all, intangible assets, goodwill impairment, and other miscellaneous unallocated expenses.  Segment operating income represents net income before reductions for income taxes, noncontrolling interests, and interest expense.

22

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

Effective at the beginning of our 2012 fiscal year, we adopted a new internal profit measurement referred to as “URS operating income,” defined as segment operating income after the reduction for pre-tax noncontrolling interests.  This new measurement method minimizes the reconciling items between internal profit measurement and GAAP operating income.  For comparative purposes, we made reclassifications to the prior year’s data to conform them to the current period’s presentation.

The following table presents summarized financial information for our reportable segments.  “Inter-segment, eliminations and other” in the following table includes eliminations of inter-segment sales and investments in subsidiaries.  The segment balance sheet information presented below is included for informational purposes only.  We do not allocate resources based upon the balance sheet amounts of individual segments.  Our long-lived assets consist primarily of property and equipment.

	Three Months Ended
	March 30,			April 1,
(In millions)	2012			2011
Revenues
Infrastructure & Environment	$	964.2		$	909.9
Federal Services (1)		717.1			581.1
Energy & Construction		725.7			866.4
Inter-segment, eliminations and other		(45.5	)		(37.6	)
Total revenues	$	2,361.5		$	2,319.8
Equity in income of unconsolidated joint ventures
Infrastructure & Environment	$	0.8		$	1.0
Federal Services		1.6			1.5
Energy & Construction		26.3			34.9
Total equity in income of unconsolidated joint ventures	$	28.7		$	37.4
URS operating income (2)
Infrastructure & Environment	$	45.4		$	56.9
Federal Services (1)		93.0			35.8
Energy & Construction		22.8			36.0
Corporate (3)		(23.1	)		(22.4	)
Total URS operating income	$	138.1		$	106.3
Operating income
Infrastructure & Environment	$	45.9		$	55.7
Federal Services (1)		93.0			35.8
Energy & Construction		48.1			63.0
Corporate (3)		(23.1	)		(22.4	)
Total operating income	$	163.9		$	132.1
Depreciation and amortization
Infrastructure & Environment	$	14.4		$	12.1
Federal Services (1)		9.6			5.3
Energy & Construction		11.7			13.9
Corporate		1.5			1.9
Total depreciation and amortization	$	37.2		$	33.2

(1)   The operating results of Apptis were included in the three months ended March 30, 2012, but not in the three months ended April 1, 2011, as we completed the acquisition in June 2011.

(2)   We are providing information regarding URS operating income by segment because management uses this information to assess performance and make decisions about resource allocation.

(3)   Corporate includes expenses related to corporate functions and acquisition-related expenses for our pending Flint acquisition.

23

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

Reconciliations of URS operating income by segment to segment operating income for the three months ended March 30, 2012 and April 1, 2011 are as follows:

	Three Months Ended March 30, 2012
	Infrastructure							Energy
	&				Federal			&
(In millions)	Environment				Services			Construction			Corporate				Consolidated
URS operating income		$	45.4			$	93.0		$	22.8		$	(23.1	)		$	138.1
Noncontrolling interests			0.5				—			25.3			—				25.8
Operating income		$	45.9			$	93.0		$	48.1		$	(23.1	)		$	163.9
	Three Months Ended April 1, 2011
	Infrastructure							Energy
	&				Federal			&
(In millions)	Environment				Services			Construction			Corporate				Consolidated
URS operating income		$	56.9			$	35.8		$	36.0		$	(22.4	)		$	106.3
Noncontrolling interests			(1.2	)			—			27.0			—				25.8
Operating income		$	55.7			$	35.8		$	63.0		$	(22.4	)		$	132.1

Total investments in and advances to unconsolidated joint ventures and property and equipment, net of accumulated depreciation, are as follows:

	March 30,		December 30,
(In millions)	2012		2011
Infrastructure & Environment	$	6.8	$	6.3
Federal Services		3.5		5.1
Energy & Construction		118.8		96.3
Total investments in and advances to unconsolidated joint ventures	$	129.1	$	107.7
Infrastructure & Environment	$	143.0	$	140.5
Federal Services		43.6		46.2
Energy & Construction		61.1		61.8
Corporate		23.2		20.9
Total property and equipment, net of accumulated depreciation	$	270.9	$	269.4

Total assets by segment are as follows:

	March 30,		December 30,
(In millions)	2012		2011
Infrastructure & Environment	$	2,302.8	$	2,287.3
Federal Services		1,583.5		1,582.4
Energy & Construction (net of investments in subsidiaries)		2,655.6		2,611.9
Corporate (net of investments in subsidiaries)		1,265.5		381.0
Total assets	$	7,807.4	$	6,862.6

24

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

Geographic Areas

Our revenues by geographic areas are shown below:

	Three Months Ended
	March 30,				April 1,
(In millions)	2012				2011
Revenues
United States		$	2,070.2			$	2,027.9
International			301.0				298.0
Eliminations			(9.7	)			(6.1	)
Total revenues		$	2,361.5			$	2,319.8

Major Customers and Other

Our largest clients are from our federal market sector.  Within this sector, we have multiple contracts with our two major customers:  the U.S. Army and Department of Energy (“DOE”).  For the purpose of analyzing revenues from major customers, we do not consider the combination of all federal departments and agencies as one customer.  The different federal agencies manage separate budgets.  As such, reductions in spending by one federal agency do not affect the revenues we could earn from another federal agency.  In addition, the procurement processes for federal agencies are not centralized, and procurement decisions are made separately by each federal agency.  The loss of the federal government, the U.S. Army, or DOE as clients, would have a material adverse effect on our business; however, we are not dependent on any single contract on an ongoing basis.  We believe that the loss of any single contract would not have a material adverse effect on our business.

Our revenues from the U.S. Army and DOE by division for the three months ended March 30, 2012 and April 1, 2011 are presented below:

	Three Months Ended
	March 30,			April 1,
(In millions, except percentages)	2012			2011
The U.S. Army (1)
Infrastructure & Environment		$	43.8		$	38.6
Federal Services			373.1			305.8
Energy & Construction			24.9			60.9
Total U.S. Army		$	441.8		$	405.3

Revenues from the U.S. Army as a percentage of our consolidated revenues 19 % 17 %

DOE
Infrastructure & Environment	$	1.1	$	1.6
Federal Services		5.9		3.6
Energy & Construction		253.0		302.7
Total DOE	$	260.0	$	307.9

Revenues from DOE as a percentage of our consolidated revenues	11	%	13	%
Revenues from the federal market sector as a percentage of our consolidated revenues	50	%	46	%

(1)   The U.S. Army includes U.S. Army Corps of Engineers.

25

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

NOTE 14.  COMMITMENTS AND CONTINGENCIES

 In the ordinary course of business, we and our affiliates are subject to various contractual disputes, governmental audits and investigations, and legal proceedings alleging, among other things, contractual, tortious or statutory breaches.  The final outcomes of these various matters cannot be predicted or estimated with certainty.  We are including information regarding the following significant matters:

·   USAID Egyptian Projects:  In March 2003, Washington Group International (“WGI”), a wholly owned subsidiary, was notified by the Department of Justice that the federal government was considering civil litigation against WGI for potential violations of the U.S. Agency for International Development (“USAID”) source, origin, and nationality regulations in connection with five of WGI’s USAID-financed host-country projects located in Egypt beginning in the early 1990s.  In November 2004, the federal government filed an action in the United States District Court for the District of Idaho against WGI, Contrack International, Inc., and MISR Sons Development S.A.E., an Egyptian construction company, asserting violations under the Federal False Claims Act, the Federal Foreign Assistance Act of 1961, as well as common law theories of payment by mistake and unjust enrichment.  The federal government seeks damages and civil penalties for violations of the statutes as well as a refund of all amounts paid under the specified contracts of approximately $373.0 million.  WGI has denied any liability in the action and contested the federal government’s damage allegations and its entitlement to any recovery.  All USAID projects under the contracts have been completed and are fully operational.

In March 2005, WGI filed motions in the Bankruptcy Court in Nevada and in the Idaho District Court to dismiss the federal government’s claim for failure to give appropriate notice or otherwise preserve those claims.  In August 2005, the Bankruptcy Court ruled that all federal government claims were barred.  The federal government appealed the Bankruptcy Court's order to the United States District Court for the District of Nevada.  In March 2006, the Idaho District Court stayed that action during the pendency of the federal government's appeal of the Bankruptcy Court's ruling.  In December 2006, the Nevada District Court reversed the Bankruptcy Court’s order and remanded the matter back to the Bankruptcy Court for further proceedings.  WGI renewed its motion in Bankruptcy Court that all of the federal government’s claims are barred for failure to give appropriate notice or otherwise preserve those claims.  In November 2008, the Bankruptcy Court ruled that the federal government’s common law claims of unjust enrichment and payment by mistake are barred, and may not be further pursued.  On April 24, 2012, the Bankruptcy Court ruled that the federal government’s claims under the False Claims and Foreign Assistance Acts are not barred by the WGI bankruptcy.

WGI intends to continue to defend this matter vigorously; however, we cannot provide assurance that we will be successful in these efforts.  The potential range of loss and the resolution of these matters cannot be determined at this time.

·   New Orleans Levee Failure Class Action Litigation:  From July 1999 through May 2005, Washington Group International, Inc., an Ohio company (“WGI Ohio”), a wholly owned subsidiary acquired by us on November 15, 2007, performed demolition, site preparation, and environmental remediation services for the U.S. Army Corps of Engineers on the east bank of the Inner Harbor Navigation Canal (the “Industrial Canal”) in New Orleans, Louisiana.  On August 29, 2005, Hurricane Katrina devastated New Orleans.  The storm surge created by the hurricane overtopped the Industrial Canal levee and floodwall, flooding the Lower Ninth Ward and other parts of the city.

26

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

Since September 2005, 59 personal injury, property damage and class action lawsuits have been filed in Louisiana State and federal court naming WGI Ohio as a defendant.  Other defendants include the U.S. Army Corps of Engineers, the Board for the Orleans Levee District, and its insurer, St. Paul Fire and Marine Insurance Company.  Over 1,450 hurricane-related cases, including the WGI Ohio cases, have been consolidated in the United States District Court for the Eastern District of Louisiana (“District Court”).  The plaintiffs claim that defendants were negligent in their design, construction and/or maintenance of the New Orleans levees.  The plaintiffs are all residents and property owners who claim to have incurred damages arising out of the breach and failure of the hurricane protection levees and floodwalls in the wake of Hurricane Katrina.  The allegation against us is that the work we performed adjacent to the Industrial Canal damaged the levee and floodwall and caused and/or contributed to breaches and flooding.  The plaintiffs allege damages of $200.0 billion and demand attorneys’ fees and costs.  WGI Ohio did not design, construct, repair or maintain any of the levees or the floodwalls that failed during or after Hurricane Katrina.  WGI Ohio performed the work adjacent to the Industrial Canal as a contractor for the federal government and has pursued dismissal from the lawsuits on a motion for summary judgment on the basis that government contractors are immune from liability.

On December 15, 2008, the District Court granted WGI Ohio’s motion for summary judgment to dismiss the lawsuit on the basis that we performed the work adjacent to the Industrial Canal as a contractor for the federal government and are therefore immune from liability, which was appealed by a number of the plaintiffs on April 27, 2009 to the United States Fifth Circuit Court of Appeals (“Court of Appeals”).  On September 14, 2010, the Court of Appeals reversed the District Court’s summary judgment decision and WGI Ohio’s dismissal, and remanded the case back to the District Court for further litigation.  On August 1, 2011, the District Court held that the defense of government contractor immunity is not available to WGI Ohio at trial, but would be an issue for appeal.

WGI Ohio intends to continue to defend these matters vigorously; however, we cannot provide assurance that we will be successful in these efforts.  The potential range of loss and the resolution of these matters cannot be determined at this time.

·   Common Sulfur Project:  One of our wholly owned subsidiaries, WGI – Middle East, and its consortium partner contracted under a fixed-price arrangement to engineer, procure and construct a sulfur processing facility located in Qatar.  The sulfur processing facility gathers and processes sulfur produced by new liquid natural gas processing facilities.  During construction, the project experienced cost increases, schedule delays and higher than expected warranty costs.  The contract provided the customer the right to assess liquidated damages of approximately $25.0 million against the consortium if various project milestones were not met.

On August 23, 2010, the consortium settled pending change orders and claims with the project owner for $100.0 million and agreed that 40% of the settlement amount will be allocated to us.  Under the terms of the 2010 settlement, WGI – Middle East received a complete release for all delays and liquidated damages incurred up to the settlement date, and all consortium payments were received except for $7.2 million that the project owner withheld from the consortium pending resolution of post-settlement liquidated damage claims.  In March 2012, the consortium settled the post-settlement liquidated damage claims resulting in WGI – Middle East recovering $3.7 million of the $7.2 million previously withheld.  As of March 30, 2012, final acceptance of the project has been achieved and final start up and commissioning of the facility has been completed, subject to outstanding warranty items.

During the three months ended March 30, 2012, we recognized a gain of $3.1 million and our cumulative project loss was approximately $104.0 million.

27

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

·   DOE Deactivation, Demolition, and Removal Project:  WGI Ohio executed a cost-reimbursable task order with the DOE in 2007 to provide deactivation, demolition and removal services at a New York State project site that during 2010 experienced contamination and performance issues.  In September 2011, WGI Ohio voluntarily paid a civil penalty related to a project site contamination incident.  In addition, WGI Ohio and the DOE executed a Task Order Modification in February 2011 that changed some cost-reimbursable contract provisions to at-risk.  The Task Order Modification requires the DOE to pay all project costs up to $105.0 million, requires WGI Ohio and the DOE to equally share in all project costs incurred from $105.0 to $145.0 million, and requires WGI Ohio to pay all project costs exceeding $145.0 million.

Through March 30, 2012, WGI Ohio has incurred total project costs of $160.5 million and has recorded cumulative project losses of $14.7 million, including a charge of $0.7 million in the three months ended March 30, 2012. Due to unanticipated requirements and permitting delays by federal and state agencies, as well as hurricane-caused delays and related ground stabilization activities, WGI Ohio is required to perform work outside the scope of the Task Order Modification.  Based on changes and delays to date, requests for equitable adjustment (“REA”) amounting to $47.1 million and a proposal related to the hurricane-caused impacts in the amount of $37.5 million have been submitted to the DOE for approval.  Additional REAs of at least $12.6 million are expected to be submitted.  The final project completion costs are not currently estimable due to continuing delays in permitting and approval of a final project plan. WGI Ohio can give no assurance that it will not be obligated to pay some or all of the REAs, hurricane-caused impacts, and additional project completion costs, which would negatively impact our future results of operations.

·   Bolivian Mine Services Agreement:  In 2009, a mine service agreement performed by one of our wholly owned subsidiaries, Washington Group Bolivia, was unilaterally terminated for convenience by the mine owner.  The mine owner disputed the fair market value of mining equipment it was required to repurchase under the terms of the mine services agreement.  On November 16, 2010, Washington Group Bolivia received a formal claim asserting breaches of contractual obligations and warranties, including the failure to adhere to the requisite professional standard of care while performing the mine services agreement.  On June 17, 2011, Washington Group Bolivia received a formal demand for arbitration pursuant to the Rules of Arbitration of the International Chamber of Commerce asserting claims up to $52.6 million. Washington Group Bolivia has brought a $55.7 million counterclaim against the mine owner asserting claims of wrongful termination and lost productivity.

Washington Group Bolivia intends to continue to defend this matter vigorously; however, we cannot provide assurance that we will be successful in these efforts.  The potential range of loss and the resolution of these matters cannot be determined at this time.

28

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(continued)

The resolution of outstanding claims is subject to inherent uncertainty, and it is reasonably possible that resolution of any of the above outstanding claims or legal proceedings could have a material adverse effect on us.

Insurance

Generally, our insurance program covers workers’ compensation and employer’s liability, general liability, automobile liability, professional errors and omissions liability, property, marine property and liability, and contractor’s pollution liability (in addition to other policies for specific projects).  Our insurance program includes deductibles or self-insured retentions for each covered claim.  In addition, our insurance policies contain exclusions and sublimits that insurance providers may use to deny or restrict coverage.  Excess liability, contractor’s pollution liability, and professional liability insurance policies provide for coverages on a “claims-made” basis, covering only claims actually made and reported during the policy period currently in effect.  Thus, if we do not continue to maintain these policies, we will have no coverage for claims made after the termination date even for claims based on events that occurred during the term of coverage.  While we intend to maintain these policies, we may be unable to maintain existing coverage levels.

