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8-K/A 1 f84969e8vkza.htm FORM 8-K/A e8vkza

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 22, 2002

URS CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of incorporation)

1-7567
(Commission File No.)

94-1381538
(I.R.S. Employer Identification No.)

100 CALIFORNIA STREET, SUITE 500,
SAN FRANCISCO, CALIFORNIA 94111-4529
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (415) 774-2700

TABLE OF CONTENTS


	ITEM 2 ACQUISITION OR DISPOSITION OF ASSETS
	ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
SIGNATURE
EXHIBIT INDEX
Exhibit 23.1
Exhibit 23.2


ITEM 2		ACQUISITION OR DISPOSITION OF ASSETS

On August 22, 2002, URS Corporation (“URS”) acquired Carlyle-EG&G Holdings Corp. (“EG&G”) and Lear Siegler Services, Inc. (“Lear”) pursuant to an Agreement and Plan of Merger, dated July 16, 2002, by and among URS, URS Holdings, Inc. (“URS Holdings”), URS-LSS Holdings, Inc. (“URS-LSS”), EG&G, Lear and EG&G Technical Services Holdings, L.L.C. (the “Merger Agreement”). As contemplated by the Merger Agreement, EG&G was merged with and into URS Holdings, a wholly owned subsidiary of URS, with URS Holdings being the surviving corporation, and Lear was merged with and into URS-LSS, with URS-LSS being the surviving corporation and continuing as a wholly owned subsidiary of URS under the name “Lear Siegler Services, Inc.”


ITEM 7		FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

	(a)	FINANCIAL STATEMENTS

EG&G Technical Services, Inc. and Subsidiary consolidated financial statements as of December 28, 2001 and June 30, 2002 and Lear Siegler Services, Inc. and Subsidiaries consolidated financial statements as of December 31, 2001 and June 30, 2002 are set forth in this Current Report on Form 8-K/A.

REPORT OF INDEPENDENT AUDITORS

Board of Directors
EG&G Technical Services, Inc.

We have audited the accompanying consolidated balance sheet of EG&G Technical Services, Inc. (a Delaware Corporation) and Subsidiary as of December 28, 2001, and the related consolidated statements of operations, stockholder’s equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EG&G Technical Services, Inc. and Subsidiary as of December 28, 2001, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

July 25, 2002
McLean, Virginia

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

DECEMBER 28 JUNE 30

2001 2002

(UNAUDITED)

(IN THOUSANDS, EXCEPT

SHARE DATA)

ASSETS

Current assets:

Cash and cash equivalents
$ 4,560 $ 2,348

Accounts receivable, net
86,920 77,643

Prepaid expenses and other assets
4,420 4,588

Total current assets
95,900 84,579

Property and equipment, net
4,266 4,172

Goodwill, net
179,904 179,904

Prepaid pension asset
13,693 12,837

Other assets
6,497 7,079

Total assets
$ 300,260 $ 288,571

LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities:

Accounts payable
$ 27,577 $ 22,346

Accrued expenses and other liabilities
38,063 33,315

Deferred income taxes
425 490

Current portion of long-term debt
11,557 10,267

Total current liabilities
77,622 66,418

Long-term debt, net of current portion
117,219 107,827

Deferred income taxes
982 2,801

Other long-term liabilities
2,890 3,584

Total liabilities
198,713 180,630

Commitments and contingencies (Note 10)

Stockholder’s equity:

Common stock, $.01 par value — 1,000 shares authorized, issued, and outstanding
— —

Additional paid-in capital
103,855 106,262

Unearned compensation
(907 ) (674 )

Employee stock purchase loans
(1,970 ) (3,476 )

Accumulated other comprehensive income (loss)
583 (181 )

Retained earnings (accumulated deficit)
(14 ) 6,010

Total stockholder’s equity
101,547 107,941

Total liabilities and stockholder’s equity
$ 300,260 $ 288,571

See accompanying notes.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS SIX MONTHS

ENDED ENDED

DECEMBER 28 JUNE 30 JUNE 30

2001 2002 2001

(UNAUDITED) (UNAUDITED)

(IN THOUSANDS)

Revenues
$ 542,530 $ 259,248 $ 255,493

Operating costs and expenses:

Cost of services
481,422 228,287 223,834

General and administrative
44,314 18,369 23,044

Operating income
16,794 12,592 8,615

Interest expense
(12,413 ) (4,482 ) (7,269 )

Other nonoperating income
155 1,977 176

Income before income taxes
4,536 10,087 1,522

Income tax provision
(1,900 ) (4,063 ) (636 )

Net income
$ 2,636 $ 6,024 $ 886

See accompanying notes.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY


											Employee			Accumulated			Retained
		Common Stock				Additional					Stock			Other			Earnings
						Paid-in		Unearned			Purchase			Comprehensive			(Accumulated						Comprehensive
		Shares		Amount		Capital		Compensation			Loans			Income (Loss)			Deficit)			Total			Income (Loss)


		(In thousands, except share data)
Balance, December 31, 2000			1,000	$	—	$	100,450	$	(1,150	)	$	—		$	—		$	(2,650	)	$	96,650		$	—
	Other comprehensive income, net of income taxes		—		—		—		—			—			583			—			583		$	583
	Employee stock purchase loans		—		—		1,970		—			(1,970	)		—			—			—			—
	Capital contribution		—		—		1,183		—			—			—			—			1,183			—
	Deferred compensation expense		—		—		252		243			—			—			—			495			—
	Net income		—		—		—		—			—			—			2,636			2,636			2,636

Balance, December 28, 2001			1,000		—		103,855		(907	)		(1,970	)		583			(14	)		101,547		$	3,219

	Employee stock purchase loans (unaudited)		—		—		1,506		—			(1,506	)		—			—			—			—
	Capital contribution (unaudited)		—		—		901		—			—			—			—			901			—
	Unrealized loss on interest rate swap, net of tax (unaudited)		—		—		—		—			—			(764	)		—			(764	)		(764	)
	Deferred compensation expense (unaudited)		—		—		—		233			—			—			—			233			—
	Net income (unaudited)		—		—		—		—			—			—			6,024			6,024			6,024

Balance, June 30, 2002 (unaudited)			1,000	$	—	$	106,262	$	(674	)	$	(3,476	)	$	(181	)	$	6,010		$	107,941		$	5,260

See accompanying notes.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS SIX MONTHS

ENDED ENDED

DECEMBER 28 JUNE 30 JUNE 30

2001 2002 2001

(UNAUDITED) (UNAUDITED)

(IN THOUSANDS)

OPERATING ACTIVITIES

Net income
$ 2,636 $ 6,024 $ 886

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
11,545 608 5,742

Amortization of deferred financing costs
939 470 470

Change in deferred income taxes
2,199 1,753 1,154

Income from joint ventures
(328 ) (1,891 ) 116

Deferred compensation expense
495 233 268

Changes in operating assets and liabilities:

Accounts receivable, net
(6,002 ) 9,277 10,493

Prepaid expenses and other assets
1,213 (168 ) (8,388 )

Prepaid pension asset
113 856 —

Other assets
(940 ) 206 25

Accounts payable
2,520 (5,231 ) (11,335 )

Accrued expenses and other liabilities
5,592 (4,748 ) 10,734

Other long-term liabilities
79 694 (379 )

Net cash provided by operating activities
20,061 8,083 9,786

INVESTING ACTIVITIES

Distributions from joint venture investments
200 — —

Purchases of property and equipment
(1,492 ) (514 ) (525 )

Net cash used in investing activities
(1,292 ) (514 ) (525 )

FINANCING ACTIVITIES

Net repayments on long-term debt
(16,074 ) (10,682 ) (5,430 )

Capital contributions
1,183 901 —

Net cash used in financing activities
(14,891 ) (9,781 ) (5,430 )

Increase (decrease) in cash and cash equivalents
3,878 (2,212 ) 3,831

Cash and cash equivalents, beginning of period
682 4,560 682

Cash and cash equivalents, end of period
$ 4,560 $ 2,348 $ 4,513

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Interest paid
$ 10,102 $ 4,407 $ 4,235

Income taxes paid
$ 52 $ 224 $ 48

See accompanying notes.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Principles of Consolidation

On August 20, 1999, ETS Acquisition Corp. (a subsidiary of Carlyle — EG&G Holdings Corporation) acquired certain outstanding shares of capital stock, assets, and liabilities of EG&G, Inc.’s Technical Services Division (seller) for $254,401. ETS Acquisition Corp. subsequently changed its name to EG&G Technical Services, Inc. (the Company). The acquisition was accounted for under the purchase method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values at the date of acquisition. As a result of the purchase price allocation, goodwill of $203,621 was recorded. The purchase price included a $2,100 noninterest-bearing note payable to the seller that matures on August 20, 2006. This note is included in other long-term liabilities in the accompanying consolidated balance sheet at its net present value.

The consolidated financial statements include the accounts of EG&G Technical Services, Inc. and its wholly owned subsidiary, Defense Materials, Inc. All material intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations

The Company provides skilled technical and support services to government and commercial customers. The services provided include management and professional services, studies and analyses, and engineering and technical services to Department of Defense (DOD) customers as well as DOD prime contractors. The Company provides distribution operations, asset management, and supply integration to DOD customers. The Company provides systems engineering, range instrumentation support, range operations and maintenance, facility protection services, civil engineering, and construction support to DOD and National Aeronautical and Space Administration (NASA) customers. The Company also provides a wide variety of technical support services with a focus on technically complex, high risk, high hazard operations.

