UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
      one)x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
              EXCHANGE
      ACT OF 1934For
      the quarterly period ended September 26, 2008ORo
            TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
Transition Period from ____________ to _____________





Commission
file number 1-7567











URS
CORPORATION





(Exact
name of registrant as specified in its charter)





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





(415)
774-2700


(Registrant’s
telephone number, including area code)





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




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




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




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




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





Class
            Outstanding at October 27,
    2008Common
      Stock, $.01 par value
            83,496,063











URS
CORPORATION AND SUBSIDIARIES




This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995.  These forward-looking statements may be identified by words
such as “anticipate,” “believe,” “estimate,”
“expect,” “potential,”  “intend,” “may,” “plan,” “predict,”
“will,” and similar terms used in reference to our future revenues, services and
other business trends; future accounting policies and actuarial estimates;
future adjustments to intangible assets and goodwill; future Washington Group
International, Inc. acquisition related costs; future income taxes; future
stock-based compensation expenses; future retirement plan expenses; future
compliance with regulations; future legal proceedings and accruals; future
bonding and insurance coverage; future interest and debt payments; future
guarantees and contingencies; future capital resources; future effectiveness of
our disclosure and internal controls over financial reporting and future
economic and industry conditions.  We believe that our expectations
are reasonable and are based on reasonable assumptions.  However, such
forward-looking statements by their nature involve risks and
uncertainties.  We caution that a variety of factors, including but
not limited to the following, could cause our business and financial results to
differ materially from those expressed or implied in our forward-looking
statements: an economic downturn; recent declines in the financial markets;
changes in our book of business; our compliance with government contract
procurement regulations; our leveraged position and the ability to service our
debt; restrictive covenants in our 2007 Credit Facility; our integration of
Washington Group International, Inc.; our ability to procure government
contracts; our reliance on government appropriations; the ability of the
government to unilaterally terminate our contracts; our ability to make accurate
estimates and assumptions; our accounting policies; impairment of our goodwill;
our and our partners’ ability to bid on, win, perform and renew contracts and
projects; our dependence on partners, subcontractors and suppliers; customer
payment defaults; our ability to recover on claims; availability of bonding and
insurance; environmental liabilities; liabilities for pending and future
litigation; the impact of changes in laws and regulations; nuclear energy
indemnification; a decline in defense spending; industry competition; our
ability to attract and retain key individuals; employee, agent or partner
misconduct; risks associated with international operations; business activities
in high security risk countries; third party software risks; terrorist and
natural disaster risks; our relationships with our labor unions; our ability to
protect our intellectual property rights; anti-takeover risks and other factors
discussed more fully in Management’s Discussion and Analysis of Financial
Condition and Results of Operations beginning on page 39,
Risk Factors beginning on page 70, as well as in other
reports subsequently filed from time to time with the United States Securities
and Exchange Commission.  We assume no obligation to revise or update
any forward-looking statements.




PART
      I.
            FINANCIAL
      INFORMATION:Item
      1.
            Financial
      StatementsCondensed
      Consolidated Balance SheetsSeptember
      26, 2008 and December 28, 2007
            
            
            2Condensed
      Consolidated Statements of Operations and Comprehensive
    IncomeThree
      and nine months ended September 26, 2008 and September 28,
      2007
            
            
            3Condensed
      Consolidated Statements of Cash FlowsNine
      months ended September 26, 2008 and September 28, 2007
            
            
            4Notes
      to Condensed Consolidated Financial Statements
            
            
            6Item
      2.
            Management’s
      Discussion and Analysis ofFinancial
      Condition and Results of Operations
            
            
            39Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            
            68Item
      4.
            Controls
      and Procedures
            
            
            68PART
      II.
            OTHER
      INFORMATION:Item
      1.
            Legal
      Proceedings
            
            
            69Item
      1A.
            Risk
      Factors
            
            
            70Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            
            86Item
      3.
            Defaults
      Upon Senior Securities
            
            
            86Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            
            
            86Item
      5.
            Other
      Information
            
            
            86Item
      6.
            Exhibits
            
            
            87


1


PART
I


FINANCIAL
INFORMATION





ITEM 1.  FINANCIAL STATEMENTS





URS
CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED


(In
thousands, except per share data)





September
      26,
                2008
            
            
            December
      28,
                2007ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            221,630
            
            
            $
            256,502Accounts
      receivable, including retentions of $57,990 and $58,366,
      respectively
            
            
            1,013,708
            
            
            
            1,015,052Costs
      and accrued earnings in excess of billings on contracts in
      process
            
            
            1,133,612
            
            
            
            1,023,302Less
      receivable allowances
            
            
            (47,143
            )
            
            
            (51,173
            )Net
      accounts receivable
            
            
            2,100,177
            
            
            
            1,987,181Deferred
      tax assets
            
            
            128,013
            
            
            
            133,888Prepaid
      expenses and other assets
            
            
            179,342
            
            
            
            210,807Total
      current assets
            
            
            2,629,162
            
            
            
            2,588,378Investments
      in unconsolidated affiliates
            
            
            266,431
            
            
            
            206,721Property
      and equipment at cost, net
            
            
            349,810
            
            
            
            357,907Intangible
      assets, net
            
            
            526,774
            
            
            
            572,974Goodwill
            
            
            3,150,834
            
            
            
            3,139,618Other
      assets
            
            
            60,753
            
            
            
            64,367Total
      assets
            
            $
            6,983,764
            
            
            $
            6,929,965LIABILITIES,
      MINORITY INTERESTS, AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Book
      overdrafts
            
            $
            26,314
            
            
            $
            15,638Current
      portion of long-term debt
            
            
            18,086
            
            
            
            17,964Accounts
      payable and subcontractors payable, including retentions of $86,660 and
      $73,491, respectively
            
            
            786,675
            
            
            
            693,614Accrued
      salaries and wages
            
            
            445,030
            
            
            
            486,853Billings
      in excess of costs and accrued earnings on contracts in
      process
            
            
            228,196
            
            
            
            296,752Accrued
      expenses and other
            
            
            157,593
            
            
            
            170,782Total
      current liabilities
            
            
            1,661,894
            
            
            
            1,681,603Long-term
      debt
            
            
            1,119,160
            
            
            
            1,288,817Deferred
      tax liabilities
            
            
            222,630
            
            
            
            137,058Self-insurance
      reserves
            
            
            102,379
            
            
            
            73,253Pension,
      post-retirement, and other benefit obligations
            
            
            138,078
            
            
            
            156,843Other
      long-term liabilities
            
            
            82,923
            
            
            
            88,735Total
      liabilities
            
            
            3,327,064
            
            
            
            3,426,309Commitments
      and contingencies (Note 9)Minority
      interests
            
            
            26,926
            
            
            
            25,086Stockholders’
      equity:Preferred
      stock, authorized 3,000 shares; no shares outstanding
            
            
            —
            
            
            
            —Common
      stock, par value $.01; authorized 200,000 shares; 84,557 and 83,355 shares
      issued, respectively; and 83,505 and 83,303 shares outstanding,
      respectively
            
            
            845
            
            
            
            833Treasury
      stock, 1,052 and 52 shares at cost, respectively
            
            
            (42,585
            )
            
            
            (287
            )Additional
      paid-in capital
            
            
            2,825,728
            
            
            
            2,797,238Accumulated
      other comprehensive income
            
            
            7,075
            
            
            
            16,635Retained
      earnings
            
            
            838,711
            
            
            
            664,151Total
      stockholders’ equity
            
            
            3,629,774
            
            
            
            3,478,570Total
      liabilities, minority interests and stockholders’
    equity
            
            $
            6,983,764
            
            
            $
            6,929,965





See Notes
to Condensed Consolidated Financial Statements


2


URS
CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
- UNAUDITED


(In
thousands, except per share data)





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      26,
                2008
            
            
            September
      28,
                2007
            
            
            September
      26,
                2008
            
            
            September
      28,
                2007Revenues
            
            $
            2,588,091
            
            
            $
            1,267,997
            
            
            $
            7,378,062
            
            
            
            3,643,634Cost
      of revenues
            
            
            (2,448,700
            )
            
            
            (1,189,647
            )
            
            
            (7,008,457
            )
            
            
            (3,418,286
            )General
      and administrative expenses
            
            
            (20,440
            )
            
            
            (12,963
            )
            
            
            (57,076
            )
            
            
            (40,571
            )Equity
      in income of unconsolidated affiliates
            
            
            24,289
            
            
            
            4,284
            
            
            
            81,021
            
            
            
            11,041Operating
      income
            
            
            143,240
            
            
            
            69,671
            
            
            
            393,550
            
            
            
            195,818Interest
      expense
            
            
            (21,401
            )
            
            
            (2,935
            )
            
            
            (70,146
            )
            
            
            (10,926
            )Income
      before income taxes and minority interests
            
            
            121,839
            
            
            
            66,736
            
            
            
            323,404
            
            
            
            184,892Income
      tax expense
            
            
            (51,028
            )
            
            
            (26,956
            )
            
            
            (136,013
            )
            
            
            (75,987
            )Minority
      interests in income of consolidated subsidiaries, net of
    tax
            
            
            (5,046
            )
            
            
            (1,087
            )
            
            
            (12,831
            )
            
            
            (3,049
            )Net
      income
            
            
            65,765
            
            
            
            38,693
            
            
            
            174,560
            
            
            
            105,856Other
      comprehensive income (loss):Foreign
      currency translation adjustments, net of tax
            
            
            (13,380
            )
            
            
            682
            
            
            
            (7,962
            )
            
            
            3,858Interest
      rate swaps, net of tax
            
            
            1,201
            
            
            
            —
            
            
            
            (1,598
            )
            
            
            —Comprehensive
      income
            
            $
            53,586
            
            
            $
            39,375
            
            
            $
            165,000
            
            
            $
            109,714Earnings
      per share (Note 1):Basic
            
            $
            .80
            
            
            $
            .74
            
            
            $
            2.13
            
            
            $
            2.05Diluted
            
            $
            .79
            
            
            $
            .73
            
            
            $
            2.11
            
            
            $
            2.01Weighted-average
      shares outstanding (Note 1):Basic
            
            
            82,296
            
            
            
            51,944
            
            
            
            82,031
            
            
            
            51,559Diluted
            
            
            82,794
            
            
            
            52,751
            
            
            
            82,739
            
            
            
            52,546






























































See Notes
to Condensed Consolidated Financial Statements


3





URS
CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -
UNAUDITED


(In
thousands)





Nine
      Months EndedSeptember
      26,
                2008
            
            
            September
      28,
                2007Cash
      flows from operating activities:Net
      income
            
            $
            174,560
            
            
            $
            105,856Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
            
            
            66,147
            
            
            
            29,029Amortization
      of intangible assets
            
            
            39,374
            
            
            
            750Amortization
      of debt issuance costs
            
            
            6,280
            
            
            
            1,286Normal
      profit
            
            
            (6,098
            )
            
            
            (1,450
            )Provision
      for doubtful accounts
            
            
            3,324
            
            
            
            2,305Deferred
      income taxes
            
            
            66,242
            
            
            
            (863
            )Stock-based
      compensation
            
            
            22,095
            
            
            
            20,070Excess
      tax benefits from stock-based compensation
            
            
            (3,865
            )
            
            
            (6,489
            )Minority
      interests in income of consolidated subsidiaries, net of
    tax
            
            
            12,831
            
            
            
            3,049Changes
      in operating assets, liabilities and other, net of effects of
      acquisitions:Accounts
      receivable and costs and accrued earnings in excess of billings on
      contracts in process
            
            
            (100,173
            )
            
            
            (52,878
            )Prepaid
      expenses and other assets
            
            
            (12,339
            )
            
            
            (11,641
            )Investments
      in unconsolidated affiliates
            
            
            (19,070
            )
            
            
            12,706Accounts
      payable, accrued salaries and wages and accrued expenses
            
            
            9,192
            
            
            
            70,289Billings
      in excess of costs and accrued earnings on contracts in
      process
            
            
            6,673
            
            
            
            (14,593
            )Other
      long-term liabilities
            
            
            (11,831
            )
            
            
            7,175Other
      assets, net
            
            
            9,774
            
            
            
            (15,654
            )Total
      adjustments and
      changes
            
            
            88,556
            
            
            
            43,091Net
      cash from operating
      activities
            
            
            263,116
            
            
            
            148,947Cash
      flows from investing activities:Payments
      for business acquisitions, net of cash acquired
            
            
            (26,784
            )
            
            
            (6,328
            )Proceeds
      from disposal of property and equipment, and sale-leaseback
      transactions
            
            
            10,722
            
            
            
            —Investments
      in unconsolidated affiliates
            
            
            (28,035
            )
            
            
            —Change
      in restricted cash
            
            
            (134
            )
            
            
            —Capital
      expenditures, less equipment purchased through capital leases and
      equipment notes
            
            
            (62,329
            )
            
            
            (22,354
            )Net
      cash from investing
      activities
            
            
            (106,560
            )
            
            
            (28,682
            )Cash
      flows from financing activities:Long-term
      debt principal payments
            
            
            (176,777
            )
            
            
            (77,226
            )Net
      payments under lines of credit and short-term notes
            
            
            (259
            )
            
            
            (3,749
            )Net
      change in book overdrafts
            
            
            10,676
            
            
            
            (3,222
            )Capital
      lease obligation payments
            
            
            (5,949
            )
            
            
            (9,491
            )Excess
      tax benefits from stock-based compensation
            
            
            3,865
            
            
            
            6,489Proceeds
      from employee stock purchases and exercises of stock
    options
            
            
            19,314
            
            
            
            18,720Purchase
      of treasury stock
            
            
            (42,298
            )
            
            
            —Net
      cash from financing
      activities
            
            
            (191,428
            )
            
            
            (68,479
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            (34,872
            )
            
            
            51,786Cash
      and cash equivalents at beginning of
      period
            
            
            256,502
            
            
            
            89,502Cash
      and cash equivalents at end of
      period
            
            $
            221,630
            
            
            $
            141,288


See Notes
to Condensed Consolidated Financial Statements


4





URS
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED (continued)


(In
thousands)





Nine
      Months EndedSeptember
      26,
                2008
            
            
            September
      28,
                2007Supplemental
      information:Interest
      paid
            
            $
            63,794
            
            
            $
            10,272Taxes
      paid
            
            $
            44,336
            
            
            $
            53,176Supplemental
      schedule of noncash investing and financing activities:Fair
      value of assets acquired (net of cash acquired)
            
            $
            9,747
            
            
            $
            16,888Liabilities
      assumed
            
            
            (9,497
            )
            
            
            (127
            )Non
      cash business
      acquisitions
            
            $
            250
            
            
            $
            16,761Equipment
      acquired with capital lease obligations and equipment note
      obligations
            
            $
            8,895
            
            
            $
            13,679































































































See Notes
to Condensed Consolidated Financial Statements


5
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED


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




Overview




The terms
“we,” “us,” and “our” used in these financial statements refer to URS
Corporation and its consolidated subsidiaries unless otherwise
indicated.  We are a leading international provider of engineering,
construction and technical services.  We offer a broad range of
program management, planning, design, engineering, construction and construction
management, operations and maintenance, and decommissioning and closure services
to public agencies and private sector clients around the world.  We
also are a major United States (“U.S.”) federal government contractor in the
areas of systems engineering and technical assistance, and operations and
maintenance.  Headquartered in San Francisco, we have more than 50,000
employees in a global network of offices and contract-specific job sites in more
than 30 countries.  We operate through three divisions: the URS
Division, the EG&G Division and the Washington Division.  On November
15, 2007, we acquired Washington Group International, Inc. (“WGI”), and its
operations became the Washington Division of URS Corporation (see Note 2,
“Acquisition” for additional disclosure).  Following the WGI
acquisition, we realigned some of our operations to consolidate businesses
serving the same markets or clients among our divisions (see Note 8, “Segment
and Related Information” for additional information).  Information
presented in the notes to the condensed consolidated financial statements
excludes the results of operations and financial condition of WGI prior to
November 16, 2007.




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




You
should read our unaudited condensed consolidated financial statements in
conjunction with the audited consolidated financial statements and related notes
contained in our Annual Report on Form 10-K for the year ended December 28,
2007.  The results of operations for the nine months ended September
26, 2008 are not indicative of the operating results for the full year or for
future years.




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




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




Principles
of Consolidation and Basis of Presentation




Our
condensed consolidated financial statements include the financial position,
results of operations and cash flows of URS Corporation and our majority-owned
subsidiaries and joint ventures required to be consolidated under Financial
Accounting Standards Board (“FASB”) Interpretation No. 46 (revised December
2003), “Consolidation of
Variable Interest Entities” (“FIN 46-R”).  We participate in
joint ventures formed for the purpose of bidding, negotiating and executing
projects.  From time to time, we function as the sponsor or manager of
the projects performed by the joint venture.  Investments in
unconsolidated joint ventures are accounted for using the equity method and are
included as investments in unconsolidated affiliates on our condensed
consolidated balance sheets.  All significant intercompany
transactions and accounts have been eliminated in consolidation.




6
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)




Revenue
Recognition




We
recognize revenues from engineering, construction and construction-related
contracts using the percentage-of-completion method as project progress
occurs.  Service-related contracts, including operations and
maintenance services and a variety of technical assistance services, are
accounted for using the proportionate performance method as project progress
occurs.




Percentage of
Completion.  Under the percentage-of-completion method of
revenue recognition, revenue is recognized as contract performance
progresses.  We estimate the progress towards completion to determine
the amount of revenue and profit to recognize.  We generally utilize a
cost-to-cost approach in applying the percentage-of-completion method, where
revenue is earned in proportion to total costs incurred, divided by total costs
expected to be incurred.  Costs are generally determined from actual
hours of labor effort expended at per-hour labor rates calculated using a labor
dollar multiplier that includes direct labor costs and allocable overhead
costs.  Direct non-labor costs are charged as incurred plus any
mark-up permitted under the contract.




For some
contracts, using the cost-to-cost method in estimating the percentage of
completion may misstate the progress of the project.  For instance, in
a project where a large amount of permanent materials are purchased, including
the costs of these materials in calculating the percentage of completion may
overstate the actual progress on the project.  For projects where the
cost-to-cost method does not appropriately reflect the progress on the projects,
we use alternative methods, including labor hours, labor dollars, efforts
expended, units of production, or value added for measuring progress on the
project and recognize revenue accordingly.




Under the
percentage-of-completion method, recognition of profit is dependent upon the
accuracy of a variety of estimates, including engineering progress, materials
quantities, and achievement of milestones, incentives, penalty provisions, labor
productivity, cost estimates and others.  Such estimates are based on
various professional judgments we make with respect to those factors and are
subject to change as the project proceeds and new information becomes
available.




Proportional
Performance.  Our service contracts are accounted for using the
proportional performance method, under which revenue is recognized in proportion
to the number of service activities performed, in proportion to the direct costs
of performing the service activities, or evenly across the period of performance
depending upon the nature of the services provided.




Revenues
from all contracts may vary based on the actual number of labor hours worked and
other actual contract costs incurred.  If actual labor hours and other
contract costs exceed the original estimate agreed to by our client, we
generally obtain a change order, contract modification or successfully prevail
in a claim in order to receive and recognize additional revenues relating to the
additional costs (see “Change Orders and Claims” below).




If
estimated total costs on any contract indicate a loss, we charge the entire
estimated loss to operations in the period the loss becomes
known.  The cumulative effect of revisions to revenue, estimated costs
to complete contracts, including penalties, incentive awards, change orders,
claims, anticipated losses, and others are recorded in the accounting period in
which the events indicating a loss or change in estimates are known and the loss
can be reasonably estimated.  Such revisions could occur at any time
and the effects may be material.




We have a
history of making reasonably dependable estimates of the extent of progress
towards completion, contract revenue and contract completion costs on our
long-term engineering and construction contracts.  However, due to
uncertainties inherent in the estimation process, it is possible that actual
completion costs may vary from estimates.




7
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)




Change Orders and
Claims.  Change orders and/or claims occur when changes are
experienced once contract performance is underway, and may arise under any of
the contract types described below.
  Change orders are
modifications of an original contract that effectively change the provisions of
the contract without adding new provisions.  Change orders may include
changes in specifications or designs, manner of performance, facilities,
equipment, materials, sites and period of completion of the
work.  Either we or our clients may initiate change
orders.  Client agreement as to the terms of change orders is, in many
cases, reached prior to work commencing; however, sometimes circumstances
require that work progress without obtaining client agreement.  Costs
related to change orders are recognized as incurred.  Revenues
attributable to change orders that are unapproved as to price or scope are
recognized to the extent that costs have been incurred if the amounts can be
reliably estimated and their realization is probable.  Revenues in
excess of the costs attributable to change orders that are unapproved as to
price or scope are recognized only when realization is assured beyond a
reasonable doubt.  Change orders that are unapproved as to both price
and scope are evaluated as claims.




Claims
are amounts in excess of agreed contract prices that we seek to collect from our
clients or others for customer-caused delays, errors in specifications and
designs, contract terminations, change orders that are either in dispute or are
unapproved as to either scope or price, or other causes of unanticipated
additional contract costs.  Claims are included in total estimated
contract revenues when the contract or other evidence provides a legal basis for
the claim, when the additional costs are caused by circumstances that were
unforeseen at the contract date and are not the result of the deficiencies in
the contract performance, when the costs associated with the claim are
identifiable, and when the evidence supporting the claim is objective and
verifiable.  Revenue on claims is recognized only to the extent that
contract costs related to the claims have been incurred and when it is probable
that the claim will result in a bona fide addition to contract value which can
be reliably estimated.  No profit is recognized on claims until final
settlement occurs.  As a result, costs may be recognized in one period
while revenues may be recognized when client agreement is obtained or claims
resolution occurs, which can be in subsequent periods.




“At-risk” and “Agency”
Contracts.  The amount of revenues we recognize also depends on
whether the contract or project represents an at-risk or an agency relationship
between the client and us.  Determination of the relationship is based
on characteristics of the contract or the relationship with the
client.  Pursuant to Emerging
Issues Task Force (“EITF”) Issue 99-19, “Reporting Revenue Gross as a
Principal versus Net as an Agent,” (“EITF 99-19”) for at-risk
relationships where we act as the principal to the transaction, the revenue and
the costs of materials, services, payroll, benefits, and other costs are
recognized at gross amounts.  For agency relationships, where we act
as an agent for our client, only the fee revenue is recognized, meaning that
direct project costs and the related reimbursement from the client are
netted.




In
classifying contracts or projects as either at-risk or agency, we consider the
following primary characteristics to be indicative of at-risk relationships: (i)
we acquire the related goods and services using our procurement resources, (ii)
we assume the risk of loss under the contract and (iii) we are responsible for
insurance coverage, employee-related liabilities and the performance of
subcontractors.




We
consider the following primary characteristics to be indicative of agency
relationships: (i) our client owns the work facilities utilized under the
contract, (ii) we act as a procurement agent for goods and services acquired
with client funds, (iii) our client is invoiced for our fees, (iv) our client is
exposed to the risk of loss and maintains insurance coverage, and (v) our client
is responsible for employee-related benefit plan liabilities and any remaining
liabilities at the end of the contract.




Contract
Types
  Our
contract types include cost-plus, fixed-price, target-price, and
time-and-materials contracts.  Revenue recognition is determined based
on the nature of the service provided, irrespective of the contract type, with
engineering, construction and construction-related contracts accounted for under
the percentage-of-completion method and service-related contracts accounted for
under the proportional performance method.


8
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)




Cost-Plus
Contracts.  We enter into four major types of cost-plus
contracts.  Revenue for the majority of our cost-plus contracts is
recognized using the percentage-of-completion method:




Cost-Plus Fixed
Fee.  Under cost-plus fixed fee contracts, we charge our
clients for our costs, including both direct and indirect costs, plus a fixed
negotiated fee.




Cost-Plus Fixed
Rate.  Under our cost-plus fixed rate contracts, we charge
clients for our direct costs plus negotiated rates based on our indirect
costs.