Guarantee Obligations and Commitments

As of March 30, 2012, we had the following guarantee obligations and commitments:

We have agreed to indemnify one of our joint venture partners up to $25.0 million for any potential losses, damages, and liabilities associated with lawsuits in relation to general and administrative services we provide to the joint venture.  Currently, we have not been advised of any indemnified claims under this guarantee.

We have guaranteed a letter of credit issued on behalf of one of our consolidated joint ventures.  The total amount of the letter of credit was $0.9 million as of March 30, 2012.

We have guaranteed several of our foreign credit facilities and bank guarantee lines.  The aggregate amount of these guarantees was $66.9 million as of March 30, 2012.

As of March 30, 2012, we had $37.1 million in bank guarantees outstanding under foreign credit facilities and other banking arrangements.

We also maintain a variety of commercial commitments that are generally made to support provisions of our contracts.  In addition, in the ordinary course of business, we provide letters of credit to clients and others against advance payments and to support other business arrangements.  We are required to reimburse the issuers of letters of credit for any payments they make under the letters of credit.

In the ordinary course of business, we may provide performance assurances and guarantees related to our services.  For example, these guarantees may include surety bonds, arrangements among our client, a surety, and us to ensure we perform our contractual obligations pursuant to our client agreement.  If our services under a guaranteed project are later determined to have resulted in a material defect or other material deficiency, then we may be responsible for monetary damages or other legal remedies.  When sufficient information about claims on guaranteed projects is available and monetary damages or other costs or losses are determined to be probable, we recognize such guarantee losses.

29

Table of contents

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties.  Our actual results and the timing of events could differ materially from those expressed or implied in this report.  See “URS Corporation and Subsidiaries” regarding forward-looking statements on page 1.  You should read this discussion in conjunction with:  Part II – Item 1A, “Risk Factors,” beginning on page H55; the condensed consolidated financial statements and notes thereto contained in Part I – Item 1, “Financial Statements;” and the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2011, which was previously filed with the Securities and Exchange Commission (“SEC”).

BUSINESS SUMMARY

We are a leading international provider of engineering, construction and technical services.  We offer a broad range of program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to public agencies and private sector clients around the world.  We also are a United States (“U.S.”) federal government contractor in the areas of systems engineering and technical assistance, operations and maintenance, and information technology (“IT”) services.  We have more than 46,000 employees in a global network of offices and contract-specific job sites in nearly 50 countries.

Our strategy is to maintain a balanced portfolio of diversified businesses that serve a variety of markets worldwide.  We believe that this strategy helps to mitigate our exposure to industrial, technological, environmental, financial, economic and political risks that may affect a particular market or geographic region.  Our growth strategy involves both organic growth as well as expansion through acquisitions of other companies that complement or enhance our technical capabilities or enable us to address new markets or geographic regions.

Reporting Segments

We operate through three reporting segments:  our Infrastructure & Environment Division, Federal Services Division and Energy & Construction Division.  These segments were generally created, and have evolved consistent with our growth strategy, based on the management structure of the businesses and the integration of similarly acquired operating companies that address similar markets or provide similar services.

Market Sectors

The table below summarizes the primary market sectors served by our three divisions for the three months ended March 30, 2012.

Historically, we have included revenues from the oil & gas market sector as part of our presentation of revenues from the industrial & commercial market sector.  Effective at the beginning of our 2012 fiscal year, we revised our presentation to show our revenues from the oil & gas market sector separately.   In addition, we have changed the name of our “industrial and commercial” market sector to “industrial” market sector.  This new presentation has been implemented in anticipation of the inclusion of a new business from the pending acquisition of Flint Energy Services Ltd. (“Flint”), which we expect to close in the second quarter of 2012.  For comparative purposes, we reclassified the prior period’s data to conform them to the current period’s presentation.

Market Sector	Division
	Infrastructure & Environment	Federal Services	Energy & Construction
Federal	ü	ü	ü
Infrastructure	ü	—	ü
Oil & Gas	ü	—	ü
Power	ü	—	ü
Industrial	ü	—	ü

 ü  a primary market sector for the division.

— not a primary market sector for the division.

30

We generate revenues by providing fee-based professional and technical services and by executing construction contracts.  As a result, our professional and technical services are primarily labor intensive and our construction projects are labor and capital intensive.  To derive income from our revenues, we must effectively manage our costs.

Our revenues are dependent upon our ability to attract and retain qualified and productive employees, identify business opportunities, allocate our labor resources to profitable markets, secure new contracts, execute existing contracts, and maintain existing client relationships.  Moreover, as a professional services company, the quality of the work generated by our employees is integral to our revenue generation.

Our cost of revenues is comprised of the compensation we pay to our employees, including fringe benefits; the cost of subcontractors, construction materials and other project-related expenses; and segment administrative, marketing, sales, bid and proposal, rental and other overhead costs.

We report our financial results on a consolidated basis and for our three reporting segments: the Infrastructure & Environment Division, the Federal Services Division and the Energy & Construction Division.

OVERVIEW AND BUSINESS TRENDS

Results for the Three Months Ended March 30, 2012

Consolidated revenuesfor the three months ended March 30, 2012 were $2.4 billion, an increase of $41.7 million, or 1.8%, compared to revenues for the three months ended April 1, 2011.  The increase was primarily due to the recognition of $86.1 million in performance-based incentive fees from our work managing chemical demilitarization programs in the U.S. In addition, Apptis Holdings, Inc. (“Apptis”), which we acquired in June 2011, generated $59.7 million in revenues for the three months ended March 30, 2012.  These increases were partially offset by the wind down and completion of various projects.  During the quarter, revenues increased from our work in the federal market sector, while we experienced a decline in revenues from our work in the infrastructure and power market sectors.  Revenues in the oil & gas and industrial market sectors were relatively flat compared to the same period last year.

Net income attributable to URS increased 28.3% from $62.1 million for the three months ended April 1, 2011 to $79.7 million for the three months ended March 30, 2012.  The increase in net income was primarily due to the recognition of performance-based incentive fees from our work managing chemical demilitarization programs in the U.S.  This increase was partially offset by the wind down of projects and a decrease in equity in income of unconsolidated joint ventures.

31

Cash Flows and Debt

For the three months ended March 30, 2012, we used $16.4 million in net cash from operations.  Cash flows from operations decreased by $127.3 million for the three months ended March 30, 2012 compared with the same period in 2011.  This decrease was primarily due to the timing of: billings and collections from clients on accounts receivables, advance project payments from clients, 401(k) payments and project performance payments, partially offset by a decrease in income tax payments.

On March 15, 2012, we issued in a private placement $400.0 million aggregate principal amount of 3.85% Senior Notes due on April 1, 2017 and $600.0 million aggregate principal amount of 5.00% Senior Notes due on April 1, 2022 (collectively, the “Senior Notes”).  We intend to use the net proceeds from the notes together with borrowings from our Senior Secured Credit Facility (“2011 Credit Facility”) to finance our pending acquisition of Flint.

In addition, we had cash outflows of $40.0 million related to repurchases of our common stock for the three months ended March 30, 2012.

Book of Business

As of both March 30, 2012 and December 30, 2011, our total book of business was $27.0 billion.  Please see Book of Business on page 34 for more information.

Business Trends

We believe that our expectations regarding business trends are reasonable and are based on reasonable assumptions.  However, such forward-looking statements, by their nature, involve risks and uncertainties and, in the current economic climate, may be subject to an unusual degree of uncertainty.  You should read this discussion of business trends in conjunction with Part II, Item 1A, “Risk Factors,” of this report, which begins on page 55.

Federal

We expect revenues from our federal market sector will remain steady during our 2012 fiscal year compared to our 2011 fiscal year.  In the year ahead, we expect to benefit from a number of large, long-term contracts with the Department of Energy (“DOE”) and the United Kingdom’s Nuclear Decommissioning Authority (“NDA”), involving the provision of environmental management and nuclear decommissioning services.  Because this work typically supports federally mandated programs, we believe that funding sources are relatively secure.

Within the Department of Defense (“DOD”), we also see opportunities arising from the diversity of our federal business, as well as the large, and growing, number of indefinite delivery contracts (“IDCs”) we hold with the DOD.  These IDCs are increasingly being used by DOD agencies as the preferred method for procuring services.  Despite proposed reductions in DOD spending, we anticipate stable funding for many of the specialized technical services we provide.  These services include the management of chemical demilitarization programs, support of unmanned aerial vehicle programs, IT and cyber security services (as a result of our June 2011 acquisition of Apptis), and the repair and refurbishment of military aircraft and ground vehicles returning from combat activity in the Middle East.

Infrastructure

We expect revenues from our infrastructure market sector to grow slightly in our 2012 fiscal year compared to our 2011 fiscal year, based on high levels of procurement activity and the growth in our backlog of infrastructure work during our 2011 fiscal year.  We anticipate steady demand for the engineering and design services we provide, particularly for projects involving the expansion and modernization of highways, bridges and mass transit systems.  In addition, several states and municipalities are considering major infrastructure investments. For example, in Chicago, officials recently announced a $7 billion plan to improve rail systems, water/wastewater facilities and airports. In the United Kingdom, where we maintain a large presence, the government’s 2012-2013 budget includes stable funding for the transportation agencies we support.

32

Oil & Gas

We expect revenues from the oil & gas sector will remain steady during our 2012 fiscal year compared to our 2011 fiscal year.  Due to the recent increase in oil prices, many of our clients in the oil and gas industry are moving forward with capital expenditure programs.  As a result, we are beginning to provide preliminary engineering and design services for new and previously postponed projects.  We believe our ability to support the initial phases of these projects positions us well to capture larger assignments as they move into the engineering and construction phases.

In addition, we expect to complete our proposed acquisition of Flint, a provider of construction and maintenance services to clients in the North American oil and gas industry, in the second quarter of our 2012 fiscal year.  The acquisition of Flint will significantly expand our capabilities to serve clients in the oil and gas industry, most notably in oil, oil sands and gas producing regions of Western Canada and in the Southwest, Appalachian and Rocky Mountain regions of the U.S.

Power

We expect revenues from our power market sector to increase during our 2012 fiscal year compared to our 2011 fiscal year, based on increased procurement activity and recent contract awards in a number of markets.  For example, we are seeing strong demand for our air quality control services, which involve the retrofit of coal-fired power plants with clean air technology to reduce sulfur dioxide, mercury and other emissions.  These retrofits help utilities comply with consent decrees and regulatory mandates, such as the Cross-State Air Pollution Rule and the Mercury and Air Toxics Standards recently issued by the Environmental Protection Agency.

In the nuclear power market, we expect utilities and regulators will take a more cautious approach to the development of new nuclear power plants following the event at the Fukushima Daiichi power plant in Japan.  At the same time, we anticipate sustained demand for the types of services we provide to retrofit and upgrade existing nuclear power plants to increase the generating capacity and extend the service life of these facilities.  In addition, the Nuclear Regulatory Commission has issued recommendations for improving plant safety, which we expect will increase demand for the types of nuclear services we provide.

Industrial

We expect revenues from our industrial market sector will remain steady during our 2012 fiscal year compared to our 2011 fiscal year, as a result of increased procurement activity in both the manufacturing and mining markets.  In the manufacturing market, we anticipate sustained demand for the facilities management services we provide, as clients continue to outsource these services to increase cost savings and maximize efficiency.  In the mining market, strong commodity prices for base metals and mineral resources, largely driven by demand from India and China, are creating new opportunities for our mining business, most notably in Australia.  In addition, we expect revenues will grow from the environmental and engineering work we perform for industrial clients under our long-term Master Service Agreements (“MSAs”).

Seasonality

We experience seasonal trends in our business in connection with federal holidays, such as Memorial Day, Independence Day, Labor Day, Thanksgiving, Christmas and New Year’s Day.  Our revenues typically are lower during these times of the year because many of our clients’ employees, as well as our own employees, do not work during these holidays, resulting in fewer billable hours charged to projects and thus, lower revenues recognized.  In addition to holidays, our business also is affected by seasonal bad weather conditions, such as hurricanes, floods, snowstorms or other inclement weather, which may cause some of our offices and projects to close or reduce activities temporarily.  For example, in the first quarter of the year, winter weather sometimes results in intermittent office closures and work interruptions.

33

Table of contents

Other Business Trends

The diversification of our business and changes in the mix and timing of our fixed-cost, target-price and other contracts can cause earnings and profit margins to vary between periods.  For example, we have, for some time, experienced an increase in the number of fixed-price contracts we are awarded, particularly among clients in the federal sector.  The increase in fixed-price contracting creates additional risks of incurring losses and opportunities for achieving higher margins on these contracts.  We are also experiencing an increase in the award of federal contracts based on a low-price, technically-acceptable criterion emphasizing price over qualitative factors, such as past performance, that may reduce our profit margins or our willingness to bid on future federal contracts.  In addition, earnings recognition on many contracts is measured based on progress achieved as a percentage of the total project effort or upon the completion of milestones or performance criteria rather than evenly or linearly over the period of performance.  Also, our government clients are increasingly using IDCs that require us to engage in a competitive procurement process before any task orders are issued as compared to traditional award contracts.  Additionally, the traditional award contracts we receive are tending to include fewer base years and more option years.  These trends change the relationship between backlog and revenues, resulting in smaller, shorter term increments moving from IDCs and option years into backlog and then potentially realized as revenues.  Ultimately, however, revenues from IDC task orders and option years will typically lower our reported backlog and increase our reported IDC and option years in our book of business.

The Budget Control Act of 2011 could impose an estimated $1.2 trillion in automatic federal budget cuts, or sequestrations, beginning in fiscal year 2013 that would severely impact our defense and other federal services.

We cannot determine if proposed climate change and greenhouse gas regulations would have a material impact on our business or our clients’ businesses at this time; however, any new regulations could affect demand for the services we provide to our clients.  For example, depending on legislation enacted, we could see reduced client demand for our services related to fossil fuel and industrial projects, and increased demand for services related to environmental, infrastructure and nuclear and alternative energy.

BOOK OF BUSINESS

For the purpose of calculating our book of business, we determine the amounts of all contract awards that may potentially be recognized as revenues.  We also include an estimate of the equity in income of unconsolidated joint ventures over the life of the contracts in our book of business.  We categorize the amount of our book of business into backlog, option years and IDCs, based on the nature of the award and its current status.

Backlog.  Our contract backlog represents the monetary value of signed contracts, including task orders that have been issued and funded under IDCs and, where applicable, a notice to proceed has been received from the client that is expected to be recognized as revenues or equity in income of unconsolidated joint ventures as services are performed.

The performance periods of our contracts vary widely from a few months to many years.  In addition, contract durations often differ significantly among our divisions.  As a result, the amount of revenues that will be realized beyond one year also varies from division to division.  As of December 30, 2011, we estimated that approximately 57% of our total backlog would not be realized within one year, based upon the timing of awards and the long-term nature of many of our contracts; however, no assurance can be given that backlog will be realized at this rate.

Option Years.  Our option years represent the monetary value of option periods under existing contracts in backlog, which are exercisable at the option of our clients without requiring us to go through an additional competitive bidding process and would be canceled only if a client decided to end the project (a termination for convenience) or through a termination for default.  Option years are in addition to the “base periods” of these contracts.  Base periods for these contracts can vary from one to five years.

34

Indefinite Delivery Contracts.  IDCs represent the expected monetary value to us of signed contracts under which we perform work only when the client awards specific task orders or projects to us.  When agreements for such task orders or projects are signed and funded, we transfer their value into backlog.  Generally, the terms of these contracts exceed one year and often include a maximum term and potential value.  IDCs generally range from one to twenty years in length.

While the value of our book of business is a predictor of future revenues and equity in income of unconsolidated joint ventures, we have no assurance, nor can we provide assurance, that we will ultimately realize the maximum potential values for backlog, option years or IDCs.  Based on our historical experience, our backlog has the highest likelihood of converting into revenues or equity in income of unconsolidated joint ventures because it is based upon signed and executable contracts with our clients.  Option years are not as certain as backlog because our clients may decide not to exercise one or more option years.  Because we do not perform work under IDCs until specific task orders are issued by our clients, the value of our IDCs is not as likely to convert into revenues or equity in income of unconsolidated joint ventures as other categories of our book of business.