Unaudited Interim Financial Statements

The accompanying consolidated balance sheet as of June 30, 2002, and the accompanying consolidated statements of operations and cash flows for the six months ended June 30, 2002 and 2001, are unaudited. The unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of such financial statements. The data disclosed in the notes to the financial statements for these periods are unaudited. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results expected for the entire fiscal year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

Fiscal Year

The Company’s reporting year ends on the Friday nearest to December 31 (a 52-53 week year). There were 52 weeks in the Company’s fiscal year ended December 28, 2001.

Recently Issued Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. The Company does not anticipate that adoption of SFAS No. 141 will have a material impact, either positive or negative, on future results of operations or financial condition.

In July 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 modifies the accounting rules governing goodwill and intangible assets. The provisions of SFAS No. 142 eliminate amortization of goodwill and identifiable intangible assets with indefinite lives and require an impairment assessment at least annually by applying a fair-value based test. The effective date for the Company’s implementation of SFAS No. 142 is January 1, 2002, on which date the Company ceased amortization of goodwill.

In connection with the implementation of SFAS 142, the Company completed an initial impairment test during the first quarter of fiscal year 2002, which resulted in no impairment. The following table reflects the adjusted net income as if SFAS 142 had been effective as of January 1, 2001:

SIX MONTHS SIX MONTHS

ENDED ENDED

DECEMBER 28 JUNE 30 JUNE 30

2001 2002 2001

(UNAUDITED) (UNAUDITED)

Reported net income
$ 2,636 $ 6,024 $ 886

Add: goodwill amortization, net of tax
6,007 — 3,004

Adjusted net income
$ 8,643 $ 6,024 $ 3,890

In August 2001, FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment and disposal of long-lived assets. This standard is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 will not have a material impact on the Company’s financial statements.

In November 2001, the Emerging Issues Task Force, or EITF, issued Topic No. D-103, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred, EITF Topic No. D-103 requires that companies report reimbursements received for out-of-pocket expenses incurred as revenue, rather than as a reduction of expenses. The provisions of EITF Topic No. D-103 are effective for financial statements issued for fiscal years beginning after December 15, 2001. As we have historically accounted for reimbursements of out-of-pocket expenses in the manner provided for under EITF Topic No. D-103, we do not expect the adoption of the provisions of EITF Topic No. D-103 to have an impact on our consolidated financial position or results of operations.

Revenue Recognition

Substantially all of the Company’s revenues result from services performed for the U.S. Government or for contractors engaged in work for the U.S. Government under a variety of contracts. Revenues on cost-reimbursement contracts are recognized to the extent of costs actually incurred plus a proportionate

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

amount of the fee earned. Revenues on fixed-price contracts are recognized using the percentage-of-completion method of contract accounting. The Company computes the percentage completed based on the percentage of costs incurred to date in relation to total estimated costs expected upon completion of the contract. For certain outsourcing arrangements whereby the contract provides for a fixed fee per service transaction, the Company recognizes revenues as the related services are provided and are billable. Incentives or penalties and awards applicable to performance on contracts are considered in estimating sales and profit rates, and are recorded when there is sufficient information to assess anticipated contract performance. Incentive provisions which increase or decrease earnings based solely on a single significant event are generally not recognized until the event occurs. Contract revenue recognition inherently involves estimation. Examples of estimates include the contemplated level of effort to accomplish the tasks under contract, the cost of the effort, and an ongoing assessment of progress toward completing the contract. The Company utilizes a number of management processes to monitor contract performance and revenue estimates. From time to time, as part of the normal management processes, facts develop that require revisions to estimated total costs or revenues expected. The cumulative effect of any such revisions is recorded in the period in which the facts requiring revisions become known. The full amount of anticipated losses on any type of contract is recognized in the period in which they become known.

Fair Value of Financial Instruments

SFAS No. 107, Disclosure About Fair Value of Financial Instruments, requires disclosure of the year-end value of significant financial instruments, as defined by SFAS No. 107. The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their fair values as of December 28, 2001, due to the relatively short duration of these financial instruments. The carrying amounts of the Company’s indebtedness approximate their fair values as of December 28, 2001, as they bear interest rates that approximate market.

Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents.

Inventories

Inventories are stated at lower of cost or market, generally using the weighted-average cost method. Inventories are included in Prepaid Expenses and Other in the accompanying balance sheets.

Property and Equipment, net

The Company depreciates property and equipment primarily using the straight-line method over estimated useful lives, which generally fall within the following ranges: machinery and equipment — three to seven years; and leasehold improvements — estimated useful life or remaining term of lease, whichever is shorter.

Computer equipment and software is depreciated over five years using the double declining method. Depreciation and amortization of property and equipment totaled $1,364 during 2001.

Expenditures for maintenance and repairs are charged to expense as incurred, and major additions and improvements are capitalized.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

Goodwill

Goodwill was being amortized on a straight-line basis over a period of 20 years. As discussed above, SFAS No. 142 eliminated goodwill amortization, effective January 1, 2002, for the Company. For the year ended December 28, 2001, amortization expense was $10,181.

Prior to January 1, 2002, long-lived assets and identifiable intangibles were reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for impairment, the Company estimates the future cash flows expected to result from the use of the asset. If impaired, the Company would write down the asset to its fair market value. If the asset is held for sale, the Company considers the asset’s fair value net of costs to sell the asset. There were no amounts expensed in 2001 related to impaired assets.

Other Assets

In connection with its Credit Agreement, the Company paid $6,584 of finance costs in 1999 which were deferred and included in other assets. These costs are being amortized over the terms of the related debt as additional interest expense. During 2001, $939 had been amortized.

The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, effective January 1, 2001. Under SFAS No. 133, all derivatives are recognized on the balance sheet at their fair value.

In October 2001, the Company entered into an interest rate swap to hedge the variability in interest payments associated with its floating rate A and B Term Loans (see Note 5). The Company has determined that this interest rate swap is an effective cash flow hedge under SFAS No. 133, and is reporting it in other assets at its fair value of $972 at December 28, 2001. In 2001, the Company recorded all changes in the fair value of the interest rate swap through other comprehensive income (OCI). The cumulative gain recognized in OCI, after income taxes, at December 28, 2001 was $583. Amounts recorded in OCI will be reclassified into earnings in the period in which earnings are affected by the hedged cash flows. The estimated amount to be reclassified from OCI to income over the next 12 months is $569. Upon termination of a hedging relationship, the amount in OCI will be amortized over the remaining life of the hedged cash flows.

The Company holds three joint venture investments, which are accounted for using the equity method of accounting. EC III, LLC, for which the Company is a 50% partner, performs services for the U.S. Army Yuma Proving Ground (YPG), the U.S. Army YPG Institutional Support Services, and the U.S. Navy Lake Electronic Combat Range. Energy & Environmental Solutions, LLC, for which the Company is a 50% partner, provides program, product and project engineering and analysis support to the Department of Energy at the Federal Energy Technology Center. JT3 LLC, for which the Company is a 50% partner, provides services to the U.S. Government for the Joint Test and Training Support Program (J-TECH). Income from joint ventures has been included in other nonoperating income in the accompanying consolidated statements of operations.

The Company has loans receivable from employees totaling $563 included in other assets as of December 28, 2001, at a 5.5% interest rate, payable in full in eight years or a change in control of the Company, whichever comes first.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

2. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consists of the following:


	DECEMBER 28			JUNE 30
	2001			2002

				(UNAUDITED)
Billed receivables	$	30,445		$	28,456
Unbilled receivables		56,970			49,627
Less allowance for doubtful accounts		(495	)		(440	)

	$	86,920		$	77,643

Receivables are due primarily from U.S. Government agencies. Unbilled receivables principally include amounts earned and contractually billable at December 28, 2001, but which were not billed because customer invoices had not yet been prepared by December 28, 2001.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:


	DECEMBER 28
	2001

Machinery and equipment	$	6,990
Leasehold improvements		552
Less accumulated depreciation		(3,276	)

	$	4,266

4. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consists of the following:


	DECEMBER 28
	2001

Payroll and other related liabilities	$	19,025
Accrued pension and incentive compensation		9,578
Contingent liabilities		4,009
Other liabilities		5,451

	$	38,063

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

5. LONG-TERM DEBT AND CREDIT AGREEMENT

Long-term debt consists of the following:


	DECEMBER 28			JUNE 30
	2001			2002

				(UNAUDITED)
A Term loan	$	49,335		$	43,892
B Term loan		79,441			74,202

		128,776			118,094
Less current portion		(11,557	)		(10,267	)

Long-term debt	$	117,219		$	107,827

The Company’s debt structure includes A Term and B Term loans as well as a revolving credit facility. The A Term and B Term loans are financed at a floating rate which can be tied to a one, two, three or six-month London Interbank Offered Rate (LIBOR) plus the applicable margin. The margins for A Term and B Term loans were 2.75% and 3.25% at December 28, 2001. The margins are structured to be reduced as the Company’s leverage multiples decrease. As of December 28, 2001, the Company’s debt was financed under a one-month LIBOR contract of 2.31% plus applicable margins and under a six-month LIBOR contract of 2.44% plus applicable margins. Borrowings under the A Term loan are payable in quarterly installments ranging from $2,333 to $4,125 beginning March 31, 2000 and ending August 20, 2005. Borrowings under the B Term loan are payable in 5 semiannual installments of $450 beginning March 31, 2000 and ending September 30, 2005, quarterly installments of $10,575 beginning December 31, 2005 and ending June 30, 2007, and $10,575 on August 20, 2007. The A and B Term loans contain a provision for early payment of principal based on excess of cash flow calculated annually. At December 28, 2001, an additional $3,400 of principal is due in 2002 under this provision. Of this amount, $2,097 relating to the B Term loan was classified as current, and the remaining position relating to the A Term loan was offset against current A Term loan maturities. Borrowings under these loans are secured by the assets of the Company.