Cost-Plus Award
Fee.  Some cost-plus contracts provide for award fees or
penalties based on performance criteria in lieu of a fixed fee or fixed
rate.  Other contracts include a base fee component plus a
performance-based award fee.  In addition, we may share award fees
with subcontractors and/or our employees.  We accrue fee sharing on a
monthly basis as related award fee revenue is earned.  We take into
consideration the award fee or penalty on contracts when estimating revenues and
profit rates, and we record revenues related to the award fees when there is
sufficient information to assess anticipated contract performance.  On
contracts that represent higher than normal risk or technical difficulty, we
defer all award fees until an award fee letter is received.  Once an
award fee letter is received, the estimated or accrued fees are adjusted to the
actual award amount.




Cost-Plus Incentive
Fee.  Some of our cost-plus contracts provide for incentive
fees based on performance against contractual milestones.  The amount
of the incentive fees vary, depending on whether we achieve above-, at-, or
below-target results.  We recognize incentive fees revenues as
milestones are achieved, assuming that we will achieve at-target results, unless
our estimates indicate our cost at completion to be significantly above or below
target.




Target-Price
Contracts.  Under our target-price contracts, project costs are
reimbursable.  Our fee is established against a target budget that is
subject to changes in project circumstances and scope.  Should the
project costs exceed the target budget within the agreed-upon scope, we
generally degrade a portion of our fee or profit to mitigate the excess cost;
however, the customer reimburses us for the costs that we incur if costs
continue to escalate beyond our expected fee.  If the project costs
are less than the target budget, we generally recover a portion of the project
cost savings as additional fee or profit.  We recognize revenues on
target-price contracts using the percentage-of-completion method.




Fixed-Price
Contracts.  We enter into two major types of fixed-price
contracts:




Firm Fixed-Price
(“FFP”).  Under FFP contracts, our clients pay us an agreed
fixed-amount negotiated in advance for a specified scope of work.  We
generally recognize revenues on FFP contracts using the percentage-of-completion
method.  If the nature or circumstances of the contract prevent us
from preparing a reliable estimate at completion, we will delay profit
recognition until adequate information about the contract’s progress becomes
available.  Prior to completion, our recognized profit margins on any
FFP contract depend on the accuracy of our estimates and will increase to the
extent that our current estimates of aggregate actual costs are below amounts
previously estimated.  Conversely, if our current estimated costs
exceed prior estimates, our profit margins will decrease and we may realize a
loss on a project.




Fixed-Price Per Unit
(“FPPU”).  Under our FPPU contracts, clients pay us a set fee
for each service or production transaction that we complete.  We
recognize revenues under FPPU contracts as we complete the related service or
production transactions for our clients generally using the proportional
performance method.  Some of our FPPU contracts are subject to maximum
contract values.


9
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)




Time-and-Materials
Contracts.  Under our time-and-materials contracts, we
negotiate hourly billing rates and charge our clients based on the actual time
that we spend on a project.  In addition, clients reimburse us for our
actual out-of-pocket costs of materials and other direct incidental expenditures
that we incur in connection with our performance under the
contract.  The majority of our time-and-material contracts are subject
to maximum contract values and, accordingly, revenues under these contracts are
generally recognized under the percentage-of-completion
method.  However, time and materials contracts that are
service-related contracts, are accounted for utilizing the proportional
performance method.  Revenues on contracts that are not subject to
maximum contract values are recognized based on the actual number of hours we
spend on the projects plus any actual out-of-pocket costs of materials and other
direct incidental expenditures that we incur on the projects.  Our
time-and materials contracts also generally include annual billing rate
adjustment provisions.




Cash
and Cash Equivalents




Cash and
cash equivalents include all highly liquid investments with maturities of 90
days or less at the date of purchase and include interest-bearing bank
deposits and money market funds.  As of September 26, 2008 and
December 28, 2007, we had book overdraft positions of $26.3 million and $15.6
million, respectively, related to some of our disbursement
accounts.  These overdrafts primarily consisted of outstanding checks
that had not cleared the bank accounts at the end of the reporting
period.  We transfer cash on an as-needed basis to fund these items as
they clear the bank in subsequent periods.  Restricted cash was
included in other current assets because it was not material.




At
September 26, 2008 and December 28, 2007, cash and cash equivalents included
$80.4 million and $68.6 million, respectively, of cash and cash equivalents held
by our consolidated joint ventures.




Earnings
Per Share




Basic
earnings per share (“EPS”) is computed by dividing net income available for
common stockholders by the weighted-average number of common shares outstanding
for the period, excluding nonvested restricted stock awards and
units.  Diluted EPS is computed using the treasury stock method for
stock options and nonvested restricted stock awards and units once the
performance conditions have been met for those awards that contain performance
conditions.  The treasury stock method assumes conversion of all
potentially dilutive shares of common stock with the proceeds from assumed
exercises used to hypothetically repurchase stock at the average market price
for the period.  Potentially dilutive shares of common stock
outstanding include stock options and nonvested restricted stock awards and
units.  Diluted EPS is computed by dividing net income plus preferred
stock dividends, if any, by the weighted-average common shares and potentially
dilutive common shares that were outstanding during the period.




The
reconciliation between weighted-average shares outstanding used in calculating
basic and diluted EPS is as follows:


Three
      Months Ended
              
              
              Nine Months
      Ended(In
      thousands)
              
              September
      26,
                2008
              
              
              September
      28,
                2007
              
              
              September
      26,
                  2008
              
              
              September
      28,
                  2007Weighted-average
      common stock shares outstanding
              
              
              82,296
              
              
              
              51,944
              
              
              
              82,031
              
              
              
              51,559Stock
      options and restricted stock awards and units
              
              
              498
              
              
              
              807
              
              
              
              708
              
              
              
              98782,794
              
              
              
              52,751
              
              
              
              82,739
              
              
              
              52,546
 10
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)


In our
computation of diluted EPS, we exclude the potential shares of issued and
unexercised stock options where the exercise price exceeds the average market
price, and nonvested restricted stock awards and units that had an anti-dilutive
effect on EPS or that currently have not met performance
conditions.  For the three and nine months ended September 26, 2008
and September 28, 2007, we had approximately 0.5 million and 44 thousand
anti-dilutive shares, respectively, that were excluded from the computation of
diluted EPS.




Presentation
of Condensed Consolidated Statements of Operations and Comprehensive
Income




During
2007, in connection with the WGI acquisition, we undertook a review of the
historical manner of presentation of our Condensed Consolidated Statement of
Operations and Comprehensive Income and adopted a revised format that we believe
is more comparable to formats presented by companies in our
industry.  As a result, we reformatted the presentation of
contract-related indirect expenses, which had previously been presented under
the caption “Indirect, general and administrative expenses,” and grouped them
with direct contract-related expenses to present an intermediate total of “Cost
of revenues.”  This change in manner of presentation did not affect
our operating income, net income or the determination of income or loss on our
contracts.  We made conforming changes to the Condensed Consolidated
Statement of Operations and Comprehensive Income for the three and nine months
ended September 28, 2007 to reflect the new format.




In
addition, “Equity in income of unconsolidated affiliates,” which was
historically presented in “Revenues,” is now presented as a separate component
of operating income because these amounts are now more significant after our
acquisition of WGI.




Adopted
and Recently Issued Accounting Standards




In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value
Measurement” (“SFAS 157”), which defines fair value, establishes a
framework for measuring fair value under GAAP, and expands disclosure
requirements about fair value measurements.  SFAS 157 applies to other
accounting pronouncements that require or permit fair value
measurements.  The fair value measurement of financial assets and
financial liabilities became effective for us beginning in fiscal year
2008.  Two FASB Staff Positions (“FSP”) on this statement were
subsequently issued.  FSP No. 157-1, issued on February 14, 2007,
excluded SFAS No. 13, “Accounting for Leases” (“SFAS
13”), and other accounting pronouncements that address fair value measurements
for purposes of lease classification or measurement under SFAS
13.  However, this scope exception does not apply to assets acquired
and liabilities assumed in a business combination, which are required to be
measured at fair value under SFAS No. 141, “Business Combinations” (“SFAS
141”), or “Business
Combinations(Revised 2007)” (“SFAS 141(R)”), regardless of whether those
assets and liabilities are related to leases.  This FSP was effective
upon our initial adoption of SFAS 157.  FSP No. 157-2, issued on
February 12, 2007, delayed the effective date of this statement for
non-financial assets and non-financial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring
basis.  This FSP will be effective for us in fiscal year
2009.  Accordingly, our adoption of SFAS 157 on December 29, 2007 was
limited to financial assets and liabilities and did not have a material impact
on our consolidated financial position, results of operations or cash
flows.  We are currently evaluating the anticipated effect of this
statement on the non-financial assets and non-financial liabilities of our
consolidated financial statements.




In
September 2006, the FASB issued SFAS No. 158, “Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans” (“SFAS
158”).  This statement requires (1) recognition on the balance sheet
of an asset for a defined benefit plan’s overfunded status or a liability for
such a plan’s underfunded status, (2) measurement of a defined benefit plan’s
assets and its obligations that determine its funded status as of the end of the
employer’s fiscal year, and (3) recognition, as a component of other
comprehensive income, of the changes in a defined benefit plan’s funded
status.  We adopted the recognition and disclosure provisions of SFAS
158 on December 29, 2006, the end of our fiscal year 2006.  We adopted
the requirement to measure our defined benefit plan assets and benefit
obligations as of our fiscal year ended December 28, 2007.  Our
adoption of this requirement did not have a material impact on our consolidated
financial position, results of operations or cash flows for fiscal year
2007.




11
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159
permits entities to choose to measure selected financial assets and liabilities
and other eligible items at fair value, which are not otherwise currently
required to be measured at fair value.  Under SFAS 159, the decision
to measure items at fair value is made at specified election dates on an
irrevocable instrument-by-instrument basis.  Entities electing the
fair value option would be required to recognize changes in fair value in
earnings and to expense upfront cost and fees associated with the items for
which the fair value option is elected.  Entities electing the fair
value option are required to distinguish on the face of the statement of
financial position, the fair value of assets and liabilities for which the fair
value option has been elected and similar assets and liabilities measured using
another measurement attribute.  SFAS 159 became effective for us as of
the beginning of our fiscal year 2008.  We did not elect the fair
value option for any financial assets or liabilities during the nine months
ended September 26, 2008.




In
December 2007, the FASB ratified a consensus reached by the EITF on Issue 07-1,
"Accounting for Collaborative
Arrangements" (“EITF 07-1”).  The EITF agreed on the definition
of a collaborative arrangement and concluded that revenues and costs incurred
with third parties in connection with collaborative arrangements should be
presented on a gross or a net basis in accordance with the guidance in EITF
99-19.Payments to or
from participants should be accounted for based on the appropriate authoritative
accounting literature, by analogy to other authoritative literature, or by a
consistently applied accounting policy election.  Companies are also
required to disclose the nature and purpose of collaborative arrangements along
with the accounting policies and the classification and amounts of significant
financial statement amounts related to the arrangements.  EITF 07-1
will be effective for us beginning in our fiscal year 2009, and is to be applied
retrospectively to all periods presented for all collaborative arrangements
existing as of the effective date.  We are currently evaluating the
impact of adopting EITF 07-1 on our consolidated financial
statements.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”).  This
statement amends Accounting Research Bulletin No. 51, “Consolidated Financial
Statements.”  This statement establishes accounting and
reporting standards for the noncontrolling interests in a subsidiary and for the
deconsolidation of a subsidiary.  Noncontrolling interests are
currently described as minority interests in our Condensed Consolidated
Financial Statements.  SFAS 160 requires that noncontrolling interests
be presented as a separate line item under stockholders’ equity on the Condensed
Consolidated Balance Sheet.  SFAS 160 requires prospective
application, except that the presentation and disclosure of minority interests
is retrospectively applied for all periods presented.  SFAS 160 will
be effective for us in fiscal year 2009, which will begin on January 3,
2009.  Early adoption is prohibited.  We are currently
evaluating the impact of adopting SFAS 160 on our consolidated financial
statements.




In
December 2007, the FASB issued SFAS 141(R), which replaced SFAS
141.  This statement establishes principles and requirements for how
the acquirer of a business recognizes and measures, in its financial statements,
the identifiable assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree.  With limited exceptions, assets and
liabilities should be measured and recorded at their acquisition-date fair
value.  This statement also requires contractual contingent assets
acquired and contractual contingent liabilities assumed to be recorded at
acquisition-date fair values and noncontractual contingencies to be treated the
same way only if they are more likely than not to meet the definition of an
asset or liability in FASB Concepts Statement No. 6, “Elements of Financial
Statements.”  If this criterion is not met at the acquisition
date, the acquirer would account for the contingencies using other applicable
GAAP.  This statement also requires the expensing of
acquisition-related costs as incurred.  SFAS 141(R) also provides
guidance for recognizing and measuring the goodwill acquired in a business
combination and determines what information is required to be disclosed to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination.  SFAS 141(R) will be
applied prospectively at our adoption date, effective at the beginning of our
fiscal year 2009.  Early adoption is prohibited.  Finally,
SFAS 141(R) requires pre-acquisition tax exposures and any subsequent changes to
tax exposures to be recorded as adjustments to our income statement instead of
as adjustments to goodwill on our balance sheet.  We are currently
evaluating the impact of adopting SFAS 141(R) on our consolidated financial
statements.




12
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)


In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS 161”).  SFAS 161
amends SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities,”requiring enhanced
disclosures to improve the transparency of financial reporting about an entity’s
derivative and hedging activities.  SFAS 161 requires disclosures to
provide additional information on how and why derivative instruments are being
used.  This statement will be effective for us at the beginning of our
fiscal year 2009 and applies to interim period financial
statements.  We are currently evaluating the impact of adopting SFAS
161 on our consolidated financial statements.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  This statement mandates that the GAAP
hierarchy reside in the accounting literature as opposed to the audit literature
and has the practical impact of elevating FASB Statements of Financial
Accounting Concepts in the GAAP hierarchy.  This statement will become
effective 60 days following Securities and Exchange Commission
approval.  We do not believe that the adoption of this statement will
impact our financial statements.




In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No.
60.”  The scope of this statement is limited to financial
guarantee insurance (and reinsurance) contracts.  The statement will
be effective for us at the beginning of our fiscal year 2009.  We do
not believe that the adoption of this statement will impact our financial
statements.




In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.”  This FSP states that share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents prior to
vesting is a participating security and should be included in the earnings
allocation in computing EPS under the two-class method described in SFAS No.
128, “Earnings per
Share.”  Our 2008 Equity Incentive Plan and related stock award
agreements provide that unvested restricted stock units and unvested restricted
stock awards may include nonforfeitable dividend rights and, consequently, are
participating securities as defined in this FSP.  This FSP will be
effective for us beginning in our fiscal year 2009.  We are currently
evaluating the impact of adopting FSP EITF 03-6-1 on our consolidated financial
statements.




NOTE
2.  ACQUISITIONS




WGI Acquisition




On
November 15, 2007, we completed the acquisition of WGI, a provider of program
management, planning, design, engineering, construction and construction
management, operations and maintenance, and decommissioning and closure services
for approximately $3.3 billion.  The acquisition was accounted for in
accordance with SFAS 141.  During the nine months ended September 26,
2008, we revised our estimate of direct transaction costs and the estimated fair
values of some of the tangible and intangible assets and liabilities associated
with our acquisition of WGI.  The purchase price is comprised of the
following:




(In
      thousands)
            
            Purchase
      PriceCash
      consideration
            
            $
            1,478,313Value
      of URS Corporation common stock issued
            
            
            1,816,821Estimated
      direct transaction costs
            
            
            25,171Total
      purchase price
            
            $
            3,320,305




In
connection with the acquisition, we purchased 100% of WGI’s outstanding common
stock and equity awards and issued approximately 29.5 million shares, net of
shares withheld for taxes, of our common stock.  The fair value of our
common stock of $60.09 per share was based on the average of the closing market
prices of our common stock for the period beginning two trading days before and
ending two trading days after November 5, 2007, the date that the amendment
to the merger agreement was announced in accordance with EITF Issue 99-12,
“Determination of the Market
Price of Acquirer Securities Issued in a Purchase Business
Combination.”


13
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)




Direct
transaction costs of $25.2 million, which consisted of investment banking, legal
and accounting fees, and other external costs directly related to the
acquisition, have been included in the purchase price.




In
accordance with SFAS 141, the purchase price has been allocated to WGI’s net
tangible and identifiable intangible assets based upon their fair
values.  The excess of the purchase price over the value of the net
tangible and identifiable intangible assets has been recorded as
goodwill.  We are substantially complete with the valuation and the
allocation of the purchase price to the individual assets acquired and
liabilities assumed.  As of September 26, 2008, plans for restructuring
activities were still being finalized which may result in a change to the
restructuring reserve including any related income tax impacts.  The
finalization of the restructuring reserve may result in adjustments to the
values allocated to the Washington Division and the determination of any
residual amount that will be allocated to goodwill.




During
the nine months ended September 26, 2008, we revised the estimated fair values
of some of the tangible and intangible assets and liabilities associated with
our WGI acquisition, which resulted in immaterial changes to the allocation of
the purchase price.  The following table summarizes the revised
allocation of the purchase price to the acquired net assets of WGI and the
associated estimated useful lives:





Allocation
      of purchase price:
              (In
      thousands)
            
            Amount
            
            
            Estimated
              Useful
      Life as of
                November
      15,
                2007Net
      tangible assets:Current
      tangible assets
            
            $
            1,214,618Property
      and equipment
            
            
            179,295Other
      non-current tangible assets
            
            
            197,492Current
      liabilities
            
            
            (781,055
            )Long-term
      liabilities
            
            
            (203,913
            )Minority
      interests
            
            
            (17,373
            )Total
      net tangible assets
            
            
            589,064Identifiable
      intangible assets:Customer
      relationships and backlog
            
            
            513,131
            
            
            12
      years†Trade
      name
            
            
            50,700
            
            
            6
      years†Favorable
      leases
            
            
            2,810
            
            
            4.6
      years†Total
      amount allocated to identifiable intangible assets
            
            
            566,641Net
      deferred tax assets
            
            
            46,346Accrual
      for restructuring costs
            
            
            (27,194
            )Goodwill
            
            
            2,145,448Total
      purchase price
            
            $
            3,320,305†Weighted-average
      estimated remaining useful life




Identifiable intangible
assets.  Of the total purchase price, $566.6 million was
allocated to customer relationships and backlog, trade name and favorable
leases.  We amortize these assets based on the pattern in which the
economic benefits of the intangible assets are expected to be
consumed.  Customer relationships and backlog represents the combined
fair value of existing contracts in backlog and the fair value of established
customer relationships.  The customer relationships and backlog
intangible asset is amortized using the straight-line method over periods
ranging from 7 to 16 years with a weighted-average useful life of 12
years.  Trade name relates to the WGI trade name, which is amortized
using the straight-line method over an estimated useful life of six
years.  Favorable leases represent the net favorable difference
between market and existing lease rates.  We amortize the fair value
of these assets based on the terms of the respective underlying
leases.  During the three and nine months ended September 26, 2008, we
recorded $12.4 million and $38.9 million of amortization of identifiable
intangible assets, respectively.


14
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)


Net deferred tax
assets.  The net deferred tax assets reflect the excess of
WGI’s pre-existing deferred tax assets over the estimated net deferred tax
liabilities associated with purchase accounting.  Such deferred tax
liabilities are associated with the step-up to fair value of the net tangible
and identifiable intangible assets.  This determination is
substantially complete, but is subject to change based upon the finalization of
the restructuring reserve.




Goodwill.  Goodwill
represents the excess of the purchase price over the fair value of the
underlying net tangible and intangible assets and is subject to adjustment as
the fair value of identifiable intangible assets and net deferred tax
liabilities are adjusted.  In accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets,” goodwill will not be amortized, but instead will be tested for
impairment at least annually (more frequently if events or changes in
circumstances indicate that the carrying value of goodwill may not be
recoverable).  In the event we determine that the value of goodwill
has become impaired, we will incur an accounting charge for the amount of the
impairment during the period in which the determination is made.  The
factors that contributed to the recognition of goodwill included the acquisition
of a talented workforce and cost savings opportunities.  Of the total
goodwill acquired, $457.1 million represents tax deductible
goodwill.  The adjustments made to our estimate of direct transaction
costs and to the estimated fair values of some net tangible and identifiable
intangible assets associated with our WGI acquisition resulted in a decrease of
$2.9 million in goodwill for the nine months ended September 26,
2008.




Normal
profit.  Normal profit is included in the fair value liability
adjustment and is an accounting concept that results from the requirement that
an acquiring company record at fair value all contracts, including construction
contracts, of an acquiree in process at the date of the
acquisition.  As such, an asset for favorable contracts or a liability
for unfavorable contracts is recorded in purchase accounting in cases where
there have been intervening events and changes in circumstances that occurred
between the commencement of the contracts and the date of the acquisition that
significantly changed the economics of the contracts.  These assets or
liabilities are then reduced based on revenues recorded over the remaining
contract lives effectively resulting in the recognition of a reasonable or
normal profit margin on contract activity performed by us subsequent to the
acquisition.  Because some of the acquired fixed-price and
target-price contracts had either above or below-market profit status, we
originally recorded an estimated fair value net liability of $41.3 million in
purchase accounting.  During the three and nine months ended September
26, 2008, we recorded adjustments of $19.5 million and $21.1 million,
respectively, to goodwill to reduce the fair value of the net normal profit
liability that was recorded in purchase accounting in connection with the
finalization of the valuation of individual contracts.  As a result of
the normal profit adjustments, we recognized a $2.8 million increase in cost of
revenues which decreased operating income during the three months ended
September 26, 2008.  During the nine months ended September 26, 2008,
we recognized $5.8 million of normal profit which has been reflected as a
reduction to cost of revenues and an increase in operating income.  As
of September 26, 2008, $11.8 million of net normal profit liability remained and
was included in “Billings in excess of costs and accrued earnings on contracts
in process” on our Condensed Consolidated Balance Sheet.




15
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)


Restructuring
costs.We began a restructuring plan to integrate and
restructure the Washington Division immediately after the acquisition of WGI.
 Estimated restructuring costs of $27.2 million relate primarily to costs
for severance, associated benefits, outplacement services and excess
facilities.  The estimated restructuring costs associated with
integration activities of the Washington Division were recorded as an adjustment
to the WGI purchase price allocation in accordance with the requirements of EITF
Issue 95-3, “Recognition of
Liabilities in Connection with a Purchase Business Combination,” (“EITF
95-3”).  We are still finalizing decisions regarding the restructuring
plan of the combined company, and, as a result, we expect that additional
adjustments and refinements to the restructuring plan will
arise.  Future adjustments, whether increasing or decreasing the
restructuring plan's total value, may impact goodwill and accrued expense and
other liabilities.  The restructuring plan will be finalized by
November 15, 2008 under the provisions of EITF 95-3.  All other
restructuring liabilities outside the scope of EITF 95-3 will be recognized in
the income statement when those costs have been incurred in accordance with SFAS
No. 146, “Accounting for Costs
Associated with Exit or Disposal Activities.”  The following
table presents a reconciliation of the restructuring reserve balance from
December 28, 2007 to September 26, 2008.




(In
      thousands)
            
            Three
      Months Ended
              September
      26, 2008
            
            
            Nine
      Months Ended
              September
      26, 2008Estimated
      restructuring reserve at beginning of period
            
            $
            20,607
            
            
            $
            26,600Adjustments
            
            
            3,379
            
            
            
            594Payments
            
            
            (5,788
            )
            
            
            (8,996
            )Balance
      as of September 26, 2008
            
            $
            18,198
            
            
            $
            18,198




Pro
Forma Results




The
unaudited financial information in the table below summarizes the combined
results of operations of URS Corporation and WGI for the three and nine months
ended September 28, 2007, on a pro forma basis, as though the companies had been
combined as of the beginning of the period presented.  The pro forma
financial information is presented for informational purposes only and is not
indicative of the results of operations that would have been achieved if the
acquisition had taken place at the beginning of the period presented, nor should
it be taken as indicative of our future consolidated results of
operations.