As of both March 30, 2012 and December 30, 2011, our total book of business was $27.0 billion.  The following tables summarize, by division, our book of business:

	Infrastructure		Energy
	&	Federal	&
(In millions)	Environment	Services	Construction	Total

As of March 30, 2012
Backlog	$	3,189.1	$	3,814.6	$	7,126.6	$	14,130.3
Option years		298.8		2,248.9		2,042.5		4,590.2
Indefinite delivery contracts		3,156.9		3,164.3		1,968.0		8,289.2
Total book of business	$	6,644.8	$	9,227.8	$	11,137.1	$	27,009.7

As of December 30, 2011
Backlog	$	2,993.1	$	4,141.8	$	7,124.7	$	14,259.6
Option years		316.6		2,370.1		2,026.2		4,712.9
Indefinite delivery contracts		2,806.5		3,304.0		1,948.0		8,058.5
Total book of business	$	6,116.2	$	9,815.9	$	11,098.9	$	27,031.0

	March 30,		December 30,
(In millions)	2012		2011
Backlog by market sector:
Federal	$	7,896.0	$	8,542.4
Infrastructure		3,169.8		3,011.0
Oil & Gas (1)		452.0		383.4
Power		1,622.3		1,623.8
Industrial (1)		990.2		699.0
Total backlog	$	14,130.3	$	14,259.6

(1)   Historically, we have included revenues from the oil & gas market sector as part of our presentation of revenues from the industrial & commercial market sector.  Effective at the beginning of our 2012 fiscal year, we revised our presentation to show our revenues from the oil & gas market sector separately.  In addition, we changed the name of our “industrial and commercial” market sector to the “industrial” market sector.  For comparative purposes, we reclassified the prior period’s data to conform them to the current period’s presentation.

35

Table of contents

Revenues by Market Sectors

	Three Months Ended
											Percentage
	March 30,			April 1,			Increase				Increase
(In millions, except percentages)	2012			2011			(Decrease)				(Decrease)
Revenues by Market Sectors:
Federal		$	1,173.3		$	1,064.5		$	108.8			10.2	%
Infrastructure			438.0			500.1			(62.1	)		(12.4	%)
Oil & Gas (1)			163.2			163.5			(0.3	)		(0.2	%)
Power			292.0			300.3			(8.3	)		(2.8	%)
Industrial (1)			295.0			291.4			3.6			1.2	%
Total revenues, net of eliminations		$	2,361.5		$	2,319.8		$	41.7			1.8	%

(1)   Historically, we have included revenues from the oil & gas market sector as part of our presentation of revenues from the industrial & commercial market sector.  Effective at the beginning of our 2012 fiscal year, we revised our presentation to show our revenues from the oil & gas market sector separately.  In addition, we changed the name of our “industrial and commercial” market sector to the “industrial” market sector.  For comparative purposes, we reclassified the prior period’s data to conform them to the current period’s presentation.

Consolidated Revenues by Market Sectors

Our consolidated revenues for the three months ended March 30, 2012 were $2.4 billion, an increase of $41.7 million, or 1.8%, compared with the three months ended April 1, 2011.   See the discussion of revenues by market sector below for more detail.

Federal

	Three Months Ended
											Percentage
	March 30,			April 1,			Increase				Increase
(In millions, except percentages)	2012			2011			(Decrease)				(Decrease)
Federal Market Sector:
Infrastructure & Environment		$	179.3		$	160.1		$	19.2			12.0	%
Federal Services			717.0			580.9			136.1			23.4	%
Energy & Construction			277.0			323.5			(46.5	)		(14.4	%)
Federal Total		$	1,173.3		$	1,064.5		$	108.8			10.2	%

Consolidated revenues from our federal market sector for the three months ended March 30, 2012  increased compared with the three months ended April 1, 2011.  The increase in revenues in the federal sector was primarily the result of our strong performance on contracts with the U.S. Army to manage the destruction of the U.S. chemical weapons stockpile located at chemical agent disposal facilities, which resulted in the award of incentive fees for the early completion of project milestones.  These results also reflect the growth of our business in the federal IT market through the acquisition of Apptis, which we acquired on June 2, 2011.  For the quarter ended March 30, 2012, Apptis generated revenues of $59.7 million.  We also experienced growth in revenues from the services we provide to detect, secure and eliminate weapons of mass destruction at locations worldwide.

36

Table of contents

Although we experienced increased demand for work performed for the DOD to maintain, repair and overhaul aircraft, ground vehicles and other equipment returning from military operations in the Middle East, and to design and build military facilities and upgrade related infrastructure, these increases were partially offset by a decline in revenues from the systems engineering and technical assistance services we provide to the DOD for the development, testing and evaluation of new weapons systems and the modernization of aging weapons systems.  The decline in revenues from these activities was largely due to delays in the award of new contracts and task orders under existing contracts.  During the quarter, revenues also declined from the nuclear management services we provide to the DOE, due largely to the completion of cleanup and closure services at a former nuclear fuel reprocessing facility and lower construction activity associated with the decommissioning of a national laboratory.

Infrastructure

	Three Months Ended
											Percentage
	March 30,			April 1,			Increase				Increase
(In millions, except percentages)	2012			2011			(Decrease)				(Decrease)
Infrastructure Market Sector:
Infrastructure & Environment		$	384.3		$	394.1		$	(9.8	)		(2.5	%)
Federal Services			—			—			—			—
Energy & Construction			53.7			106.0			(52.3	)		(49.3	%)
Infrastructure Total		$	438.0		$	500.1		$	(62.1	)		(12.4	%)

Consolidated revenues from our infrastructure market sector for the three months ended March 30, 2012 decreased compared with the three months ended April 1, 2011.  The decline in infrastructure revenues was primarily due to the completion of a levee construction project in New Orleans, which experienced higher levels of activity in the comparable period last year, as well as a project close-out and settlement agreement reached on a light rail project in the comparable period last year.  In addition, revenues declined from the services we provide to modernize and expand infrastructure, including surface and air transportation networks; water storage, conveyance and treatment systems; and many types of facilities.  Although we benefited from high levels of procurement activity and an increase in our backlog of infrastructure work during our 2011 fiscal year, we experienced a delay in notices to proceed during the quarter.  These declines were partially offset by the growth of our infrastructure business outside the U.S., most notably on projects in the U.K.

37

Table of contents

Oil & Gas

	Three Months Ended
											Percentage
	March 30,			April 1,			Increase				Increase
(In millions, except percentages)	2012			2011			(Decrease)				(Decrease)
Oil & Gas Market Sector: (1)
Infrastructure & Environment		$	124.7		$	102.4		$	22.3			21.8	%
Federal Services			—			—			—			—
Energy & Construction			38.5			61.1			(22.6	)		(37.0	%)
Oil & Gas Total		$	163.2		$	163.5		$	(0.3	)		(0.2	%)

(1)   Historically, we have included revenues from the oil & gas market sector as part of our presentation of revenues from the industrial & commercial market sector.  Effective at the beginning of our 2012 fiscal year, we revised our presentation to show our revenues from the oil & gas market sector separately.  In addition, we changed the name of our “industrial and commercial” market sector to the “industrial” market sector.  For comparative purposes, we reclassified the prior period’s data to conform them to the current period’s presentation.

Consolidated revenues from our oil & gas market sector for the three months ended March 30, 2012 decreased slightly compared with the three months ended April 1, 2011.  During the quarter, we continued to benefit from strong demand for the environmental and engineering services we provide to multinational oil and gas clients at facilities worldwide through long-term MSAs.  Revenues also increased due to high levels of activity on an assignment to construct a natural gas storage facility in Louisiana.  These increases were offset by a decline in revenues resulting from the completion of a construction project at an oil refinery in Illinois, which has not been replaced by a project of a similar size.

Power

	Three Months Ended
											Percentage
	March 30,			April 1,			Increase				Increase
(In millions, except percentages)	2012			2011			(Decrease)				(Decrease)
Power Market Sector:
Infrastructure & Environment		$	55.4		$	52.8		$	2.6			4.9	%
Federal Services			—			—			—			—
Energy & Construction			236.6			247.5			(10.9	)		(4.4	%)
Power Total		$	292.0		$	300.3		$	(8.3	)		(2.8	%)

Consolidated revenues from our power market sector for the three months ended March 30, 2012 decreased compared with the three months ended April 1, 2011.  During the first quarter of 2012, the modest decline in revenues was related to decreased activity on an air quality control project and a new generation construction project.  Revenues also decreased due to lower activity on a nuclear services project to repair a nuclear power plant containment.  Similar projects currently underway are in early engineering and construction stages, which are characterized by lower activity.  During the quarter, we continued to benefit from sustained demand for the engineering and construction services we provide to retrofit coal-fired power plants with clean air technologies to comply with emissions control mandates.  Revenues also increased from the compliance, permitting and remediation services we provide to power companies to assist them in meeting regulatory requirements and mitigating the environmental impact of their operations.  In addition, demand grew for the services we provide to upgrade and modernize transmission and distribution systems.

38

Table of contents

Industrial

	Three Months Ended
											Percentage
	March 30,			April 1,			Increase				Increase
(In millions, except percentages)	2012			2011			(Decrease)				(Decrease)
Industrial Market Sector: (1)
Infrastructure & Environment		$	183.5		$	188.2		$	(4.7	)		(2.5	%)
Federal Services			—			—			—			—
Energy & Construction			111.5			103.2			8.3			8.0	%
Industrial Total		$	295.0		$	291.4		$	3.6			1.2	%

(1)   Historically, we have included revenues from the oil & gas market sector as part of our presentation of revenues from the industrial & commercial market sector.  Effective at the beginning of our 2012 fiscal year, we revised our presentation to show our revenues from the oil & gas market sector separately.  In addition, we changed the name of our “industrial and commercial” market sector to the “industrial” market sector.  For comparative purposes, we reclassified the prior period’s data to conform them to the current period’s presentation.

Consolidated revenues from our industrial market sector for the three months ended March 30, 2012 increased compared with the three months ended April 1, 2011.  During the quarter, revenues increased from an engineering and construction contract for a manufacturing facility.  In addition, we benefited from steady demand for facilities management services among our manufacturing clients.  By contrast, revenues declined from the environmental, engineering and construction services we provide to our mining clients, primarily as a result of the completion of a large-scale engineering and construction project in Australia, which has not been replaced by a comparable assignment.

39

Table of contents

RESULTS OF OPERATIONS

The Three Months Ended March 30, 2012 Compared with the Three Months Ended April 1, 2011

Consolidated

	Three Months Ended
										Percentage
	March 30,			April 1,			Increase			Increase
	2012			2011			(Decrease)			(Decrease)
(In millions, except percentages and per share amounts)				As Revised(1)
Revenues	$	2,361.5		$	2,319.8		$	41.7			1.8	%
Cost of revenues		(2,203.2	)		(2,202.7	)		0.5			0.0	%
General and administrative expenses		(17.5	)		(22.4	)		(4.9	)		(21.9	%)
Acquisition-related expenses		(5.6	)		—			5.6			N/M
Equity in income of unconsolidated joint ventures		28.7			37.4			(8.7	)		(23.3	%)
Operating income		163.9			132.1			31.8			24.1	%
Interest expense		(9.8	)		(5.2	)		4.6			88.5	%
Income before income taxes		154.1			126.9			27.2			21.4	%
Income tax expense		(48.6	)		(39.0	)		9.6			24.6	%
Net income including noncontrolling interests		105.5			87.9			17.6			20.0	%
Noncontrolling interests in income of consolidated subsidiaries, net of tax		(25.8	)		(25.8	)		—			—
Net income attributable to URS	$	79.7		$	62.1		$	17.6			28.3	%
Diluted earnings per share	$	1.07		$	0.79		$	0.28			35.4	%

N/M = Not meaningful

(1)   Prior year amounts have been revised to correct the calculation and previously reported presentation of income tax expense, net income including noncontrolling interests and noncontrolling interests in income of consolidated subsidiaries.  See Note 1, “Business, Basis of Presentation, and Accounting Policies” to our “Condensed Consolidated Financial Statements” included under Item 1 of this report for a more detailed discussion.

40

Table of contents

Revenues

	Infrastructure
	&			Federal			Energy &
(In millions, except percentages)	Environment			Services (1)			Construction			Eliminations			Total
Three months ended
March 30, 2012	$	964.2		$	717.1		$	725.7		$	(45.5	)	$	2,361.5
April 1, 2011		909.9			581.1			866.4			(37.6	)		2,319.8
Increase (decrease)		54.3			136.0			(140.7	)		7.9			41.7
Percentage increase (decrease)		6.0	%		23.4	%		(16.2	%)		21.0	%		1.8	%

(1)   The operating results of Apptis were included in the three months ended March 30, 2012, but not in the three months ended April 1, 2011, as we completed the acquisition in June 2011.

The revenues reported are presented prior to the elimination of inter-segment transactions.  Our analysis of the changes in revenues by reporting segment is discussed below.

The Infrastructure & Environment Division’s Revenues

The Infrastructure & Environment Division’s revenues increased during the quarter ended March 30, 2012 compared to the quarter ended April 1, 2011. The increase was primarily due to strong demand during the quarter for the environmental and engineering work we perform under MSAs for multinational corporations, particularly among our clients in the oil and gas industry.  Revenues also increased from the compliance, permitting and remediation services we provide to power companies to assist them in meeting regulatory requirements and mitigating the environmental impact of their operations.  In addition, we experienced increased activity on projects for the DOD, involving the design and construction of military facilities and the upgrade of related infrastructure, as well as from our work for the Federal Emergency Management Agency providing disaster response and recovery services following natural disasters.

By contrast, revenues declined from the services we provide to modernize and expand infrastructure, including surface and air transportation networks; water storage, conveyance and treatment systems; and other facilities.  Although we benefited from high levels of procurement activity and an increase in our backlog of infrastructure work during our 2011 fiscal year, we experienced a delay in notices to proceed during the quarter.  These declines were partially offset by the growth of our infrastructure business outside the U.S., most notably on projects in the U.K.

The Federal Services Division’s Revenues

The Federal Services Division’s revenues increased during the quarter ended March 30, 2012 compared to the quarter ended April 1, 2011. The increase was primarily due to the recognition of $86.1 million in performance-based incentive fees from our work managing chemical demilitarization programs in the U.S, as well as revenues associated with new awards of operations and installations management support contracts.  We also benefitted from strong demand for the services we provide to maintain and repair military vehicles and aircraft. In addition, revenues increased from the growth of our federal IT services business as a result of the acquisition of Apptis, which generated $59.7 million in revenues for the three months ended March 30, 2012.  These increases were partially offset by a decrease in revenues from the services we provide to modernize aging weapons systems and develop new systems.  The decline in revenues from these activities was primarily due to delays in the award of new contracts and task orders under existing contracts.

The Energy & Construction Division’s Revenues

The Energy & Construction Division’s revenues decreased during the quarter ended March 30, 2012 compared to the quarter ended April 1, 2011.  The decrease was primarily due to the timing of the completion of projects, compared to the start-up of replacement projects.  Revenues earned during the engineering and early construction phases of a project tend to be lower than revenues earned during full construction.  During the three months ended April 1, 2011, there were more projects in full construction compared to the first quarter of 2012. As a result, revenues for the three months ended March 30, 2012 were relatively lower than for the first quarter of 2011.

41

Cost of Revenues

	Infrastructure
	&			Federal			Energy &
(In millions, except percentages)	Environment			Services (1)			Construction			Eliminations			Total
Three months ended
March 30, 2012	$	(919.1	)	$	(625.7	)	$	(703.9	)	$	45.5		$	(2,203.2	)
April 1, 2011		(855.2	)		(546.8	)		(838.3	)		37.6			(2,202.7	)
Increase (decrease)		63.9			78.9			(134.4	)		7.9			0.5
Percentage increase (decrease)		7.5	%		14.4	%		(16.0	%)		21.0	%		0.0	%

(1)   The operating results of Apptis were included in the three months ended March 30, 2012, but not in the three months ended April 1, 2011, as we completed the acquisition in June 2011.