In addition to its A Term and B Term loans, the Company has a $30 million revolving credit facility that matures in August 2005. The facility calls for a commitment fee payable quarterly in arrears of 0.5% per annum of the average unused portion of the revolving credit facility. For purposes of this calculation, standby letters of credit issued are considered to be outstanding amounts. As of December 28, 2001, the Company had three outstanding letters of credit, totaling $2,940. There were no amounts outstanding against the revolving credit facility as of December 28, 2001.

The credit agreement contains certain covenants which include, among others, a minimum consolidated net worth, a maximum leverage ratio, a minimum coverage ratio, and a maximum joint venture investment. As of December 28, 2001, the Company was in compliance with its covenants.

Pursuant to the credit agreement, the Company maintains a $40 million interest rate contract. This contract effectively caps the variable LIBOR rates contained in the Company’s debt agreement at 7%. This contract expires on October 22, 2002. As of December 28, 2001, no amounts were outstanding as the LIBOR rate did not exceed 7%.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

Aggregate maturities of long-term debt at December 28, 2001 are as follows:


2002	$	11,557
2003		12,875
2004		14,625
2005		15,694
2006		42,300
Thereafter		31,725

	$	128,776

6. INCOME TAXES

The Company records income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using existing tax rates. The effect on deferred tax assets and liabilities of a change in tax rates are recognized in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The income tax provision consists of the following for the year ended December 28, 2001:


Current:
	Federal	$	135
	State		51

Total current provision			186
Deferred:
	Federal		1,499
	State		215

Total deferred provision			1,714

Total income tax provision		$	1,900

For federal income tax purposes, the Company has net operating loss carryforwards of $7,740 as of December 28, 2001, which expire in 2020.

The income tax provision for the year ended December 28, 2001, is different from that computed using the statutory U.S. federal income tax rate of 34% for the year ending December 28, 2001, as set forth below:


Income taxes, at federal statutory rate	$	1,543
State taxes, net of federal benefit		215
Other		142

	$	1,900

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

The tax effect of temporary differences that give rise to the deferred tax assets and liabilities as of December 28, 2001, are as follows:


Net operating losses		$	3,137
Accrued expenses			1,405
Inventory			708
Investments in joint ventures			483
Allowance for doubtful accounts			126
Other			133

	Total deferred tax assets		5,992
Unbilled revenue			(2,718	)
Goodwill amortization			(3,747	)
Prepaid expenses			(409	)
Unrealized holding gains			(389	)
Other			(136	)

	Total deferred tax liabilities		(7,399	)

Net deferred tax liability		$	(1,407	)

7. RETIREMENT PLANS

Savings Plan

The Company has a savings plan for the benefit of qualified U.S. employees. Under this plan, for certain employees the Company contributes an amount equal to the lesser of 55% of the amount of the employee’s voluntary contribution or 3.3% of the employee’s annual compensation. The Company’s savings plan expense was $3,680 for the year ended December 28, 2001.

Employee Benefit Plans

Pension Plan

The Company has defined benefit plans that cover substantially all of its hourly and salaried employees. The hourly pension plan benefits are based primarily on hours of service with the Company. The salaried pension plan benefits are based on years of participation and final average compensation. The Company’s funding policies are to contribute to the plans the amounts necessary to satisfy the funding requirements of federal laws and regulations. Plan assets consist principally of listed equity and debt securities.

Assets of one plan may not be utilized to pay benefits of other plans. Additionally, the pension cost has been recorded based upon certain actuarial estimates. These estimates are subject to revision in future periods given new facts or circumstances.

The Company measures pension costs according to independent actuarial valuations. The projected unit credit cost method is used to determine pension cost for financial accounting purposes consistent with the provisions of SFAS No. 87, Employers’ Accounting for Pensions.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

Postretirement Plan

The Company has a postretirement medical plan which covers employees that meet certain eligibility requirements. All of these benefits may be subject to deductibles, co-payment provisions, and other limitations, and the Company has reserved the right to modify these benefits.

The initial weighted-average assumed health care cost trend rate used in determining the 2001 accumulated postretirement benefit obligation was 7.0% gradually declining to 5.5% in 2003 and remaining at that level thereafter.

Increasing the weighted-average assumed health care cost trend rate by one percentage point in each year would increase accumulated postretirement benefit obligations by approximately $94 in 2001. It would also increase the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost by approximately $6 in 2001.

The accrued postretirement benefits cost has been recorded based upon certain actuarial estimates. These estimates are subject to revision in future periods given new facts or circumstances.

The following is a reconciliation of the benefit obligations, plan assets, and federal status of the Company’s pension and postretirement plans at December 28, 2001:

OTHER

PENSION POSTRETIREMENT

BENEFITS BENEFITS

Change in benefit obligation:

Benefit obligation at beginning of year
$ 88,529 $ 3,864

Service cost
4,502 174

Interest cost
6,862 252

Benefits paid
(5,930 ) (181 )

Actuarial loss (gain)
7,745 (126 )

Plan amendments
129 —

Benefit obligation at end of year
$ 101,837 $ 3,983

Change in plan assets:

Fair value of plan assets at beginning of year
$ 115,413 $ 3,545

Actual return on plan assets
(6,639 ) (204 )

Benefits paid
(5,107 ) (12 )

Administrative expense
(822 ) —

Fair value of plan assets at end of year
$ 102,845 $ 3,329

Funded status reconciliation:

Funded status
$ 1,008 $ (654 )

Unrecognized net prior service cost
114 —

Unrecognized net actuarial gains
12,571 513

Prepaid (accrued) benefit cost
$ 13,693 $ (141 )

Assumptions at year end:

Discount rate
7.25 % 7.25 %

Expected return on assets
9.00 % 9.00 %

Rate of compensation increase
4.50 % N/A

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

Net periodic pension and other postretirement benefit costs include the following components for the year ended December 28, 2001:

OTHER

PENSION POSTRETIREMENT

BENEFITS BENEFITS

Service cost
$ 4,502 $ 174

Interest cost
6,861 252

Expected return on assets
(10,837 ) (329 )

Amortization of prior service cost
15 —

Recognized net actuarial gain
(428 ) (16 )

Net periodic cost
$ 113 $ 81

8. STOCK-BASED COMPENSATION

STOCK OPTION PLAN

The Company participates in the Stock Option Plan of Carlyle — EG&G Holdings Corporation, which provides for the granting of incentive stock options and nonqualified options to key employees and nonemployee members of the Board of Directors. The Company initially authorized 77,000 shares for issuance under the plan. In January 2001, the Board of Directors increased the numbers of shares available for issuance under the plan to 103,500. Stock options vest in accordance with vesting periods set forth in the governing award agreements and plan documents. Stock option activity and exercise prices for the plan are presented below:


				WEIGHTED-
				AVERAGE	WEIGHTED-
				REMAINING	AVERAGE
	NUMBER OF			CONTRACTUAL	EXERCISE
	SHARES			LIFE	PRICE

Outstanding, December 31, 2000		76,000		4.5 years	$	100
Granted		26,400				100
Forfeited		(6,400	)			100

Outstanding, December 28, 2001		96,000		4 years		100

Number of shares exercisable as of December 28, 2001		11,072				100

SFAS No. 123, Accounting for Stock-Based Compensation, calls for companies to measure employee stock compensation expense based on the fair value method of accounting. However, as allowed by SFAS No. 123, the Company has elected to account for its Stock Option Plan under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, which recognizes compensation cost based upon the intrinsic value of the equity award. Accordingly, no compensation expense was recognized in the consolidated statements of operations for any equity awards granted during the year ended December 28, 2001. Had the compensation costs for stock options been determined based on the fair value

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

at the grant dates for awards under the Stock Option Plan consistent with SFAS No. 123, the Company’s net income would have been adjusted to the pro forma amounts indicated below:


		DECEMBER 28
		2001

Net income:
	As reported	$	2,636
	Pro forma	$	2,272

All options issued by the Company were issued at the estimated fair value in effect at the date of issuance, vest ratably over the applicable vesting period, and expire 10 years after the grant date. The fair value for options granted in 2001 was estimated on the date of grant using the minimum value method with the following assumptions: dividend yield of 0%, risk-free interest rates ranging from 3.90% to 4.98%, respectively, and an expected exercise period of 5 years.

Employee Equity Purchase Plan

The Company participates in the Carlyle — EG&G Holdings Corporation Employee Equity Purchase Plan (the Plan). Under the Plan, key employees of the Company may purchase shares of Carlyle — EG&G Holdings Corporation’s common stock or receive grants of restricted stock at a price specified by the Board of Directors. The terms and conditions of the purchase are listed in the individual agreements between Carlyle — EG&G Holdings Corporation and Plan participants. Carlyle — EG&G Holdings Corporation authorized 60,000 shares for issuance under the Plan. These shares vest in equal annual installments over three years. In 2001, 3,833 shares became vested and were issued. The Company recorded $252 of unearned compensation associated with the restricted stock grants in 2001. Compensation expense related to the Plan of $495 was recognized in 2001. In 2001, 6,800 shares were purchased under the Plan, consisting of cash of $220 and employee loans of $460.

9. RELATED PARTY TRANSACTIONS

The Company has an agreement with TC Group Management, L.L.C. (Carlyle), whereby Carlyle will provide management services to the Company at an annual fee. Fees paid to Carlyle for these services under the agreement totaled $675 for the year ended December 31, 2000. In the fourth quarter of 2000, the agreement was amended such that payment of the annual fees will be deferred until January 1, 2003 and achievement of a certain leverage ratio. The Company has accrued $1,125 as of December 28, 2001, as a component of other long-term liabilities.