Unaudited
      (In millions, except per share data)
            
            Three
      Months Ended
                September
      28, 2007 (1)
            
            
            Nine
      Months Ended
                September
      28, 2007 (1)Revenues
      (1)
            
            $
            2,197.7
            
            
            $
            6,132.1Net
      income
            
            $
            54.0
            
            
            $
            103.5Basic
      EPS
            
            $
            .66
            
            
            $
            1.28Diluted
      EPS
            
            $
            .66
            
            
            $
            1.26




(1)
            For
      the three months ended September 28, 2007, we included pro forma
      adjustments of $134.2 million to revenues and $119.8 million to cost of
      revenues.  For the nine months ended September 28, 2007, we
      included pro forma adjustments of $364.6 million to revenues and $339.5
      million to cost of revenues.  These adjustments were made to
      conform WGI’s unconsolidated joint ventures, previously accounted for
      using proportionate consolidation, to reflect the use of the equity
      method.




Other Business Combinations




In August
2008, we acquired LopezGarcia Group, Inc. and Tryck Nyman Hayes, Inc. for an
aggregate purchase price, net of cash acquired, of $21.8 million. Pro forma
results have not been presented as the acquisitions are not considered
material.




16
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)


NOTE
3.  JOINT VENTURES




Consolidated
Ventures




We
participate in construction joint ventures, partnerships and partially owned
limited liability companies that are formed to bid, negotiate and complete
specific projects.  We have majority ownership in some of these
entities, which are consolidated in our financial statements.




We are a
60% owner and the primary beneficiary of Advatech, LLC. (“Advatech”), our most
material consolidated limited liability company.  Advatech provides
design, engineering, construction and construction management services to its
customers relating to specific technology involving wet flue gas desulfurization
processes.  We have not guaranteed any debt on behalf of Advatech;
however, one of our subsidiaries has guaranteed the performance of Advatech’s
contractual obligations.  Advatech’s total revenues were $73.6 million
and $115.7 million for the three months ended September 26, 2008 and September
28, 2007, respectively.  Advatech’s total revenues were $266.9 million
and $344.4 million for the nine months ended September 26, 2008 and September
28, 2007, respectively.




We also
formed a consolidated joint venture for the purpose of constructing a cement
plant in Missouri.  We have a 55% interest in and are the primary
beneficiary of this joint venture.  The joint venture’s total revenues
were $163.8 million and $409.1 million for the three and nine months ended
September 26, 2008.  The following table represents the total assets
of the two consolidated joint ventures described above.  This joint venture
was a part of our acquisition of WGI on November 15, 2007.  As a result, we
have not included financial information for this consolidated joint venture for
the three and nine months ended September 28, 2007.




(In
      thousands)
            
            September
      26,
                2008
            
            
            December
      28,
                2007Cash
      and cash equivalents
            
            $
            54,214
            
            
            $
            58,396Net
      accounts receivable
            
            
            119,208
            
            
            
            99,064Other
      assets
            
            
            211
            
            
            
            33,737Total
      assets
            
            $
            173,633
            
            
            $
            191,197




Unconsolidated
Construction Joint Ventures




We
participate in unconsolidated construction joint ventures, which are generally
controlled by the joint venture partners.  The joint venture
agreements typically limit our interests in any profits and assets, and our
respective share in any losses and liabilities that may result from the
performance of the contract are limited to our stated percentage interest in the
project.  Although joint venture contracts with the project owners
typically require joint and several liabilities, our agreements with our joint
venture partners may provide that each partner will assume and pay its full
proportionate share of any losses resulting from a project.  We have
no significant commitments beyond completion of the contract.




We
account for construction joint ventures, in which we have determined that we do
not hold a controlling interest but do exercise significant influence, using the
equity method of accounting.  Under the equity method, we recognize
our proportionate share of the net earnings of the joint ventures as a single
line item under “Equity in income of unconsolidated affiliates” in our Condensed
Consolidated Statement of Operations and Comprehensive Income.  Our
proportionate share of the unconsolidated construction joint ventures and other
unconsolidated affiliates generally ranges from 8% to 50%.




17
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)




Other
Unconsolidated Affiliates




We
participate in other unconsolidated joint ventures that do not perform
construction activities and in which we do not hold a controlling interest but
do exercise significant influence.  We have determined that we are not
the primary beneficiary in these investments and, thus, we account for these
investments using the equity method.  The most significant of these
investments is a 50% interest in an incorporated mining venture in Germany —
MIBRAG mbH (“MIBRAG”), a company that operates lignite coal mines and power
plants.





The table
below presents financial information, derived from the most recent financial
statements provided to us, on a combined 100% basis for our unconsolidated
construction and non-construction joint ventures and affiliates, in which we do
not hold a controlling interest but do exercise significant
influence.




(In
      thousands)
            
            MIBRAG
                Mining
                Venture
            
            
            Unconsolidated
                Construction
      Joint
                Ventures
            
            
            Unconsolidated
                Non-Construction
                Joint
      VenturesSeptember 26,
      2008Current
      assets
            
            $
            201,763
            
            
            $
            405,064
            
            
            $
            129,598Noncurrent
      assets
            
            $
            1,099,217
            
            
            $
            3,860
            
            
            $
            11,150Current
      liabilities
            
            $
            94,172
            
            
            $
            330,477
            
            
            $
            83,841Noncurrent
      liabilities
            
            $
            834,412
            
            
            $
            —
            
            
            $
            1,147December 28,
      2007Current
      assets
            
            $
            121,297
            
            
            $
            389,104
            
            
            $
            114,534Noncurrent
      assets
            
            $
            1,060,199
            
            
            $
            5,254
            
            
            $
            10,190Current
      liabilities
            
            $
            67,899
            
            
            $
            357,430
            
            
            $
            78,914Noncurrent
      liabilities
            
            $
            839,655
            
            
            $
            —
            
            
            $
            17,853Three months ended
      September 26, 2008Revenues
            
            $
            133,266
            
            
            $
            323,261
            
            
            $
            116,692Cost
      of revenues
            
            $
            (114,946
            )
            
            $
            (302,930
            )
            
            $
            (87,459
            )Income
      from continuing operations before tax
            
            $
            18,320
            
            
            $
            20,331
            
            
            $
            29,233Three months ended
      September 28, 2007Revenues
            
            
            N/A
            (1)
            
            $
            84,044
            
            
            $
            78,682Cost
      of revenues
            
            
            N/A
            (1)
            
            $
            (78,616
            )
            
            $
            (75,711
            )Income
      from continuing operations before tax
            
            
            N/A
            (1)
            
            $
            5,428
            
            
            $
            2,971Nine months ended September
      26, 2008Revenues
            
            $
            397,274
            
            
            $
            1,107,812
            
            
            $
            341,729Cost
      of revenues
            
            $
            (345,360
            )
            
            $
            (1,028,237
            )
            
            $
            (254,304
            )Income
      from continuing operations before tax
            
            $
            51,914
            
            
            $
            79,575
            
            
            $
            87,425Nine months ended September
      28, 2007Revenues
            
            
            N/A
            (1)
            
            $
            258,814
            
            
            $
            215,750Cost
      of revenues
            
            
            N/A
            (1)
            
            $
            (247,003
            )
            
            $
            (206,544
            )Income
      from continuing operations before tax
            
            
            N/A
            (1)
            
            $
            11,811
            
            
            $
            9,206




(1)
            Financial
      information for our MIBRAG mining joint venture for the three and nine
      months ended September 28, 2007 is not presented because it was a part of
      our acquisition of WGI on November 15,
2007.




18
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)


NOTE 4.  PROPERTY, EQUIPMENT, AND INTANGIBLE
ASSETS




Property
and Equipment




(In
      thousands)
            
            September
      26,
                2008
            
            
            December
      28,
                2007Equipment
      and internal-use software
            
            $
            308,538
            
            
            $
            294,084Construction
      and mining equipment
            
            
            224,869
            
            
            
            198,883Furniture
      and fixtures
            
            
            51,283
            
            
            
            49,401Leasehold
      improvements
            
            
            60,919
            
            
            
            59,125Construction
      in progress
            
            
            10,475
            
            
            
            6,553Land
      and improvements
            
            
            584
            
            
            
            584656,668
            
            
            
            608,630Accumulated
      depreciation and amortization
            
            
            (306,858
            )
            
            
            (250,723
            )Property
      and equipment at cost, net
            
            $
            349,810
            
            
            $
            357,907




In
addition to the property and equipment presented above, we also have a parcel of
land held for sale, valued at $14.0 million as ofSeptember 26, 2008includedin “Prepaid
expenses and other assets” on our Condensed Consolidated Balance
Sheet.




Depreciation
expense related to property and equipment was $22.3 million and $9.8 million for
the three months ended September 26, 2008 and September 28, 2007,
respectively.  Depreciation expense related to property and equipment
was $66.1 million and $29.0 million for the nine months ended September 26, 2008
and September 28, 2007, respectively.




Intangible
Assets




Amortization
expense related to intangible assets for the three months ended September 26,
2008 and September 28, 2007 was $12.5 million and $0.3 million,
respectively.  Amortization expense related to intangible assets for
the nine months ended September 26, 2008 and September 28, 2007 was $39.4
million and $0.8 million, respectively.




NOTE 5.  INDEBTEDNESS




Indebtedness
consists of the following:




(In
      thousands)
            
            September
      26,
                2008
            
            
            December
      28,
                2007Bank
      term loans, net of debt issuance costs
            
            $
            1,088,113
            
            
            $
            1,254,383Obligations
      under capital leases
            
            
            18,571
            
            
            
            22,715Notes
      payable, foreign credit lines and other indebtedness
            
            
            30,562
            
            
            
            29,683Total
      indebtedness
            
            
            1,137,246
            
            
            
            1,306,781Less:Current
      portion of long-term debt
            
            
            18,086
            
            
            
            17,964Long-term
      debt
            
            $
            1,119,160
            
            
            $
            1,288,817


19
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
 (Continued)




2007
Credit Facility




Our
Senior Secured Credit Facility (“2007 Credit Facility”) consists of two term
loan facilities in the original aggregate amount of $1.4 billion and a revolving
credit facility in the amount of $700.0 million, which is also available for
issuing letters of credit.  In June 2008, we entered into the first
amendment to the 2007 Credit Facility, which allows us to repurchase up to one
million shares of our common stock annually, provided that we maintain
designated financial criteria.  During the three months ended
September 26, 2008, we repurchased one million shares of our common stock as
permitted by the amended 2007 Credit Facility.




As of
September 26, 2008 and December 28, 2007, the outstanding balance of the term
loan A was $866.3 million and $999.6 million at interest rates of 4.73% and
6.79%, respectively.  As of September 26, 2008 and December 28, 2007,
the outstanding balance of the term loan B was $238.7 million and $275.4 million
at interest rates of 5.73% and 7.54%, respectively.  We did not have
any amount outstanding under our revolving line of credit as of September 26,
2008 and December 28, 2007.  As of September 26, 2008, we were in
compliance with the covenants of the 2007 Credit Facility.




Revolving
Line of Credit




Our
revolving line of credit information is summarized as follows:




(In
      millions, except percentages)
            
            Nine
      Months Ended
                September
      26,
                2008
            
            
            Year
      Ended
                December
      28,
                2007Effective
      average interest rates paid on the revolving line of
credit
            
            
            5.7
            %
            
            
            8.2
            %Average
      daily revolving line of credit balances
            
            $
            0.3
            
            
            $
            2.3Maximum
      amounts outstanding at any one point in time
            
            $
            7.7
            
            
            $
            40.3




Other
Indebtedness




Notes payable, foreign credit lines
and other indebtedness.  As of September 26, 2008 and December
28, 2007, we had outstanding amounts of $30.6 million and $29.7 million,
respectively, in notes payable and foreign lines of credit.  Notes
payable primarily include notes used to finance the purchase of office
equipment, computer equipment and furniture.  The weighted-average
interest rates of the notes were approximately 6.0% and 6.5% as of September 26,
2008 and December 28, 2007, respectively.




We
maintain foreign lines of credit, which are collateralized by the assets of our
foreign subsidiaries and, in some cases, parent guarantees.  As of
September 26, 2008 and December 28, 2007, we had $16.2 million and $15.0 million
in lines of credit available under these facilities,
respectively.  The amount outstanding under foreign lines of credit
totaled $0.8 million as of September 26, 2008.  There was no amount
outstanding as of December 28, 2007.




Capital Leases.  As
of September 26, 2008 and December 28, 2007, we had approximately $18.6 million
and $22.7 million in obligations under our capital leases, respectively,
consisting primarily of leases for office equipment, computer equipment and
furniture.




20
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




Maturities




As of
September 26, 2008, the amounts of our long-term debt outstanding (excluding
capital leases) that mature in the next five years and thereafter were as
follows:




(In
      thousands)Less
      than one
      year
            
            $
            10,003Second
      year
            
            
            9,066Third
      year
            
            
            89,635Fourth
      year
            
            
            673,583Fifth
      year
            
            
            336,359Thereafter
            
            
            29$
            1,118,675




As of
September 26, 2008, the amounts of our capital leases that mature in the next
five years and thereafter were as follows:




(In
      thousands)Less
      than one
      year
            
            $
            8,932Second
      year
            
            
            5,405Third
      year
            
            
            3,805Fourth
      year
            
            
            1,860Fifth
      year
            
            
            277Total
      minimum lease
      payments
            
            
            20,279Less:
      amounts representing
      interest
            
            
            1,708Present
      value of net minimum lease payments
            
            $
            18,571




Fair
Values of Debt Instruments and Interest Rate Swaps




Our 2007
Credit Facility is a floating-rate facility.  To hedge against changes
in floating interest rates, we entered into three floating-for-fixed interest
rate swaps with notional amounts totaling $900.0 million.




At
September 26, 2008 and December 28, 2007, the estimated current market value of
term loans A and B, net of debt issuance costs, was approximately $17.6 million
and $9.5 million less than the amount reported on our Condensed Consolidated
Balance Sheets, respectively.  As of September 26, 2008 and December
28, 2007, the fair values of our swap liabilities were $6.7 million and $3.9
million, respectively.  The increase in these liabilities was due to
falling short-term market interest rates.  The short-term portion of
the swap liabilities was recorded in “Accrued expenses” and the long-term
portion of the swap liabilities was recorded in “Other long-term liabilities” on
our Condensed Consolidated Balance Sheets.  The adjustments to the
fair values of the swap liabilities were recorded in “Accumulated other
comprehensive income.”  We have recorded no gain or loss on our
Condensed Consolidated Statements of Operations and Comprehensive Income as our
interest rate swaps have been deemed to be an effective hedge.




Valuation
Hierarchy




SFAS 157
establishes a valuation hierarchy for disclosure of the inputs used to measure
fair value.  This hierarchy prioritizes the inputs into three broad
levels as follows: Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities; Level 2 inputs are quoted prices
for similar assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial
instrument; Level 3 inputs are unobservable inputs based on our own assumptions
used to measure assets and liabilities at fair value.  The
classification of a financial asset or liability within the hierarchy is
determined based on the lowest level input that is significant to the fair value
measurement.


21
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)


Our
financial instruments carried at fair value consist principally of our swap
liabilities.  The following table presents the fair value of our swap
liabilities, which were carried at fair value on a recurring basis as of
September 26, 2008:




(In
      millions)
            Total
      Carrying Value as of September 26,2008
            Fair
      Value Measurement as of September 26, 2008Quoted
      Prices in Active Markets
                (Level
      1)
            Significant
      Other Observable Inputs
                (Level
      2)
            Significant
      Unobservable Inputs (Level 3)Interest
      rate swap liabilities
            $        6.7
            $      —
            $        6.7
            $      —




Valuation






Our
interest rate swap liabilities are used as risk management tools and are not
used for trading or speculative purposes.  The fair value of each
interest rate swap is based on mark-to-model measurements that are interpolated
from observable market data as of September 26, 2008 and for the duration of the
interest rate swaps’ terms.




NOTE 6.  EMPLOYEE RETIREMENT AND POST-RETIREMENT BENEFIT
PLANS




Domestic
Pension and Supplemental Executive Retirement Plans




We
sponsor a number of pension and unfunded supplemental executive retirement
plans.  The components of our net periodic pension costs relating to
the domestic pension and supplemental executive retirement plans for the three
and nine months ended September 26, 2008 and September 28, 2007 were as
follows:




Three
      Months Ended
            
            
            Nine
      Months Ended(In
      thousands)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
            
            
            September
      26,
              2008
            
            
            September
      28,
              2007Service
      cost
            
            $
            1,343
            
            
            $
            1,922
            
            
            $
            4,711
            
            
            $
            5,768Interest
      cost
            
            
            4,460
            
            
            
            2,807
            
            
            
            13,460
            
            
            
            8,421Expected
      return on plan assets
            
            
            (3,567
            )
            
            
            (2,850
            )
            
            
            (11,395
            )
            
            
            (8,550
            )Amortization
      of:Prior
      service
      costs
            
            
            (518
            )
            
            
            (525
            )
            
            
            (1,554
            )
            
            
            (1,575
            )Net
      loss
            
            
            12
            
            
            
            265
            
            
            
            36
            
            
            
            795Curtailment
      gain (1)
            
            
            (860
            )
            
            
            —
            
            
            
            (860
            )
            
            
            —Net
      periodic pension cost
            
            $
            870
            
            
            $
            1,619
            
            
            $
            4,398
            
            
            $
            4,859




(1) The
curtailment gain was a result of the termination of a customer contract, which
resulted in a reduction in our workforce.




During
the nine months ended September 26, 2008, we made cash contributions of $18.1
million to the pension plans.  We currently expect to make additional
cash contributions of approximately $0.3 million by the end of
2008.




22
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




Final
Salary Pension Fund




As part
of the acquisition of Dames & Moore Group, Inc. in 1999, we assumed the
Dames & Moore Final Salary Pension Fund in the United Kingdom (“Final Salary
Pension Fund”).  The Final Salary Pension Fund provides retirement
benefit payments for the life of participating retired employees and their
spouses.  The components of our net periodic pension costs relating to
this plan for the three and nine months ended September 26, 2008 and September
28, 2007 were as follows:




Three
      Months Ended
            
            
            Nine
      Months Ended(In
      thousands)
            
            September
      26,
              2008
            
            
            September
      28,
                2007
            
            
            September
      26,
                2008
            
            
            September
      28,
              2007Interest
      cost
            
            $
            306
            
            
            $
            286
            
            
            $
            930
            
            
            $
            843Expected
      return on plan assets
            
            
            (129
            )
            
            
            (131
            )
            
            
            (392
            )
            
            
            (386
            )Amortization
      of:Net
      loss
            
            
            51
            
            
            
            50
            
            
            
            154
            
            
            
            147Net
      periodic pension cost (1)
            
            $
            228
            
            
            $
            205
            
            
            $
            692
            
            
            $
            604




(1)  We used
the current rate method in translating our net periodic pension costs to the
U.S. dollar.




During
the nine months ended September 26, 2008, we made cash contributions of $0.5
million to the Final Salary Pension Fund.  We currently expect to make
additional cash contributions by the end of 2008 of approximately $0.3
million.




Post-retirement Benefit Plans




We
sponsor a number of retiree health and life insurance benefit plans
(post-retirement benefit plans).  Post-retirement benefit plans
provide medical and life insurance benefits to employees that meet eligibility
requirements.  All of these benefits may be subject to deductibles,
co-payment provisions, and other limitations.




The
components of our net periodic benefit cost relating to the post-retirement
benefit plans for the three and nine months ended September 26, 2008 and
September 28, 2007 were as follows:




Three
      Months Ended
            
            
            Nine
      Months Ended(In
      thousands)
            
            September
      26,
              2008
            
            
            September
      28,
                2007
            
            
            September
      26,
                2008
            
            
            September
      28,
                2007Service
      cost
            
            $
            17
            
            
            $
            65
            
            
            $
            51
            
            
            $
            195Interest
      cost
            
            
            647
            
            
            
            79
            
            
            
            1,941
            
            
            
            237Expected
      return on plan assets
            
            
            (74
            )
            
            
            (75
            )
            
            
            (222
            )
            
            
            (225
            )Amortization
      of:Net
      (gain)
      loss
            
            
            (57
            )
            
            
            10
            
            
            
            (171
            )
            
            
            30Net
      periodic benefit cost
            
            $
            533
            
            
            $
            79
            
            
            $
            1,599
            
            
            $
            237




During
the nine months ended September 26, 2008, we did not make any cash contributions
to the post-retirement benefit plans, nor do we currently expect to make any
additional cash contributions in 2008.




23
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




NOTE
7.  STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM




We
recognize stock-based compensation expense, net of estimated forfeitures, over
the vesting periods (generally three to four years) of the stock-based
compensation awards on a straight-line basis in “General and administrative
expenses” in our Condensed Consolidated Statements of Operations and
Comprehensive Income.




The
following table presents our stock-based compensation expenses related to stock
options, restricted stock awards and units, and the related income tax
benefits recognized, for the three and nine months ended September 26, 2008 and
September 28, 2007.




Three
      Months Ended
            
            
            Nine
      Months Ended(In
      millions)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
            
            
            September
      26,
                2008
            
            
            September
      28,
              2007Stock-based
      compensation expenses:Restricted
      stock awards and units
            
            $
            7.8
            
            
            $
            5.3
            
            
            $
            22.1
            
            
            $
            17.4Stock
      options
            
            
            —
            
            
            
            0.8
            
            
            
            —
            
            
            
            2.6Stock-based
      compensation expenses
            
            $
            7.8
            
            
            $
            6.1
            
            
            $
            22.1
            
            
            $
            20.0Total
      income tax benefits recognized in our net income related to stock-based
      compensation expenses
            
            $
            3.0
            
            
            $
            2.4
            
            
            $
            8.6
            
            
            $
            7.7




On May
22, 2008, our stockholders approved our 2008 Equity Incentive Plan, which
replaces our 1999 Equity Incentive Plan and authorizes the issuance of up to
five million shares of common stock in the form of restricted stock awards,
restricted stock units, stock options and other forms of equity
awards.




Restricted
Stock Awards and Units




We record
compensation expense related to restricted stock awards and units over the
applicable vesting periods as required under SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS
123(R)”).  Vesting of some awards is subject to both service
requirements and performance conditions.  As of September 26, 2008, we had
unrecognized stock-based compensation expense of $75.3 million related to
nonvested restricted stock awards and units.  This expense is expected
to be recognized over a weighted-average period of 2.8 years.  The
total fair values of shares vested and the grant date fair values of restricted
stock awards and units granted during the nine months ended September 26, 2008
and September 28, 2007 are summarized below:




(In
      millions)
            
            September
      26, 2008
            
            
            September
      28, 2007Fair
      values of shares vested
            
            $
            17.1
            
            
            $
            17.9Grant
      date fair values of restricted stock awards and units
            
            $
            38.2
            
            
            $
            20.0






24
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




A summary
of the status of and changes in our nonvested restricted stock awards and units,
according to their contractual terms, as of September 26, 2008 and for the nine
months ended September 26, 2008 is presented below:




Nine
      Months Ended
                September
      26, 2008Shares
            
            
            Weighted-Average
      Grant Date Fair ValueNonvested
      at December 28, 2007
            
            
            1,736,333
            
            
            $
            44.58Granted
            
            
            1,092,060
            
            
            $
            35.00Vested
            
            
            (444,082
            )
            
            $
            41.77Forfeited
            
            
            (109,410
            )
            
            $
            44.44Nonvested
      at September 26, 2008
            
            
            2,274,901
            
            
            $
            40.53




Stock
Incentive Plans




We have
not granted any stock options since September 2005.  A summary, as of
September 26, 2008 and for the nine months ended September 26, 2008, of the
status of, and changes in, stock options granted under our 1991 Stock Incentive
Plan and 1999 Equity Incentive Plan, according to their contractual terms, which
provide for expiration of the options in ten years from the date of grant, is
presented below:




Stock
      Options
            
            
            Weighted-Average
      Exercise Price
            
            
            Weighted-Average
      Remaining Contractual Term
                (in
      years)
            
            
            Aggregate
      Intrinsic Value
                (in
      millions)Outstanding
      at December 28, 2007
            
            
            1,605,957
            
            
            $
            22.60
            
            
            
            4.74
            
            
            $
            51.7Exercised
            
            
            (418,467
            )
            
            $
            21.70Forfeited/expired/cancelled
            
            
            (7,500
            )
            
            $
            20.93Outstanding
      and exercisable at September 26, 2008
            
            
            1,179,990
            
            
            $
            22.93
            
            
            
            4.53
            
            
            $
            18.4




The
aggregate intrinsic value in the preceding table represents the total pre-tax
intrinsic value, based on our closing market price of $38.50 as of September 26,
2008, which would have been received by the option holders had all option
holders exercised their options on that date.