Our consolidated cost of revenues, which consists of labor, subcontractor costs, and other expenses related to projects, and services provided to our clients, were flat for the three months ended March 30, 2012 compared with the three months ended April 1, 2011.  Because our revenues are primarily project-based, the factors that generally caused revenues to increase also drove a corresponding increase in our cost of revenues.  For the first quarter of fiscal 2012, our revenues from the Federal Services Division increased faster than cost of revenues, primarily due to the recognition of project performance-based incentive fees on various projects.  For the first quarter of fiscal 2012, our Infrastructure & Environment Division’s cost of revenues increased faster than revenues due primarily to the higher use of subcontractors. Consolidated cost of revenues as a percent of revenues decreased from 95.0% for the three months ended April 1, 2011 to 93.3% for the three months ended March 30, 2012.  See “Operating Income” for further discussion.

General and Administrative Expenses

Our consolidated general and administrative (“G&A”)expenses for the three months ended March 30, 2012 decreased by 21.9% compared with the three months ended April 1, 2011.  Consolidated G&A expenses as a percent of revenues was 0.7% for the three months ended March 30, 2012 compared to 1.0% for the three months ended April 1, 2011.  The decrease was primarily caused by decreases in employee incentive expenses and a gain of $2.5 million recognized on foreign currency forward contracts during the first quarter of 2012.  We entered into these contracts to hedge our exposure to foreign currency transaction risk related to the funding in Canadian dollars of our pending acquisition of Flint.

Acquisition-related Expenses

Our consolidated acquisition-related expenses for the three months ended March 30, 2012 were $5.6 million.  These expenses consisted of expenses related to our pending acquisition of Flint, which included legal fees, consultation fees, travel expenses, and other miscellaneous direct and incremental administrative expenses associated with the acquisition.

Equity in Income of Unconsolidated Joint Ventures

	Infrastructure
	&				Federal				Energy &
	Environment				Services				Construction			Total
(In millions, except percentages)
Three months ended
March 30, 2012		$	0.8			$	1.6		$	26.3		$	28.7
April 1, 2011			1.0				1.5			34.9			37.4
Increase (decrease)			(0.2	)			0.1			(8.6	)		(8.7	)
Percentage increase (decrease)			(20.0	%)			6.7	%		(24.6	%)		(23.3	%)

42

Our consolidated equity in income of unconsolidated joint ventures for the three months ended March 30, 2012 decreased compared with the three months ended April 1, 2011.  The variances for the three-month period comparisons were primarily attributable to an $8.8 million decrease in earnings from nuclear management, operations and cleanup projects in the U.K. and a $4.1 million decrease due to lower activity at a DOE nuclear cleanup project performed by the Energy & Construction Division, which was partially offset by a $3.7 million impact related to a prior comparative period loss compared to a current period settlement of $2.7 million on a highway construction project performed by the Energy & Construction Division.

Operating Income

	Infrastructure
	&				Federal			Energy &
(In millions, except percentages)	Environment				Services (1)			Construction			Corporate			Total
Three months ended
March 30, 2012		$	45.9		$	93.0		$	48.1		$	(23.1	)	$	163.9
April 1, 2011			55.7			35.8			63.0			(22.4	)		132.1
Increase (decrease)			(9.8	)		57.2			(14.9	)		0.7			31.8
Percentage increase (decrease)			(17.6	%)		159.8	%		(23.7	%)		3.1	%		24.1	%

(1)   The operating results of Apptis were included in the three months ended March 30, 2012, but not in the three months ended April 1, 2011, as we completed the acquisition in June 2011.

As a percentage of revenues, operating income for the three months ended March 30, 2012 was 6.9% compared to 5.7% for the three months ended April 1, 2011.  The increase in operating income was primarily due to the recognition of performance-based incentive fees from work performed by our Federal Services Division managing chemical demilitarization programs in the U.S.  This increase was partially offset by the wind down of projects and a decrease in equity in income of unconsolidated joint ventures described above.   See the detailed discussion in operating income by segment below.

The Infrastructure & Environment Division’s Operating Income

Operating income as a percentage of revenues was 4.8% for the three months ended March 30, 2012 compared to 6.1% for the three months ended April 1, 2011.  The decrease in operating income was caused by the higher use of subcontractors, which provides lower profit margins than activities performed directly by our employees; a legal settlement in Australia; higher administrative, benefit and severance costs; and increased amortization on an acquired trade name due to the shortening of its estimated useful life.  Overhead costs as a percentage of revenues, decreased from 33.4% for the three months ended April 1, 2011 to 33.2% for the three months ended March 30, 2012.

The Federal Service Division’s Operating Income

Operating income as a percentage of revenues was 13.0% for the three months ended March 30, 2012 compared to 6.2% for the three months ended April 1, 2011.  The increase in operating income was primarily due to the recognition of $63.0 million, net of amounts payable to employees, in performance-based incentive fees from our work managing chemical demilitarization programs in the U.S.  This increase was partially offset by delayed awards of new task orders under existing contracts.

43

Table of contents

The Energy & Construction Division’s Operating Income

Operating income as a percentage of revenues was 6.6% for the three months ended March 30, 2012 compared to 7.3% for the three months ended April 1, 2011.  The decrease in operating income was primarily due to a decrease of $8.8 million in earnings during the current quarter related to nuclear management, operations and cleanup projects in the U.K., as well as relatively higher earnings in the comparative period of 2011 resulting from the recognition of $12.7 million in target cost savings from an air quality control services project and receipt of a $5.0 million global settlement on a light rail project. These decreases in the current period was partially offset by an increase of $11.6 million, consisting of a $3.1 million current period insurance recovery as compared to a prior period loss of $8.5 million, on a common sulfur project.

Interest Expense

Our consolidated interest expense for the three months ended March 30, 2012 increased by $4.6 million or 88.5% compared with the three months ended April 1, 2011.  This increase was primarily due to financing fees of $2.9 million incurred on a senior unsecured bridge facility, which we entered into in connection with our pending acquisition of Flint, and interest expense of $1.7 million incurred on the Senior Notes we issued during the first quarter of fiscal 2012.

Income Tax Expense

Our effective income tax rates for the three months ended March 30, 2012 increased to 31.5% from 30.7% for the three months ended April 1, 2011.

44

Table of contents

LIQUIDITY AND CAPITAL RESOURCES

	Three Months Ended
	March 30,				April 1,
(In millions)	2012				2011
Cash flows from operating activities		$	(16.4	)		$	110.9
Cash flows from investing activities			(10.6	)			(19.9	)
Cash flows from financing activities			900.5				(177.2	)

Overview

Our primary sources of liquidity are collections of accounts receivable from our clients, dividends from our unconsolidated joint ventures and borrowings from our Senior Notes, term loan, and lines of credit.  Our primary uses of cash are to fund working capital, income tax payments, and capital expenditures; to service our debt; to pay dividends; to repurchase our common stock; and to make distributions to the noncontrolling interests in our consolidated joint ventures.

Our cash flows from operations are primarily impacted by fluctuations in working capital requirements, which are affected by numerous factors, including the billing and payment terms of our contracts, stage of completion of contracts performed by us, the timing of payments to vendors, subcontractors, and joint ventures, and the changes in income tax and interest payments, or unforeseen events or issues that may have an impact on our working capital.

Liquidity

Cash and cash equivalents include all highly liquid investments with maturities of 90 days or less at the date of purchase, including interest-bearing bank deposits and money market funds.  At March 30, 2012 and December 30, 2011, restricted cash was $19.3 million and $21.0 million, respectively, which amounts were included in “Other current assets” on our Condensed Consolidated Balance Sheets.  At March 30, 2012 and December 30, 2011, cash and cash equivalents included $77.1 million and $91.4 million, respectively, of cash held by our consolidated joint ventures, which is available only to fund activities and obligations related to the joint ventures.

Accounts receivable and costs and accrued earnings in excess of billings on contracts (also referred to as “Unbilled Accounts Receivable”)represent our primary sources of cash inflows from operations.  Unbilled Accounts Receivable represents amounts that will be billed to clients as soon as invoice support can be assembled, reviewed and provided to our clients, or when specific contractual billing milestones are achieved.  In some cases, Unbilled Accounts Receivable may not be billable for periods generally extending from two to six months and, rarely, beyond a year.  As of March 30, 2012 and December 30, 2011, significant unapproved change orders and claims, which are included in Unbilled Accounts Receivable, collectively represented approximately 2% in each period of our gross accounts receivable and Unbilled Accounts Receivable.

Net Accounts Receivable, which is comprised of Accounts receivable and Unbilled Accounts Receivable, net of receivable allowances, at March 30, 2012 was $2.5 billion, an increase of $79.4 million, or 3.3% over the balance at December 30, 2011.  The increase was primarily the result of $40.5 million from accruals related to large performance-based incentive awards, $18.8 million from new project activity, and $5.1 million from project invoices returned for re-submittal to match the client’s billing format. The remaining difference relates to normal flows within the billing cycle.

All accounts receivable and Unbilled Accounts Receivable are evaluated on a regular basis to assess the risk of collectability and allowances are provided as deemed appropriate.  Based on the nature of our customer base, including U.S. federal, state and local governments and large reputable companies, and contracts, we have not historically experienced significant write-offs related to receivables and Unbilled Accounts Receivable.  The size of our allowance for uncollectible receivables as a percentage of the combined totals of our accounts receivable and Unbilled Accounts Receivable is indicative of our history of successfully billing and collecting from our clients.

45

Table of contents

As of March 30, 2012 and December 30, 2011, our receivable allowances represented 1.54% and 1.77%, respectively, of the combined total accounts receivable and Unbilled Accounts Receivable.  We believe that our allowance for doubtful accounts receivable as of March 30, 2012 is adequate.  We have placed significant emphasis on collection efforts and continually monitor our receivables allowance.  However, future economic conditions may adversely affect the ability of some of our clients to make payments or the timeliness of their payments; consequently, it may also affect our ability to consistently collect cash from our clients to meet our operating needs.  The other significant factors that typically affect our realization of our accounts receivable include the billing and payment terms of our contracts, as well as the stage of completion of our performance under the contracts.  Our operating cash flows may also be affected by changes in contract terms or the timing of advance payments to our joint ventures, partnerships and partially-owned limited liability companies relative to the contract collection cycle.  In addition, substantial advance payments or billings in excess of costs also have an impact on our liquidity.  Billings in excess of costs as of March 30, 2012 and December 30, 2011 were $250.6 million and $310.8 million, respectively.

We believe that we have sufficient resources to fund our operating and capital expenditure requirements, to fund our pending acquisition of Flint, to pay income taxes, and to service our debt for at least the next twelve months.  In the ordinary course of our business, we may experience various loss contingencies including, but not limited to, the pending legal proceedings identified in Note 14, “Commitments and Contingencies,” to our Condensed Consolidated Financial Statements included under Part 1 ­-  Item 1 of this report, which may adversely affect our liquidity and capital resources.

Pending Acquisition

On February 20, 2012, we entered into a definitive agreement to acquire all of the outstanding shares of Flint for C$25.0 per share in cash, or approximately C$1.25 billion (US$1.25 billion as of February 20, 2012).  We also will assume approximately C$175.0 million (US$175.0 million as of February 20, 2012) in outstanding face value of bonds and other additional indebtedness from Flint.  The fair value to be assigned to the bonds upon closing may be materially different than the current face value.  Assuming completion of the acquisition, Flint will operate as a new division of URS.  We expect to close this transaction during the second quarter of 2012.

On March 15, 2012, we issued two Senior Notes with an aggregate principal amount of $1.0 billion.  We intend to use the net proceeds from the notes together with borrowings from our 2011 Credit Facility to finance our pending acquisition of Flint.  See Note 8, “Indebtedness,” to our Condensed Consolidated Financial Statements included under Part 1 - Item 1 of this report, for more information regarding the Senior Notes.

Dividend Program

On February 24, 2012, our Board of Directors approved the initiation of a regular quarterly cash dividend program.  The Board authorized an initial $0.20 per common share quarterly dividend, which was equal to $15.2 million in the aggregate, with a record date of March 16, 2012 and a payment date of April 6, 2012.  

On May 4, 2012, we declared a quarterly cash dividend of $0.20 per common share for the second quarter of 2012 to be paid on July 6, 2012 with a record date of June 15, 2012.  Future dividends are subject to approval by our Board of Directors, or pursuant to delegated authority, the Audit Committee of the Board.

Operating Activities

The decrease in cash flows from operating activities for the three months ended March 30, 2012, compared to the three months ended April 1, 2011, was primarily due to the timing of: billings and collections from clients on accounts receivables, advance project payments from clients, 401(k) payments, and project performance payments, partially offset by a decrease in income tax payments.

46

Table of contents

In 2011, we merged the Energy & Construction Division’s 401(k) plan into the company-wide 401(k) plan and the timing of employer contributions was shifted from a bi-weekly basis to an annual basis.  Prior to the merger of the plan, we generally made the employer contributions for the Energy & Construction Division’s 401(k) plan within the same fiscal year in which the benefits were earned.  Under the merged plan, we expect to pay the contributions in the first quarter after the fiscal year ends.  Due to the difference in timing of contributions made, we paid $37.5 million more in contributions during the first quarter of 2012 compared to the same period last year.  If the plans were not merged, the majority of these contributions would have been made in 2011.

We use Days Sales Outstanding (“DSO”) to monitor the average time, in days, that it takes us to convert our accounts receivable into cash.  DSO also is a useful tool for investors to measure our liquidity and understand our average collection period.  We calculate DSO by dividing net accounts receivable less billings in excess of costs and accrued earnings on contracts as of the end of the quarter into the amount of revenues recognized during the quarter, and multiplying the result of that calculation by the number of days in that quarter.  Our DSO increased from 79 days as of December 30, 2011 to 85 days as of March 30, 2012.  The increase was primarily due to the timing of billings and payments from clients on our accounts receivable.

Investing Activities

Cash flows used for investing activities of $10.6 million during the three months ended March 30, 2012 consisted of the following significant activities:

·   capital expenditures, excluding purchases financed through capital leases and equipment notes, of $17.8 million; and

·   disbursements related to advances to unconsolidated joint ventures of $4.0 million.

These cash flows were partially offset by:

·   proceeds from disposal of property and equipment of $9.5 million mainly resulting from the residual payment received on the close out and settlement of mining projects in Jamaica.

Cash flows used for investing activities of $19.9 million during the three months ended April 1, 2011 consisted of the following significant activities:

·   capital expenditures, excluding purchases financed through capital leases and equipment notes, of $11.0 million; and

·   disbursements related to advances to unconsolidated joint ventures of $7.2 million.

For the remainder of fiscal year 2012, we expect to incur approximately $57 million in capital expenditures, a portion of which will be financed through capital leases or equipment notes.

47

Table of contents

Financing Activities

Cash flows generated from financing activities of $900.5 million during the three months ended March 30, 2012 consisted of the following significant activities:

·   proceeds of our Senior Notes, net of debt discount and issuance costs, of $990.2 million.

These cash flows were partially offset by:

·   net payments on our revolving line of credit of $23.6 million;

·   repurchases of our common stock of $40.0 million; and

·   distributions to noncontrolling interests of consolidated joint ventures of $15.5 million.

Cash flows used for financing activities of $177.2 million during the three months ended April 1, 2011 consisted of the following significant activities:

·   repurchases of our common stock of $136.7 million;

·   net change in overdrafts of $18.6 million; and

·   distributions to noncontrolling interests of consolidated joint ventures of $15.6 million.