A portion of the Company’s B Term loan (4.6%) was sold to Carlyle High Yield Partners III, LP in 2001, which remains a holder of this debt at December 28, 2001. Carlyle High Yield Partners III, LP is not given any preference or deference over other holders of this debt.

10. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases office, warehouse, and distribution space under various noncancelable operating lease agreements. Lease expense during 2001 was approximately $12,182.

EG&G TECHNICAL SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 28, 2001 AND JUNE 30, 2002 (UNAUDITED)

Future minimum lease payments required under operating leases that have remaining noncancelable lease terms in excess of one year at December 28, 2001 are summarized below:


2002	$	6,749
2003		5,470
2004		5,060
2005		5,074
2006		2,610
Thereafter		5,868

	$	30,831

Legal Proceedings and Disputes

The Company is subject to various claims, legal proceedings, and investigations covering a wide range of matters that arise in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company. The Company has established accruals for matters that are probable and reasonably estimable. Management believes that any liability that may ultimately result from the resolution of these matters in excess of amounts provided will not have a material adverse effect on the financial position or results of operations of the Company.

Risks and Uncertainties

Substantially all of the Company’s sales are to U.S. Government agencies, primarily to DOD and NASA. In accordance with government regulations, all of the Company’s government contracts are subject to termination at the convenience of the government. Costs under cost reimbursable contracts are subject to audit. Prior audits have not had a material effect on the Company, and its former parent is responsible for disallowances of corporate costs incurred through August 20, 1999, as well as disallowed costs associated with the 1997 audit of the seller.

11. SUBSEQUENT EVENTS

On July 16, 2002, the Company entered into a merger agreement with URS Corporation, a public company. Pursuant to this agreement, URS Corporation agreed to acquire all of the capital stock of the Company.

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Lear Siegler Services, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Lear Siegler Services, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 2001, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lear Siegler Services, Inc. and Subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

July 25, 2002
McLean, Virginia

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31 JUNE 30

2001 2002

(UNAUDITED)

(IN THOUSANDS,

EXCEPT SHARE DATA)

ASSETS

Current assets:

Cash and cash equivalents
$ 109 $ 119

Accounts receivable, net of allowance for doubtful accounts of $911 and $911
66,845 60,057

Income tax receivable
2,917 1,883

Prepaid expenses and other current assets
3,866 5,010

Total current assets
73,737 67,069

Deferred tax assets
1,224 1,310

Property and equipment, net
3,367 3,794

Goodwill
54,963 54,963

Other assets
13,114 13,120

Total assets
$ 146,405 $ 140,256

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt
$ 500 $ 500

Bank overdraft
16,417 11,575

Accounts payable
7,044 5,607

Accrued expenses and other liabilities
38,149 46,574

Deferred tax liabilities
1,879 1,560

Total current liabilities
63,989 65,816

Revolving loans
9,561 995

Long-term debt, net of current portion
36,375 36,125

Total liabilities
109,925 102,936

Commitments and contingencies (Note 11)

Stockholders’ equity:

Common stock, $.01 par value; — 5,000,000 shares authorized, 3,613,563 shares issued and outstanding
36 36

Additional paid-in capital
36,638 36,327

Retained earnings (accumulated deficit)
(194 ) 957

Total stockholders’ equity
36,480 37,320

Total liabilities and stockholders’ equity
$ 146,405 $ 140,256

See accompanying notes.

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS SIX MONTHS

YEAR ENDED ENDED ENDED

DECEMBER 31 JUNE 30 JUNE 30

2001 2002 2001

(UNAUDITED) (UNAUDITED)

(IN THOUSANDS)

Revenues
$ 335,024 $ 190,511 $ 158,157

Operating costs and expenses:

Cost of services
319,615 179,021 146,223

General and administrative
11,666 7,837 6,997

Depreciation
646 509 252

Amortization of goodwill
5,129 — 2,565

Total operating costs and expenses
337,056 187,367 156,037

Operating (loss) income
(2,032 ) 3,144 2,120

Other expenses:

Interest expense
4,585 1,249 2,075

Other expense
177 9 5

(Loss) income before income taxes
(6,794 ) 1,886 40

Income tax benefit (provision)
1,883 (735 ) (351 )

Net (loss) income
$ (4,911 ) $ 1,151 $ (311 )

See accompanying notes.

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

RETAINED

COMMON STOCK ADDITIONAL EARNINGS

PAID-IN (ACCUMULATED

SHARES AMOUNT CAPITAL DEFICIT) TOTAL

(IN THOUSANDS)

Balance, December 31, 2000
3,610 $ 36 $ 36,602 $ 4,717 $ 41,355

Exercise of stock options
4 — 36 — 36

Net loss
— — — (4,911 ) (4,911 )

Balance, December 31, 2001
3,614 36 36,638 (194 ) 36,480

Repurchase of ownership interest (unaudited)
— — (311 ) — (311 )

Net income (unaudited)
— — — 1,151 1,151

Balance, June 30, 2002 (unaudited)
3,614 $ 36 $ 36,327 $ 957 $ 37,320

See accompanying notes.

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS SIX MONTHS

YEAR ENDED ENDED ENDED

DECEMBER 31 JUNE 30 JUNE 30

2001 2002 2001

(UNAUDITED) (UNAUDITED)

(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income
$ (4,911 ) $ 1,151 $ (311 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization
5,775 509 2,817

Amortization of deferred financing costs
300 150 150

Deferred tax benefit
(498 ) (405 ) 183

Changes in operating assets and liabilities:

(Increase) decrease in accounts receivable, net
(14,847 ) 6,788 (16,940 )

(Increase) decrease in income tax receivable
(1,991 ) 1,034 (917 )

(Increase) decrease in prepaid expenses and other current assets
(1,918 ) (1,294 ) 171

(Increase) decrease in other assets
(8,679 ) (6 ) 3,930

Increase (decrease) in accounts payable and bank overdraft
6,183 (6,279 ) 606

Increase in accrued expenses and other liabilities
12,457 8,425 1,756

Net cash (used in) provided by operating activities
(8,129 ) 10,073 (8,555 )

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment
(2,818 ) (935 ) (1,475 )

CASH FLOWS FROM FINANCING ACTIVITIES

Payments of long-term debt
(500 ) (250 ) (250 )

Net borrowings (repayments) on revolving debt
9,561 (8,567 ) 8,393

Stock options exercised
36 — —

Repurchase of ownership interest
— (311 ) —

Net cash provided by (used in) financing activities
9,097 (9,128 ) 8,143

Net (decrease) increase in cash
(1,850 ) 10 (1,887 )

Cash and cash equivalents at beginning of period
1,959 109 1,959

Cash and cash equivalents at end of period
$ 109 $ 119 $ 72

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:

Interest
$ 3,192 $ 1,518 $ 1,930

Income taxes
$ 730 $ 65 $ 252

See accompanying notes.

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Principles of Consolidation

On September 16, 1997, LSS Holdings, L.L.C. acquired the operating assets of Lear Siegler Services, Inc. (the Company or Lear Siegler Services). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, UNC Lear Siegler Services, Inc. and Burnside OTT Training Center, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company is a provider of aircraft maintenance, logistics support, systems integration and aviation training services primarily to the United States military, as well as to domestic and foreign government agencies.

Unaudited Interim Financial Statements

Use of Estimates

Revenue Recognition

Revenues under fixed rate per hour of service contracts are recognized as services are performed based on actual hours and expenses incurred under the contracts. For time-and-materials contracts, revenue is recognized based on billable rates times labor hours plus material and other reimbursable costs incurred. Performance award fees incorporated in certain government contracts are recognized when there is sufficient information to assess expected contract performance. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such losses are determined.

For the year ended December 31, 2001, the Company had two customer contracts with revenues of $104,335 and $70,619, each of which exceeded 10% of the Company’s total revenue. Revenues from federal government and commercial customers approximated 99% and 1%, respectively, for the year ended December 31, 2001.

Fair Value of Financial Instruments

Statement of Financial Accounting Standards (SFAS) No. 107, Disclosure About Fair Value of Financial Instruments, requires disclosure of the year-end value of significant financial instruments, as

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)

defined by SFAS No. 107. At December 31, 2001, all financial instruments, as defined in SFAS No. 107, have fair values that approximate their carrying amounts.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of currency on hand, cash on deposit, and cash invested temporarily in an overnight sweep account.

Accounts Receivable

Reserves for the collectibility of accounts receivable are provided when it is determined that it is probable that the Company will not collect all amounts due and the amount of the reserve requirement can be reasonably estimated.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. At December 31, 2001 inventory was $2,203 and is included in prepaid expenses and other current assets in the accompanying consolidated balance sheet.

Property and Equipment

Property and equipment are stated at cost. Depreciation is recorded using the straight-line method over estimated useful lives of five years.

Costs of equipment, furniture and fixtures, and leasehold improvements sold or retired and the related accumulated depreciation or amortization are removed from the accounts in the year of disposal, and any gains or losses are reflected in the consolidated statements of operations. Expenditures for maintenance and repairs are charged to expense as incurred, and major additions and improvements are capitalized.

Internal Use Computer Software

In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 98-1 Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, the Company capitalizes costs related to software and implementation in connection with its internal use software systems. Such costs are amortized principally over five years.

Goodwill

Goodwill was being amortized on a straight-line basis over 15 years. Amortization expense of $5,129 for the year ended December 31, 2001, is included in the accompanying consolidated financial statements. At December 31, 2001 accumulated amortization was $21,969. In accordance with the implementation of SFAS No. 142, Goodwill and Other Intangible Assets, no goodwill amortization is being recorded beginning January 1, 2002. Beginning January 1, 2002, the Company assesses potential impairment in accordance with the guidance in SFAS No. 142 (see Recently Issued Accounting Pronouncements).