For the
nine months ended September 26, 2008 and September 28, 2007, the aggregate
intrinsic value of stock options exercised, determined as of the date of option
exercise, was $9.9 million and $16.9 million, respectively.  As
of September 26, 2008, all of our stock option awards were fully vested and
there was no remaining unrecognized stock-based compensation expense related to
nonvested stock option awards.  The total fair value of stock options
vested during the nine months ended September 26, 2008 and September 28, 2007
was $0.1 million and $4.3 million, respectively.




Stock
Repurchase Program




During
the three months ended September 26, 2008, we repurchased an aggregate of one
million shares of our common stock at an average price of $42.30 per common
share for approximately $42.3 million.  This repurchase was allowed
under our 2007 Credit Facility as amended on June 19, 2008.




25
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)


NOTE 8.  SEGMENT AND RELATED INFORMATION




We
operate our business through three segments: the URS Division, the EG&G
Division and the Washington Division.  The URS Division provides a
comprehensive range of professional program management, planning, design,
engineering, construction and construction management, operations and
maintenance, and decommissioning and closure services to the U.S. federal
government, state and local government agencies, and private industry clients in
the U.S. and internationally.  The EG&G Division provides services
to various U.S. federal government agencies, primarily the Departments of
Defense and Homeland Security.  These services include program
management, planning, design and engineering, systems engineering and technical
assistance, operations and maintenance, and decommissioning and
closure.  The Washington Division provides program management,
planning, design, engineering, construction and construction management,
operations and maintenance, and decommissioning and closure services to the U.S.
federal government, state and local government agencies, and private industry
clients in the U.S. and internationally.




These
three segments operate under separate management groups and produce discrete
financial information.  Their operating results also are reviewed
separately by management.  The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies in our Annual Report on Form 10-K for the year ended
December 28, 2007.  The information disclosed in our condensed
consolidated financial statements is based on the three segments that comprise
our current organizational structure.




At the
beginning of our 2008 fiscal year, we realigned several of our operations to
consolidate businesses serving the same markets or clients in the division most
capable of successfully addressing these markets or clients.  This
realignment included transferring the majority of the URS Division’s interest in
Advatech, which provides emissions control services for coal-fired power plants,
to the Washington Division and transferring the Washington Division’s Defense
Business Unit to the EG&G Division, as well as the realignment of some
smaller businesses.




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




26
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




Three
      Months Ended
            
            
            Nine
      Months Ended(In
      millions)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
      (3)
            
            
            September
      26,
                2008
            
            
            September
      28,
                2007
      (3)RevenuesURS
      Division
            
            $
            839.7
            
            
            $
            801.4
            
            
            $
            2,546.4
            
            
            $
            2,330.7EG&G
      Division
            
            
            606.8
            
            
            
            377.0
            
            
            
            1,732.2
            
            
            
            1,085.4Washington
      Division
            
            
            1,154.8
            
            
            
            102.5
            
            
            
            3,137.6
            
            
            
            270.6Inter-segment,
      eliminations and other
            
            
            (13.2
            )
            
            
            (12.9
            )
            
            
            (38.1
            )
            
            
            (43.1
            )Total
      revenues
            
            $
            2,588.1
            
            
            $
            1,268.0
            
            
            $
            7,378.1
            
            
            $
            3,643.6Equity
      in income of unconsolidated affiliatesURS
      Division
            
            $
            2.8
            
            
            $
            2.9
            
            
            $
            7.1
            
            
            $
            6.9EG&G
      Division
            
            
            1.7
            
            
            
            1.4
            
            
            
            5.3
            
            
            
            4.1Washington
      Division
            
            
            19.8
            
            
            
            —
            
            
            
            68.6
            
            
            
            —Total
      equity in income of unconsolidated affiliates
            
            $
            24.3
            
            
            $
            4.3
            
            
            $
            81.0
            
            
            $
            11.0Contribution(1)URS
      Division
            
            $
            61.5
            
            
            $
            60.2
            
            
            $
            189.9
            
            
            $
            171.5EG&G
      Division
            
            
            43.4
            
            
            
            20.9
            
            
            
            104.1
            
            
            
            60.1Washington
      Division
            
            
            54.9
            
            
            
            3.2
            
            
            
            147.2
            
            
            
            9.7Inter-segment
      and other unallocated operating costs
            
            
            —
            
            
            
            (0.1
            )
            
            
            —
            
            
            
            (0.8
            )General
      and administrative expenses (2)
            
            
            (26.4
            )
            
            
            (16.1
            )
            
            
            (72.8
            )
            
            
            (51.4
            )Corporate
      interest expense
            
            
            (20.3
            )
            
            
            (3.2
            )
            
            
            (67.0
            )
            
            
            (9.5
            )Total
      contribution
            
            $
            113.1
            
            
            $
            64.9
            
            
            $
            301.4
            
            
            $
            179.6Operating
      incomeURS
      Division
            
            $
            59.7
            
            
            $
            57.6
            
            
            $
            184.1
            
            
            $
            165.9EG&G
      Division
            
            
            42.0
            
            
            
            20.1
            
            
            
            101.0
            
            
            
            57.2Washington
      Division
            
            
            62.0
            
            
            
            5.1
            
            
            
            165.5
            
            
            
            14.1Inter-segment
      and other unallocated operating costs
            
            
            —
            
            
            
            (0.1
            )
            
            
            —
            
            
            
            (0.8
            )General
      and administrative expenses (2)
            
            
            (20.5
            )
            
            
            (13.0
            )
            
            
            (57.1
            )
            
            
            (40.6
            )Total
      operating income
            
            $
            143.2
            
            
            $
            69.7
            
            
            $
            393.5
            
            
            $
            195.8Depreciation
      and amortizationURS
      Division
            
            $
            9.1
            
            
            $
            8.7
            
            
            $
            25.8
            
            
            $
            25.5EG&G
      Division
            
            
            4.4
            
            
            
            0.9
            
            
            
            16.0
            
            
            
            3.0Washington
      Division
            
            
            19.8
            
            
            
            0.2
            
            
            
            59.8
            
            
            
            0.6Corporate
      and other
            
            
            1.5
            
            
            
            0.3
            
            
            
            3.9
            
            
            
            0.7Total
      depreciation and amortization
            
            $
            34.8
            
            
            $
            10.1
            
            
            $
            105.5
            
            
            $
            29.8




(1)
            We
      define segment contribution as total segment operating income minus
      interest expense and minority interests attributable to that segment, but
      before allocation of various segment expenses, including stock
      compensation expenses.  Segment operating income represents net
      income before income taxes, minority interests and interest
      expense.




(2)
            General
      and administrative expenses represent expenses related to corporate
      functions.




(3)
            We
      revised and conformed the prior period’s amounts to our current year’s
      segment presentation.  Because the Washington Division did not
      exist as one of our divisions before November 15, 2007, the amounts
      presented for the three and nine months ended September 28, 2007 are not
      comparable to the results for the three and nine months ended September
      26, 2008, and are comprised of the amounts that represent the result of
      the realignment of our operations among our divisions as discussed
      above.




27
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)


A
reconciliation of segment contribution to segment operating income for the three
and nine months ended September 26, 2008 and September 28, 2007 is as
follows:




Three
      Months Ended September 26, 2008 (1)(In
    millions)
            
            URS
                Division
            
            
            EG&G
                Division
            
            
            Washington
                Division
            
            
            Corporate
            
            
            Corporate
      Interest Expense
            
            
            Eliminations
            
            
            ConsolidatedContribution
            
            $
            61.5
            
            
            $
            43.4
            
            
            $
            54.9
            
            
            $
            (26.4
            )
            
            $
            (20.3
            )
            
            $
            —
            
            
            $
            113.1Minority
      interests
            
            
            0.3
            
            
            
            —
            
            
            
            8.4
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            8.7Unallocated
      SFAS 123(R) expenses
            
            
            (2.7
            )
            
            
            (1.0
            )
            
            
            (1.7
            )
            
            
            5.4
            
            
            
            —
            
            
            
            —
            
            
            
            —Other
      miscellaneous unallocated expenses
            
            
            0.6
            
            
            
            (0.4
            )
            
            
            0.4
            
            
            
            0.5
            
            
            
            20.3
            
            
            
            —
            
            
            
            21.4Operating
      income (loss)
            
            $
            59.7
            
            
            $
            42.0
            
            
            $
            62.0
            
            
            $
            (20.5
            )
            
            $
            —
            
            
            $
            —
            
            
            $
            143.2Three
      Months Ended September 28, 2007 (1)(In
    millions)
            
            URS
              Division
            
            
            EG&G
                Division
            
            
            Washington
                Division
            
            
            Corporate
            
            
            Corporate
      Interest Expense
            
            
            Eliminations
            
            
            ConsolidatedContribution
            
            $
            60.2
            
            
            $
            20.9
            
            
            $
            3.2
            
            
            $
            (16.1
            )
            
            $
            (3.2
            )
            
            $
            (0.1
            )
            
            $
            64.9Minority
      interests
            
            
            0.1
            
            
            
            —
            
            
            
            1.8
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1.9Unallocated
      SFAS 123(R) expenses
            
            
            (2.9
            )
            
            
            (0.8
            )
            
            
            —
            
            
            
            3.7
            
            
            
            —
            
            
            
            —
            
            
            
            —Other
      miscellaneous unallocated expenses
            
            
            0.2
            
            
            
            —
            
            
            
            0.1
            
            
            
            (0.6
            )
            
            
            3.2
            
            
            
            —
            
            
            
            2.9Operating
      income (loss)
            
            $
            57.6
            
            
            $
            20.1
            
            
            $
            5.1
            
            
            $
            (13.0
            )
            
            $
            —
            
            
            $
            (0.1
            )
            
            $
            69.7





Nine
      Months Ended September 26, 2008 (1)(In
    millions)
            
            URS
                Division
            
            
            EG&G
                Division
            
            
            Washington
                Division
            
            
            Corporate
            
            
            Corporate
      Interest Expense
            
            
            Eliminations
            
            
            ConsolidatedContribution
            
            $
            189.9
            
            
            $
            104.1
            
            
            $
            147.2
            
            
            $
            (72.8
            )
            
            $
            (67.0
            )
            
            $
            —
            
            
            $
            301.4Minority
      interests
            
            
            0.3
            
            
            
            —
            
            
            
            21.8
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            22.1Unallocated
      SFAS 123(R) expenses
            
            
            (7.7
            )
            
            
            (2.7
            )
            
            
            (4.5
            )
            
            
            14.9
            
            
            
            —
            
            
            
            —
            
            
            
            —Other
      miscellaneous unallocated expenses
            
            
            1.6
            
            
            
            (0.4
            )
            
            
            1.0
            
            
            
            0.8
            
            
            
            67.0
            
            
            
            —
            
            
            
            70.0Operating
      income (loss)
            
            $
            184.1
            
            
            $
            101.0
            
            
            $
            165.5
            
            
            $
            (57.1
            )
            
            $
            —
            
            
            $
            —
            
            
            $
            393.5




(1)
            We
      revised and conformed the prior period’s amounts to our current year’s
      segment presentation.  Because the Washington Division did not
      exist as one of our divisions before November 15, 2007, the amounts
      presented for the three and nine months ended September 28, 2007 are not
      comparable to the results for the three and nine months ended September
      26, 2008, and are comprised of the amounts that represent the result of
      the realignment of our operations among our divisions as discussed
      above.




28
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)


Nine
      Months Ended September 28, 2007 (1)(In
    millions)
            
            URS
                Division
            
            
            EG&G
                Division
            
            
            Washington
                Division
            
            
            Corporate
            
            
            Corporate
      Interest Expense
            
            
            Eliminations
            
            
            ConsolidatedContribution
            
            $
            171.5
            
            
            $
            60.1
            
            
            $
            9.7
            
            
            $
            (51.4
            )
            
            $
            (9.5
            )
            
            $
            (0.8
            )
            
            $
            179.6Minority
      interests
            
            
            0.9
            
            
            
            —
            
            
            
            4.3
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5.2Unallocated
      SFAS 123(R) expenses
            
            
            (8.6
            )
            
            
            (2.2
            )
            
            
            —
            
            
            
            10.8
            
            
            
            —
            
            
            
            —
            
            
            
            —Other
      miscellaneous unallocated expenses
            
            
            2.1
            
            
            
            (0.7
            )
            
            
            0.1
            
            
            
            —
            
            
            
            9.5
            
            
            
            —
            
            
            
            11.0Operating
      income (loss)
            
            $
            165.9
            
            
            $
            57.2
            
            
            $
            14.1
            
            
            $
            (40.6
            )
            
            $
            —
            
            
            $
            (0.8
            )
            
            $
            195.8




(1)
            We
      revised and conformed the prior period’s amounts to our current year’s
      segment presentation.  Because the Washington Division did not
      exist as one of our divisions before November 15, 2007, the amounts
      presented for the three and nine months ended September 28, 2007 are not
      comparable to the results for the three and nine months ended September
      26, 2008, and are comprised of the amounts that represent the result of
      the realignment of our operations among our divisions as discussed
      above.




Total
assets by segments are as follows:


(In
      millions)
            
            September
      26,
                2008
            
            
            December
      28,
                2007URS
      Division
            
            $
            1,693.8
            
            
            $
            1,733.7EG&G
      Division
            
            
            1,410.3
            
            
            
            918.2Washington
      Division
            
            
            3,629.2
            
            
            
            4,060.7Corporate
            
            
            5,032.8
            
            
            
            4,889.6Eliminations
            
            
            (4,782.3
            )
            
            
            (4,672.2
            )Total
      assets
            
            $
            6,983.8
            
            
            $
            6,930.0





Investments
in Unconsolidated Affiliates




As of
September 26, 2008 and December 28, 2007, we had $266.4 million and $206.7
million, respectively, in investments accounted for by the equity
method.




Geographic
Areas




Our
revenues, and property and equipment at cost, net of accumulated depreciation,
by geographic areas are shown below.




Three
      Months Ended
            
            
            Nine
      Months Ended(In
      millions)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
            
            
            September
      26,
                2008
            
            
            September
      28,
                2007RevenuesUnited
      States
            
            $
            2,351.6
            
            
            $
            1,147.8
            
            
            $
            6,701.3
            
            
            $
            3,295.4International
            
            
            242.6
            
            
            
            133.1
            
            
            
            693.3
            
            
            
            372.0Eliminations
            
            
            (6.1
            )
            
            
            (12.9
            )
            
            
            (16.5
            )
            
            
            (23.8
            )Total
      revenues
            
            $
            2,588.1
            
            
            $
            1,268.0
            
            
            $
            7,378.1
            
            
            $
            3,643.6




No
individual foreign country contributed more than 10% of our consolidated
revenues for the three and nine months ended September 26, 2008 and September
28, 2007.


29
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




(In
      millions)
            
            September
      26,
                2008
            
            
            December
      28,
                2007Property
      and equipment at cost, netUnited
      States
            
            $
            255.9
            
            
            $
            254.4International
            
            
            93.9
            
            
            
            103.5Total
      property and equipment at cost, net
            
            $
            349.8
            
            
            $
            357.9




Major
Customers




We have
multiple contracts with various organizations within the U.S. Army, one of our
major customers.  Collectively, these contracts contributed more than
10% of our total consolidated revenues; however, we are not dependent on any
single contract on an ongoing basis, and, although the loss of the U.S. Army as
a customer would materially and adversely affect us, the loss of any individual
contract would not have a material adverse effect on our
business.  The following table presents our revenues from the U.S.
Army by segment.





Three
      Months Ended
            
            
            Nine
      Months Ended(In
      millions)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
            
            
            September
      26,
                2008
            
            
            September
      28,
              2007The
      U.S. Army (1)URS
      Division
            
            $
            26.4
            
            
            $
            25.9
            
            
            $
            81.9
            
            
            $
            86.6EG&G
      Division
            
            
            349.7
            
            
            
            194.0
            
            
            
            1,056.0
            
            
            
            559.9Washington
      Division
            
            
            34.8
            
            
            
            —
            
            
            
            93.6
            
            
            
            —Total
      U.S. Army
            
            $
            410.9
            
            
            $
            219.9
            
            
            $
            1,231.5
            
            
            $
            646.5




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




NOTE 9.  COMMITMENTS AND CONTINGENCIES




In the
ordinary course of business, we are subject to contractual guarantees and
governmental audits or investigations.  We are also involved in
various legal proceedings that are pending against us and our subsidiaries
alleging, among other things, breach of contract or tort in connection with the
performance of professional services, the various outcomes of which cannot be
predicted with certainty.  We are including information regarding the
following significant proceedings in particular:




·
            Saudi Arabia: One of
      our subsidiaries, LSI, provided aircraft maintenance support services on
      F-5 aircraft under contracts (the “F-5 Contract”) with a Saudi Arabian
      government ministry (the “Ministry”).  LSI completed its
      operational performance under the F-5 Contract in November 2000 and the
      Ministry has yet to pay a $12.2 million account receivable owed to
      LSI.  In addition, in 2004, the Ministry drew a payment under a
      performance bond issued by LSI amounting to approximately $5.6 million
      that was outstanding under the F-5 Contract.  The following
      legal proceedings ensued:


Two Saudi
Arabian landlords have pursued claims against LSI over disputed rents in Saudi
Arabia.  The Saudi Arabian landlord of the Al Bilad complex received a
judgment of $7.9 million in Saudi Arabia against LSI.  During the
quarter ended March 30, 2007, Al Bilad, the landlord, received payment of this
judgment out of the $12.2 million receivable held by the Ministry.  As
a result, we have reduced both our receivable and a reserve for the Saudi
Arabian judgment regarding the Al Bilad complex to reflect the payment made by
the Ministry.  Another landlord has obtained a judgment in Saudi
Arabia against LSI for $1.2 million and LSI successfully appealed this decision
in June 2005 in Saudi Arabia, which was remanded for future
proceedings.  We continue to review our legal position and strategy
regarding these judgments.


30
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




LSI
became involved in a dispute related to a tax assessment issued by the Saudi
Arabian taxing authority (“Zakat”) against LSI of approximately $5.1 million for
the years 1999 through 2002.  LSI disagreed with the Zakat assessment
and on June 6, 2006, the Zakat and Tax Preliminary Appeal Committee ruled
partially in favor of LSI by reducing the tax assessment to approximately $2.2
million.  LSI has appealed the decision of the Zakat and Tax
Preliminary Appeal Committee in an effort to eliminate or further reduce the
assessment, and, as a part of that appeal, posted a bond in the full amount of
the remaining tax assessment.




In
November 2004, LSI filed suit against the Ministry in the United States District
Court for the Western District of Texas.  The suit seeks damages for,
among other things, intentional interference with commercial relations caused by
the Ministry's wrongful demand of the performance bond; breach of the F-5
Contract; unjust enrichment and promissory estoppel, and seeks payment of the
$12.2 million account receivable.  In March 2005, the Ministry filed a
motion to dismiss, which the District Court denied.  In November 2005,
the Ministry filed another motion to dismiss, to which the District Court
responded by ordering the parties to conduct further discovery.  On
April 12, 2007, the Ministry filed a supplemental brief in support of its motion
to dismiss.  On May 31, 2007, LSI filed a response objecting to the
Ministry’s motion to dismiss, to which the Ministry filed a reply brief on June
29, 2007.  On September 26, 2007, the District Court heard oral
arguments on the motion to dismiss.  On July 25, 2008, the District
Court denied the Ministry’s motion to dismiss.  The Ministry filed a
notice of appeal to the Court of Appeals for the Fifth District on August 19,
2008.




LSI
intends to continue to seek collection of the $12.2 million account receivable
and the $5.6 million performance bond due from the Ministry and related damages,
and defend itself vigorously against the remaining claims raised by the
landlords and Zakat; however, LSI cannot provide assurance that it
will be successful in these efforts.  The potential loss on the claims
against LSI is up to $9.0 million; however, the resolution of these matters
cannot be determined at this time.





·
            Lebanon: Our 1999
      acquisition of Dames and Moore Group, Inc. included the acquisition of a
      wholly owned subsidiary, Radian International, LLC
      (“Radian”).  Prior to the acquisition, Radian entered into a
      contract with the Lebanese Company for the Development and Reconstruction
      of Beirut Central District, S.A.L (“Solidere”).  Under the
      contract, Radian was to provide environmental remediation services at the
      Normandy Landfill site located in Beirut, Lebanon (the “Normandy
      Project”).  Radian subcontracted a portion of these services to
      Mouawad – Edde SARL.  The contract with Solidere required the
      posting of a Letter of Guarantee, which was issued by Saradar Bank,
      Sh.M.L. ("Saradar") for $8.5 million.  Solidere drew upon the
      full value of the Letter of Guarantee.  The contract also
      provided for the purchase of project-specific insurance.  The
      project-specific insurance policy was issued by Alpina Insurance Company
      ("Alpina").




Solidere
alleged that Radian’s activities and services resulted in the production of
chemical and biological pollutants, including methane gas, at the Normandy
Project.  Radian and Solidere initially sought to resolve their
disputes through arbitration proceedings before the International Chamber of
Commerce (“ICC”).  In July 2004, an ICC arbitration panel ruled
against Radian.  Among other things, the ICC ordered Radian to: i)
prepare a plan to remediate the production of methane gas at the Normandy
Project site; and, ii) pay approximately $2.4 million in attorney fees and other
expenses.  The ICC also authorized Solidere to withhold project
payments.




31
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




Since the
July 2004 ruling, numerous other legal actions were initiated.  On
January 20, 2006, Radian initiated a new ICC arbitration proceeding against
Solidere alleging, in part, that Solidere's lack of cooperation prevented Radian
from complying with the July 2004 ruling.  In response to Radian’s
January 20, 2006 filing, Solidere terminated Radian's contract and, on February
13, 2006, initiated a separate ICC arbitration proceeding against both Radian
and URS Corporation, a Delaware corporation (DE), the indirect parent of Radian,
claiming that URS Corporation (DE) is responsible for Radian’s liabilities
because both entities operated as a single economic
enterprise.  Solidere’s February 13, 2006 filing sought to recover the
costs to remediate the Normandy Project site, damages resulting from delays in
project completion, and past and future legal costs.  On February 20,
2006, Radian amended its January 20, 2006 filing to include Solidere's
unwarranted termination of Radian's contract.




On June
30, 2006, URS Corporation (DE) filed a separate complaint in the United States
District Court for the District of Delaware which sought to enjoin Solidere’s
attempt to include URS Corporation (DE) as a party in the arbitration before the
ICC.  Because Radian is maintained as a distinct legal entity separate
from URS Corporation (DE), URS Corporation (DE) is not responsible for any of
Radian’s liabilities.  On September 28, 2007, the Delaware District
Court issued a Memorandum of Opinion, which, among other things, partially
granted Solidere’s motion to dismiss.  We appealed this
decision.




On June
28, 2006, Mouawad – Edde SARL, filed a request for arbitration (to which we
responded) with the ICC against Radian and URS Corporation seeking to recover
$22 million for its alleged additional costs.  Mouawad – Edde SARL
alleges that it is entitled to a sizable increase in the value of its
subcontract for additional work it claims to have performed on the Normandy
Project.  An evidentiary hearing on jurisdictional issues was held at
the ICC in July 2007.