48

Table of contents

Contractual Obligations and Commitments

The following table contains information about our contractual obligations and commercial commitments as of March 30, 2012:

Contractual Obligations	Payments and Commitments Due by Period
(Debt payments include principal only)			Less Than						After
(In millions)	Total		1 Year		1-3 Years		4-5 Years		5 Years		Other
As of March 30, 2012:
2011 Credit Facility (1)	$	700.0	$	17.5	$	105.0	$	577.5	$	—	$	—
3.85% Senior Notes (2)		400.0		—		—		—		400.0		—
5.00% Senior Notes (2)		600.0		—		—		—		600.0		—
Capital lease obligations (1)		22.8		10.1		9.1		3.6		—		—
Notes payable, foreign credit lines and    other indebtedness		48.5		35.9		9.9		2.7		—		—
Total debt		1,771.3		63.5		124.0		583.8		1,000.0		—
Operating lease obligations (3)		716.5		158.6		238.5		139.5		179.9		—
Pension and other retirement plans    funding requirements (4)		500.7		70.2		86.1		89.4		255.0		—
Interest (5)		463.1		38.9		128.0		123.5		172.7		—
Dividends payable (6)		15.2		14.9		0.3		—		—		—
Purchase obligations (7)		13.3		8.1		5.2		—		—		—
Asset retirement obligations (8)		13.5		0.3		4.2		0.6		8.4		—
Other contractual obligations (9)		27.0		11.7		—		—		—		15.3
Total contractual obligations	$	3,520.6	$	366.2	$	586.3	$	936.8	$	1,616.0	$	15.3

(1)   Amounts shown exclude unamortized debt issuance costs of $4.6 million for our Senior Secured Credit Facility (“2011 Credit Facility”).  For capital lease obligations, amounts shown exclude interest of $1.7 million.

(2)   Amounts shown exclude unamortized discount for the Senior Notes of $1.1 million.  The net proceeds of the Senior Notes are intended to be used for the pending acquisition of Flint.  If the pending acquisition is not consummated prior to September 6, 2012, we will be required to redeem the Senior Notes.  See further discussion in the “Senior Notes” section below.

(3)   Operating leases are predominantly real estate leases.

(4)   Amounts consist of estimated pension and other retirement plan funding requirements for various pension, post-retirement, and other retirement plans.

(5)   Interest for the next five years, which excludes non-cash interest, is determined based on the current outstanding balance of our debt and payment schedule at the estimated interest rate.

(6)   On February 24, 2012, our Board of Directors authorized a dividend payment of $0.20 per share with a record date of March 16, 2012 and a payment date of April 6, 2012.  Dividends for unvested restricted stock awards and units will be paid upon vesting.  Future dividends are subject to approval by our Board of Directors or, pursuant to delegated authority, the Audit Committee of the Board.

(7)   Purchase obligations consist primarily of software maintenance contracts.

(8)   Asset retirement obligations represent the estimated costs of removing and restoring our leased properties to the original condition pursuant to our real estate lease agreements.

(9)   Other contractual obligations include net liabilities for anticipated settlements and interest under our tax liabilities, accrued benefit for our executives pursuant to their employment agreements, and our contractual obligations to joint ventures.  Generally, it is not practicable to forecast or estimate the payment dates for the above-mentioned tax liabilities.  Therefore, we included the estimated liabilities under “Other contractual obligations” above.

49

Table of contents

Off-balance Sheet Arrangements

In the ordinary course of business, we may use off-balance sheet arrangements if we believe that such an arrangement would be an efficient way to lower our cost of capital or help us manage the overall risks of our business operations.  We do not believe that such arrangements have had a material adverse effect on our financial position or our results of operations.

The following is a list of our off-balance sheet arrangements:

·   Letters of credit and bank guarantees are used primarily to support project performance, insurance programs, bonding arrangements and real estate leases.  We are required to reimburse the issuers of letters of credit and bank guarantees for any payments they make under the outstanding letters of credit or bank guarantees.  Our 2011 Credit Facility and our international credit facilities cover the issuance of our standby letters of credit and bank guarantees and are critical for our normal operations.  If we default on the 2011 Credit Facility or international credit facilities, we would be unable to issue or renew standby letters of credit and bank guarantees, which would impair our ability to maintain normal operations.  As of March 30, 2012, we had $107.7 million in standby letters of credit outstanding under our 2011 Credit Facility and $37.1 million in bank guarantees outstanding under foreign credit facilities and other banking arrangements.

·   We have agreed to indemnify one of our joint venture partners up to $25.0 million for any potential losses, damages, and liabilities associated with lawsuits in relation to general and administrative services we provide to the joint venture.  Currently, we have not been advised of any indemnified claims under this guarantee.

·   We have guaranteed a letter of credit issued on behalf of one of our consolidated joint ventures.  The total amount of the letter of credit was $0.9 million as of March 30, 2012.

·   We have guaranteed several of our foreign credit facilities and bank guarantee lines.  The aggregate amount of these guarantees was $66.9 millionas of March 30, 2012.

·   From time to time, we provide guarantees and indemnifications related to our services or work.  If our services under a guaranteed or indemnified project are later determined to have resulted in a material defect or other material deficiency, then we may be responsible for monetary damages or other legal remedies.  When sufficient information about claims on guaranteed or indemnified projects is available and monetary damages or other costs or losses are determined to be probable, we recognize such guarantee losses.

·   In the ordinary course of business, we enter into various agreements providing performance assurances and guarantees to clients on behalf of certain unconsolidated subsidiaries, joint ventures, and other jointly executed contracts.  We enter into these agreements primarily to support the project execution commitments of these entities.  The potential payment amount of an outstanding performance guarantee is typically the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts.  However, we are not able to estimate other amounts that may be required to be paid in excess of estimated costs to complete contracts and, accordingly, the total potential payment amount under our outstanding performance guarantees cannot be estimated.  For cost-plus contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract.  For lump sum or fixed-price contracts, this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract.  Remaining billable amounts could be greater or less than the cost to complete.  In those cases where costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors, for claims.

·   In the ordinary course of business, our clients may request that we obtain surety bonds in connection with contract performance obligations that are not required to be recorded in our Consolidated Balance Sheets.  We are obligated to reimburse the issuer of our surety bonds for any payments made thereunder.  Each of our commitments under performance bonds generally ends concurrently with the expiration of our related contractual obligation.

50

Table of contents

2011 Credit Facility

As of both March 30, 2012 and December 30, 2011, the outstanding balance of the term loan under our 2011 Credit Facility was $700.0 million. As of March 30, 2012 and December 30, 2011, the interest rates applicable to the term loan were 1.74% and 1.80%, respectively. Loans outstanding under our 2011 Credit Facility bear interest, at our option, at the base rate or at the London Interbank Offered Rate (“LIBOR”) plus, in each case, an applicable per annum margin.  The applicable margin is determined based on the better of our debt ratings or our leverage ratio in accordance with a pricing grid.  The interest rate at which we normally borrow is LIBOR plus 150 basis points.

As of March 30, 2012, our consolidated leverage ratio was 2.5, which did not exceed the permitted consolidated leverage ratio of 3.0, and our consolidated interest coverage ratio was 32.4, which exceeded the minimum required consolidated interest coverage ratio of 3.0. We were in compliance with the covenants of our 2011 Credit Facility as of March 30, 2012.

Senior Notes

On March 15, 2012, we issued in a private placement $400.0 million aggregate principal amount of 3.85% Senior Notes due on April 1, 2017 and $600.0 million aggregate principal amount of 5.00% Senior Notes due on April 1, 2022.  As of March 30, 2012, the outstanding balance of the Senior Notes was $998.9 million, net of $1.1 million of discount.

Interest on the Senior Notes is payable semi-annually on April 1 and October 1 of each year beginning on October 1, 2012.  The net proceeds of the Senior Notes are intended to be used for the pending acquisition of Flint.  If the pending acquisition is not consummated prior to September 6, 2012, we will be required to redeem the Senior Notes at a price equal to 101% of the principal amount plus accrued and unpaid interest.  We may, redeem the notes, in whole or in part at any time and from time to time, at a price equal to 100% of the principal amount, plus a "make-whole" premium and accrued and unpaid interest as described in the indenture.  In addition, we may redeem all or a portion of the 5.00% Senior Notes at any time on or after the date that is three months prior to the maturity date of those Senior Notes, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed.  We may also, at our option, redeem the Senior Notes, in whole, at 100% of the principal amount and accrued and unpaid interest upon the occurrence of certain events that result in an obligation to pay additional amounts as a result of certain specified changes in tax law described in the indenture.  Additionally, if a change of control triggering event occurs, as defined by the terms of the indenture, we will be required to offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of the purchase.  We are generally not limited under the indenture governing the Senior Notes in our ability to incur additional indebtedness provided we are in compliance with certain restrictive covenants, including restrictions on liens and restrictions on sale and leaseback transactions.

The Senior Notes are our general unsecured senior obligations and rank equally with our other existing and future unsecured senior indebtedness.  The Senior Notes are fully and unconditionally guaranteed (the “Guarantees”) by each of our current and future domestic subsidiaries that are guarantors under our 2011 Credit Facility or that are wholly owned domestic obligors or wholly owned domestic guarantors, individually or collectively, under any future indebtedness of our subsidiaries in excess of $100.0 million (the "Guarantors").  The Guarantees are the Guarantors’ unsecured senior obligations and rank equally with the Guarantors’ other existing and future unsecured senior indebtedness.

In connection with the sale of the Senior Notes, we entered into a registration rights agreement to file a registration statement with the SEC offering to exchange any privately placed Senior Notes with substantially similar notes, except that the newly exchanged notes will be unrestricted and freely tradable securities.  We will use commercially reasonable efforts to cause the registration statement to be declared effective by the SEC and complete the exchange offer by no later than March 15, 2013; otherwise we may be required to pay additional interest to the holders of the Senior Notes.

We were in compliance with the covenants of our Senior Notes as of March 30, 2012.

51

Revolving Line of Credit

Our revolving line of credit is used to fund daily operating cash needs and to support our standby letters of credit.  In the ordinary course of business, the use of our revolving line of credit is a function of collection and disbursement activities.  Our daily cash needs generally follow a predictable pattern that parallels our payroll cycles, which dictate, as necessary, our short-term borrowing requirements.

As of March 30, 2012 and December 30, 2011, we had no outstanding debt balance and $23.0 million on our revolving line of credit, respectively.  As of March 30, 2012, we had issued $107.7 million of letters of credit, leaving $892.3 million available under our revolving credit facility.

Other Indebtedness

Notes payable, Loan Notes, and foreign credit lines.  As of March 30, 2012 and December 30, 2011, we had outstanding amounts of $48.5 million and $53.1 million, respectively, in notes payable, five-year loan notes (“Loan Notes”), and foreign lines of credit.  The weighted-average interest rates of the notes were approximately 4.29% and 4.04% as of March 30, 2012 and December 30, 2011, respectively.  Notes payable primarily include notes used to finance the purchase of office equipment, computer equipment and furniture.

As of March 30, 2012 and December 30, 2011, we had $35.1 million and $33.7 million, respectively, in lines of credit available under all foreign facilities.  As of March 30, 2012 and December 30, 2011, the total outstanding debt balance of our foreign credit lines was $6.2 million and $10.5 million, respectively.

Capital Leases.  As of March 30, 2012 and December 30, 2011, we had obligations under our capital leases of approximately $22.8 million and $27.3 million, respectively, consisting primarily of leases for office equipment, computer equipment and furniture.

Operating Leases.  As of March 30, 2012 and December 30, 2011, we had obligations under our operating leases of approximately $716.5 million and $650.2 million, respectively, consisting primarily of real estate leases.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions in the application of certain accounting policies that affect amounts reported in our condensed consolidated financial statements and related footnotes included in Item 1 of this report.  In preparing these financial statements, we have made our best estimates and judgments of certain amounts, after considering materiality.  Application of these accounting policies, however, involves the exercise of judgment and the use of assumptions as to future uncertainties.  Consequently, actual results could differ from our estimates, and these differences could be material.

The accounting policies that we believe are most critical to an investor’s understanding of our financial results and condition and that require complex judgments by management are included in our Annual Report on Form 10-K, for the year ended December 30, 2011.  There were no material changes to these critical accounting policies during the three months ended March 30, 2012.

52

Table of contents

ADOPTED AND OTHER RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2 – “Adopted and Other Recently Issued Statements of Financial Accounting Standards,” to our Condensed Consolidated Financial Statements included under Part 1 – Item 1 of this report.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to changes in interest rates as a result of our borrowings under our 2011 Credit Facility.  Based on the outstanding term loan of $700.0 million under our 2011 Credit Facility, if market rates used to calculate interest expense were to average 1% higher in the next twelve months, our net-of-tax interest expense would increase by approximately $4.2 million.  As market rates are at historically low levels, the index rate used to calculate our interest expense cannot drop by the full 1% as our current variable index is 0.24%.  If our variable margin rate drops by 0.24%, it would lower our net-of-tax interest expense by approximately $1.0 million.  This analysis is computed taking into account the current outstanding term loan of our 2011 Credit Facility, assumed interest rates and current debt payment schedule.  The result of this analysis would change if the underlying assumptions were modified.

Foreign Currency Risk

The majority of our transactions are in U.S. dollars; however, our foreign subsidiaries conduct businesses in various foreign currencies.  Therefore, we are subject to currency exposures and volatility because of currency fluctuations.  We attempt to minimize our exposure to foreign currency fluctuations by matching our revenues and expenses in the same currency for our contracts.  From time to time, we purchase derivative financial instruments in the form of foreign currency exchange contracts to manage specific foreign currency exposures.  Currently, we have several immaterial foreign currency contracts to cover the risks associated with our international operations.  We recorded a foreign currency translation gain of $21.1 million and a foreign currency translation gain of $13.1 million in “Other comprehensive income” for the three months ended March 30, 2012 and April 1, 2011, respectively.

In March 2012, we entered into five foreign currency forward contracts with an aggregated notional amount of C$1.25 billion (equivalent to US$1.25 billion as of March 30, 2012) with maturity windows ranging from March 7, 2012 to May 31, 2012.  The primary objective of the contracts is to manage our exposure to foreign currency transaction risk related to the funding of our pending acquisition of Flint in Canadian dollars.  We expect to close the pending acquisition, subject to the receipt of regulatory approval and satisfaction or waiver of customary closing conditions, during the second quarter of 2012.

53

ITEM 4.  CONTROLS AND PROCEDURES

Attached as exhibits to this Form 10-Q are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").  This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding.

Evaluation of Disclosure Controls and Procedures

Based on our management’s evaluation, with the participation of our CEO and CFO, of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), our CEO and CFO have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report, to provide reasonable assurance that the information required to be disclosed by us in the reports that we filed or submitted to the Securities and Exchange Commission (“SEC”) under the Exchange Act were (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The company’s management, including the CEO and CFO, has designed our disclosure controls and procedures and our internal control over financial reporting to provide reasonable assurances that the controls’ objectives will be met.  However, management does not expect that disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.  The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any system’s design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of a system’s control effectiveness into future periods are subject to risks.  Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II

OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Various legal proceedings are pending against our subsidiaries and us.  The resolution of outstanding claims and litigation is subject to inherent uncertainty, and it is reasonably possible that resolution of any of the outstanding claims or litigation matters could have a material adverse effect on us.  See Note 14, “Commitments and Contingencies,” to our “Condensed Consolidated Financial Statements” included under Part 1 – Item 1 of this report for a discussion of our legal proceedings, which is incorporated herein by reference.

54

Table of contents

ITEM 1A.  RISK FACTORS

In addition to our other disclosures set forth or incorporated by reference in this quarterly report on Form 10-Q, the following risk factors could also affect our financial condition and results of operations:

Demand for our services is cyclical and vulnerable to economic downturns and reductions in government and private industry spending.  If the economy remains weak or client spending declines further, then our revenues, profits and our financial condition may deteriorate.

Demand for our services is cyclical and vulnerable to economic downturns and reductions in government and private industry spending, which has resulted and may continue to result in delays, curtailment or cancellation of proposed and existing projects.  Our clients have been affected by weak economic conditions caused by past declines in the global economy and constraints in the credit market.  As a result, some clients delayed, curtailed or cancelled proposed and existing projects and may continue to do so.  For example, as of March 30, 2012, our book of business was flat compared to the end of our 2011 fiscal year.  In addition, our clients may find it more difficult to raise capital in the future due to limitations on the availability of credit and other uncertainties in the federal, municipal and corporate credit markets, especially in light of the downgrade by Standard & Poor’s of U.S. sovereign debt.  Also, our clients may demand more favorable pricing terms and find it increasingly difficult to timely pay invoices for our services, which would impact our future cash flows and liquidity.  In addition, any rapid changes in the prices of commodities make it difficult for our clients and us to forecast future capital expenditures.  Inflation or significant changes in interest rates could reduce the demand for our services.  Any inability to timely collect our invoices may lead to an increase in our accounts receivable and potentially to increased write-offs of uncollectible invoices.  If the economy remains weak or uncertain, or client spending declines further, then our revenues, book of business, net income and overall financial condition could deteriorate.