Prior to January 1, 2002, the Company assesses potential impairment of intangible assets, including goodwill, when events or circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses an estimate of its future undiscounted cash flows to evaluate whether the intangible assets, including goodwill, are recoverable. The amount of impairment, if any, is measured based on projected discounted cash flows using a discount rate reflecting the Company’s average cost of funds.

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)

Other Assets

As of December 31, 2001 and June 30, 2002 (unaudited), other assets includes $12,057 of accounts receivable related to the F-5 TSP contract in Saudi Arabia. In the opinion of management, the outstanding receivables will be collected upon resolution of the related lawsuits discussed in Note 11. The receivable has been classified as a long-term asset since the Company is uncertain as to when the receivable will be collected.

Income Taxes

Deferred tax assets and liabilities represent the tax effects of temporary differences between tax and financial accounting bases of assets and liabilities and are measured using presently enacted tax rates. Deferred tax expense is the result of changes in the asset and liability for deferred taxes. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Stock Option Plan

In connection with its stock option and related plans, the Company applies the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees. Compensation expense is recognized on the date of an option grant only if the current market price of the underlying stock exceeds the exercise price. See Note 8 for further discussion of stock options, including the pro forma disclosures required by SFAS No. 123, Accounting for Stock-Based Compensation.

Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging Activities. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133, which defers the effective date of SFAS No. 133. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133. SFAS No. 133, SFAS No. 137, and SFAS No. 138 (collectively referred to as SFAS No. 133) require that all derivative instruments be recorded on the balance sheet at fair value. The Company adopted SFAS No. 133 effective January 1, 2001 at which time the Company was party to an interest rate swap contract that resulted in a transition loss before income taxes of $384.

All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of derivatives are reported either in earnings or as a component of other comprehensive income (OCI) as determined by whether hedge accounting is achieved. For the year ended December 2001, the Company did not have any derivative contracts outstanding that qualified for hedge accounting. Changes in fair value for derivatives that are not designated and do not qualify for hedge accounting are reported currently in earnings.

The Company has issued a floating rate note indexed to the three-month London Inter Bank Offered Rate (LIBOR). The note was issued for the purpose of financing Company operations. Because the note pays interest based on an index that resets quarterly, the Company is exposed to the risk of increasing interest costs in a rising interest rate environment. To economically hedge this exposure, the Company executed a single interest rate swap.

The Company reports the interest rate swap at fair value and is reflected as a derivative liability on the consolidated balance sheet. At December 31, 2001, the swap had a fair value of $(843). The Company

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)

did not elect to apply hedge accounting, and therefore, the changes in fair value of the swap are reported in earnings as interest expense.

Recently Issued Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. The provisions of SFAS No. 142 eliminate amortization of goodwill and identifiable intangible assets with indefinite lives and require an impairment assessment at least annually by applying a fair-value based test. The Company adopted SFAS No. 142 on January 1, 2002. The Company anticipates an annual pre-tax increase to net income of approximately $5,129 from the elimination of goodwill amortization. Management continues to estimate the impact on reported financial position and results of operations for the other provisions of the statements.

The following table reflects the adjusted net income as if SFAS No. 142 had been effective beginning January 1, 2001:

YEAR ENDED SIX MONTHS SIX MONTHS

DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,

2001 2002 2001

(UNAUDITED) (UNAUDITED)

Reported net (loss) income
$ (4,911 ) $ 1,151 $ (311 )

Add: goodwill amortization, net of tax
3,334 — 1,667

Adjusted net (loss) income
$ (1,577 ) $ 1,151 $ 1,356

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121 and Accounting Principles Board Opinion No. 30 by establishing a single accounting model for long-lived assets to be disposed of by sale. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. Management does not expect SFAS No. 144 to have a material impact on the Company’s results of operations or financial condition.

In November 2001, the Emerging Issues Task Force (EITF) issued Topic No. D-103, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred. EITF Topic No. D-103 requires that companies report reimbursements received for out-of-pocket expenses incurred as revenue, rather than as a reduction of expenses. The provisions of EITF Topic No. D-103 are effective for financial statements issued for fiscal years beginning after December 15, 2001. As we have historically accounted for reimbursements of out-of-pocket expenses in the manner provided for under EITF Topic No. D-103, we do not expect the adoption of the provisions of EITF Topic No. D-103 to have an impact on our consolidated financial position or results of operations.

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)

2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:


	DECEMBER 31			JUNE 30
	2001			2002

				(UNAUDITED)
Equipment	$	3,914		$	4,406
Furniture and fixtures		409			763
Leasehold improvements		821			821
Vehicles		58			147

		5,202			6,137
Less: accumulated depreciation		(1,835	)		(2,343	)

	$	3,367		$	3,794

3. ACCOUNTS RECEIVABLE

Accounts receivable, including contracts in process consist of the following:


		DECEMBER 31			JUNE 30
		2001			2002

					(UNAUDITED)
U.S. government:
	Billed	$	41,776		$	41,411
	Unbilled		24,667			19,320
	Retainage due upon completion of contracts		99			150

Total U.S. government			66,542			60,881
Other customers:
	Billed		100			36
	Unbilled		1,114			51

Total other customers			1,214			87
Less: allowance for doubtful accounts			(911	)		(911	)

Total		$	66,845		$	60,057

Unbilled receivables include amounts earned and contractually billable at December 31, 2001 and June 30, 2002, but which were not billed because customer invoices had not yet been prepared at December 31, 2001 and June 30, 2002. Management expects that substantially all accounts receivable will be collected within one year from the balance sheet date.

4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

Long-term debt consists of the following:


	DECEMBER 31		JUNE 30
	2001		2002

			(UNAUDITED)
B Term loan	$	36,875	$	36,625
Less: current maturities		500		500

Total long-term debt	$	36,375	$	36,125

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)

In September 1997, the Company obtained a $100 million senior secured credit facility. The credit agreement provides for the total facility to be allocated between revolving, A Term and B Term loans. All are secured by the assets of the Company.

The agreement also provides for aggregate standby letters-of-credit balances up to $10 million which, when issued, reduce the revolving loan borrowing availability. The facility calls for a commitment fee payable quarterly in arrears of 0.5% per annum of the average unused portion of the revolving credit facility. At both December 31, 2001 and June 30, 2002 (unaudited), the aggregate amounts of standby letters of credit outstanding were $2,125 and $2,400, respectively.

Total borrowings under the revolving loans are not to exceed $40 million and mature in September 2003. Additionally, the agreement contains certain financial covenants as defined in the agreement. As of December 31, 2001, the Company was in compliance with or had obtained waivers for all covenants. The revolving loans are financed at a floating rate tied to the prime rate which was 5.25% at December 31, 2001. At December 31, 2001 and June 30, 2002 (unaudited), the amounts outstanding were $9,561 and $995, respectively. Of this outstanding balance, $1,546 and $370, respectively, related to the revolving swing loan and $8,015 and $625, respectively, related to the revolving base loan. The average daily balance at December 31, 2001 and June 30, 2002 (unaudited) for these borrowings was $5,843 and $9,641, respectively, with a high balance of $16,945 and $17,985, respectively. The average interest rate for these revolving loans for the year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited) was 7.48% and 5.25%, respectively.

At December 31, 2001 and June 30, 2002 (unaudited), total borrowings under the B Term loan of $36,875 and $36,625, respectively, bear interest at 5.06% and 3.88%, respectively. The average daily balance at December 31, 2001 and June 30, 2002 (unaudited) for these borrowings was $37,185 and $37,012, respectively, with a high balance of $37,375 and $36,875, respectively. The average daily interest rate for the year ended December 31, 2001 and the six months ended June 30, 2002 (unaudited) was 6.18% and 3.92%, respectively.

Aggregate maturities of long-term debt are as follows:


2002	$	500
2003		4,292
2004		19,583
2005		12,500

	$	36,875

5. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

DECEMBER 31 JUNE 30

2001 2002

(UNAUDITED)

Payroll and other related liabilities
$ 10,704 $ 12,794

Subcontractor costs
9,194 11,599

Foreign facility lease obligations
7,777 7,777

Contingent liabilities
4,578 4,541

Insurance
3,573 4,929

Accrued benefits and incentive compensation
1,274 1,252

Derivative liability
843 409

Other accrued expenses
206 3,273

Total
$ 38,149 $ 46,574

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)

6. INCOME TAXES

The Company files consolidated federal and state income tax returns. Income taxes are recorded in accordance with SFAS No. 109, Accounting for Income Taxes. This statement requires the use of an asset and liability approach for financial accounting and reporting for income taxes.

The income tax provision (benefit) for the Company consists of the following:


		DECEMBER 31
		2001

Current:
	Federal	$	1,595
	State		287
	Foreign		(497	)

Total current benefit			1,385
Deferred:
	Federal		444
	State		54

Total deferred benefit			498

Total income tax benefit		$	1,883

Under SFAS No. 109, deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)

Deferred tax assets (liabilities) are composed of the following:


		DECEMBER 31
		2001

Deferred tax assets:
	Goodwill amortization	$	1,311
	Accrued vacation		1,006
	Accrued workers’ compensation		1,638
	Contingent liabilities		4,456
	Other		72

Total deferred tax assets			8,483
Deferred tax liabilities:
	Unbilled receivables		(7,199	)
	Compensation and benefits		(1,551	)
	Accrued liabilities		(388	)

Total deferred tax liabilities			(9,138	)

Net deferred tax liabilities		$	(655	)

The benefit for income taxes differed from the amounts computed at the statutory rate, as follows:


	YEAR ENDED
	DECEMBER 31
	2001

Benefit for income taxes computed at federal statutory rate of 35.0%	$	2,378
State income taxes, net of federal deduction		310
Foreign taxes		(497	)
Other, net		(308	)

Total	$	1,883

7. RETIREMENT PLANS

The Company participates in the Lear Siegler Services, Inc. Retirement Income Savings Plan, a defined contribution plan that covers a majority of the Company’s nonunion employees. Contributions under this plan are based on individual employee’s elective deferrals, a percentage of eligible employee compensation, and Company matching contributions. The cost of this plan was approximately $2,622 for the year ended December 31, 2001.