In July
2004, Saradar filed a claim for reimbursement in the First Court in Beirut,
Lebanon, to recover the $8.5 million paid on the Letter of Guarantee from Radian
and co-defendant Wells Fargo Bank, N.A. Saradar alleges that it is entitled to
reimbursement for the amount paid on the Letter of Guarantee.  In
February 2005, Radian responded to Saradar’s claim by filing a Statement of
Defense.  In April 2005, Saradar also filed a reimbursement claim
against Solidere.  Radian contends that it is not obligated to
reimburse Saradar.  The First Court in Beirut issued a ruling holding
that Radian was not obligated to reimburse Saradar in October
2007.  However, the ruling also held that co-defendant Wells Fargo
Bank was obligated to reimburse Saradar.  Wells Fargo Bank has
appealed this ruling and Radian is assisting in the appeal pursuant to the terms
of the credit agreement obligations between Radian and Wells Fargo
Bank.




In
October 2004, Alpina notified Radian of a denial of insurance
coverage.  Radian filed a breach of contract and bad faith claim
against Alpina in the United States District Court for the Northern District of
California in October 2004 seeking declaratory relief and monetary
damages.  In July 2005, Alpina responded to Radian’s claim by filing a
motion to dismiss based on improper venue, which the District Court
granted.  The District Court’s decision, however, did not consider the
underlying merits of Radian’s claim and Radian appealed the matter to the United
States Court of Appeals for the Ninth Circuit in September
2005.  Radian continues discussions with Alpina and its other
insurance carriers to resolve the matter.




In
December 2006, Zurich Insurance Company (“Zurich”), as successor in interest to
Alpina, American International Specialty Lines Insurance Company (“AISLIC”),
Radian, and URS Corporation, finalized a settlement agreement in which Zurich
and AISLIC agreed to fund a substantial portion of the cost of defending some of
the claims filed by Solidere in the ICC arbitration.




The
claims between Radian and Solidere were settled in June 2008 and the claims
between Radian and Mouawad Edde were settled in August 2008.  These
settlements do not resolve the affirmative claims made by Radian against other
parties, and Saradar’s claim against Radian.




32
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




Radian
intends to continue to vigorously defend the remaining claim asserted against it
by Saradar and seek to collect the amounts due to it; however,
Radian cannot provide assurance that it will be successful in these
efforts.  The potential loss on the claims against Radian is up to $8.5
million; however, the resolution of these matters cannot be determined at
this time.




·
            Tampa-Hillsborough County
      Expressway Authority: In 1999, URS Corporation Southern, our wholly
      owned subsidiary, entered into an agreement with the Tampa-Hillsborough
      County Expressway Authority (the “Authority”) to provide foundation
      design, project oversight and other services in connection with the
      construction of the Lee Roy Selmon Elevated Expressway structure (the
      “Expressway”) in Tampa, Florida.  Also, URS Holdings, Inc., our
      wholly owned subsidiary, entered into a subcontract agreement with an
      unrelated third party to provide geotechnical services in connection with
      the construction of roads to access the Expressway.  In 2004,
      during construction of the elevated structure, one pier subsided
      substantially, causing significant damage to a segment of the elevated
      structure, though no significant injuries occurred as a result of the
      incident.  The Authority has completed remediation of the
      Expressway.




In
October 2005, the Authority filed a lawsuit in the Thirteenth Judicial Circuit
of Florida against URS Corporation Southern, URS Holdings, Inc. and an unrelated
third party, alleging breach of contract and professional negligence resulting
in damages to the Authority exceeding $120 million.  In April 2006,
the Authority's Builder's Risk insurance carrier, Westchester Surplus Lines
Insurance Company (“Westchester”), filed a subrogation action against URS
Corporation Southern in the Thirteenth Judicial Circuit of Florida for $2.9
million, which Westchester has paid to the Authority.  Westchester
also filed a subrogation action for any future amounts that may be paid for
claims that the Authority has submitted for losses caused by the subsidence of
the pier.  URS Corporation Southern removed Westchester's lawsuit to
the United States District Court for the Middle District of Florida and filed
multiple counterclaims against Westchester for insurance coverage under the
Westchester policy.  Westchester's lawsuit was remanded to the Thirteenth
Judicial Circuit of Florida in July 2007, and in June 2008, the court ordered
that the Authority be substituted as the plaintiff to the
lawsuit.




One of
URS Corporation Southern’s and URS Holdings, Inc.’s excess insurance carriers,
Arch Specialty Insurance Company (“Arch”), which was responsible for $15 million
in excess coverage, has informed URS Corporation Southern and URS Holdings,
Inc., that they believe the initial notice of claim provided by our insurance
broker was untimely under the Arch excess policies.  URS Corporation
Southern and URS Holdings, Inc. rejected Arch’s position.  In October 2008,
Arch filed a lawsuit in the United States District Court for the Middle District
of Florida seeking a declaratory judgment that URS’ claims are not covered
by the Arch policies.




URS
Corporation Southern and URS Holdings, Inc. continue to defend themselves
vigorously against the claims; however, they cannot provide assurance that they
will be successful in these efforts.  The potential range of loss and the
resolution of these matters cannot be determined at this time.


33
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)




·
            Rocky Mountain Arsenal:
      In January 2002, URS Group, Inc., our wholly owned subsidiary, was awarded
      a contract by Foster Wheeler Environmental, Inc., to perform, among other
      things, foundation demolition and remediation of contaminated soil at the
      Rocky Mountain Arsenal in Colorado.  In October 2004, URS Group,
      Inc. filed a complaint asserting a breach of contract seeking recovery of
      the cost overruns against Foster Wheeler Environmental, Inc. and Tetra
      Tech FW, Inc. both subsidiaries of Tetra Tech, Inc. (“TTFW”), in District
      Court for the County of Denver in the State of Colorado.  In
      June 2006, the District Court issued a $1.1 million judgment against TTFW,
      granting some of URS Group, Inc.’s claims, but denying the largest
      claim.  URS Group, Inc. appealed the judgment to the Colorado
      Court of Appeals in June 2006.  The Court of Appeals found that
      TTFW possessed information at the time of bidding that it did not disclose
      to bidders and issued a unanimous decision in favor of URS Group, Inc. in
      February 2008, which remanded the matter to the trial court for further
      proceedings.  On April 23, 2008, TTFW filed a petition for
      review with the Colorado Supreme Court.  The Colorado Supreme
      Court denied that petition, and the matter has been remanded to the trial
      court for proceedings consistent with the findings of the Court of
      Appeals.




URS
Group, Inc. intends to continue its vigorous attempt to collect the remaining
contract cost overruns; however, URS Group, Inc. cannot provide assurance that
it will be successful in these efforts, and the resolution of thes matters
cannot be determined at this time.




·
            Minneapolis Bridge: On
      August 1, 2007, the I-35W Bridge in Minneapolis, Minnesota collapsed
      resulting in a number of deaths and property loss.  In 2003, the
      Minnesota Department of Transportation retained us to provide engineering
      analyses of the I-35W Bridge.  We had issued draft reports
      pursuant to this engagement and our services to the Minnesota Department
      of Transportation were ongoing at the time of the collapse.  We
      were not involved in the original design or construction of the I-35W
      Bridge, nor were we involved in any of the maintenance and construction
      work being performed on the bridge when the collapse
      occurred.  Currently, there is insufficient information to
      determine the definitive cause or causes of, or potential liabilities
      associated with, the collapse.  It is possible that claims
      relating to the collapse will be made against us because of our work for
      the Minnesota Department of Transportation.  The potential range
      of loss and outcome of any such claims, if made, cannot be determined at
      this time.




·
            130 Liberty Street: On
      August 18, 2007, two New York City firemen lost their lives fighting a
      fire at a skyscraper undergoing decontamination and deconstruction at 130
      Liberty Street in New York City.  One of our wholly owned
      subsidiaries, URS Corporation – New York, had been retained before the
      accident by the 130 Liberty Street property owner to advise, monitor and
      report on the general contractor’s performance as well as its compliance
      with the project’s contractual requirements.  In August 2007,
      the Manhattan District Attorney served subpoenas related to this accident
      on the property owner, URS Corporation - New York, the general contractor
      and its principal subcontractors, as well as the City of New
      York.  In February and April of 2008, URS Corporation – New York
      was sued in the New York State Supreme Court by the estates of the two
      firemen for negligence, public and private nuisance, and wrongful death,
      as well as for statutory violations of various local and state public
      safety codes.  Both estates are alleging punitive damages and
      one estate has asked for damages of approximately $50
      million.  In May of 2008, URS Corporation – New York was sued in
      the New York State Supreme Court for an unspecified amount of damages by
      four firemen and their spouses for personal injury to the firemen
      occurring during the fire.  The complaint alleges negligence,
      public and private nuisance, and violations of various local and state
      public safety codes.




URS
Corporation – New York intends to continue to defend these matters vigorously;
however, URS Corporation – New York cannot provide assurance that it will
be successful in these efforts.  The potential range of loss and
the resolution of these matters cannot be determined at this time.


34
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)
  ·
              USAID Egyptian
      Projects:  In March 2003, WGI, the
      parent company acquired by us on November 15, 2007, was notified by
      the Department of Justice that the federal government was considering
      civil litigation against WGI for potential violations of the U.S. Agency
      for International Development (“USAID”) source, origin, and nationality
      regulations in connection with five of WGI’s USAID-financed host-country
      projects located in Egypt beginning in the early 1990s.  In
      November 2004, the federal government filed an action in the U.S. District
      Court for the District of Idaho against WGI and Contrack International,
      Inc., an Egyptian construction company, asserting violations under the
      Federal False Claims Act, the Federal Foreign Assistance Act of 1961, and
      common law theories of payment by mistake and unjust
      enrichment.  The federal government seeks damages and civil
      penalties for violations of the statutes as well as a refund of all
      amounts paid under the specified contracts of approximately $373.0
      million.  WGI denies any liability in the action and contests
      the federal government’s damage allegations and its entitlement to any
      recovery.  All USAID projects under the contracts have been
      completed and are fully
operational.


In March
2005, WGI filed motions in the Bankruptcy Court in Nevada and in the Idaho
District Court to dismiss the federal government’s claim for failure to give
appropriate notice or otherwise preserve those claims.  In August
2005, the Bankruptcy Court ruled that all federal government claims were barred
in a written order.  The federal government appealed the Bankruptcy
Court's order to the U.S. District Court for the District of
Nevada.  In March 2006, the Idaho District Court stayed that action
during the pendency of the federal government's appeal of the Bankruptcy Court's
ruling.  In December 2006, the District Court in Nevada reversed the
Bankruptcy Court’s order and remanded the matter back to the Bankruptcy Court
for further proceedings.  In December 2007, the federal government
filed a motion in Bankruptcy Court seeking an order that the Bankruptcy Court
abstain from exercising jurisdiction over this matter, which WGI
opposed.  On February 15, 2008, the Bankruptcy Court denied the
federal government’s motion preventing the Bankruptcy Court from exercising
jurisdiction over WGI’s motion that the federal government’s claims in Idaho
District Court were barred for failure to give appropriate notice or otherwise
preserve those claims.  WGI’s motions in the Bankruptcy Court cover
all of the federal government claims alleged in the Idaho action.




WGI’s
joint venture for one of the USAID projects brought arbitration proceedings
before an arbitration tribunal in Egypt in which the joint venture asserted an
affirmative claim for additional compensation for the construction of water and
wastewater treatment facilities in Egypt.  The project owner, National
Organization for Potable Water and Sanitary Drainage (“NOPWASD”), an Egyptian
government agency, asserted in a counterclaim that by reason of alleged
violations of the USAID source, origin and nationality regulations, and alleged
violations of Egyptian law, WGI’s joint venture should forfeit its claim, pay
damages of approximately $6.0 million and the owner’s costs of defending
against the joint venture’s claims in arbitration.  WGI denied
liability on NOPWASD’s counterclaim.  On April 17, 2006, the
arbitration tribunal issued its award providing that the joint venture prevailed
on its affirmative claims in the net amount of $8.2 million, and that NOPWASD's
counterclaims were rejected.  WGI’s portion of any final award
received by the joint venture would be approximately 45%.




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


·
              New Orleans Levee Failure
      Class Action Litigation: From July 1999 through May 2005,
      Washington Group International, Inc., an Ohio company (“WGI Ohio”), a
      wholly owned subsidiary acquired by us on November 15, 2007, performed
      demolition, site preparation, and environmental remediation services for
      the U.S. Army Corps of Engineers on the east bank of the Inner Harbor
      Navigation Canal (the “Industrial Canal”) in New Orleans,
      Louisiana.  On August 29, 2005, Hurricane Katrina devastated New
      Orleans.  The storm surge created by the hurricane overtopped
      the Industrial Canal levee and floodwall, flooding the Lower Ninth Ward
      and other parts of the city.
 35
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)
 Since
September 2005, 59 personal injury, property damage and class action lawsuits
have been filed in Louisiana State and federal court naming WGI Ohio as a
defendant.  Other defendants include the U.S. Army Corps of Engineers,
the Board for the Orleans Parish Levee District, and its insurer, St. Paul Fire
and Marine Insurance Company.  Over 1,450 hurricane-related cases,
including the WGI Ohio cases, have been consolidated in the Federal District
Court for the Eastern District of Louisiana.  The plaintiffs claim
that defendants were negligent in their design, construction and/or maintenance
of the New Orleans levees.  The plaintiffs are all residents and
property owners who claim to have incurred damages arising out of the breach and
failure of the hurricane protection levees and floodwalls in the wake of
Hurricane Katrina.  The allegation against us is that the work we
performed adjacent to the Industrial Canal damaged the levee and floodwall and
caused and/or contributed to breaches and flooding.  The plaintiffs
allege damages of $200 billion and demand attorneys’ fees and
costs.  WGI Ohio did not design, construct, repair or maintain any of
the levees or the floodwalls that failed during or after Hurricane
Katrina.  Also, WGI Ohio performed the work adjacent to the Industrial
Canal as a contractor for the U.S. government and is pursuing dismissal from the
lawsuits on a motion for summary judgment on the basis that government
contractors are immune from liability and plaintiffs failed to state a claim of
negligence.


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





·
            SR-125: WGI has a 50%
      interest in a joint venture that is performing a $401 million fixed-price
      highway and toll road project in California that was approximately 98%
      complete as of September 26, 2008.  Prior to the acquisition of
      WGI, WGI recorded significant losses on the project resulting from various
      developments, including final design and other customer specifications,
      state regulatory agency requirements, material quantity and cost growth,
      higher subcontractor and labor costs, and the impact of schedule
      delays.  In many instances, these developments were
      unanticipated.  We expect that, when the project is completed,
      our investment in the joint venture will be approximately $30
      million.  It remains possible that the joint venture may incur
      additional losses and, if the joint venture is unsuccessful in recovering
      at least a portion of its claims, additional charges will be
      required.  These matters are among the numerous claims in
      dispute made by the joint venture against the project
      owner.  Most of the highway claims are being pursued in the
      Superior Court of San Diego County, and most of the toll road claims, per
      the toll road agreement, are being pursued in state
      arbitration.  There are a small number of claims being pursued
      under the contractually prescribed dispute review
      procedures.  If the claims are not resolved through these
      procedures, the claims will be joined in the existing litigation or
      arbitration proceedings.




In April
and June 2008, the project owner drew an aggregate of $7.4 million on a WGI
letter of credit, based on disputed deductive changes and charges imposed by the
project owner.  On June 5, 2008, the project owner filed a complaint,
as amended, against the joint venture in the Supreme Court of New York County,
New York, alleging that the joint venture breached a lender agreement associated
with the highway project that impaired the enforceability of the highway project
contract.


The joint
venture will continue to defend these matters vigorously and will seek to
collect all claimed amounts; however, the joint venture cannot provide
assurance that they will be successful in these efforts.  The
potential range of loss and the resolution of these matters cannot be determined
at this time.
  36
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)
 ·
              Common Sulfur Project:
      One of our wholly owned subsidiaries, WGI – Middle East, Inc., together
      with a consortium partner, have contracted under a fixed-price arrangement
      to engineer, procure and construct a sulfur processing facility located in
      Qatar.  The completed project will treat and distribute sulfur
      produced by a new Liquid Natural Gas (“LNG”) processing facility also
      under construction.  The project has experienced cost increases
      and schedule delays.  The contract gives the customer the right
      to assess liquidated damages of approximately $20 million against the
      consortium if various phases of the project are not completed by certain
      dates.  If such damages were to be assessed, a portion may be
      attributable to WGI – Middle East, Inc.  No potential liquidated
      damages have been included in the estimated contract loss referenced below
      primarily due to the impacts of concurrent delays on the LNG
      facility.
  Only a
portion of the cost increases have been agreed to with the customer and
acknowledged through executed change orders.  During the three and
nine months ended September 26, 2008, charges to income of $15.0 million and
$27.9 million, respectively, have been recorded.  A portion of the
charges relates to the reversal of previously recognized earnings resulting in a
project-to-date loss of $20.3 million as of September 26, 2008.  As of
September 26, 2008, the project is approximately 84% complete and WGI – Middle
East, Inc. and our consortium partner are implementing acceleration activities
to mitigate the potential liquidated damages exposure as well as minimize the
contract losses to be experienced.  While the estimated loss has been
recognized, actual results may differ from our estimates.


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


Insurance




Currently, our
insurance program includes limits totaling $515.0 million per loss and in the
aggregate for general liability; $215.0 million per loss and in the aggregate
for professional errors and omissions liability; and $100.0 million per loss and
in the aggregate for contractor’s pollution liability (in addition to other
policies for specific projects).  The general liability, professional
errors and omissions liability, and contractor’s pollution liability limits are
in excess of a self-insured retention of $10.0 million foreach covered
claim.




Excess
insurance policies provide for coverages on a “claims-made” basis, covering only
claims actually made and reported during the policy period currently in
effect.  Thus, if we do not continue to maintain these policies, we
will have no coverage for claims made after the termination date even for claims
based on events that occurred during the term of coverage.  While we
intend to maintain these policies, we may be unable to maintain existing
coverage levels.  We have maintained insurance without lapse for many
years with limits in excess of losses sustained.




Guarantee Obligations and
Commitments
  As of
September 26, 2008, we had the following guarantee obligations and
commitments:
  We have
guaranteed the credit facility of one of our unconsolidated joint ventures, in
the event of a default by the joint venture.  This joint venture was
formed in the ordinary course of business to perform a contract for the U.S.
federal government.  The term of the guarantee was equal to the
remaining term of the underlying credit facility.  As of September 26,
2008, the amount of the guarantee was $15.0 million. The credit facility will be
renewed on a month-to-month basis and the guarantee will be extended until the
contract is completed, which is expected to be May 31, 2009.
 37
 URS
CORPORATIONS AND SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED (Continued)
 We have
guaranteed a letter of credit issued on behalf of one of our unconsolidated
construction joint ventures, in which we are a 60% owner with no significant
influence over operations.  The total amount of the letter of credit
was $7.2 million as of September 26, 2008.
  We have
agreed to indemnify one of our joint venture partners up to $25.0 million for
any potential losses, damages, and liabilities associated with lawsuits in
relation to general and administrative services we provide to the joint
venture.  Currently, we have no indemnified claims under this
guarantee.
  As of
September 26, 2008, the amount of the guarantee used to collateralize the credit
facility of our United Kingdom operating subsidiary and bank guarantee lines of
our European subsidiaries was $9.3 million.
  We also
maintain a variety of commercial commitments that are generally made to support
provisions of our contracts.  In addition, in the ordinary course of
business, we provide letters of credit to clients and others against advance
payments and to support other business arrangements.  We are required
to reimburse the issuers of letters of credit for any payments they make under
the letters of credit.
  From time
to time, we may provide guarantees related to our services or
work.  These guarantees include various types of surety bonds, which
are agreements between us, our client, and a surety ensuring that we perform our
contractual obligations pursuant to our signed agreement with the
client.  If our services under a guaranteed project are later
determined to have resulted in a material defect or other material deficiency,
then we may be responsible for monetary damages or other legal
remedies.  When sufficient information about claims on guaranteed
projects is available and monetary damages or other costs or losses are
determined to be probable, we recognize such guarantee losses.


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




NOTE
10.  INCOME TAXES




It is
reasonably possible that we will recognize up to $ 21.1 million in previously
unrecognized tax benefits within the next twelve months as a result of the
settlement of state and federal tax audits. If we recognize the $21.1 million
unrecognized tax benefits, a total of $12.3 million will impact the
categorization of some of the acquired deferred tax asset and liability
components of our net long-term deferred tax assets, but will have no net impact
on the balance sheet or income statement.  A total of $7.9 million will
increase the amount of acquired net operating losses, and $0.9 million will
increase the amount of tax credit carryforwards. The timing and amounts of these
audit settlements are uncertain.




38





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




The
following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties.  Our
actual results could differ materially from those expressed or implied in this
report.  See “Forward-Looking Statements” on page 1.  You
should read this discussion in conjunction with: Part II – Item 1A, “Risk
Factors,” beginning on page 70; the condensed consolidated
financial statements and notes thereto contained in Part I – Item 1, “Financial
Statements;” and the Consolidated Financial Statements included in our Annual
Report on Form 10-K for the fiscal year ended December 28, 2007, which was
previously filed with the Securities and Exchange Commission
(“SEC”).




OVERVIEW




Consolidated
revenues for the third quarter of 2008 were $2,588.1 million compared with
$1,268.0 million during the same period in 2007.  This increase was
primarily the result of revenues generated by the businesses we added through
our acquisition of Washington Group International, Inc. (“WGI”) on November 15,
2007.  The majority of these businesses operate under the name,
“Washington Division.”  We also experienced organic growth in each of
our key market sectors compared to last year.  Net income increased
70.0% from $38.7 million during the third quarter of 2007 to $65.8 million for
the third quarter of 2008, primarily because of the WGI
acquisition.  Each of our operating divisions also contributed to the
increase in net income.




Effect of the WGI
Acquisition




Because
the WGI acquisition occurred late in 2007, some of the financial results for the
three and nine months ended September 26, 2008 are not comparable to the results
for the same periods in 2007.  However, to give visibility into our
underlying business growth compared to the effects of the acquisition on our
financial results, our discussion and analysis describe the impact of the
operations from the businesses purchased through the WGI
acquisition.  In addition, the following tables provide a high-level
comparison of revenues for the three and nine months ended September 26, 2008
and combined pro forma revenues for the three and nine months ended September
28, 2007, as well as a reconciliation schedule of combined pro forma revenues to
actual revenues for the same periods.  The combined pro forma revenues
were calculated in accordance with generally accepted accounting principles
(“GAAP”) in the United States (“U.S.”).  We have provided this
information because we believe it will assist readers in understanding the
effect of the acquisition as a component of the overall revenue growth of our
business.





Three
      Months Ended(In
      millions, except percentages)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
      (1)
                (pro
      forma combined)
            
            
            Increase
            
            
            Percentage
      IncreaseRevenues
            
            $
            2,588.1
            
            
            $
            2,197.7
            
            
            $
            390.4
            
            
            
            17.8
            %Reconciliation
      schedule of revenues for the three months ended September 28,
      2007:Pro
      forma combined revenues (1)
            
            
            $
            2,197.7Add:
      revenue adjustments to conform WGI’s revenues to reflect the use of the
      equity method (1)
            
            
            
            134.2Less:
      WGI historical revenues
            
            
            
            (1,063.9
            )URS
      historical revenues
            
            
            $
            1,268.0
            
            
            $
            1,320.1
            
            
            
            104.1
            %


39


Nine
      Months Ended(In
      millions, except percentages)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
      (1)
                (pro
      forma combined)
            
            
            Increase
            
            
            Percentage
      IncreaseRevenues
            
            $
            7,378.1
            
            
            $
            6,132.1
            
            
            $
            1,246.0
            
            
            
            20.3
            %Reconciliation
      schedule of revenues for the nine months ended September 28,
      2007:Pro
      forma combined revenues (1)
            
            
            $
            6,132.1Add:
      revenue adjustments to conform WGI’s revenues to reflect the use of the
      equity method (1)
            
            
            
            364.6Less:
      WGI historical revenues
            
            
            
            (2,853.1
            )URS
      historical revenues
            
            
            $
            3,643.6
            
            
            $
            3,734.5
            
            
            
            102.5
            %




(1)
            The
      pro forma combined revenues presented in this discussion are calculated
      based on the definition of pro forma combined revenues under Statement of
      Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”
      (“SFAS 141”) presented in Note 2, “Acquisition.”  It includes
      pro forma adjustments of $134.2 million and $364.6 million to revenues for
      the three and nine months ended September 28, 2007,
      respectively.  These adjustments were made to conform WGI’s
      reported revenues related to unconsolidated joint ventures, previously
      accounted for using proportionate consolidation, to reflect the use of the
      equity method.