The Budget Control Act of 2011 could significantly reduce government spending for the services we provide.

On August 2, 2011, the Budget Control Act of 2011 (the “Budget Control Act”) was enacted, which could impose an estimated $1.2 trillion in future federal spending cuts if budget deficit targets are not achieved.  If the federal government does not meet the Budget Control Act targets or does not otherwise delay or change this legislation, then automatic across-the-board budget cuts, or sequestrations, will be mandated across the federal budget in fiscal year 2013.  Any significant reduction in federal government spending could reduce demand for our services, cancel or delay federal projects, and result in the closure of federal facilities, and significant personnel reductions, which could have a material adverse effect on our results of operation and financial condition.

Our failure to conduct due diligence effectively or our inability to integrate acquisitions successfully could impede us from realizing all of the benefits of the acquisition, which could severely weaken our results of operations.

Historically, we have used acquisitions as one way to expand our business.  For example, we have announced our proposed acquisition of Flint.  If we fail to conduct due diligence on our potential targets effectively, we may, for example, not identify problems at target companies or fail to recognize incompatibilities or other obstacles to successful integration.  Our inability to successfully integrate future acquisitions could impede us from realizing all of the benefits of those acquisitions and could severely weaken our business operations.  The integration process may disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could seriously harm our results of operations.  In addition, the overall integration of two combining companies may result in unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships, and diversion of management’s attention, and may cause our stock price to decline.  The difficulties of integrating an acquisition include, among others:

·   unanticipated issues in integrating information, communications and other systems;

·   unanticipated incompatibility of logistics, marketing and administration methods;

·   maintaining employee morale and retaining key employees;

·   integrating the business cultures of both companies;

·   preserving important strategic and customer relationships;

55

·   consolidating corporate and administrative infrastructures and eliminating duplicative operations;

·   the diversion of management’s attention from ongoing business concerns; and

·   integrating geographically separate organizations.

In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings, or sales or growth opportunities that we expect.  These benefits may not be achieved within the anticipated time frame, or at all.

If our goodwill or intangible assets become impaired, then our profits will be reduced.

If our goodwill or intangible assets become impaired, then our profits will be reduced.  For example, during the quarter ended September 30, 2011, a decline in our stock price and market capitalization triggered an interim impairment test, which resulted in a goodwill impairment charge of $825.8 million for the year ended December 30, 2011.  Goodwill may be impaired if the estimated fair value of one or more of our reporting units is less than the carrying value of the respective reporting unit.  Because we have grown in part through acquisitions, goodwill and other intangible assets represent a substantial portion of our assets.  Goodwill and other net intangible assets were $3.3 billion as of March 30, 2012.  We perform an analysis on our goodwill balances to test for impairment on an annual basis and whenever events occur that indicate impairment could exist.  There are several instances that may cause us to further test our goodwill for impairment between the annual testing periods including the following:

·   continued deterioration of market and economic conditions that may adversely impact our ability to meet our projected results;

·   declines in our stock price caused by continued volatility in the financial markets that may result in increases in our weighted-average cost of capital or other inputs to our goodwill assessment; and

·   the occurrence of events that may reduce the fair value of a reporting unit below its carrying amount, such as the sale of a significant portion of one or more of our reporting units.

We also perform an analysis of our intangible assets to test for impairment whenever events occur that indicate impairment could exist.  The following are examples of such events:

·   significant adverse changes in the intangible asset’s market value, useful life, or in the business climate that could affect its value;

·   a current-period operating or cash flow loss or a projection or forecast that demonstrates continuing losses associated with the use of the intangible asset; and

·   a current expectation that, more likely than not, the intangible asset will be sold or otherwise disposed of before the end of its previously estimated useful life.

We may not realize the full amount of revenues reflected in our book of business, particularly in light of the current economic conditions, which could harm our operations and could significantly reduce our expected profits and revenues.

We account for all contract awards that may eventually be recognized as revenues or equity in income of unconsolidated joint ventures as our “book of business,” which includes backlog, option years and indefinite delivery contracts (“IDCs”).  As of March 30, 2012, our book of business was estimated at approximately $27.0 billion, which included $14.1 billion of backlog.  Our book of business estimates may not result in realized profits and revenues in any particular period because clients may delay, modify terms or terminate projects and contracts and may decide not to exercise contract options or issue task orders.  This uncertainty is particularly acute in light of current economic conditions as the risk of contracts in backlog being delayed, adjusted in scope or cancelled is more likely to increase during periods of economic volatility.  In addition, our government contracts or subcontracts are subject to renegotiation or termination at the convenience of the applicable U.S. federal, state or local governments, as well as national governments of other countries.  Accordingly, if we do not realize a substantial amount of our book of business, our operations could be harmed and our expected profits and revenues could be significantly reduced.

56

Table of contents

As a government contractor, we must comply with various procurement laws and regulations and are subject to regular government audits; failure to comply with any of these laws and regulations could result in sanctions, contract termination, forfeiture of profit, harm to our reputation or loss of our status as an eligible government contractor.  Any interruption or termination of our government contractor status could reduce our profits and revenues significantly.

As a government contractor, we enter into many contracts with federal, state and local government clients.  For example, revenues from our federal market sector represented 50% of our total revenues for the three months ended March 30, 2012.  We are affected by and must comply with federal, state, local and foreign laws and regulations relating to the formation, administration and performance of government contracts.  For example, we must comply with Federal Acquisition Regulation (“FAR”), the Truth in Negotiations Act, Cost Accounting Standards (“CAS”), American Recovery and Reinvestment Act (“ARRA”), the Services Contract Act, export controls rules and Department of Defense (“DOD”) security regulations, as well as many other laws and regulations.  In addition, we must also comply with other government regulations related to employment practices, environmental protection, health and safety, tax, accounting and anti-fraud, as well as many others in order to maintain our government contractor status.  These laws and regulations affect how we transact business with our clients and in some instances, impose additional costs on our business operations.  Even though we take precautions to prevent and deter fraud, misconduct and non-compliance, we face the risk that our employees or outside partners may engage in misconduct, fraud or other improper activities.

Government agencies, such as the U.S. Defense Contract Audit Agency (“DCAA”), routinely audit and investigate government contractors.  These government agencies review and audit a government contractor’s performance under its contracts, a government contractor’s direct and indirect cost structure, and a government contractor’s compliance with applicable laws, regulations and standards.  For example, during the course of its audits, the DCAA may question our incurred project costs and, if the DCAA believes we have accounted for these costs in a manner inconsistent with the requirements for the FAR or CAS, the DCAA auditor may recommend to our U.S. government corporate administrative contracting officer to disallow such costs.  We can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future.  In addition, government contracts are subject to a variety of other socioeconomic requirements relating to the formation, administration, performance and accounting for these contracts.  We may also be subject to qui tam litigation brought by private individuals on behalf of the government under the Federal Civil False Claims Act, which could include claims for treble damages.  Government contract violations could result in the imposition of civil and criminal penalties or sanctions, contract termination, forfeiture of profit, and/or suspension of payment, any of which could make us lose our status as an eligible government contractor.  We could also suffer serious harm to our reputation.  Any interruption or termination of our government contractor status could reduce our profits and revenues significantly.

Employee, agent or partner misconduct or failure to comply with anti-bribery and other government laws and regulations could harm our reputation, reduce our revenues and profits, and subject us to criminal and civil enforcement actions.

Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our employees, agents or partners could have a significant negative impact on our business and reputation.  Such misconduct could include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations prohibiting bribery and other foreign corrupt practices, regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, environmental laws and any other applicable laws or regulations.  For example, the United States Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business.  In addition, we regularly provide services that may be highly sensitive or that relate to critical national security matters; if a security breach were to occur, our ability to procure future government contracts could be severely limited.

57

Table of contents

Our policies mandate compliance with these regulations and laws, and we take precautions intended to prevent and detect misconduct.  However, since our internal controls are subject to inherent limitations, including human error, it is possible that these controls could be intentionally circumvented or become inadequate because of changed conditions.  As a result, we cannot assure that our controls will protect us from reckless or criminal acts committed by our employees and agents.  Failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, loss of security clearances, and suspension or debarment from contracting, any or all of which could harm our reputation, reduce our revenues and profits and subject us to criminal and civil enforcement actions.

Legal proceedings, investigations and disputes could result in substantial monetary penalties and damages, which could affect us adversely, especially if these penalties and damages exceed or are excluded from existing insurance coverage.

We engage in engineering, construction and technical services that can result in substantial injury or damages that may expose us to legal proceedings, investigations and disputes.  For example, in the ordinary course of our business, we may be involved in legal disputes regarding personal injury and wrongful death claims, employee or labor disputes, professional liability claims, and general commercial disputes involving project cost overruns and liquidated damages as well as other claims.  See Note 14, “Commitments and Contingencies,” to our “Condensed Consolidated Financial Statements” included under Part I – Item 1 of this report for a discussion of some of our legal proceedings.  In addition, in the ordinary course of our business, we frequently make professional judgments and recommendations about environmental and engineering conditions of project sites for our clients.  We may be deemed to be responsible for these judgments and recommendations if they are later determined to be inaccurate.  Any unfavorable legal ruling against us could result in substantial monetary damages or even criminal violations.  We maintain insurance coverage as part of our overall legal and risk management strategy to minimize our potential liabilities.  Generally, our insurance program covers workers’ compensation and employer’s liability, general liability, automobile liability, professional errors and omissions liability, property, marine property and liability, and contractor’s pollution liability (in addition to other policies for specific projects).  Our insurance program includes deductibles or self-insured retentions for each covered claim.  In addition, our insurance policies contain exclusions and sublimits that insurance providers may use to deny us insurance coverage.  Excess liability, contractor’s pollution liability, and professional liability insurance policies provide for coverages on a “claims-made” basis, covering only claims actually made and reported during the policy period currently in effect.  If we sustain liabilities that exceed our insurance coverage or for which we are not insured, it could have a material adverse impact on our results of operations and financial condition, including our profits and revenues.

Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well as disrupt the management of our business operations.

We maintain insurance coverage from third-party insurers as part of our overall risk management strategy and because some of our contracts require us to maintain specific insurance coverage limits.  If any of our third-party insurers fail, suddenly cancel our coverage or otherwise are unable to provide us with adequate insurance coverage then our overall risk exposure and our operational expenses would increase and the management of our business operations would be disrupted.  In addition, there can be no assurance that any of our existing insurance coverage will be renewable upon the expiration of the coverage period or that future coverage will be affordable at the required limits.

58

Table of contents

We may be subject to substantial liabilities under environmental laws and regulations.

A portion of our environmental business involves the planning, design, program management, construction and construction management, and operations and maintenance of pollution control systems and nuclear facilities, hazardous waste or Superfund sites and military bases.  In addition, we have contracts with U.S. federal government entities to destroy hazardous materials, including chemical agents and weapons stockpiles, as well as to decontaminate and decommission nuclear facilities.  These activities may require us to manage, handle, remove, treat, transport and dispose of toxic or hazardous substances.  We must comply with a number of governmental laws that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances.  Under Comprehensive Environmental Response Compensation and Liability Act of 1980 (“CERCLA”), as amended, and comparable state laws, we may be required to investigate and remediate regulated hazardous materials.  CERCLA and comparable state laws typically impose strict, joint and several liabilities without regard to whether a company knew of or caused the release of hazardous substances.  The liability for the entire cost of cleanup could be imposed upon any responsible party.  Other principal federal environmental, health and safety laws affecting us include, but are not limited to, the Resource Conservation and Recovery Act, the National Environmental Policy Act, the Clean Air Act, the Clean Air Mercury Rule, the Occupational Safety and Health Act, the Toxic Substances Control Act and the Superfund Amendments and Reauthorization Act.  Our business operations may also be subject to similar state and international laws relating to environmental protection.  Our past waste management practices and contract mining activities as well as our current and prior ownership of various properties may also expose us to such liabilities.  Liabilities related to environmental contamination or human exposure to hazardous substances, or a failure to comply with applicable regulations could result in substantial costs to us, including clean-up costs, fines and civil or criminal sanctions, third-party claims for property damage or personal injury or cessation of remediation activities.  Our continuing work in the areas governed by these laws and regulations exposes us to the risk of substantial liability.

Our inability to win or renew government contracts during regulated procurement processes could harm our operations and reduce our profits and revenues.

Revenues from our federal market sector represented 50% of our total revenues for the three months ended March 30, 2012.  Government contracts are awarded through a regulated procurement process.  The federal government has increasingly relied upon multi-year contracts with pre-established terms and conditions, such as IDCs, that generally require those contractors that have previously been awarded the IDC to engage in an additional competitive bidding process before a task order is issued.  The increased competition, in turn, may require us to make sustained efforts to reduce costs in order to realize revenues and profits under government contracts.  If we are not successful in reducing the amount of costs we incur, our profitability on government contracts will be negatively impacted.  In addition, the U.S. government has announced its intention to scale back outsourcing of some types of services in favor of “insourcing” jobs to its employees, which could reduce our revenues.  Moreover, even if we are qualified to work on a government contract, we may not be awarded the contract because of existing government policies designed to protect small businesses and under-represented minority contractors.  Our inability to win or renew government contracts during regulated procurement processes could harm our operations and reduce our profits and revenues.

59

Table of contents

Each year, client funding for some of our government contracts may rely on government appropriations or public-supported financing.  If adequate public funding is delayed or is not available, then our profits and revenues could decline.

Each year, client funding for some of our government contracts may directly or indirectly rely on government appropriations or public-supported financing such as the ARRA, which provides funding for various clients’ state transportation projects.  Legislatures may appropriate funds for a given project on a year-by-year basis, even though the project may take more than one year to perform.  In addition, public-supported financing such as state and local municipal bonds, may be only partially raised to support existing infrastructure projects.  As a result, a project we are currently working on may only be partially funded and thus additional public funding may be required in order to complete our contract.  Legislation passed in August 2011 includes significant reductions in federal government spending over a ten-year period and could result in reductions in the funding proposed by the Administration for infrastructure, defense-related or other projects.  Similarly, the impact of the economic downturn on state and local governments may make it more difficult for them to fund infrastructure projects.  In addition to the state of the economy and competing political priorities, public funding and the timing of payment of these funds may also be influenced by, among other things, curtailments in the use of government contractors, a rise in the cost of raw materials, delays associated with a lack of a sufficient number of government staff to oversee contracts, budget constraints, the timing and amount of tax receipts and the overall level of government expenditures.  If adequate public funding is not available or is delayed, then our profits and revenues could decline.

Our government contracts may give government agencies the right to modify, delay, curtail, renegotiate or terminate existing contracts at their convenience at any time prior to their completion, which may result in a decline in our profits and revenues.

Government projects in which we participate as a contractor or subcontractor may extend for several years.  Generally, government contracts include the right for government agencies to modify, delay, curtail, renegotiate or terminate contracts and subcontracts at their convenience any time prior to their completion.  Any decision by a government client to modify, delay, curtail, renegotiate or terminate our contracts at their convenience may result in a decline in our profits and revenues.

A decline in defense or other federal government spending, or a change in budgetary priorities, could reduce our profits and revenues.

Revenues from our federal market sector represented 50% of our total revenues and contracts, of which the DOD and other defense-related clients represented approximately 30% of our total revenues for the three months ended March 30, 2012.  In August 2011, legislation passed, which included significant reductions in federal government spending over a ten-year period.  Future levels of expenditures and authorizations for defense-related or other federal programs, including foreign military commitments, may decrease, remain constant or shift to programs in areas where we do not currently provide services.  As a result, a general decline in defense or other federal spending or a change in budgetary priorities could reduce our profits and revenues.

If we are unable to accurately estimate and control our contract costs, then we may incur losses on our contracts, which could decrease our operating margins and reduce our profits.

It is important for us to accurately estimate and control our contract costs so that we can maintain positive operating margins and profitability.  We generally enter into four principal types of contracts with our clients:  cost-plus, fixed-price, target-price and time-and-materials.

Under cost-plus contracts, which may be subject to contract ceiling amounts, we are reimbursed for allowable costs and fees, which may be fixed or performance-based.  If our costs exceed the contract ceiling or are not allowable under the provisions of the contract or any applicable regulations, we may not be reimbursed for all of the costs we incur.  Under fixed-price contracts, we receive a fixed price regardless of what our actual costs will be.  Consequently, we realize a profit on fixed-price contracts only if we can control our costs and prevent cost over-runs on our contracts.  Under target-price contracts, project costs are reimbursable and our fee is established against a target budget that is subject to changes in project circumstances and scope.  Under time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and for other expenses.