The Company also participates in the Lear Siegler Services, Inc. Supplemental Retirement Plan for certain highly compensated employees. Contributions under the plan are based on individual employee’s elective deferrals, a percentage of eligible employee compensation, and Company matching contributions.

The Company also participates in a multiemployer defined benefit pension plan for certain active and retired union employees. The Company’s policy is to fund these benefits in accordance with the provisions of the collective bargaining agreement. As of December 31, 2001, approximately 24% of the Company’s labor force is covered by a collective bargaining agreement and approximately 6% of the Company’s labor force is covered by a collective bargaining agreement that will expire within one year.

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)

8. STOCK OPTIONS

The Company maintains the Stock Option Plan for Executive and Other Key Employees and Independent Directors as employment incentives and to encourage stock ownership. Cumulative total shares of stock granted under the plan may not exceed 500,000 shares of the Company’s common stock, with the exception of independent directors, for whom granted options may not exceed 10,000 shares. Options granted are exercisable for up to 10 years from the date of grant. The Company can also grant nonqualified stock options under the Stock Option Plan. Such options expire within 10 years from the date the option was granted. The number of shares exercisable at December 31, 2001 was 307,525 with a weighted-average exercise price of $11.05.

Information with respect to stock options is as follows:

WEIGHTED-

AVERAGE

NUMBER OF EXERCISE

SHARES RANGE PRICE

Outstanding, December 31, 2000
474,331 $ 12.50 - 17.50 $ 10.77

Granted
34,000 12.50 - 17.50 15.29

Exercised
(3,563 ) 10.00 10.00

Forfeited
(34,304 ) 10.00 - 12.50 11.50

Outstanding, December 31, 2001
470,464 10.00 - 17.50 11.04

As required by SFAS No. 123, the Company has determined the pro forma effect for stock options granted under the fair value method prescribed in SFAS No. 123. Had compensation expense been recognized in the accompanying consolidated financial statements based on SFAS No. 123, net loss would have been adjusted to the pro forma amounts indicated below:


		YEAR ENDED DECEMBER 31 2001

Net loss:
	As reported	$	(4,911	)
	Pro forma		(5,524	)

The minimum value option-pricing model was used with the following weighted-average assumptions for 2001: risk-free interest rate of 4.39%, an excepted dividend yield of zero, and an average expected life of the options of five years. The weighted-average fair value of options granted in 2001 was $6.22. The weighted average remaining contractual life of outstanding shares at December 31, 2001 was 6.51 years.

9. INSURANCE

Medical liability insurance is self-insured and is administered by a third party. The insurance liability is determined based on claims filed and an estimate of claims incurred but not yet reported. The Company has recorded $3,573 of insurance liabilities, classified as accrued expenses and liabilities in the accompanying consolidated balance sheets, as of December 31, 2001.

10. RELATED-PARTY TRANSACTIONS

LEAR SIEGLER SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)

In March 2002, the Company entered into a management agreement with EG&G Technical Services, Inc. (EG&G) whereby EG&G provides certain management services to the Company. As of June 30, 2002, the Company had accrued approximately $479,000 related to this agreement which is recorded in accrued expenses and other liabilities on the accompanying balance sheet as of June 30, 2002.

11. COMMITMENTS AND CONTINGENCIES

Commitments

The Company and its subsidiaries lease buildings and equipment under various noncancelable operating lease agreements with expiration dates ranging from 2002 through 2005. The lease agreements frequently include renewal options and require the Company to pay for utilities, taxes, insurance, and maintenance expenses. Rent expense for the year ended December 31, 2001 was approximately $1,669.

Future minimum lease payments required under operating leases that have remaining noncancelable lease terms in excess of one year at December 31, 2001, are summarized below:


2002	$	1,190
2003		770
2004		607
2005		481

Total	$	3,048

The Company had $5,620 of corporate guarantees outstanding at December 31, 2001, which primarily guarantee the F-5 TSP Saudi Arabian contract (through a facility letter agreement with Saudi French bank). The amount of corporate guarantees is fixed over the life of the commitment. The Company will recognize losses on these commitments, if any, as incurred. No losses on these commitments have been incurred, nor are any anticipated.

Contingencies

The Company and its subsidiaries are parties to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business. These include several lawsuits regarding the F-5 TSP contract in Saudi Arabia. While the attorneys handling these suits believe the Company has strong defenses, there is potential exposure given the uncertainty of litigation, particularly involving a foreign country. The Company has established accruals for matters that are probable and reasonably estimable (see Note 5).

Management believes that any liability that may ultimately result from the resolution of these matters in excess of amounts provided will not have a material adverse effect on the financial position or results of operations of the Company.

A portion of contractual payments to the Company are provisional payments that are subject to adjustment upon audit by the Defense Contract Audit Agency. Audits through fiscal year 1998 have been completed. In the opinion of management, any adjustments resulting from the audits of fiscal years 1999, 2000, and 2001 will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

12. SUBSEQUENT EVENTS

(b) PRO FORMA FINANCIAL INFORMATION

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information is based on the historical consolidated financial statements of URS Corporation and its subsidiaries (“URS”) and the respective historical financial statements of EG&G Technical Services, Inc. and Subsidiary and Lear Siegler Services, Inc. and Subsidiaries (collectively the “EG&G businesses”). The unaudited pro forma condensed combined balance sheet as of April 30, 2002 gives effect to the EG&G acquisition and the related financing as if they had occurred on April 30, 2002. The unaudited pro forma condensed combined statements of operations for the six months ended April 30, 2002 and the year ended October 31, 2001 give effect to the EG&G acquisition and the related financing as if they had occurred on November 1, 2000.

Our fiscal year ends on October 31, EG&G Technical Services, Inc.’s fiscal year ends on the closest Friday to December 31, and Lear Siegler Services, Inc.’s fiscal year ends on December 31. To present comparable data for us and for the EG&G businesses, the unaudited pro forma condensed combined balance sheet as of April 30, 2002 includes historical data for us as of April 30, 2002 and unaudited historical data for the EG&G businesses as of June 30, 2002. The unaudited pro forma condensed combined statement of operations for the (i) six months ended April 30, 2002 includes unaudited historical data for us for the six months ended April 30, 2002 and unaudited historical data for the EG&G businesses for the six months ended June 30, 2002, and (ii) the year ended October 31, 2001 includes historical data for us for the year ended October 31, 2001, historical data for EG&G Technical Services, Inc. for the year ended December 28, 2001 and historical data for Lear Siegler Services, Inc. for the year ended December 31, 2001.

As of the completion of the acquisition of the EG&G businesses, management had begun to assess and formulate plans to integrate the activities of the EG&G businesses, including termination and relocation of certain employees of the EG&G businesses, vacating certain facilities of the EG&G business, combining employee benefits plans, integrating marketing, accounting and information technology systems and legal, insurance, and risk management procedures. Any effects of this integration have not been included in the unaudited pro forma condensed combined financial information.

These unaudited pro forma condensed combined financial statements have been prepared based on preliminary estimates of fair values. Therefore, the actual amounts recorded as of the completion of the merger may differ from the information presented in theses unaudited pro forma condensed combined financial statements due to the receipt of the final valuation.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in our Annual Report on Form 10-K, as filed on January 16, 2002, for our fiscal year ended October 31, 2001 and Quarterly Report on Form 10-Q for our quarter ended April 30, 2002. The unaudited pro forma condensed combined financial information is presented for informational purposes only and does not purport to represent what the results of operations or financial position would actually have been had the EG&G acquisition and the related financing in fact occurred on the dates specified, nor does it purport to project the results of operations or financial position for any future period or at any future date.

Unaudited Pro Forma Combined Balance Sheet
As of April 30, 2002
(in thousands)


					As of											As of
					April 30,											April 30,
					2002			As of June 30, 2002								2002

								EG&G			Lear
					URS			Technical			Siegler
					Corporation			Services, Inc.			Services, Inc.		Adjustments			Pro Forma

ASSETS




Current assets:




	Cash and cash equivalents				$	25,077		$	2,348		$	119	$	(15,000	)(a)	$	12,544




	Accounts Receivable, net					449,924			28,016			40,535		—			518,475




	Costs and accrued earnings in excess of billings on contracts in process, net					246,592			49,627			19,522		—			315,741




	Prepaid expenses and other					32,707			4,588			6,893		(1,590	)(b)		42,598

				Total current assets		754,300			84,579			67,069		(16,590	)		889,358




	Property and equipment, net					143,297			4,172			3,794		—			151,263




	Goodwill, net					501,086			179,904			54,963		(234,867	)(c)		965,186




														464,100	(c)




	Other amortizable intangible assets					—			—			—		10,700	(c)		10,700




	Other assets					42,118			19,916			14,430		28,897	(d)		81,680




														(12,837	)(e)




														(10,844	)(b)

				Total assets		1,440,801			288,571			140,256		228,559			2,098,187

LIABILITIES AND STOCKHOLDERS’ EQUITY




Current liabilities:




	Current portion of long-term debt				$	60,456		$	10,267		$	500	$	(56,276	)(f)	$	80,777




														65,830	(g)