BUSINESS
SUMMARY




We are a
leading international provider of engineering, construction and technical
services.  We offer a broad range of program management, planning,
design, engineering, construction and construction management, operations and
maintenance, and decommissioning and closure services to public agencies and
private sector clients around the world.  We also are a major U.S.
federal government contractor in the areas of systems engineering and technical
assistance, and operations and maintenance.  We generate revenues by
providing fee-based professional and technical services and by executing
construction and mining contracts.  As a result, our business is labor
intensive for the majority of our projects and capital intensive for
construction and mining projects.  To derive income from our revenues,
we must effectively manage our costs.  We provide our services through
three operating divisions: the URS Division, the EG&G Division and the
Washington Division.




We
accounted for the acquisition of WGI under the purchase accounting
method.  Unless specifically stated, all information presented in this
discussion excludes the results of operations and the financial condition of WGI
prior to November 16, 2007.




The
acquisition of WGI has enhanced our ability to provide fully integrated
engineering and construction services for every stage of the project life cycle
— from program management, planning, design and engineering through construction
and construction management, and operations and maintenance to decommissioning
and closure.  The acquisition also has expanded our capabilities and
competitive position in the market sectors we serve — power,
infrastructure, federal government, and industrial and commercial — and has
added expertise in the design and construction of both nuclear and fossil fuel
power plants; nuclear waste management; design-build and
design-build-operate-maintain projects for transportation infrastructure; and
the design, development and operation of mines.


40




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




Our costs
of revenues are driven primarily by the compensation we pay to our employees,
including fringe benefits, as well as the cost of hiring subcontractors,
construction materials, and other project-related expenses, and administrative,
marketing, sales, bid and proposal, rental and other overhead
costs.




We are
reporting financial results on a consolidated basis and for our three operating
divisions: the URS Division, the EG&G Division and the Washington
Division.  In addition, for the purposes of reporting and analyzing
our results, we redefined our key market sectors effective with the beginning of
our 2008 fiscal year as follows: the power sector, the infrastructure sector,
the federal sector, and the industrial and commercial sector.  These
market sectors reflect the changes to our overall business mix as a result of
the WGI acquisition.  This reclassification has no impact on our
financial or segment reporting.  It only affects how we define
revenues by market sector.




In the
power market sector, we plan, design, engineer, construct, retrofit and maintain
most types of power generating facilities, as well as the systems that transmit
and distribute electricity.  Our services include planning, siting and
licensing, permitting, engineering, procurement, construction, facility
start-up, operations and maintenance, upgrades and modifications, and
decommissioning and closure.  Our project experience includes fossil
fuel and nuclear power plants, hydropower, and alternative and renewable energy
sources.  We also specialize in the development and installation of
clean air technologies that reduce sulfur dioxide, nitrogen oxides, mercury and
other potentially harmful emissions at both new and existing fossil fuel power
plants.  This market sector is primarily served by our Washington
Division, although our URS Division provides engineering and environmental
services to clients in this sector.




In the
infrastructure market sector, we provide a wide range of services required to
plan, design, construct, and operate and maintain surface, air and rail
transportation systems and networks, as well as ports and harbors.  We
also provide program management, planning, design, engineering, construction and
construction management services for water supply, storage, distribution and
treatment systems, and for many types of buildings.  These include
educational, judicial, correctional, health care, retail, sports, recreational,
industrial manufacturing, research and office facilities.  Our URS and
Washington Divisions serve the infrastructure market sector.




In the
federal market sector, we serve a wide variety of U.S. federal government
departments and agencies and some foreign national governments.  For
Department of Defense (“DOD”) agencies, we provide a wide range of program
management, systems engineering and technical assistance, and operations and
maintenance services to modernize weapons systems, as well as to maintain,
modify and overhaul aircraft, ground vehicles and other military
equipment.  We operate complex government and military installations
and provide flight training for pilots of fixed wing and rotary wing military
aircraft.  In addition, we plan, design and construct hangars,
military housing and other government buildings.  For the Department
of Homeland Security (“DHS”), the DOD and other federal agencies, we support a
variety of homeland security activities.  We also provide engineering,
construction, operations and maintenance, and decommissioning and closure
services for weapons and chemical demilitarization programs.  For the
Department of Energy (“DOE”), we manage complex facilities and programs
involving the storage, deactivation, decommissioning and disposal of radioactive
and chemical waste.  We provide the same types of nuclear management
services for agencies of foreign national governments, such as the United
Kingdom Nuclear Decommissioning Authority.  All three of our divisions
serve the federal market sector.




In the
industrial and commercial market sector, we provide planning, engineering,
process design, and construction and construction management services for new
industrial and commercial facilities, as well as for the expansion and upgrade
of existing facilities.  We serve a diverse roster of clients in the
oil and gas, pipeline, manufacturing, chemical/pharmaceutical and pulp and paper
industries.  We also provide facility management services to the
industrial and commercial sector, including building maintenance, waste
management, health and safety, and security services.  In addition, we
plan, design, develop and operate mines and metal and mineral processing
facilities worldwide.  Our URS and Washington Divisions serve the
industrial and commercial market sector.


41




At the
beginning of our 2008 fiscal year, we realigned several of our operations to
consolidate businesses serving the same markets or clients in the division most
capable of successfully addressing these markets or clients.  This
realignment included transferring the majority of the URS Division’s interest in
the Advatech, LLC. (“Advatech”) joint venture, which provides emissions control
services for coal-fired power plants, to the Washington Division and
transferring the Washington Division’s Defense Business Unit to the EG&G
Division, as well as the realignment of some smaller businesses.




For our
discussion and analysis of results for the three and nine months ended September
26, 2008 compared with the same periods last year, we have reallocated revenues
and operating income among our URS, EG&G and Washington Divisions for the
three and nine months ended September 28, 2007 based on the realignments
discussed above.  These reallocations were made to facilitate a
comparison of our results for the 2008 periods with the comparable periods last
year.




Revenues for the Three
Months Ended September 26, 2008




Consolidated
revenues for the three months ended September 26, 2008 increased 104.1% over
consolidated revenues for the three months ended September 28,
2007.  These results include $1,210 million in revenues generated from
the business we obtained through the WGI acquisition, as well as organic growth
in all of our market sectors.  The divisional information
presented in this discussion, where applicable, represents the results of
operations after the realignment of various businesses among our
divisions.




Revenues
from our power market sector increased approximately 194.2% for the three months
ended September 26, 2008 compared with the three months ended September 28,
2007.  The majority of this increase was derived from the power
business we obtained through the WGI acquisition, which generated $333 million,
or 73.0% of power sector revenues, for the three months ended September 26,
2008.  During the quarter, revenues increased from the engineering,
procurement and construction services we provide to design, build and retrofit
fossil fuel power plants and to expand generating capacity at nuclear power
plants.  We also experienced strong demand for air quality and
emissions control work to retrofit coal-fired power plants with clean air
technologies to comply with environmental regulations.  However, these
increases were partially offset by the timing and performance under several
emissions control contracts, which were nearing completion during the third
quarter of 2008.  Typically, during the project close-out phase,
activity on these contracts is relatively low, resulting in lower
revenues.




Revenues
from our infrastructure market sector increased approximately 43.2% for the
three months ended September 26, 2008 compared with the three months ended
September 28, 2007.  This increase includes $90 million or 20.3% of
infrastructure sector revenues generated from the infrastructure business we
obtained through the WGI acquisition.  During the quarter, we
experienced strong demand for the services we provide to expand and modernize
surface transportation systems and for water resources projects involving dams,
levees and other flood control projects.  Revenues also increased from
the operations and maintenance services we provide for mass transit systems and
toll roads.  In addition, we experienced strong demand for the
services we provide to expand and modernize schools, health care facilities and
government buildings.




Revenues
from our federal market sector for the three months ended September 26, 2008
increased approximately 69.8% compared with the three months ended September 28,
2007.  This increase included $295 million or 32.3% of federal sector
revenues generated by the federal government business we obtained through the
WGI acquisition.  We continued to benefit from increased demand
for the services we provide to DOD agencies to repair and refurbish military
vehicles, aircraft and other equipment, and to modernize weapons
systems.  These results also reflect increased demand for the
operations and installations management services we provide at military and
other government installations.  In addition, we experienced strong
demand for chemical demilitarization services we provide to eliminate chemical,
biological and nuclear weapons, as well as from work we perform for the DOE on
several large nuclear management contracts.


42




Revenues
from our industrial and commercial market sector for the three months ended
September 26, 2008 increased approximately 191.7% compared with the three months
ended September 28, 2007.  This increase includes $491 million or
63.3% of industrial and commercial sector revenues generated by the industrial
and commercial business we obtained through the WGI
acquisition.  Revenue growth from our oil and
gas clients was a significant contributor to the overall increase
in our industrial and commercial market sector as oil and gas clients
continued to invest in energy exploration and the development of new energy
resources.  We also experienced strong demand for the services we
provide to develop and operate mines, as well as for facilities management
support at industrial and manufacturing facilities.  In addition, our
strategy to migrate from stand-alone consulting contracts to longer-term Master
Service Agreements (“MSAs”) with multinational corporations contributed to our
revenue growth in this sector.




Cash Flows and
Debt




During
the nine months ended September 26, 2008, we generated $263.1 million in cash
from operations.  (See “Condensed Consolidated Statements of Cash
Flows” included under Part I – Item 1 of this report.)  Cash flows
from operations increased by $114.2 million for the nine months ended September
26, 2008 compared with the same period in 2007 due to an increase in operating
income and a decrease in income tax payments, partially offset by an increase in
interest payments.  Furthermore, various components of our balance
sheet fluctuated due to the timing of payments from clients on accounts
receivable and the timing of payments to vendors and
subcontractors.




As of
September 26, 2008 and December 28, 2007, our ratios of debt to total
capitalization (total debt divided by the sum of debt and total stockholders’
equity) were 24% and 27%, respectively.




Business
Trends




Given the
unprecedented turmoil in global financial markets and the current economic
volatility, it is difficult to predict the extent of the impact of the recent
financial and economic developments on our business.  We have not yet
experienced a slowdown as a result of the turmoil in the financial
markets.  However, the resulting credit constraints and deteriorating
economic conditions could affect our customers and, as a result, could have a
material adverse effect on our business and operating results.  We are
continuing to monitor the situation carefully for any impact on our business for
the 2009 fiscal year.  Current or deteriorating future conditions
could potentially lead to the delay, curtailment or cancellation of proposed and
existing projects, thus decreasing the overall demand for our services,
adversely impacting our results of operations and weakening our financial
condition.




During
this period of financial turmoil, our stock price, along with that of many other
companies, has declined.  If the decline in our stock price during October
2008 is sustained or worsens, we could experience an impairment of a material
amount of our goodwill.  While there were no events that triggered an
impairment review of our goodwill through the end of our quarter ended September
26, 2008, we will consider subsequent declines in our stock price in our annual
assessment of our goodwill, which we will perform during the fourth
quarter.  If we conclude that our goodwill is impaired, we will be required
to write off the impaired amount, which would reduce our profits.




Power




We expect
revenues from the power market sector to remain steady for the remainder of the
2008 fiscal year.  We anticipate that market conditions will continue
to drive demand for the services we provide to our power sector clients —
including the design, construction, and operations and maintenance of new fossil
fuel power plants; the modification of existing fossil fuel and nuclear power
plants to increase their generating capacity; and the installation of flue gas
desulfurization units and other emission control technologies into coal-fired
power plants.


43




We also
anticipate that the increased political focus on energy independence and the
negative environmental impact of fossil fuels may increase long-term
opportunities for the development of new nuclear power facilities.  In
addition, we anticipate that the 2005 Energy Act, which provides tax incentives
and loan guarantees for the development of nuclear power facilities in the U.S.,
may have a positive long-term impact on our nuclear power business.




Infrastructure




We expect
revenues from the infrastructure market sector to remain steady for the
remainder of fiscal year 2008.  However, state budgets are being
impacted by the downturn in the housing market and the economic slowdown in the
U.S.  As a result, many state and local governments are experiencing
reductions in tax revenues and budget deficits, which could affect their
spending on infrastructure improvement programs.  While the effect of
these budgetary pressures is uncertain, it could result in the delay,
curtailment or cancellation of infrastructure projects in fiscal
2009.




At the
same time, federal support for infrastructure spending remains
strong.  The Bush Administration recently approved $8 billion in
funding for the Highway Trust Fund for fiscal 2009, which will support road and
bridge projects around the country.  In addition, funding sources for
infrastructure projects are more diverse than they have been
historically.  These funding sources include bond sales and the use of
public-private partnerships, which are not dependent on state budgets and could
partially mitigate a decline in spending by state and local
governments.  Finally, many politicians in the U.S. have indicated
they would support a federal infrastructure renewal program as a means to
stimulate the economy, although these proposals may encounter resistance to
additional spending that would further increase the federal
deficit.




Federal




We expect
revenues from our federal market sector to continue to grow moderately for the
remainder of the 2008 fiscal year, based on strong funding levels for the
services we provide and the strategic priorities of the DOD.  These
priorities are resulting in the realignment of the military command structure,
military bases and troop deployments around the world.  Many of the
military base realignments are being implemented by the DOD through the Base
Realignment and Closure (“BRAC”) program.  Some bases will be closed,
while others will have new or expanded missions.  These bases require
environmental, planning, design, engineering and construction services before
they can be redeveloped or closed, resulting in additional opportunities for
us.




The DOD
frequently uses large bundled contracts requiring the provision of a full range
of services at multiple sites throughout the world to execute major
initiatives.  We anticipate that our ability to provide integrated
engineering and construction services, as well as our global network of offices
will enhance our ability to win and execute these large contracts.  We
also expect to continue benefiting from the DOD trend to outsource non-combat
activities, including the maintenance, modification and refurbishment of
military vehicles, aircraft and ground support equipment and the modernization
of aging weapons systems.  President Bush recently signed a $630
billion continuing resolution to fund the budgets of most Cabinet departments
and federal agencies at current levels until March 6, 2009.  This includes
a $488 billion baseline DOD budget and $8.8 billion in BRAC
funding.




We also
expect to derive a significant portion of our federal business from the nuclear
management services we provide to the DOE, including the management and
operation of the nation’s nuclear weapons stockpile, the disposal of nuclear and
hazardous waste, the decontamination and decommissioning of nuclear waste sites
and facilities, and the development of new nuclear power
technology.  The 2009 Defense Authorization Act provides $16 billion
in DOE funding for atomic energy defense activities, including sustained support
for key nuclear and environmental programs.


44


With the
recent outcome of the 2008 U.S. presidential election, we do not
expect that the new Administration will make any immediate changes to overall
DOD and DOE spending, however, there may be a longer-term shift in priorities
within the defense budget based on the outcome of the
election.  Additional information will be available when the new
Administration submits its 2009 supplemental funding request and baseline budget
for fiscal 2010.




Industrial
and Commercial




We expect
revenues from the industrial and commercial market sector to remain steady
throughout the remainder of the 2008 fiscal year, but conditions in the credit
and commodities markets could affect investment in this market sector in the
2009 fiscal year.  For the remainder of the 2008 fiscal year, we
expect to continue to benefit from strong demand for the services we provide,
particularly among clients in the oil and gas and mining
industries.  Many of these clients have increased their capital
expenditures as capacity utilization has grown to meet strong demand, which has
increased demand for engineering, construction, operations and maintenance,
facility management and contract mining services.




We also
expect that revenues generated from MSAs with multinational corporations both in
the U.S. and internationally will remain steady for the remainder of fiscal year
2008.  Many of these agreements are focused on work driven by
regulatory requirements.  We do not currently anticipate that the
regulatory compliance work we perform under MSAs will be significantly affected
by declining energy prices or conditions in the credit markets.




Seasonality




We
experience seasonal trends in our business in connection with federal holidays,
such as Memorial Day, Independence Day, Thanksgiving, Christmas and New Year’s
Day.  Our revenues are typically lower during these times of the year
because many of our clients’ employees, as well as our own employees, do not
work during these holidays, resulting in fewer billable hours worked on projects
and thus lesser revenues recognized.  In addition to holidays, our
business also is affected by seasonal bad weather conditions, such as the recent
hurricanes Gustav and Ike, that occasionally cause some of our offices and
projects to temporarily reduce activities.




Other
Business Trends




The
diversification of our business and changes in the mix and timing of our
contracts, which contain various risk and profit profiles, can cause profit
margins to vary between periods.  Earnings recognition on many
contracts is measured based on progress achieved as a percentage of the total
project effort or upon the completion of milestones or performance criteria
rather than evenly or linearly over the period of performance.




BOOK
OF BUSINESS




We
determine the value of all contract awards that may potentially be recognized as
revenues or equity in income of unconsolidated affiliates over the life of the
contracts.  We categorize the value of our book of business into
backlog, designations, option years and indefinite delivery contracts, or
“IDCs,” based on the nature of the award and its current status.




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




Designations.Our
designations represent the monetary value of projects for which we have received
a notice of award from our clients, but for which we do not yet have signed
contracts or, where applicable, a notice to proceed.


45




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




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




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




The
following tables summarize our book of business:




(In
      billions)
              As of September 26, 2008
            
            TotalBacklog:Power
            
            $
            1.9Infrastructure
            
            
            2.5Industrial
      and commercial
            
            
            3.3Federal
            
            
            10.3Total
      backlog
            
            $
            18.0





(In
      billions)
              As of September 26, 2008
            
            
            URS
                Division
            
            
            EG&G
                Division
            
            
            Washington
                Division
            
            
            TotalBacklog
            
            
            $
            2.8
            
            
            $
            8.1
            
            
            $
            7.1
            
            
            $
            18.0Designations
            
            
            
            1.5
            
            
            
            —
            
            
            
            0.9
            
            
            
            2.4Option
      years
            
            
            
            0.5
            
            
            
            2.2
            
            
            
            1.1
            
            
            
            3.8Indefinite
      delivery contracts
            
            
            
            4.1
            
            
            
            2.6
            
            
            
            2.2
            
            
            
            8.9Total
      book of business
            
            
            $
            8.9
            
            
            $
            12.9
            
            
            $
            11.3
            
            
            $
            33.1




46




RESULTS
OF OPERATIONS




Consolidated




Three
      Months Ended(In
      millions, except percentages and per share amounts)
            
            September
      26,
              2008
            
            
            September
      28,
                2007
            
            
            Increase
            
            
            Percentage
      IncreaseRevenues
            
            $
            2,588.1
            
            
            $
            1,268.0
            
            
            $
            1,320.1
            
            
            
            104.1
            %Cost
      of revenues
            
            
            (2,448.7
            )
            
            
            (1,189.6
            )
            
            
            1,259.1
            
            
            
            105.8
            %General
      and administrative expenses
            
            
            (20.5
            )
            
            
            (13.0
            )
            
            
            7.5
            
            
            
            57.7
            %Equity
      in income of unconsolidated affiliates
            
            
            24.3
            
            
            
            4.3
            
            
            
            20.0
            
            
            
            465.1
            %Operating
      income
            
            
            143.2
            
            
            
            69.7
            
            
            
            73.5
            
            
            
            105.5
            %Interest
      expense
            
            
            (21.4
            )
            
            
            (2.9
            )
            
            
            18.5
            
            
            
            637.9
            %Income
      before income taxes and minority interests
            
            
            121.8
            
            
            
            66.8
            
            
            
            55.0
            
            
            
            82.3
            %Income
      tax expense
            
            
            (51.0
            )
            
            
            (27.0
            )
            
            
            24.0
            
            
            
            88.9
            %Minority
      interests in income of consolidated subsidiaries, net of
    tax
            
            
            (5.0
            )
            
            
            (1.1
            )
            
            
            3.9
            
            
            
            354.5
            %Net
      income
            
            $
            65.8
            
            
            $
            38.7
            
            
            $
            27.1
            
            
            
            70.0
            %Diluted
      earnings per share
            
            $
            .79
            
            
            $
            .73
            
            
            $
            .06
            
            
            
            8.2
            %


Three
Months Ended September 26, 2008 Compared with Three Months Ended September 28,
2007




Our consolidated revenuesfor
the three months ended September 26, 2008 increased by 104.1% compared with the
three months ended September 28, 2007.  The increase was due primarily
to the business obtained through the acquisition of WGI, which generated $1,210
million in revenues during the three months ended September 26, 2008 and a
higher volume of work performed in each of our market sectors.




The
following table presents our consolidated revenues by market sector for the
three months ended September 26, 2008 and September 28, 2007.




Three
      Months Ended(In
      millions, except percentages)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
            
            
            Increase
            
            
            Percentage
      IncreaseRevenuesPower
      sector
            
            $
            456
            
            
            $
            155
            
            
            $
            301
            
            
            
            194.2
            %Infrastructure
      sector
            
            
            444
            
            
            
            310
            
            
            
            134
            
            
            
            43.2
            %Federal
      sector
            
            
            912
            
            
            
            537
            
            
            
            375
            
            
            
            69.8
            %Industrial
      and commercial sector
            
            
            776
            
            
            
            266
            
            
            
            510
            
            
            
            191.7
            %Total
      revenues, net of eliminations
            
            $
            2,588
            
            
            $
            1,268
            
            
            $
            1,320
            
            
            
            104.1
            %


47




Revenues
from our power market sector increased $301 million or 194.2% for the three
months ended September 26, 2008 compared with the three months ended September
28, 2007.  The majority of this increase was derived from the power
business we obtained through the WGI acquisition, which generated $333 million
in revenues for the three months ended September 26, 2008.  During the
third quarter of fiscal 2008, we continued to benefit from strong demand for
engineering, procurement and construction services for both fossil fuel and
nuclear power projects.  Increased power sector revenues also reflect
continued growth in the emissions control services we provide to retrofit
coal-fired power plants with clean air technologies that reduce sulfur dioxide,
sulfur trioxide, mercury and other potentially harmful
emissions.  However, these increases were partially offset as a result
of the timing of performance under several contracts to retrofit coal-fired
power plants with emissions control technology, which were nearing completion
during the quarter.  Typically, during the close-out phase, activity
on these contracts is relatively low, resulting in lower revenues.




Revenues
from our infrastructure market sector increased $134 million or 43.2% for the
three months ended September 26, 2008 compared with the three months ended
September 28, 2007.  This increase included $90 million in revenues
for the three months ended September 26, 2008, generated by the infrastructure
business we obtained through the WGI acquisition.  For the third
quarter of fiscal 2008, increased revenues from our infrastructure market sector
were largely driven by growth in projects to expand and rehabilitate surface
transportation infrastructure, as well as from sustained demand for operations
and maintenance services for mass transit systems and toll roads.  We
also benefited from strong demand for engineering and construction services for
water resources projects, including dams, levees and other flood control
projects.  In addition, revenues increased from the services we
provide to expand and modernize educational, healthcare and government
facilities.




Revenues
from our federal market sector increased $375 million or 69.8% for the three
months ended September 26, 2008 compared with the three months ended September
28, 2007.  This increase included $295 million in revenues for the
three months ended September 26, 2008, generated by the federal government
business we obtained through the WGI acquisition.  We continued to
experience strong demand for the systems engineering and technical assistance
services we provide to the DOD to design and develop new weapons systems and
modernize aging weapons systems, and for the maintenance, repair and
modification of military vehicles, aircraft and other equipment related to
sustained U.S. military operations in the Middle East.  These results
also were driven by strong demand for the operations and installation management
services we provide at military and other government
installations.  In addition, revenues increased from our work managing
chemical demilitarization programs to eliminate chemical and biological weapons,
as well as from several large DOE contracts involving the storage, treatment and
disposal of radioactive waste.