60

If we are unable to accurately estimate and manage our costs, we may incur losses on our contracts, which could decrease our operating margins and significantly reduce or eliminate our profits.  Many of our contracts require us to satisfy specified design, engineering, procurement or construction milestones in order to receive payment for the work completed or equipment or supplies procured prior to achieving the applicable milestone.  As a result, under these types of arrangements, we may incur significant costs or perform significant amounts of work prior to receipt of payment.  If the customer determines not to proceed with the completion of the project or if the customer defaults on its payment obligations, we may encounter difficulties in collecting payment of amounts due to us for the costs previously incurred or for the amounts previously expended to purchase equipment or supplies.

Our actual business and financial results could differ from the estimates and assumptions that we use to prepare our financial statements, which may reduce our profits.

To prepare financial statements in conformity with GAAP, management is required to make estimates and assumptions, which affect the reported values of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities.  For example, we may recognize revenue over the life of a contract based on the proportion of costs incurred to date compared to the total costs estimated to be incurred for the entire project.  Areas requiring significant estimates by our management include:

·   the application of the percentage-of-completion method of revenue recognition on contracts, change orders and contract claims;

·   provisions for uncollectible receivables and customer claims and recoveries of costs from subcontractors, vendors and others;

·   provisions for income taxes and related valuation allowances;

·   impairment of goodwill and recoverability of other intangible assets;

·   valuation of assets acquired and liabilities assumed in connection with business combinations;

·   valuation of defined benefit pension plans and other employee benefit plans;

·   valuation of stock-based compensation expense; and

·   accruals for estimated liabilities, including litigation and insurance reserves.

Our actual business and financial results could differ from those estimates, which may reduce our profits.

Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.

The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability.  The rate at which we utilize our workforce is affected by a number of factors, including:

·   our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees;

·   our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our geographies and workforces;

·   our ability to manage attrition;

·   our need to devote time and resources to training, business development, professional development and other non-chargeable activities; and

·   our ability to match the skill sets of our employees to the needs of the marketplace.

If we overutilize our workforce, our employees may become disengaged, which will impact employee attrition.  If we underutilize our workforce, our profit margin and profitability could suffer.

61

Table of contents

Our use of the percentage-of-completion method of revenue recognition could result in a reduction or reversal of previously recorded revenues and profits.

A substantial portion of our revenues and profits are measured and recognized using the percentage-of-completion method of revenue recognition.  Our use of this accounting method results in recognition of revenues and profits ratably over the life of a contract, based generally on the proportion of costs incurred to date to total costs expected to be incurred for the entire project.  The effects of revisions to revenues and estimated costs are recorded when the amounts are known or can be reasonably estimated.  Such revisions could occur in any period and their effects could be material.  Although we have historically made reasonably reliable estimates of the progress towards completion of long-term engineering, program management, construction management or construction contracts, the uncertainties inherent in the estimating process make it possible for actual costs to vary materially from estimates, including reductions or reversals of previously recorded revenues and profits.

Our failure to successfully bid on new contracts and renew existing contracts could reduce our profits.

Our business depends on our ability to successfully bid on new contracts and renew existing contracts with private and public sector clients.  Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which are affected by a number of factors, such as market conditions, financing arrangements and required governmental approvals.  For example, a client may require us to provide a surety bond or letter of credit to protect the client should we fail to perform under the terms of the contract.  If negative market conditions arise, or if we fail to secure adequate financial arrangements or the required governmental approval, we may not be able to pursue particular projects, which could adversely reduce or eliminate our profitability.

If we fail to timely complete, miss a required performance standard or otherwise fail to adequately perform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability and harm our reputation.

We may commit to a client that we will complete a project by a scheduled date.  We may also commit that a project, when completed, will achieve specified performance standards.  If the project is not completed by the scheduled date or fails to meet required performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failure to achieve the required performance standards.  In addition, performance of projects can be affected by a number of factors beyond our control, including unavoidable delays from governmental inaction, public opposition, inability to obtain financing, weather conditions, unavailability of vendor materials, changes in the project scope of services requested by our clients, industrial accidents, environmental hazards, labor disruptions and other factors.  In some cases, should we fail to meet required performance standards, we may also be subject to agreed-upon financial damages, which are determined by the contract.  To the extent that these events occur, the total costs of the project could exceed our estimates and we could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate our overall profitability.  Failure to meet performance standards or complete performance on a timely basis could also adversely affect our reputation.

We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts.

We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts.  Failure to meet any of the milestone requirements could result in additional costs, and the amount of such additional costs could exceed the projected profits on the project.  These additional costs include liquidated damages paid under contractual penalty provisions, which can be substantial and can accrue on a regular basis.

62

Table of contents

If our partners fail to perform their contractual obligations on a project, we could be exposed to substantial joint and several liability and financial penalties that could reduce our profits and revenues.

We often partner with unaffiliated third parties, individually or via a joint venture, to jointly bid on and perform a particular project.  For example, for the three months ended March 30, 2012, our equity in income of unconsolidated joint ventures amounted to $28.7 million.  The success of our partnerships and joint ventures depends, in large part, on the satisfactory performance of contractual obligations by each member.  In addition, when we operate through a joint venture in which we are a minority holder, we have limited control over many project decisions, including decisions related to the joint venture’s internal controls, which may not be subject to the same internal control procedures that we employ.  If these unaffiliated third parties do not fulfill their contract obligations, the partnerships or joint ventures may be unable to adequately perform and deliver their contracted services.  Under these circumstances, we may be obligated to pay financial penalties, provide additional services to ensure the adequate performance and delivery of the contracted services and may be jointly and severally liable for the other’s actions or contract performance.  These additional obligations could result in reduced profits and revenues or, in some cases, significant losses for us with respect to the joint venture, which could also affect our reputation in the industries we serve.

Our dependence on third-party subcontractors and equipment and material providers could reduce our profits or result in project losses.

We rely on third-party subcontractors and equipment and material providers.  For example, we procure heavy equipment and construction materials as needed when performing large construction and contract mining projects.  To the extent that we cannot engage subcontractors or acquire equipment and materials at reasonable costs or if the amount we are required to pay exceeds our estimates, our ability to complete a project in a timely fashion or at a profit may be impaired.  In addition, if a subcontractor or a manufacturer is unable to deliver its services, equipment or materials according to the negotiated terms for any reason, including the deterioration of its financial condition, we may be required to purchase the services, equipment or materials from another source at a higher price.  This may reduce the profit to be realized or result in a loss on a project for which the services, equipment or materials are needed.

If we experience delays and/or defaults in client payments, we could suffer liquidity problems or we may be unable to recover all working capital or equity investments.

Because of the nature of our contracts, at times we may commit resources to a client’s projects before receiving payments to cover our expenditures.  Sometimes, we incur and record expenditures for a client project before receiving any payment to cover our expenses.  In addition, we may make equity investments in majority or minority controlled large-scale client projects and other long-term capital projects before the project completes operational status or completes its project financing.  If a client delays or defaults in making its payments on a project, it could have an adverse effect on our financial position and cash flows, and we could incur losses, including losses in our working capital or equity investments.

Our failure to adequately recover on claims brought by us against project owners for additional contract costs could have a negative impact on our liquidity and profitability.

We have brought claims against project owners for additional costs exceeding the contract price or for amounts not included in the original contract price.  These types of claims occur due to matters such as owner-caused delays or changes from the initial project scope, both of which may result in additional cost.  Often, these claims can be the subject of lengthy arbitration or litigation proceedings, and it is difficult to accurately predict when these claims will be fully resolved.  When these types of events occur and unresolved claims are pending, we have used working capital in projects to cover cost overruns pending the resolution of the relevant claims.  A failure to promptly recover on these types of claims could have a negative impact on our liquidity and profitability.

63

Table of contents

Target-price and fixed-price contracts have increased the unpredictability and volatility of our earnings.

The federal government and some clients have increased the use of target-price and fixed-price contracts.  Fixed-price contracts require cost and scheduling estimates that are based on a number of assumptions, including those about future economic conditions, costs and availability of labor, equipment and materials, and other exigencies.  We could experience cost overruns if these estimates are originally inaccurate as a result of errors or ambiguities in the contract specifications, or become inaccurate as a result of a change in circumstances following the submission of the estimate due to, among other things, unanticipated technical problems, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather delays, changes in the costs of raw materials, or inability of our vendors or subcontractors to perform.  If cost overruns occur, we could experience reduced profits or, in some cases, a loss for that project.  For example, one of our construction projects has experienced cost increases and schedule delays and we have recorded cumulative losses of approximately $104.0 million as of March 30, 2012.  If a project is significant, or if there are one or more common issues that impact multiple projects, costs overruns could increase the unpredictability and volatility of our earnings as well as have a material adverse impact on our business and earnings.

Maintaining adequate bonding capacity is necessary for us to successfully bid on and win fixed-price contracts.

In line with industry practice, we are often required to provide performance or payment bonds to clients under fixed-price contracts.  These bonds indemnify the client should we fail to perform our obligations under the contract.  If a bond is required for a particular project and we are unable to obtain an appropriate bond, we cannot pursue that project.  We have bonding capacity but, as is typically the case, the issuance of a bond is at the surety’s sole discretion.  Moreover, due to events that affect the insurance and bonding markets generally, bonding may be more difficult to obtain in the future or may only be available at significantly higher costs.  There can be no assurance that our bonding capacity will continue to be available to us on reasonable terms.  Our inability to obtain adequate bonding and, as a result, to bid on new fixed-price contracts could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Construction and project sites are inherently dangerous workplaces.  Failure to maintain safe work sites could result in employee deaths or injuries, reduced profitability, the loss of projects or clients and possible exposure to litigation.

Construction and maintenance sites often put our employees and others in close proximity with mechanized equipment, moving vehicles, chemical and manufacturing processes, and highly regulated materials.  On many sites, we are responsible for safety and, accordingly, must implement safety procedures.  If we fail to implement these procedures or if the procedures we implement are ineffective, we may suffer the loss of or injury to our employees, as well as expose ourselves to possible litigation.  As a result, our failure to maintain adequate safety standards could result in reduced profitability or the loss of projects or clients, and could have a material adverse impact on our business, financial condition, and results of operations.

Changes in environmental, defense, or infrastructure industry laws could directly or indirectly reduce the demand for our services, which could in turn negatively impact our revenues.

Some of our services are directly or indirectly impacted by changes in federal, state, local or foreign laws and regulations pertaining to the environmental, defense or infrastructure industries.  Proposed climate change and greenhouse gas regulations, if adopted, could impact the services we provide to our clients, including services related to fossil fuel and industrial projects.  Relaxation or repeal of laws and regulations, or changes in governmental policies regarding the environmental, defense or infrastructure industries could result in a decline in demand for our services, which could in turn negatively impact our revenues.

64

Table of contents

If we do not have adequate indemnification for our services related to nuclear materials, it could adversely affect our business and financial condition.

We provide services to the DOE relating to its nuclear weapons facilities and the nuclear energy industry in the ongoing maintenance and modification, as well as the decontamination and decommissioning, of its nuclear energy plants.  Indemnification provisions under the Price-Anderson Act (“PAA”) available to nuclear energy plant operators and DOE contractors, do not apply to all liabilities that we might incur while performing services as a radioactive materials cleanup contractor for the DOE and the nuclear energy industry.  If the PAA’s indemnification protection does not apply to our services or if our exposure occurs outside the U.S., our business and financial condition could be adversely affected either by our client’s refusal to retain us, by our inability to obtain commercially adequate insurance and indemnification, or by potentially significant monetary damages we may incur.

If our reports and opinions are not in compliance with professional standards and other regulations, we could be subject to monetary damages and penalties.

We issue reports and opinions to clients based on our professional engineering expertise, as well as our other professional credentials.  Our reports and opinions may need to comply with professional standards, licensing requirements, securities regulations and other laws and rules governing the performance of professional services in the jurisdiction where the services are performed.  In addition, we could be liable to third parties who use or rely upon our reports or opinions even if we are not contractually bound to those third parties.  For example, if we deliver an inaccurate report or one that is not in compliance with the relevant standards, and that report is made available to a third party, we could be subject to third-party liability, resulting in monetary damages and penalties.

Our overall market share and profits will decline if we are unable to compete successfully in our industry.

Our industry is highly fragmented and intensely competitive.  For example, according to the publication Engineering News-Record, based on voluntarily reported information, the top ten U.S. engineering design firms accounted only for approximately 43% of the total top 500 U.S. design firm revenues in 2011.  The top 25 U.S. contractors accounted for approximately 48% of the top 400 U.S. contractors’ total revenues in 2010, as reported by the Engineering News-Record.  Our competitors are numerous, ranging from small private firms to multi-billion dollar companies.  In addition, the technical and professional aspects of some of our services generally do not require large upfront capital expenditures and provide limited barriers against new competitors.

Some of our competitors have achieved greater market penetration in some of the markets in which we compete and have substantially more financial resources and/or financial flexibility than we do.  As a result of the number of competitors in the industry, our clients may select one of our competitors on a project due to competitive pricing or a specific skill set.  If we are unable to maintain our competitiveness, our market share, revenues and profits will decline.  If we are unable to meet these competitive challenges, we could lose market share to our competitors and experience an overall reduction in our profits.

Our failure to attract and retain key employees could impair our ability to provide services to our clients and otherwise conduct our business effectively.

As a professional and technical services company, we are labor intensive, and, therefore, our ability to attract, retain and expand the number of key employees is an important factor in determining our future success.  From time to time, it may be difficult to attract and retain qualified individuals with the expertise and in the timeframe demanded by our clients.  For example, some of our government contracts may require us to employ only individuals who have particular government security clearance levels.  We may occasionally enter into contracts before we have hired or retained appropriate staffing for that project.  In addition, we rely heavily upon the expertise and leadership of our senior management.  If we are unable to retain executives and other key personnel, the roles and responsibilities of those employees will need to be filled, which may require that we devote time and resources to identify, hire and integrate new employees.  In addition, the failure to attract and retain key individuals could impair our ability to provide services to our clients and conduct our business effectively.

65

Table of contents

We may be required to contribute additional cash to meet any underfunded benefit obligations associated with retirement and post-retirement benefit plans we manage or multiemployer pension plans we participate in.

We have various employee benefit plan obligations that require us to make contributions to satisfy, over time, our underfunded benefit obligations, which are generally determined by calculating the projected benefit obligations minus the fair value of plan assets.  For example, as of December 30, 2011, our defined benefit pension and post-retirement benefit plans were projected to be underfunded by $299.2 million.  See Note 11, “Employee Retirement and Post-Retirement Benefit Plans,” to our “Condensed Consolidated Financial Statements” included under Part I – Item 1 of this report for additional disclosure.  This amount does not include any potential obligations we may owe under a multiemployer plan.  In the future, our benefit plan obligations may increase or decrease depending on changes in the levels of interest rates, pension plan asset performance and other factors.  If we are required to contribute a significant amount of the deficit for underfunded benefit plans, our cash flows could be materially and adversely affected.

A multiemployer pension plan is typically established under a collective bargaining agreement with a union to cover the union-represented workers of various unrelated companies.  Our collective bargaining agreements with unions typically require us to contribute to many multiemployer pension plans.  For the year ended December 30, 2011, we contributed $40.7 million to multiemployer pension plans.  Under the Employee Retirement Income Security Act, an employer who contributes to a multiemployer pension plan, absent an applicable exemption, may also be liable, upon termination or withdrawal from the plan, for its proportionate share of the multiemployer pension plan’s unfunded vested benefit.  If we terminate or withdraw from a multiemployer plan, absent an applicable exemption (such as for some plans in the building and construction industry), we could be required to contribute a significant amount of cash to fund that plan’s unfunded vested benefit, which could materially and adversely affect our financial results.  However, we are unable to estimate the amount of potential contributions that could be required, if any.

Our outstanding indebtedness could adversely affect our liquidity, cash flows and financial condition.