	Bank overdraft					—			—			11,575		—			11,575




	Accounts payable					105,029			22,346			5,607		(4,974	)(b)		128,008




	Accrued expenses and other					70,605			33,805			48,134		—			152,544




	Billings in excess of costs and accrued earnings on contracts in process					86,568			—			—		—			86,568

			Total current liabilities			322,658			66,418			65,816		4,580			459,472




	Long-term debt					560,406			107,827			37,120		(462,375	)(f)		897,258




														654,280	(g)




	Deferred compensation and other					74,190			6,385			—		24,724	(e)		105,299

				Total liabilities		957,254			180,630			102,936		221,209			1,462,029

Convertible preferred stock:




	Series B preferred stock					124,951			—			—		—			124,951




	Series D preferred stock					—			—			—		47,737	(h)		47,737

				Total convertible preferred stock		124,951			—			—		47,737			172,688

	Stockholders’ equity:




		Common stock				188			—			36		50	(i)		238




														(36	)(j)




		Treasury stock				(287	)		—			—		—			(287	)




		Additional paid-in capital				168,472			102,112			36,327		112,284	(i)		280,756




														(138,439	)(j)




		Other comprehensive income (loss)				(6,391	)		(181	)		—		181	(j)		(6,391	)




		Retained earnings				196,614			6,010			957		(6,967	)(j)		189,154




														(7,460	)(b)

				Total stockholders’ equity		358,596			107,941			37,320		(40,387	)		463,470

				Total liabilities and stockholders’ equity	$	1,440,801		$	288,571		$	140,256	$	228,559		$	2,098,187

See Notes to Unaudited Pro Forma Combined Balance Sheet

Notes to Unaudited Pro Forma Combined Balance Sheet

(in thousands, except share data)

(a) Reflects sources of cash as part of the financing related to the EG&G acquisition.

(b) Reflects the write-off of URS debt issuance costs related to the extinguishment of debt in connection with the EG&G acquisition.


Current capitalized debt issuance costs	$	1,590




Long-term capitalized debt issuance costs		10,844

		12,434




Tax effect of the write-off at an assumed statutory rate of 40%		(4,974	)

	$	7,460

(c) Reflects the elimination of EG&G Technical Service, Inc.’s and Lear Siegler Services, Inc.’s historical goodwill and the recording of the aggregate goodwill created by the EG&G acquisition.


Purchase price	$	491,571




Acquisition costs (net of financing fees)		11,776

		503,347




Less: net assets acquired		(28,547	)

Excess of acquisition cost over net assets acquired		474,800




Less: amount allocated to amortizable intangible assets		(10,700	)

Amount allocated to goodwill	$	464,100

Under the purchase method of accounting, the total estimated purchase price is allocated to the tangible and intangible assets and liabilities of the EG&G businesses acquired in connection with the merger, based on their fair values as of the completion of the merger. Independent valuation specialists are currently conducting a valuation in order to assist management of URS in determining the fair values of a significant portion of these assets. The preliminary work performed by the independent valuation specialists has been considered in management’s estimates of the fair values reflected above. As part of the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, we regularly evaluate whether events and circumstances have occurred that indicate a possible impairment of goodwill.

The purchase price consists of $331,500 of cash and the issuance of our common stock and our series D preferred stock valued at $112,334 and $47,737, respectively. Pursuant to a Merger Agreement dated July 16, 2002, the series D preferred stock includes a variable liquidation preference which was calculated to be $467.33 at closing based upon the average closing price of our common stock for the 20 trading days preceding August 22, 2002. However, as a result of voting agreements signed in connection with the EG&G acquisition and the escalating dividend rate associated with the series D preferred stock, the purchase price, specifically the valuation of the series D preferred stock, assumes that all of the shares of series D preferred stock have been converted into shares of our common stock. The shares of series D preferred stock have been valued on an as-converted basis at $22.66, the closing price of our common stock on August 22, 2002.

(d) Reflects capitalized debt financing fees and expenses aggregating $28,897.

(e) Reflects the elimination of EG&G Technical Services’ historical pension asset at June 30, 2002 and an estimated adjustment required pursuant to paragraph 74 of Statement of Financial Accounting Standards No. 87, “Employer’s Accounting for Pensions,” to record a liability for the projected benefit obligation in excess of the plan assets for the EG&G Technical Services, Inc. defined benefit plan. This adjustment reflects management’s best estimate and is subject to a final actuarial valuation from the plan’s actuary.

(f) Reflects the repayment of our debt and that of EG&G Technical Services, Inc. and Lear Siegler Services, Inc. as part of the financing related to the EG&G acquisition.


			EG&G		Lear
	URS		Technical		Siegler
	Corporation		Services, Inc.		Services, Inc.		Total

Current	$	45,509	$	10,267	$	500	$	56,276




Non-current		317,428		107,827		37,120		462,375

	$	362,937	$	118,094	$	37,620	$	518,651

(g) Reflects debt incurred as part of the financing related to the EG&G acquisition.


Senior Notes due 2009	$	195,280




Senior secured credit facility:




Revolving credit facility		49,830




Term loan A		125,000




Term loan B		350,000

Total new debt		720,110




Less: current portion		(65,830	)

Non-current portion	$	654,280

(h) Represents the estimated fair market value of the 100,000 shares of series D preferred stock to be issued in connection with the EG&G acquisition. See footnote (c).

(i) Represents the estimated fair market value of the 4,957,359 shares of common stock issued in connection with the EG&G acquisition based on the closing price of our common stock at August 22, 2002.

(j) Reflects the elimination of EG&G Technical Service, Inc.’s and Lear Siegler Services, Inc.’s historical equity.

Unaudited Pro Forma Combined Statement of Operations

Six Months Ended April 30, 2002

(in thousands, except per share data)



			Six Months			Six Months										Six Months
			Ended			Ended										Ended
			April 30,			June 30,										April 30,
			2002			2002										2002

						EG&G			Lear
			URS			Technical			Siegler
			Corporation			Services, Inc.			Services, Inc.			Adjustments				Pro Forma

Revenues				$	1,107,408		$	259,248		$	190,511		$	—			$	1,557,167

Expenses




	Direct operating				663,508			228,287			179,021			—				1,070,816




	Indirect, general and administrative				353,368			15,784			7,846			1,000	(a)			377,998




	Depreciation				15,252			608			509			—				16,369




	Amortization of goodwill				—			—			—			—				—




	Interest expense, net				24,938			4,482			1,249			12,466	(c)			43,135

		Total expenses			1,057,066			249,161			188,625			13,466				1,508,318

	Income before taxes and preferred stock dividend				50,342			10,087			1,886			(13,466	)			48,849




	Income tax expense (benefit)				20,140			4,063			735			(5,386	)(d)			19,552

	Net income				30,202			6,024			1,151			(8,080	)			29,297




	Preferred stock dividend				4,884			—			—			—	(e)			4,884

	Net income available for common stockholders			$	25,318		$	6,024		$	1,151		$	(8,080	)		$	24,413

	Net income per common share




		Basic		$	1.37												$	0.96	(f)

		Diluted		$	1.16												$	0.90	(f)

	Weighted average shares outstanding




		Basic			18,482													25,547

		Diluted			25,895													32,494

See Notes to Unaudited Pro Forma Combined Statement of Operations

Unaudited Pro Forma Combined Statement of Operations

Year Ended October 31, 2001

(in thousands, except per share data)


			Year Ended		Year Ended		Year Ended						Year Ended
			October 31,		December 28,		December 31,						October 31,
			2001		2001		2001						2001

					EG&G
			URS		Technical		Lear Siegler
			Corporation		Services, Inc.		Services, Inc.			Adjustments			Pro Forma

Revenues			$	2,319,350	$	542,530	$	335,024		$	—		$	3,196,904

Expenses




	Direct operating			1,393,818		481,422		319,615			—			2,194,855




	Indirect, general and administrative			713,648		32,614		11,843			2,000	(a)		760,105




	Depreciation			26,526		1,364		646			—			28,536




	Amortization of goodwill			15,617		10,181		5,129			(15,310	)(b)		15,617




	Interest expense, net			65,589		12,413		4,585			3,682	(c)		86,269

		Total expenses		2,215,198		537,994		341,818			(9,628	)		3,085,382

	Income (loss) before taxes and preferred stock dividend			104,152		4,536		(6,794	)		(9,628	)		111,522




	Income tax expense (benefit)			46,300		1,900		(1,883	)		3,851	(d)		50,168

	Net income (loss)			57,852		2,636		(4,911	)		5,777			61,354




	Preferred stock dividend			9,229		—		—			—	(e)		9,229

	Net income (loss) available for common stockholders		$	48,623	$	2,636	$	(4,911	)	$	5,777		$	52,125

	Net income per common share




		Basic	$	2.79									$	2.13	(f)

		Diluted	$	2.41									$	2.01	(f)

	Weighted average shares outstanding




		Basic		17,444										24,508

		Diluted		23,962										30,566

See Notes to Unaudited Pro Forma Combined Statement of Operations

Notes to Unaudited Pro Forma Combined Statements of Operations

(in thousands)

(a) Reflects amortization of intangible assets created by the EG&G acquisition. Amortizable intangible assets consist of fair values ascribed to contracts and backlog and these fair values are amortized over the remaining contract period.

(b) Reflects the elimination of goodwill amortization previously recorded by EG&G Technical Services, Inc. and Lear Siegler Services, Inc.


	Six Months		Year
	Ended		Ended
	April 30,		October 31,
	2002		2001

Elimination of EG&G Technical Services’ goodwill amortization expense	$	—	$	10,181




Elimination of Lear Siegler’s goodwill amortization expense		—		5,129

	$	—	$	15,310

(c) Reflects estimated incremental interest expense associated with debt incurred as part of the financing related to the EG&G acquisition and estimated amortization of debt financing costs.