Revenues
from our industrial and commercial market sector increased $510 million or
191.7% for the three months ended September 26, 2008, compared with the three
months ended September 28, 2007.  This increase included $491 million
in revenues for the three months ended September 26, 2008, generated by the
industrial and commercial business we obtained through the WGI
acquisition.  Revenue growth from our oil and
gas clients was a major contributor to the overall increase
in our industrial and commercial market sector.  Our oil and gas
clients continued to invest in capital improvement projects to increase oil and
gas reserves and expand production, which led to increased demand for the
engineering, environmental, procurement, construction, and operations and
maintenance services we provide.  Revenues also increased under
contracts to plan, design, develop and operate mines and metal and mineral
processing facilities both in the U.S. and
internationally.  Additionally, we continued to benefit from our
strategy of building long-term relationships with multinational corporations by
migrating from stand-alone consulting contracts to longer-term
MSAs.  MSAs have enabled us to leverage our scale and diverse service
offerings to more effectively compete for new work funded by increased capital
spending.




Our consolidated cost of
revenues, which consists of labor, subcontractor costs, and other
expenses related to projects and services provided to our clients, increased by
105.8% for the three months ended September 26, 2008, compared with the three
months ended September 28, 2007.  Because our revenues are primarily
project-based, the factors that caused revenue growth also drove a corresponding
increase in our cost of revenues.  In addition, our cost of revenues
grew at a higher rate than revenues primarily because the business we obtained
through the WGI acquisition generates lower average profit margins than our
legacy businesses.  Moreover, cost of revenues includes $12.4 million
of amortization of the intangible assets recorded in connection with the WGI
acquisition.


48




Our consolidated general and
administrativeexpenses for the three months ended September 26, 2008
increased by 57.7% compared with the three months ended September 28,
2007.  The increase was primarily due to increases in the costs of
corporate functions, as well as increases in professional services that occurred
as a result of the WGI acquisition.  However, consolidated general and
administrative expenses as a percent of revenues fell from 1.0% for the third
quarter of 2007 to 0.8% for the third quarter of 2008.




Our consolidated equity in income of
unconsolidated affiliatesfor the three months ended September 26, 2008
increased by 465.1% compared with the three months ended September 28,
2007.  This increase was primarily due to the WGI
acquisition.  Some of the businesses obtained through the WGI
acquisition perform a significant amount of work through unconsolidated joint
ventures, which are accounted for using the equity method.




Our consolidated interest
expense for the three months ended September 26, 2008 increased by 637.9%
compared with the three months ended September 28, 2007.  The increase
was due to higher debt balances as a result of the WGI acquisition.




Our effective income tax ratesfor the three months ended September 26, 2008 and September 28, 2007 were
41.9% and 40.4%, respectively.  The increase was due to several
individually immaterial differences in the forecasted rate between the periods
and to several immaterial items in the 2007 tax returns which differed from the
estimates used in the tax provision.  These differences related
primarily to an increase of permanently non-deductible meals and to taxable
operating activities outside the U.S.




Our minority interests in income of
consolidated subsidiaries, net of taxfor the three months ended
September 26, 2008 increased by 354.5% compared with the three months ended
September 28, 2007.  The increase was primarily due to the inclusion
of the consolidated subsidiaries obtained through the WGI
acquisition.




Our consolidated operating
income,net income, and earnings per shareincreased as a result
of the factors previously described, and by higher performance-based fees and
incentives on various projects performed by the Washington Division, including
earnings from a DOE nuclear waste processing facility project, and
performance-based incentive fee recognition on several EG&G
projects.  The increase in earnings per share was partially offset by
an increase in the weighted-average shares outstanding resulting from
the WGI acquisition.




49




Reporting
Segments




Three
Months Ended September 26, 2008 Compared with Three Months Ended September 28,
2007




(In
      millions, except percentages)
            
            Revenues
            
            
            Cost
      of Revenues
            
            
            General
      and Administrative Expenses
            
            
            Equity
      in Income of Unconsolidated Affiliates
            
            
            Operating
      Income (Loss)Three months ended September 26,
      2008URS
      Division
            
            $
            839.7
            
            
            $
            (782.8
            )
            
            $
            —
            
            
            $
            2.8
            
            
            $
            59.7EG&G
      Division
            
            
            606.8
            
            
            
            (566.5
            )
            
            
            —
            
            
            
            1.7
            
            
            
            42.0Washington
      Division
            
            
            1,154.8
            
            
            
            (1,112.6
            )
            
            
            —
            
            
            
            19.8
            
            
            
            62.0Eliminations
            
            
            (13.2
            )
            
            
            13.2
            
            
            
            —
            
            
            
            —
            
            
            
            —Corporate
            
            
            —
            
            
            
            —
            
            
            
            (20.5
            )
            
            
            —
            
            
            
            (20.5
            )Total
            
            $
            2,588.1
            
            
            $
            (2,448.7
            )
            
            $
            (20.5
            )
            
            $
            24.3
            
            
            $
            143.2Three months ended September 28, 2007
      (1)URS
      Division
            
            $
            801.4
            
            
            $
            (746.7
            )
            
            $
            —
            
            
            $
            2.9
            
            
            $
            57.6EG&G
      Division
            
            
            377.0
            
            
            
            (358.3
            )
            
            
            —
            
            
            
            1.4
            
            
            
            20.1Washington
      Division
            
            
            102.5
            
            
            
            (97.4
            )
            
            
            —
            
            
            
            —
            
            
            
            5.1Eliminations
            
            
            (12.9
            )
            
            
            12.8
            
            
            
            —
            
            
            
            —
            
            
            
            (0.1
            )Corporate
            
            
            —
            
            
            
            —
            
            
            
            (13.0
            )
            
            
            —
            
            
            
            (13.0
            )Total
            
            $
            1,268.0
            
            
            $
            (1,189.6
            )
            
            $
            (13.0
            )
            
            $
            4.3
            
            
            $
            69.7Increase (decrease) for the three months ended
      September 26, 2008 and September 28, 2007URS
      Division
            
            $
            38.3
            
            
            $
            36.1
            
            
            $
            —
            
            
            $
            (0.1
            )
            
            $
            2.1EG&G
      Division
            
            
            229.8
            
            
            
            208.2
            
            
            
            —
            
            
            
            0.3
            
            
            
            21.9Washington
      Division
            
            
            1,052.3
            
            
            
            1,015.2
            
            
            
            —
            
            
            
            19.8
            
            
            
            56.9Eliminations
            
            
            (0.3
            )
            
            
            (0.4
            )
            
            
            —
            
            
            
            —
            
            
            
            0.1Corporate
            
            
            —
            
            
            
            —
            
            
            
            7.5
            
            
            
            —
            
            
            
            (7.5
            )Total
            
            $
            1,320.1
            
            
            $
            1,259.1
            
            
            $
            7.5
            
            
            $
            20.0
            
            
            $
            73.5Percentage increase (decrease) for the three
      months ended September 26, 2008 and September 28,
    2007URS
      Division
            
            
            4.8
            %
            
            
            4.8
            %
            
            
            —
            
            
            
            (3.4
            %)
            
            
            3.6
            %EG&G
      Division
            
            
            61.0
            %
            
            
            58.1
            %
            
            
            —
            
            
            
            21.4
            %
            
            
            109.0
            %Washington
      Division
            
            
            1,026.6
            %
            
            
            1,042.3
            %
            
            
            —
            
            
            
            100
            %
            
            
            1,115.7
            %Eliminations
            
            
            2.3
            %
            
            
            3.1
            %
            
            
            —
            
            
            
            —
            
            
            
            (100.0
            %)Corporate
            
            
            —
            
            
            
            —
            
            
            
            57.7
            %
            
            
            —
            
            
            
            57.7
            %Total
            
            
            104.1
            %
            
            
            105.8
            %
            
            
            57.7
            %
            
            
            465.1
            %
            
            
            105.5
            %




(1)
            We revised and conformed the prior period’s amounts to our
      current year’s segment presentation.  Because the Washington
      Division did not exist as one of our divisions before November 15, 2007,
      the amounts presented for the three months ended September 28, 2007 are
      not comparable to the results for the three months ended September 26,
      2008, and are comprised of the amounts that represent the result of the
      realignment of our operations among our divisions as discussed
      previously.


50


URS
Division




The URS Division’s revenues
for the three months ended September 26, 2008 increased 4.8% (prior to
elimination of interdivisional transactions) compared with the three months
ended September 28, 2007.  The increase in revenues was due to the
various factors discussed below.




The
following table presents the URS Division’s revenues, net of inter-company
eliminations, by market sector for the three months ended September 26, 2008 and
September 28, 2007.




Three
      Months Ended(In
      millions, except percentages)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
            
            
            Increase/
                (Decrease)
            
            
            Percentage
      Increase/
                (Decrease)RevenuesPower
      sector
            
            $
            53
            
            
            $
            83
            
            
            $
            (30
            )
            
            
            (36.1
            %)Infrastructure
      sector
            
            
            361
            
            
            
            307
            
            
            
            54
            
            
            
            17.6
            %Federal
      sector
            
            
            140
            
            
            
            153
            
            
            
            (13
            )
            
            
            (8.5
            %)Industrial
      and commercial sector
            
            
            280
            
            
            
            255
            
            
            
            25
            
            
            
            9.8
            %Total revenues, net of
      eliminations
            
            $
            834
            
            
            $
            798
            
            
            $
            36
            
            
            
            4.5
            %




The URS
Division’s revenues from our power market sector decreased $30 million or 36.1%
for the three months ended September 26, 2008 compared with the three months
ended September 28, 2007.  This decrease was related to several
factors associated with the realignment of our Advatech joint venture from the
URS Division to the Washington Division.  This realignment is
discussed above in the “Business Summary” section of this
report.  While the majority of the work Advatech performs retrofitting
coal-fired power plants with emission control technology was moved to the
Washington Division, several projects were retained in the URS
Division.  In the third quarter of fiscal 2008, these projects were in
the close-out phase, which is characterized by relatively low project
activity.  As a result, these projects generated lower revenues than
in the comparable period in 2007 when there was a high level of construction and
procurement activity.  In addition, while these emissions control
projects near completion, new emission control work performed by Advatech, as
well as engineering support for these projects, were being executed by the
Washington Division.  This decline in revenues from emissions control
work was partially offset by an increase in revenues from the engineering,
process design and environmental services provided by the URS Division during
the quarter for power generating and transmission facilities.




The URS
Division’s revenues from our infrastructure market sector increased $54 million
or 17.6% for the three months ended September 26, 2008 compared with the three
months ended September 28, 2007.  These results reflect increased
revenues from contracts to expand and rehabilitate surface transportation
infrastructure.  Demand also was strong for engineering and
construction services for water resources projects involving dams, levees and
other flood control projects.  While many state and local governments
are experiencing reduced tax revenues and budget deficits, other sources of
funding for infrastructure work, such as funding from the U.S. federal
government and proceeds from bond sales, continued to support growth in this
market sector.  In addition, revenues increased from the services we
provide for capital improvement programs involving educational, health care and
government facilities.




The URS
Division’s revenues from our federal market sector decreased $13 million or 8.5%
for the three months ended September 26, 2008 compared with the three months
ended September 28, 2007.  During the third quarter, we continued to
experience sustained demand for the engineering, construction and environmental
services we provide to the DOD both in the U.S. and internationally under
existing and new contract awards.  Many of these assignments support
long-term DOD initiatives like the BRAC program, which is designed to realign
military bases and redeploy troops to meet the security needs of the post-Cold
War era.  However, the URS Division’s revenues from the federal market
sector declined compared to the same period last year, primarily due to a high
level of activity on a design-build project for an aircraft corrosion-control
hangar, which generated significant revenue growth in the third quarter of 2007.
By the third quarter of 2008, work on this project was completed and, thus, did
not generate revenues.




51


The URS
Division’s revenues from our industrial and commercial sector increased $25
million or 9.8% for the three months ended September 26, 2008 compared with the
three months ended September 28, 2007.  In the third quarter of fiscal
2008, we continued to benefit from increased capital investment by oil and gas
clients on projects to expand production of energy resources to meet growing
global demand.  As a result, we experienced increased demand for the
environmental, design, process engineering and construction services we provide
to these clients.  Strong demand for metals and mineral resources also
resulted in higher revenues from the work we performed for clients in the mining
industry.  In addition, we continued to benefit from our strategy of
building long-term relationships with multinational corporations under
MSAs.  MSAs have enabled us to migrate from stand-alone consulting
contracts, reducing the marketing expenses associated with pursuing these
assignments while improving our labor utilization levels.




The URS Division’s operating
income for the three months ended September 26, 2008 increased 3.6%
compared with the three months ended September 28, 2007.  The increase
was primarily due to an increase in revenue volume previously
described.  The remainder of the increase in operating income was
caused by decreases in other direct costs as the emissions control projects were
near completion.




EG&G
Division




The EG&G Division’srevenues, which are included
in our federal market sector, for the three months ended September 26, 2008
increased by $230 million or 61.0% (prior to elimination of interdivisional
transactions) compared with the three months ended September 28, 2007.  The
majority of this increase was due to the transfer to the EG&G Division of
the DOD business obtained through the WGI acquisition.




For the
third quarter, we benefited from strong demand for the operations and
maintenance services we provide to the DOD related to military activity in the
Middle East, including work performed under large, bundled contracts to modify
and refurbish military vehicles, aircraft and other equipment returning from and
being deployed to the Middle East.  Revenues also increased from the
specialized systems engineering and technical assistance services that we
provide for the development, testing and evaluation of new weapons systems and
the modernization of aging weapons systems.  In addition, we
experienced strong demand for operations and installations management support at
military installations and other government facilities.  These results
also reflect strong demand during the quarter for global threat reduction
services.  For example, revenues increased from contracts to manage
chemical demilitarization programs because of higher activity under these
contracts and the timing of several performance-based award fees.




The EG&G Division’s operating
income for the three months ended September 26, 2008 increased 109.0%
compared with the three months ended September 28, 2007.  The increase
was primarily a result of the inclusion of the DOD business obtained from the
WGI acquisition as described above.  The increase was partially offset
by $2.8 million of amortization of the intangible assets recorded in connection
with the WGI acquisition.




Washington
Division




For the
three months ended September 26, 2008, the Washington Division generated $1,155
million in revenues (prior to elimination of interdivisional transactions), of
which $92 million was generated by operations transferred to the Washington
Division from the URS and EG&G Divisions in connection with the realignment
of businesses discussed previously.  The operations transferred to the
Washington Division generated $103 million (prior to elimination of
interdivisional transactions) of revenues during the comparable period in fiscal
2007.


52


The
following table presents the Washington Division’s revenues, net of
inter-company eliminations, by market sector for the three months ended
September 26, 2008 and September 28, 2007.




Three
      Months Ended(In
      millions, except percentages)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
      (1)
            
            
            Increase
            
            
            Percentage
      increaseRevenuesPower
      sector
            
            $
            403
            
            
            $
            72
            
            
            $
            331
            
            
            
            459.7
            %Infrastructure
      sector
            
            
            83
            
            
            
            3
            
            
            
            80
            
            
            
            2,666.7
            %Federal
      sector
            
            
            166
            
            
            
            8
            
            
            
            158
            
            
            
            1,975.0
            %Industrial
      and commercial sector
            
            
            496
            
            
            
            11
            
            
            
            485
            
            
            
            4,409.1
            %Total revenues, net of
      eliminations
            
            $
            1,148
            
            
            $
            94
            
            
            $
            1,054
            
            
            
            1,121.3
            %




(1)
            We
      revised and conformed the prior period’s amounts to our current year’s
      segment presentation.  Because the Washington Division did not
      exist as one of our divisions before November 15, 2007, the amounts
      presented for the third quarter of fiscal 2007 are not comparable to the
      results for the third quarter of fiscal 2008, and are comprised of the
      amounts that represent the result of the realignment of our operations
      among our divisions as discussed previously.




The Washington Division’s
revenues were driven primarily by strong growth in the power and
industrial and commercial sectors.  The power sector experienced
strong growth in emissions control projects and in projects to expand generating
capacity at fossil fuel and nuclear power plants.  Revenues generated
from the industrial and commercial sector were primarily related to continued
growth in oil, gas and chemical projects, increased activities on a cement plant
construction project and increased demand for the contract mining services we
provide.  In the infrastructure market sector, revenues were generated
by the engineering, construction, and operations and maintenance services we
provide for highways, toll roads, airports and rail transit systems, as well as
by activity on a dam construction project.  Revenues generated in the
federal sector were primarily related to a high level of activity on contracts
with the DOE to manage complex programs and facilities involving the treatment,
storage and disposal of radioactive waste.




The Washington Division’s equity in
income of unconsolidated affiliateswas $19.8 million for the three
months ended September 26, 2008.  The Washington Division performs a
substantial portion of its operations through joint ventures and other partially
owned entities that are not consolidated.  The more significant
unconsolidated entities include our interests in i) an incorporated mining
venture in Germany – MIBRAG mbH (“MIBRAG”), a company that operates lignite coal
mines and power plants; ii) a joint venture that performs steam generator and
reactor vessel head replacements at nuclear power plants; iii) various joint
ventures that perform management contracts for the DOE; and iv) various joint
ventures that participate in infrastructure projects.  These entities
are accounted for using the equity method of accounting; accordingly, their
revenues are not recorded; instead, our portion of the earnings from these
entities are recorded as equity in income of unconsolidated
affiliates.  The related overhead expenses incurred by the Washington
Division in supporting these unconsolidated affiliates have been classified as
cost of revenues in the accompanying financial statements and footnote
disclosures.




53




The Washington Division’s operating
income for the three months ended September 26, 2008 of $62.0 million
includes $9.6 million of amortization of intangible assets and a $2.8 million
charge to earnings as a result of an adjustment to the normal profit liability
recognized in connection with the WGI acquisition.  (See Note 2,
“Acquisition” to our “Condensed Consolidated Financial Statements” included
under Part I – Item 1 of this report for additional
disclosure.)  Operating income for the three months ended September
26, 2008 reflects earnings associated with the increased revenues discussed
above as well as higher performance based fees and incentives on various
projects, including $17.7 million of earnings on a DOE nuclear waste processing
facility construction project as a result of a firm offer by the DOE to modify
the overall fee and structure.  The higher earnings were partially
offset by a charge of $15.0 million on an oil and gas construction project that
has experienced cost increases and schedule delays.  (See Common Sulfur Project under
Note 9, “Commitments and Contingencies” to our “Condensed Consolidated Financial
Statements” included under Part 1 – Item 1 of this report for additional
disclosure.)




Consolidated





Nine
      Months Ended(In
      millions, except percentages and per share amounts)
            
            September
      26,
              2008
            
            
            September
      28,
                2007
            
            
            Increase
            
            
            Percentage
      IncreaseRevenues
            
            $
            7,378.1
            
            
            $
            3,643.6
            
            
            $
            3,734.5
            
            
            
            102.5
            %Cost
      of revenues
            
            
            (7,008.5
            )
            
            
            (3,418.2
            )
            
            
            3,590.3
            
            
            
            105.0
            %General
      and administrative expenses
            
            
            (57.1
            )
            
            
            (40.6
            )
            
            
            16.5
            
            
            
            40.6
            %Equity
      in income of unconsolidated affiliates
            
            
            81.0
            
            
            
            11.0
            
            
            
            70.0
            
            
            
            636.4
            %Operating
      income
            
            
            393.5
            
            
            
            195.8
            
            
            
            197.7
            
            
            
            101.0
            %Interest
      expense
            
            
            (70.1
            )
            
            
            (10.9
            )
            
            
            59.2
            
            
            
            543.1
            %Income
      before income taxes and minority interests
            
            
            323.4
            
            
            
            184.9
            
            
            
            138.5
            
            
            
            74.9
            %Income
      tax expense
            
            
            (136.0
            )
            
            
            (76.0
            )
            
            
            60.0
            
            
            
            78.9
            %Minority
      interests in income of consolidated subsidiaries, net of
    tax
            
            
            (12.8
            )
            
            
            (3.0
            )
            
            
            9.8
            
            
            
            326.7
            %Net
      income
            
            $
            174.6
            
            
            $
            105.9
            
            
            $
            68.7
            
            
            
            64.9
            %Diluted
      earnings per share
            
            $
            2.11
            
            
            $
            2.01
            
            
            $
            .10
            
            
            
            5.0
            %




Nine
Months Ended September 26, 2008 Compared with Nine Months Ended September 28,
2007




Our consolidated revenuesfor
the nine months ended September 26, 2008 increased by 102.5% compared with the
nine months ended September 28, 2007.  The increase was due primarily
to the business obtained through the acquisition of WGI, which generated $3,284
million in revenues during the nine months ended September 26, 2008 and a higher
volume of work performed in each of our market sectors.




54




The
following table presents our consolidated revenues by market sector for the nine
months ended September 26, 2008 and September 28, 2007.




Nine
      Months Ended(In
      millions, except percentages)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
            
            
            Increase
            
            
            Percentage
      IncreaseRevenuesPower
      sector
            
            $
            1,363
            
            
            $
            463
            
            
            $
            900
            
            
            
            194.4
            %Infrastructure
      sector
            
            
            1,317
            
            
            
            917
            
            
            
            400
            
            
            
            43.6
            %Federal
      sector
            
            
            2,564
            
            
            
            1,508
            
            
            
            1,056
            
            
            
            70.0
            %Industrial
      and commercial sector
            
            
            2,134
            
            
            
            756
            
            
            
            1,378
            
            
            
            182.3
            %Total
      revenues, net of eliminations
            
            $
            7,378
            
            
            $
            3,644
            
            
            $
            3,734
            
            
            
            102.5
            %




Revenues
from our power market sector increased $900 million or 194.4% for the nine
months ended September 26, 2008, compared with the nine months ended September
28, 2007.  The majority of this increase was derived from the power
business we obtained through the WGI acquisition, which generated $946 million
in revenues for the nine months ended September 26, 2008.  We
continued to benefit from strong demand for engineering, procurement and
construction services for both fossil fuel and nuclear power projects to
increase power plant generating capacity to meet the increased demand for
electricity.  Revenues also increased from a contract to provide
construction services for a new uranium enrichment facility, the first
commercial nuclear facility to be licensed by the U.S. Nuclear Regulatory
Commission in more than three decades.  These results also reflect
strong demand among operators of coal-fired power plants for the emissions
control services we provide to retrofit facilities with clean air
technologies.  These technologies reduce sulfur dioxide, nitrogen
oxides, mercury and other harmful emissions in compliance with environmental
regulations.




Revenues
from our infrastructure market sector increased $400 million or 43.6% for the
nine months ended September 26, 2008 compared with the nine months ended
September 28, 2007.  This increase included $277 million in revenues
for the nine months ended September 26, 2008, generated by the infrastructure
business we obtained through the WGI acquisition.  Revenues increased
from new and ongoing contracts to provide program management, planning, design,
engineering, construction and construction management services for a variety of
surface transportation projects.  In addition, we experienced
sustained demand for the operations and maintenance services we provide for mass
transit systems and toll roads.  Our work providing engineering and
construction services to expand and upgrade water supply, distribution and
treatment systems, as well as for dams, levees and other flood control projects,
also generated increased revenues for the nine months ended September 26,
2008.  Another area of growth was the program and construction
services we provide for capital improvement projects involving educational,
healthcare and government facilities.




Revenues
from our federal market sector increased $1,056 million or 70.0% for the nine
months ended September 26, 2008 compared with the nine months ended September
28, 2007.  This increase included $764 million in revenues for the
nine months ended September 26, 2008, generated by the federal government
business we obtained through the WGI acquisition.  These results
reflect increased revenues from the systems engineering and technical assistance
services we provide to the DOD to design and develop new weapons systems and to
modernize aging weapons systems.  We also benefited from strong demand
for the operations and maintenance services we provide to maintain, repair and
refurbish military vehicles, aircraft and other equipment related to sustain
U.S. military operations in the Middle East.  Revenues also increased
from our work managing chemical demilitarization programs to eliminate chemical
and biological weapons and from several large DOE contracts involving the
storage, treatment and disposal of radioactive waste. In addition, we
experienced sustained demand for the engineering, construction and environmental
services we provide at military and other government installations worldwide, as
well as from the operations and installations management support we provide at
these facilities.