As of March 30, 2012, the outstanding balance of the term loan under our 2011 Credit Facility was $700.0 million.  We had no outstanding balance under our revolving line of credit as of March 30, 2012.  Our next scheduled payment on our term loan of $8.8 million is due in December 2012.  In addition, in March 2012, we incurred $1.0 billion additional indebtedness through issuance of the Senior Notes in connection with the approximately $1.25 billion pending acquisition of Flint.  As part of the acquisition, we will also assume approximately $175.0 million in outstanding face value of bonds and other additional indebtedness from Flint.  The fair value to be assigned to the bonds upon closing may be materially different than the current face value.  This level of debt might:

·   increase our vulnerability to, and limit flexibility in planning for, adverse economic and industry conditions;

·   adversely affect our ability to obtain surety bonds;

·   affect our credit rating;

·   limit our ability to obtain additional financing to fund future working capital, capital expenditures, additional acquisitions and other general corporate initiatives; and

·   limit our ability to apply proceeds from an asset sale to purposes other than the servicing and repayment of debt.

66

Table of contents

We may not be able to generate or borrow enough cash to service our indebtedness, which could result in bankruptcy or otherwise impair our ability to maintain sufficient liquidity to continue our operations.

We rely primarily on our ability to generate cash from operations to service our indebtedness in the future.  If we do not generate sufficient cash flows to meet our debt service and working capital requirements, we may need to seek additional financing.  If we are unable to obtain financing on terms that are acceptable to us, we could be forced to sell our assets or those of our subsidiaries to make up for any shortfall in our payment obligations under unfavorable circumstances.  Our 2011 Credit Facility limits our ability to sell assets and also restricts our use of the proceeds from any such sale.  If we default on our debt obligations, our lenders could require immediate repayment of our entire outstanding debt.  If our lenders require immediate repayment on the entire principal amount, we will not be able to repay them in full, and our inability to meet our debt obligations could result in bankruptcy or otherwise impair our ability to maintain sufficient liquidity to continue our operations.

Because URS Corporation, the parent company, is a holding company, we may not be able to service our debt if our subsidiaries do not make sufficient distributions to us.

Our parent company has no direct operations and no significant assets other than investments in the stock of our subsidiaries.  Because we conduct our business operations through our operating subsidiaries, we depend on those entities for payments and dividends to generate the funds necessary to meet our financial obligations.  Legal restrictions, including state and local tax regulations and other contractual obligations could restrict or impair our subsidiaries’ ability to pay dividends or make loans or other distributions to us.  The earnings from, or other available assets of, these operating subsidiaries may not be sufficient to make distributions to enable us to pay interest on our debt obligations when due or to pay the principal of such debt at maturity.

Restrictive covenants in our 2011 Credit Facility may restrict our ability to pursue business strategies.

Our 2011 Credit Facility and our other outstanding indebtedness include covenants potentially limiting our ability to, among other things:

·   incur additional indebtedness;

·   pay dividends to our stockholders;

·   repurchase or redeem our stock;

·   repay indebtedness that is junior to our 2011 Credit Facility;

·   make investments and other restricted payments;

·   create liens securing debt or other encumbrances on our assets;

·   enter into sale-leaseback transactions;

·   enter into transactions with our stockholders and affiliates; and

·   sell or exchange assets.

Our 2011 Credit Facility also requires that we maintain various financial ratios, which we may not be able to achieve.  The covenants may impair our ability to finance future operations or capital needs or to engage in other favorable business activities.

67

Table of contents

Our international operations are subject to a number of risks that could significantly reduce our profits and revenues or subject us to criminal and civil enforcement actions.

As a multinational company, we derived 13% of our revenues from international operations for the three months ended March 30, 2012.  International business is subject to a variety of risks, including:

·   lack of developed legal systems to enforce contractual rights;

·   greater risk of uncollectible accounts and longer collection cycles;

·   foreign currency exchange volatility;

·   uncertain and changing tax rules, regulations and rates;

·   logistical and communication challenges;

·   potentially adverse changes in laws and regulatory practices;

·   changes in labor conditions;

·   general economic, political and financial conditions in foreign markets; and

·   exposure to civil or criminal liability under the Foreign Corrupt Practices Act, the U.K. Bribery Act, the Canadian Corruption of Foreign Public Officials Act, anti-boycott rules, trade and export control regulations, and the Corporate Manslaughter and Corporate Homicide Act as well as other international regulations.

International risks and violations of international regulations may significantly reduce our profits and revenues and subject us to criminal or civil enforcement actions, including fines, suspensions or disqualification from future U.S. federal procurement contracting.  Although we have policies and procedures to monitor legal and regulatory compliance, our employees, subcontractors and agents could take actions that violate these requirements.  As a result, our international risk exposure may be more or less than the percentage of revenues attributed to our international operations.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and similar worldwide anti-bribery laws.

The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business.  The U.K. Bribery Act of 2010 prohibits both domestic and international bribery, as well as bribery across both private and public sectors.  In addition, an organization that “fails to prevent bribery” by anyone associated with the organization can be charged under the U.K. Bribery Act unless the organization can establish the defense of having implemented “adequate procedures” to prevent bribery.  Practices in the local business community of many countries outside the U.S. have a level of government corruption that is greater than that found in the developed world.  Our policies mandate compliance with these anti-bribery laws and we have established policies and procedures designed to monitor compliance with these anti-bribery law requirements; however we cannot assure that our policies and procedures will protect us from potential reckless or criminal acts committed by individual employees or agents.  If we are found to be liable for anti-bribery law violations we could suffer from criminal or civil penalties or other sanctions that could have a material adverse effect on our business.

We could be adversely impacted if we fail to comply with domestic and international export laws.

To the extent we export technical services, data and products outside of the U.S., we are subject to U.S. and international laws and regulations governing international trade and exports, including but not limited to the International Traffic in Arms Regulations, the Export Administration Regulations and trade sanctions against embargoed countries.  A failure to comply with these laws and regulations could result in civil or criminal sanctions, including the imposition of fines, the denial of export privileges and suspension or debarment from participation in U.S. government contracts, which could have a material adverse effect on our business.

68

Table of contents

Our international operations may require our employees to travel to and work in high security risk countries, which may result in employee death or injury, repatriation costs or other unforeseen costs.

As a multinational company, some of our employees often travel to and work in high security risk countries around the world that are undergoing political, social and economic upheavals resulting in war, civil unrest, criminal activity, acts of terrorism, or public health crises.  For example, we have employees working in high security risk countries located in the Middle East and Southwest Asia.  As a result, we risk loss of or injury to our employees and may be subject to costs related to employee death or injury, repatriation or other unforeseen circumstances.

We develop, install and maintain IT systems for ourselves, as well as for various customers.  Any breach of security, disruption, or unexpected data or vendor loss could result in business interruptions, remediation costs, legal claims and significant damage to our reputation.

We develop, install and maintain IT systems for ourselves, as well as for customers.  For example, our June 2011 acquisition of Apptis significantly increased our network management, software engineering, and information technology infrastructure design services to the DOD and other federal agencies.  Client contracts for the performance of IT services, as well as various privacy and securities laws, require us to manage and protect sensitive and confidential information from disclosure.  We also need to protect our own internal trade secrets and other business confidential information from disclosure.  Regardless of the countermeasures we may establish, we may be subject to network, software or hardware failures, whether caused by us, third-party service providers, intruders or hackers, computer viruses, natural disasters, power shortages or terrorist attacks.  Any breach of security, disruption or unexpected data loss could result in business interruptions, remediation costs, legal claims and significant damage to our reputation.

We also rely on third-party internal and outsourced software to run our critical accounting, project management and financial information systems.  For example, we rely on one software vendor’s products to process a majority of our total revenues.  We also depend on our software vendors to provide long-term software maintenance support for our information systems.  Software vendors may decide to discontinue further development, integration or long-term software maintenance support for our information systems, in which case we may need to abandon one or more of our current information systems and migrate some or all of our accounting, project management and financial information to other systems, thus increasing our operational expense, as well as disrupting the management of our business operations.

Force majeure events, including disasters and terrorists’ actions, have negatively impacted and could further negatively impact our business, which may affect our financial condition, results of operations or cash flows.

Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man-made disasters, as well as terrorist actions, could negatively impact the economies in which we operate.  For example, in 2011, floods in Australia caused several of our Australian offices to close, interrupted a number of active client projects and forced the relocation of our employees in that region from their homes.  In addition, during the September 11, 2001 terrorist attacks, a number of employees lost their lives and many client records were destroyed when our office at the World Trade Center was destroyed.

We typically remain obligated to perform our services after such extraordinary events unless the contract contains a force majeure clause relieving us of our contractual obligations in such an extraordinary event.  If we are not able to react quickly to force majeure events, our operations may be affected significantly, which would have a negative impact on our financial condition, results of operations and/or cash flows.

69

Table of contents

Negotiations with labor unions and possible work actions could divert management attention and disrupt operations.  In addition, new collective bargaining agreements or amendments to agreements could increase our labor costs and operating expenses.

As of March 30, 2012, approximately 13% of our employees were covered by collective bargaining agreements.  The outcome of any future negotiations relating to union representation or collective bargaining agreements may not be favorable to us.  We may reach agreements in collective bargaining that increase our operating expenses and lower our net income as a result of higher wages or benefit expenses.  In addition, negotiations with unions could divert management attention and disrupt operations, which may adversely affect our results of operations.  If we are unable to negotiate acceptable collective bargaining agreements, we may have to address the threat of union-initiated work actions, including strikes.  Depending on the nature of the threat or the type and duration of any work action, these actions could disrupt our operations and adversely affect our operating results.

We have a limited ability to protect our intellectual property rights, which are important to our success.  Our failure to protect our intellectual property rights could adversely affect our competitive position.

Our success depends, in part, upon our ability to protect our proprietary information and other intellectual property.  We rely principally on a combination of trade secrets, confidentiality policies and other contractual arrangements to protect much of our intellectual property.  Trade secrets are generally difficult to protect.  Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation of our confidential information.  In addition, we may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights.  Failure to obtain or maintain our intellectual property rights would adversely affect our competitive business position.  In addition, if we are unable to prevent third parties from infringing or misappropriating our intellectual property, our competitive position could be adversely affected.

Delaware law and our charter documents may impede or discourage a merger, takeover or other business combination even if the business combination would have been in the best interests of our stockholders.

We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our stockholders.  In addition, our Board of Directors has the power, without stockholder approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock, which could be used defensively if a takeover is threatened.  Our incorporation under Delaware law, the ability of our Board of Directors to create and issue a new series of preferred stock and provisions in our certificate of incorporation and bylaws, such as those relating to advance notice of certain stockholder proposals and nominations, could impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, even if the business combination would have been in the best interests of our current stockholders.

Our stock price could become more volatile and stockholders’ investments could lose value.

In addition to the macroeconomic factors that have recently affected the prices of many securities generally, all of the factors discussed in this section could affect our stock price.  The timing of announcements in the public markets regarding new services or potential problems with the performance of services by us or our competitors or any other material announcements could affect our stock price.  Speculation in the media and analyst community, changes in recommendations or earnings estimates by financial analysts, changes in investors’ or analysts’ valuation measures for our stock and market trends unrelated to our stock can cause the price of our stock to change.  Continued volatility in the financial markets could also cause further declines in our stock price, which could trigger an impairment of the goodwill of our individual reporting units that could be material to our consolidated financial statements.  A significant drop in the price of our stock could also expose us to the risk of securities class action lawsuits, which could result in substantial costs and divert managements’ attention and resources, which could adversely affect our business.

70

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table sets forth all purchases made by us or by any “affiliated purchaser” as defined in Rule 10b-18(a)(3) of the Securities Exchange Act of 1934, as amended, of our common shares during the three monthly periods that comprise our first quarter of 2012:

	(a) Total Number of Shares Purchased (1,2)	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	(d) Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (2)
	(In millions, except average price paid per share)
December 31, 2011 – January 27, 2012	0.6	$	37.84	0.6	4.4
January 28, 2012 – February 24, 2012	—		—	—	4.4
February 25, 2012 – March 30, 2012	0.4		43.52	0.4	4.0
Total	1.0			1.0

(1)   Reflects purchases of shares previously issued pursuant to awards issued under our equity incentive plans, which allow our employees to surrender shares of our common stock as payment toward the exercise cost and tax withholding obligations associated with the exercise of stock options or the vesting of restricted or deferred stock.

(2)   For fiscal years 2012, 2013 and 2014, the number of shares authorized for repurchase under the program are 3.0 million shares, plus the number of shares equal to the difference between the number of shares authorized to be purchased in the prior year and the actual number of shares repurchased during the prior year, not to exceed 6.0 million shares in aggregate.  For the three months ended March 30, 2012, we repurchased 1.0 million shares of our common stock. The repurchase program will expire at the end of our 2014 fiscal year.  The Board of Directors may modify, suspend, extend or terminate the program at any time.  As of March 30, 2012, we have approximately 4.0 million shares that may yet be purchased under the plan.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURE

Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) by the federal Mine Safety and Health Administration.  We do not act as the owner of any mines, but we may act as a mining operator as defined under the Mine Act where we may be a lessee of a mine, a person who operates, controls or supervises such mine, or an independent contractor performing services or construction of such mine.

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 Regulation S-K is included in Exhibit 95.

ITEM 5.  OTHER INFORMATION

None.

71

Table of contents

ITEM 6.  EXHIBITS

a)   Exhibits

		Incorporated by Reference
Exhibit				Filing	Filed
Number	Exhibit Description	Form	Exhibit	Date	Herewith
2.1	Arrangement Agreement between URS Corporation and Flint Energy Services Ltd., dated as of February 20, 2012.	8-K	2.1	2/21/2012
3.01	Restated Certificate of Incorporation of URS Corporation, as filed with the Secretary of State of Delaware on September 9, 2008.	8-K	3.01	9/11/2008
3.02	Bylaws of URS Corporation as amended on February 26, 2010.	10-Q	3.02	5/12/2010
4.01	Indenture, dated March 15, 2012, between the Issuers and U.S. Bank National Association.	8-K	4.01	3/20/2012
4.02	First Supplemental Indenture, dated March 15, 2012, between the Issuers, the Guarantors and U.S. Bank National Association, including the form of the Issuers' 3.850% Senior Notes due 2017.	8-K	4.02	3/20/2012
4.03	Second Supplemental Indenture, dated March 15, 2012, between the Issuers, the Guarantors and U.S. Bank National Association, including the form of the Issuers' 5.000% Senior Notes due 2022.	8-K	4.03	3/20/2012
4.04	Registration Rights Agreement, dated as of March 15, 2012, among the Issuers, the Guarantors, Citibank Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC.	8-K	4.04	3/20/2012
10.1 *	URS Corporation Restated Incentive Compensation Plan 2012 Plan Year Summary.	8-K	10.1	4/2/2012
31.1	Certification of URS Corporation’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
31.2	Certification of URS Corporation’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
32 **	Certification of URS Corporation’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
95	Mine Safety Disclosure				X
101.INS#	XBRL Instance Document.				X
101.SCH#	XBRL Taxonomy Extension Schema Document.				X
101.CAL#	XBRL Taxonomy Extension Calculation Linkbase Document.				X
101.LAB#	XBRL Taxonomy Extension Label Linkbase Document.				X
101.PRE#	XBRL Taxonomy Extension Presentation Linkbase Document.				X
101.DEF#	XBRL Taxonomy Extension Definition Linkbase Document.				X

* Represents a management contract or compensatory plan or arrangement.

** Document has been furnished and not filed and not to be incorporated into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language included in any such filing.

# Pursuant to Rule 406T of Regulation S-T, these interactive data files i) are not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, irrespective of any general incorporation language included in any such filings, and otherwise are not subject to liability under these sections; and ii) are deemed to have complied with Rule 405 of Regulation S-T (“Rule 405”) and are not subject to liability under the anti-fraud provisions of the Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 or under any other liability provision if we have made a good faith attempt to comply with Rule 405 and, after we become aware that the interactive data files fail to comply with Rule 405, we promptly amend the interactive data files.

72

Table of contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	URS CORPORATION
Dated:  May 8, 2012	By:	/s/ Reed N. Brimhall
		Reed N. Brimhall
		Vice President and Chief Accounting Officer

73

Exhibit No.	Description
31.1	Certification of URS Corporation’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of URS Corporation’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of URS Corporation’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95	Mine Safety Disclosure
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

74