	Six Months			Year
	Ended			Ended
	June 30,			October 31,
	2002			2002

Interest expense calculated based on current rates	$	43,135		$	86,269




Less: Historical interest expense — URS Corporation		(24,938	)		(65,589	)




Less: Historical interest expense — EG&G Technical Services, Inc.		(4,482	)		(12,413	)




Less: Historical interest expense — Lear Siegler Services, Inc.		(1,249	)		(4,585	)

Adjustment — increase in interest expense	$	12,466		$	3,682


							Variable		Variable		Variable
							Interest		Interest at		Interest
							Range		Current/		Range
		Actual					125 basis		Actual		125 basis
Debt Instrument		Rate			Amount		points below		Rate		points above

Existing debt to remain outstanding:




Interest expense			—		$	—	$	29,242	$	29,242	$	29,242




New debt:




Senior Notes due 2009			12.00	%		195,280		23,434		23,434		23,434




Senior secured credit facility:




	Revolving credit facility		6.75	%		49,830		2,741		3,364		3,986




	Term loan A		4.81	%		125,000		4,452		6,014		7,577




	Term loan B		5.31	%		350,000		14,213		18,588		22,963




Other annual financing costs			—			—		927		927		927




Amortization of debt financing costs			—			—		4,700		4,700		4,700

Annual interest expense							$	79,709	$	86,269	$	92,829

Semi-annual interest expense							$	39,854	$	43,135	$	46,414

(d) Reflects the tax effect of all adjustments at an assumed statutory tax rate of 40.0%.

(e) No adjustments were made to accrue preferred stock dividends on our series D preferred stock in the event that our series D preferred stock is not converted into common stock by February 18, 2003. As a result of voting agreements signed in connection with the EG&G acquisition and the escalating dividend rate associated with the series D preferred stock, we assume that all of the shares of series D preferred stock have been converted into shares of our common stock.

(f) Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for the period and assuming the issuance of shares of common stock in connection with the EG&G acquisition occurred at the beginning of the period presented. Diluted net income per share is computed assuming conversion or exercise of all convertible securities, option and warrants. Both basic and diluted net income per share calculations assume the series D preferred stock has been converted at the beginning of the period presented into shares of common stock based on the liquidation preference of $467.33 calculated in accordance with the merger agreement.

SIGNATURE

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: November 4, 2002 By: /s/ Kent P. Ainsworth

Kent P. Ainsworth
Executive Vice President
Chief Financial Officer and Secretary

EXHIBIT INDEX

EXHIBIT

NUMBER DESCRIPTION

23.1 Consent of Ernst & Young LLP — EG&G Technical Services, Inc. and Subsidiary

23.2 Consent of Ernst & Young LLP — Lear Siegler Services, Inc. and Subsidiaries


1-7567 (Commission File No.)		94-1381538 (I.R.S. Employer Identification No.)


					SIX MONTHS			SIX MONTHS
					ENDED			ENDED
		DECEMBER 28			JUNE 30			JUNE 30
		2001			2002			2001

					(UNAUDITED)			(UNAUDITED)
					(IN THOUSANDS)
Revenues		$	542,530		$	259,248		$	255,493
Operating costs and expenses:
	Cost of services		481,422			228,287			223,834
	General and administrative		44,314			18,369			23,044

Operating income			16,794			12,592			8,615
Interest expense			(12,413	)		(4,482	)		(7,269	)
Other nonoperating income			155			1,977			176

Income before income taxes			4,536			10,087			1,522
Income tax provision			(1,900	)		(4,063	)		(636	)

Net income		$	2,636		$	6,024		$	886


				OTHER
	PENSION			POSTRETIREMENT
	BENEFITS			BENEFITS

Change in benefit obligation:
Benefit obligation at beginning of year	$	88,529		$	3,864
Service cost		4,502			174
Interest cost		6,862			252
Benefits paid		(5,930	)		(181	)
Actuarial loss (gain)		7,745			(126	)
Plan amendments		129			—

Benefit obligation at end of year	$	101,837		$	3,983

Change in plan assets:
Fair value of plan assets at beginning of year	$	115,413		$	3,545
Actual return on plan assets		(6,639	)		(204	)
Benefits paid		(5,107	)		(12	)
Administrative expense		(822	)		—

Fair value of plan assets at end of year	$	102,845		$	3,329

Funded status reconciliation:
Funded status	$	1,008		$	(654	)
Unrecognized net prior service cost		114			—
Unrecognized net actuarial gains		12,571			513

Prepaid (accrued) benefit cost	$	13,693		$	(141	)

Assumptions at year end:
Discount rate		7.25	%		7.25	%
Expected return on assets		9.00	%		9.00	%
Rate of compensation increase		4.50	%		N/A


								RETAINED
	COMMON STOCK				ADDITIONAL			EARNINGS
					PAID-IN			(ACCUMULATED
	SHARES		AMOUNT		CAPITAL			DEFICIT)			TOTAL

	(IN THOUSANDS)
Balance, December 31, 2000		3,610	$	36	$	36,602		$	4,717		$	41,355
Exercise of stock options		4		—		36			—			36
Net loss		—		—		—			(4,911	)		(4,911	)

Balance, December 31, 2001		3,614		36		36,638			(194	)		36,480
Repurchase of ownership interest (unaudited)		—		—		(311	)		—			(311	)
Net income (unaudited)		—		—		—			1,151			1,151

Balance, June 30, 2002 (unaudited)		3,614	$	36	$	36,327		$	957		$	37,320

(a)		Reflects sources of cash as part of the financing related to the EG&G acquisition.

(b)		Reflects the write-off of URS debt issuance costs related to the extinguishment of debt in connection with the EG&G acquisition.

		Under the purchase method of accounting, the total estimated purchase price is allocated to the tangible and intangible assets and liabilities of the EG&G businesses acquired in connection with the merger, based on their fair values as of the completion of the merger. Independent valuation specialists are currently conducting a valuation in order to assist management of URS in determining the fair values of a significant portion of these assets. The preliminary work performed by the independent valuation specialists has been considered in management’s estimates of the fair values reflected above. As part of the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, we regularly evaluate whether events and circumstances have occurred that indicate a possible impairment of goodwill.

		The purchase price consists of $331,500 of cash and the issuance of our common stock and our series D preferred stock valued at $112,334 and $47,737, respectively. Pursuant to a Merger Agreement dated July 16, 2002, the series D preferred stock includes a variable liquidation preference which was calculated to be $467.33 at closing based upon the average closing price of our common stock for the 20 trading days preceding August 22, 2002. However, as a result of voting agreements signed in connection with the EG&G acquisition and the escalating dividend rate associated with the series D preferred stock, the purchase price, specifically the valuation of the series D preferred stock, assumes that all of the shares of series D preferred stock have been converted into shares of our common stock. The shares of series D preferred stock have been valued on an as-converted basis at $22.66, the closing price of our common stock on August 22, 2002.

(d)		Reflects capitalized debt financing fees and expenses aggregating $28,897.

(e)		Reflects the elimination of EG&G Technical Services’ historical pension asset at June 30, 2002 and an estimated adjustment required pursuant to paragraph 74 of Statement of Financial Accounting Standards No. 87, “Employer’s Accounting for Pensions,” to record a liability for the projected benefit obligation in excess of the plan assets for the EG&G Technical Services, Inc. defined benefit plan. This adjustment reflects management’s best estimate and is subject to a final actuarial valuation from the plan’s actuary.

(f)		Reflects the repayment of our debt and that of EG&G Technical Services, Inc. and Lear Siegler Services, Inc. as part of the financing related to the EG&G acquisition.

(h)		Represents the estimated fair market value of the 100,000 shares of series D preferred stock to be issued in connection with the EG&G acquisition. See footnote (c).

(i)		Represents the estimated fair market value of the 4,957,359 shares of common stock issued in connection with the EG&G acquisition based on the closing price of our common stock at August 22, 2002.

(j)		Reflects the elimination of EG&G Technical Service, Inc.’s and Lear Siegler Services, Inc.’s historical equity.

(a)		Reflects amortization of intangible assets created by the EG&G acquisition. Amortizable intangible assets consist of fair values ascribed to contracts and backlog and these fair values are amortized over the remaining contract period.

(b)		Reflects the elimination of goodwill amortization previously recorded by EG&G Technical Services, Inc. and Lear Siegler Services, Inc.

(d)		Reflects the tax effect of all adjustments at an assumed statutory tax rate of 40.0%.

(e)		No adjustments were made to accrue preferred stock dividends on our series D preferred stock in the event that our series D preferred stock is not converted into common stock by February 18, 2003. As a result of voting agreements signed in connection with the EG&G acquisition and the escalating dividend rate associated with the series D preferred stock, we assume that all of the shares of series D preferred stock have been converted into shares of our common stock.

(f)		Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for the period and assuming the issuance of shares of common stock in connection with the EG&G acquisition occurred at the beginning of the period presented. Diluted net income per share is computed assuming conversion or exercise of all convertible securities, option and warrants. Both basic and diluted net income per share calculations assume the series D preferred stock has been converted at the beginning of the period presented into shares of common stock based on the liquidation preference of $467.33 calculated in accordance with the merger agreement.


		URS CORPORATION

Dated:	November 4, 2002	By:	/s/ Kent P. Ainsworth
			Kent P. Ainsworth Executive Vice President Chief Financial Officer and Secretary


EXHIBIT
NUMBER		DESCRIPTION

23.1		Consent of Ernst & Young LLP — EG&G Technical Services, Inc. and Subsidiary
23.2		Consent of Ernst & Young LLP — Lear Siegler Services, Inc. and Subsidiaries