55


Revenues
from our industrial and commercial market sector increased $1,378 million or182.3% for the nine months
ended September 26, 2008, compared with the nine months ended September 28,
2007.  This increase includes $1,296 million in revenues for the nine
months ended September 26, 2008, generated by the industrial and commercial
business we obtained through the WGI acquisition.  Revenue
growth from our oil and gas clients was a significant contributor
to the overall increase in our industrial and commercial market
sector.  Our oil and gas clients continued to invest in capital
improvement projects, which led to increased demand for environmental, design,
process engineering and construction services.  In addition, we
experienced strong demand for the services we provide to plan, design, develop
and operate mines and related processing facilities in the U.S. and
internationally, driven by global demand for metal and mineral
resources.  These results also reflect strong demand for facility
management services among our manufacturing clients, as well as our ongoing
success in expanding long-term relationships with multinational corporations
under MSAs.  MSAs have enabled us to migrate from stand-alone
consulting contracts, reducing the marketing expenses associated with pursuing
these assignments while improving our labor utilization levels.




Our consolidated cost of
revenues, which consists of labor, subcontractor costs, and other
expenses related to projects and services provided to our clients, increased by
105.0% for the nine months ended September 26, 2008, compared with the nine
months ended September 28, 2007.  Because our revenues are primarily
project-based, the factors that caused revenue growth also drove a corresponding
increase in our cost of revenues.  In addition, cost of revenues grew
at a higher rate than revenues primarily because the business we obtained
through the WGI acquisition generates lower average profit margins than our
legacy businesses.  Moreover, cost of revenues included $38.9 million
of amortization of the intangible assets recorded in connection with the WGI
acquisition.




Our consolidated general and
administrativeexpenses for the nine months ended September 26, 2008
increased by 40.6% compared with the nine months ended September 28,
2007.  The increase was primarily due to increases in the cost of
corporate functions, as well as increases in professional services that occurred
as a result of the WGI acquisition.  However, consolidated general and
administrative expenses as a percent of revenues fell from 1.1% for the nine
months ended September 28, 2007 to 0.8% for the nine months ended September 26,
2008.




Our consolidated equity in income of
unconsolidated affiliatesfor the nine months ended September 26, 2008
increased by 636.4% compared with the nine months ended September 28,
2007.  This increase was primarily due to the WGI
acquisition.  Some of the businesses we obtained through the WGI
acquisition perform a significant amount of work through unconsolidated joint
ventures, which are accounted for using the equity method.




Our consolidated interest
expense for the nine months ended September 26, 2008 increased by 543.1%
compared with the nine months ended September 28, 2007.  The increase
was primarily due to higher debt balances as a result of the WGI
acquisition.




Oureffective income tax ratesfor the nine months ended September 26, 2008 and September 28, 2007 were
42.1% and 41.1%, respectively.  The increase was due to several
individually immaterial differences in the forecasted rate between the periods
and to several immaterial items in the 2007 tax returns which differed from the
estimates used in the tax provision.  These differences related primarily
to an increase of permanently non-deductible meals and to taxable operating
activities outside the U.S.




Our minority interests in income of
consolidated subsidiaries, net of taxfor the nine months ended September
26, 2008 increased by 326.7% compared with the nine months ended September 28,
2007.  The increase was primarily due to the inclusion of the
consolidated subsidiaries obtained through the WGI acquisition.




Our consolidated operating income,
net income and earnings per shareincreased as a result
of the factors previously described, and by higher performance-based fees and
incentives on various projects performed by the Washington Division, including
earnings from a DOE nuclear waste processing facility project, and
performance-based incentive fee recognition on several EG&G
projects.  The increase in earnings per share was partially offset by
an increase in the weighted-average shares outstanding resulting from the
WGI acquisition.




56




Reporting
Segments




Nine
Months Ended September 26, 2008 Compared with Nine Months Ended September 28,
2007




(In
      millions, except percentages)
            
            Revenues
            
            
            Cost
      of Revenues
            
            
            General
      and Administrative Expenses
            
            
            Equity
      in Income of Unconsolidated Affiliates
            
            
            Operating
      Income (Loss)Nine months ended September 26,
      2008URS
      Division
            
            $
            2,546.4
            
            
            $
            (2,369.4
            )
            
            $
            —
            
            
            $
            7.1
            
            
            $
            184.1EG&G
      Division
            
            
            1,732.2
            
            
            
            (1,636.5
            )
            
            
            —
            
            
            
            5.3
            
            
            
            101.0Washington
      Division
            
            
            3,137.6
            
            
            
            (3,040.7
            )
            
            
            —
            
            
            
            68.6
            
            
            
            165.5Eliminations
            
            
            (38.1
            )
            
            
            38.1
            
            
            
            —
            
            
            
            —
            
            
            
            —Corporate
            
            
            —
            
            
            
            —
            
            
            
            (57.1
            )
            
            
            —
            
            
            
            (57.1
            )Total
            
            $
            7,378.1
            
            
            $
            (7,008.5
            )
            
            $
            (57.1
            )
            
            $
            81.0
            
            
            $
            393.5Nine months ended September 28, 2007
      (1)URS
      Division
            
            $
            2,330.7
            
            
            $
            (2,171.7
            )
            
            $
            —
            
            
            $
            6.9
            
            
            $
            165.9EG&G
      Division
            
            
            1,085.4
            
            
            
            (1,032.3
            )
            
            
            —
            
            
            
            4.1
            
            
            
            57.2Washington
      Division
            
            
            270.6
            
            
            
            (256.5
            )
            
            
            —
            
            
            
            —
            
            
            
            14.1Eliminations
            
            
            (43.1
            )
            
            
            42.3
            
            
            
            —
            
            
            
            —
            
            
            
            (0.8
            )Corporate
            
            
            —
            
            
            
            —
            
            
            
            (40.6
            )
            
            
            —
            
            
            
            (40.6
            )Total
            
            $
            3,643.6
            
            
            $
            (3,418.2
            )
            
            $
            (40.6
            )
            
            $
            11.0
            
            
            $
            195.8Increase (decrease) for the nine months ended
      September 26, 2008 and September 28, 2007URS
      Division
            
            $
            215.7
            
            
            $
            197.7
            
            
            $
            —
            
            
            $
            0.2
            
            
            $
            18.2EG&G
      Division
            
            
            646.8
            
            
            
            604.2
            
            
            
            —
            
            
            
            1.2
            
            
            
            43.8Washington
      Division
            
            
            2,867.0
            
            
            
            2,784.2
            
            
            
            —
            
            
            
            68.6
            
            
            
            151.4Eliminations
            
            
            5.0
            
            
            
            4.2
            
            
            
            —
            
            
            
            —
            
            
            
            0.8Corporate
            
            
            —
            
            
            
            —
            
            
            
            16.5
            
            
            
            —
            
            
            
            (16.5
            )Total
            
            $
            3,734.5
            
            
            $
            3,590.3
            
            
            $
            16.5
            
            
            $
            70.0
            
            
            $
            197.7Percentage increase (decrease) for the nine months
      ended September 26, 2008 and September 28, 2007URS
      Division
            
            
            9.3
            %
            
            
            9.1
            %
            
            
            —
            
            
            
            2.9
            %
            
            
            11.0
            %EG&G
      Division
            
            
            59.6
            %
            
            
            58.5
            %
            
            
            —
            
            
            
            29.3
            %
            
            
            76.6
            %Washington
      Division
            
            
            1,059.5
            %
            
            
            1,085.5
            %
            
            
            —
            
            
            
            100
            %
            
            
            1,073.8
            %Eliminations
            
            
            (11.6
            %)
            
            
            (9.9
            %)
            
            
            —
            
            
            
            —
            
            
            
            (100.0
            %)Corporate
            
            
            —
            
            
            
            —
            
            
            
            40.6
            %
            
            
            —
            
            
            
            40.6
            %Total
            
            
            102.5
            %
            
            
            105.0
            %
            
            
            40.6
            %
            
            
            636.4
            %
            
            
            101.0
            %




(1)
            We
      revised and conformed the prior period’s amounts to our current year’s
      segment presentation.  Because the Washington Division did not
      exist as one of our divisions before November 15, 2007, the amounts
      presented for the nine months ended September 28, 2007 are not comparable
      to the results for the nine months ended September 26, 2008, and are
      comprised of the amounts that represent the result of the realignment of
      our operations among our divisions as discussed
  previously.


57


URS
Division




The URS Division’s revenues
for the nine months ended September 26, 2008 increased $215.7 million or 9.3%
(prior to elimination of interdivisional transactions) compared with the nine
months ended September 28, 2007.  The increase in revenues was due to
the various factors discussed below.




The
following table presents the URS Division’s revenues, net of inter-company
eliminations, by market sector for the nine months ended September 26, 2008 and
September 28, 2007.




Nine
      Months Ended(In
      millions, except percentages)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
            
            
            Increase/
                (Decrease)
            
            
            Percentage
      Increase/
                (Decrease)RevenuesPower
      sector
            
            $
            202
            
            
            $
            270
            
            
            $
            (68
            )
            
            
            (25.2
            %)Infrastructure
      sector
            
            
            1,063
            
            
            
            912
            
            
            
            151
            
            
            
            16.6
            %Federal
      sector
            
            
            444
            
            
            
            400
            
            
            
            44
            
            
            
            11.0
            %Industrial
      and commercial sector
            
            
            823
            
            
            
            741
            
            
            
            82
            
            
            
            11.1
            %Total revenues, net of
      eliminations
            
            $
            2,532
            
            
            $
            2,323
            
            
            $
            209
            
            
            
            9.0
            %




The URS
Division’s revenues from our power market sector decreased $68 million or 25.2%
for the nine months ended September 26, 2008 compared with the nine months ended
September 28, 2007.  This decrease was related to several factors
associated with the realignment of our Advatech joint venture from the URS
Division to the Washington Division.  This realignment is discussed
above in the “Business Summary” section of this report.  While the
majority of the work Advatech performs retrofitting coal-fired power plants with
emission control technology was moved to the Washington Division, several
projects were retained in the URS Division.  In the third quarter of
fiscal 2008, these projects were in the close-out phase, which is characterized
by relatively low project activity.  As a result, these projects
generated lower revenues than in the comparable period in 2007 when there was a
high level of construction and procurement activity.  In addition,
while these emissions control projects near completion, new emission control
work performed by Advatech, as well as engineering support for these projects,
were being executed by the Washington Division.  This decline in
revenues from emissions control work was partially offset by an increase in
revenues from the engineering, process design and environmental services
provided by the URS Division during the nine months ended September 26, 2008 for
power generating and transmission facilities.




The URS
Division’s revenues from our infrastructure market sector increased $151 million
or 16.6% for the nine months ended September 26, 2008 compared with the nine
months ended September 28, 2007.  Revenues increased from improvement
projects to expand and rehabilitate surface and rail transportation
systems.  We also experienced high demand for the engineering and
construction services we provide for water resources projects involving dams,
levees and other flood control projects.  While many state and local
governments experienced reduced tax revenues and budget deficits, other sources
of funding for infrastructure work, such as funding from the U.S. federal
government and bond sales continued to support growth in this market
sector.  We also generated increased revenues from the program and
construction management services we provide for capital improvement projects
involving schools, healthcare facilities and government buildings.




The URS
Division’s revenues from our federal market sector increased $44 million or
11.0% for the nine months ended September 26, 2008 compared with the nine months
ended September 28, 2007.  During this period, we experienced steady
growth in infrastructure, environmental and facilities projects we performed for
the DOD both in the U.S. and internationally under existing and new contract
awards.  Many of these assignments supported long-term DOD initiatives
like the BRAC program, which is designed to realign military bases and redeploy
troops to meet the security needs of the post-Cold War era.  We also
experienced an increase in task orders under large, bundled contracts to provide
engineering, construction and technical services worldwide in support of DOD
contingency operations as part of the Global War on Terror.  Revenues
from homeland security projects also contributed to federal sector growth, as we
continued to provide engineering services to the DHS in support of security
preparedness and disaster response initiatives.




58


The URS
Division’s revenues from our industrial and commercial sector increased $82
million or 11.1% for the nine months ended September 26, 2008 compared with the
nine months ended September 28, 2007.  A major contributor to this
increase was growth in revenues from clients in the oil and gas
industry.  Our oil and gas clients continued to invest in capital
projects to increase oil and gas reserves and production capacity, which led to
increased demand for the environmental, design, process engineering and
construction services we provide.  Revenues also increased from
projects for mining clients as they continued to expand their operations to meet
global demand for mineral resources.  In addition, we continued to
expand long-term relationships with our multinational corporations under
MSAs.  MSAs have enabled us to migrate from stand-alone consulting
contracts, reducing the marketing expenses associated with pursuing these
assignments while improving our labor utilization levels.




The URS Division’s operating
income for the nine months ended September 26, 2008 increased 11.0%
compared with the nine months ended September 28, 2007.  The increase
was primarily due to an increase in revenue volume previously
described.  The remainder of the increase was caused by increased
levels of labor utilization.




EG&G
Division




The EG&G Division’s
revenues, from our federal market sector, for the nine months ended
September 26, 2008 increased by $646.8 million or 59.6% (prior to
elimination of interdivisional transactions) compared with the nine months ended
September 28, 2007.  The majority of this increase reflects the
transfer of the DOD business obtained through the WGI acquisition to the
EG&G Division.




For the
nine months ended September 26, 2008, revenues increased from the operations and
maintenance services we provide to the DOD related to military activity in the
Middle East.  These services include the maintenance, repair and
modification of military vehicles, aircraft and other equipment returning from
and being deployed to Iraq.  We also experienced strong demand for the
specialized systems engineering and technical assistance services that we
provide for the development, testing and evaluation of new weapons systems and
the modernization of aging weapons systems, as well as for the flight training
we conduct for the U.S. armed forces and NATO allies.




Demand
also was strong for our global threat reduction services, including the
management of chemical demilitarization programs to destroy chemical and
biological weapons of mass destruction and the engineering, technical,
procurement and construction services we provide for international border
security projects.  Additionally, we generated increased revenues from
our work providing operations and logistics management support at military
installations and other government facilities.




The EG&G Division’s operating
income for the nine months ended September 26, 2008 increased 76.6%
compared with the nine months ended September 28, 2007.  The increase
was primarily a result of the inclusion of the DOD business obtained through the
WGI acquisition as described above.  The increase was partially offset
by $12.1 million of amortization of the intangible assets established through
the WGI acquisition.




Washington
Division




For the
nine months ended September 26, 2008, the Washington Division generated $3,138
million in revenues (prior to elimination of interdivisional transactions), of
which $284 million was generated by operations transferred to the Washington
Division from the URS and EG&G Divisions in connection with the realignment
of businesses discussed previously.  The operations transferred to the
Washington Division generated $271 million of revenues (prior to elimination of
interdivisional transactions) during the comparable period in fiscal
2007.




59


The
following table presents the Washington Division’s revenues, net of
inter-company eliminations, by market sector for the nine months ended September
26, 2008 and September 28, 2007.




Nine
      Months Ended(In
      millions, except percentages)
            
            September
      26,
                2008
            
            
            September
      28,
                2007
      (1)
            
            
            Increase
            
            
            Percentage
      increaseRevenuesPower
      sector
            
            $
            1,161
            
            
            $
            193
            
            
            $
            968
            
            
            
            501.6
            %Infrastructure
      sector
            
            
            254
            
            
            
            5
            
            
            
            249
            
            
            
            4,980.0
            %Federal
      sector
            
            
            390
            
            
            
            26
            
            
            
            364
            
            
            
            1,400.0
            %Industrial
      and commercial sector
            
            
            1,311
            
            
            
            15
            
            
            
            1,296
            
            
            
            8,640.0
            %Total revenues, net of
      eliminations
            
            $
            3,116
            
            
            $
            239
            
            
            $
            2,877
            
            
            
            1,203.8
            %




(1)
            We
      revised and conformed the prior period’s amounts to our current year’s
      segment presentation.  Because the Washington Division did not
      exist as one of our divisions before November 15, 2007, the amounts
      presented for the third quarter of fiscal 2007 are not comparable to the
      results for the third quarter of fiscal 2008, and are comprised of the
      amounts that represent the result of the realignment of our operations
      among our divisions as discussed
previously.




The Washington Division’s
revenues for the nine months ended September 26, 2008 were primarily
driven by strong growth in the power sector in emissions control projects,
nuclear power plant modification projects and a construction project for a new
uranium enrichment facility.  Revenues generated from the industrial
and commercial sector were primarily related to increased activities on a cement
plant construction project, continued growth on oil, gas and chemical projects,
and increased demand for the contract mining services we provide.  In
the infrastructure market sector, our revenues were generated by the
engineering, construction, and operations and maintenance services we provide
for highways, toll roads, airports and rail transit systems, as well as by
activity on a dam construction project.  Revenues generated in the
federal sector were primarily related to contracts with the DOE to manage
complex programs and facilities involving the treatment, storage and disposal of
radioactive waste.




The Washington Division’s equity in
income of unconsolidated affiliateswas $68.6 million for the nine months
ended September 26, 2008.  The Washington Division performs a
substantial portion of its operations through joint ventures and other partially
owned entities that are not consolidated.  The more significant
unconsolidated entities include our interests in i) an incorporated mining
venture in Germany – MIBRAG, a company that operates lignite coal mines and
power plants; ii) a joint venture that performs steam generator and reactor
vessel head replacements at nuclear power plants; iii) various joint ventures
that perform management contracts for the DOE; and iv) various joint ventures
that participate in infrastructure projects.  These entities are
accounted for using the equity method of accounting.  Accordingly,
their revenues are not recorded; instead, our portion of the earnings from these
entities are recorded as equity in income of unconsolidated
affiliates.  The related overhead expenses incurred by the Washington
Division in supporting these unconsolidated affiliates have been classified as
cost of revenues in the accompanying financial statements and footnote
disclosures.




The Washington Division’s operating
income for the nine months ended September 26, 2008 of $165.5 million
includes $26.8 million of amortization of intangible assets, partially offset by
$5.8 million of normal profit recognition on unfavorable contracts established
through the WGI acquisition.  (See Note 2, “Acquisition” to our
“Condensed Consolidated Financial Statements” included under Part I – Item 1 of
this report for additional disclosure.)  Operating income for the nine
months ended September 26, 2008 reflects earnings associated with the increased
revenues discussed above as well as earning higher performance-based fees and
incentives on various projects, including $17.7 million of earnings on a DOE
nuclear waste processing facility construction project as a result of a firm
offer by the DOE to modify the overall fee and structure.  The higher
earnings were partially offset by charges of $27.9 million on an oil and gas
construction project that has experienced cost increases and schedule
delays.  (See Common
Sulfur Project under Note 9, “Commitments and Contingencies” to our
“Condensed Consolidated Financial Statements” included under Part I – Item 1 of
this report for additional disclosure.)




60




LIQUIDITY AND CAPITAL RESOURCES




Nine
      Months Ended(In
      millions)
            
            September
      26,
                2008
            
            
            September
      28,
                2007Cash
      flows from operating activities
            
            $
            263.1
            
            
            $
            148.9Cash
      flows from investing activities
            
            
            (106.6
            )
            
            
            (28.7
            )Cash
      flows from financing activities
            
            
            (191.4
            )
            
            
            (68.5
            )




During
the nine months ended September 26, 2008, our primary sources of liquidity were
cash flows from operating activities.  Our primary uses of cash were
to fund our working capital and capital expenditures and to make mandatory and
advanced payments on our debt.  We believe that we have sufficient
resources to fund our operating and capital expenditure requirements, as well as
service our debt, for the next twelve months and beyond.  The global
economic turmoil caused by the decline in the housing market and constraints in
the credit market have had a significant adverse impact on a number of financial
institutions.  At this point in time, our liquidity has not been
materially impacted by the current credit environment.  We cannot
predict with any certainty the future impact any disruption in the credit
environment may have on our liquidity; however, we will continue to closely
monitor the effects of the credit markets on our liquidity.  If we
experience a significant change in our business that requires dramatically more
liquid capital, we would need to acquire additional sources of financing. 
Although no assurance can be given, especially in light of the current weak
conditions of the credit market, we expect that we will be able to obtain
adequate resources to address significant changes in our business at reasonable
rates and terms.




Billings
and collections on accounts receivable can affect our operating cash
flows.  Our management has placed significant emphasis on collection
efforts, has assessed the adequacy of our allowance for doubtful accounts
receivable as of September 26, 2008 and has deemed it to be adequate; however,
economic and other conditions may adversely impact some of our clients’ ability
or timeliness in paying our bills.  Consequently, it may also affect
our ability to consistently collect cash from our clients and meet our operating
needs.  Billings in excess of costs and accrued earnings on contracts
in process as of September 26, 2008 and December 28, 2007 were $228.2 million
and $296.8 million, respectively.  Changes in contract terms or the
position within the collection cycle of contracts, for which our joint ventures,
partnerships and partially-owned limited liability companies have received
advance payments, can affect our operating cash flows.  We expect to
use a portion of our surplus cash flows from operating activities to pay down a
portion of our long-term debt.




Operating
Activities




The
increase in cash flows from operating activities for the nine months ended
September 26, 2008, compared to the nine months ended September 28, 2007, was
primarily due to the following:




·
            an
      increase in net income;




·
            a
      decrease in income tax payments resulting from the utilization of tax net
      operating losses from the WGI acquisition;
and




·
            an
      increase in insurance reserve and minority interests in income of
      consolidated subsidiaries, offset, in part,
by;




·
            the
      timing of payments from clients on accounts receivables, and the timing of
      payments to vendors and subcontractors;
and




·
            an
      increase in interest payments.




61




Investing
Activities




With the
exception of the construction and mining activities of the Washington Division,
our businesses are not capital intensive.  Our construction and mining
activities require the use of heavy equipment; some of this equipment is
acquired, while the remainder is leased.  Our other capital
expenditures are primarily for various information systems to support our
professional and technical services and administrative needs.  Capital
expenditures, excluding purchases financed through capital leases and equipment
notes, during the nine months ended September 26, 2008 and September 28, 2007
were $62.3 million and $22.4 million, respectively.  The decrease in
cash flows from investing activities for the nine months ended September 26,
2008 was primarily due to an increase in purchases of capital expenditures, an
increase in investments in unconsolidated affiliates, and an increase in
business acquisitions, offset by proceeds from the disposal of property and
equipment and sale-and-leaseback transactions.




Financing
Activities




The
decrease in net cash flows from financing activities was primarily due to
advance debt payments made on our Senior Secured Credit Facility (“2007 Credit
Facility”).  Our next mandatory debt payment will be due in the fourth
quarter of 2010.  The remaining decrease was primarily due to purchase
of treasury stock, offset by proceeds from employee stock purchases and
exercises of stock options and the net change in book overdrafts.




Contractual
Obligations and Commitments




The
following table contains information about our contractual obligations and
commercial commitments followed by narrative descriptions as of September 26,
2008.




Payments
      and Commitments Due by PeriodContractual
      Obligations
              (Debt
      payments include principal only)
              (In millions)
            
            Total
            
            
            Less
      Than 1 Year
            
            
            1-3
      Years
            
            
            4-5
      Years
            
            
            After
                5
      Years
            
            
            Other2007
      Credit Facility (1)
            
            $
            1,105.0
            
            
            $
            —
            
            
            $
            96.3
            
            
            $
            1,008.7
            
            
            $
            —
            
            
            $
            —Capital
      lease obligations and equipment notes (1)
            
            
            18.6
            
            
            
            8.1
            
            
            
            8.4
            
            
            
            2.1
            
            
            
            —
            
            
            
            —Notes
      payable, foreign credit lines and other indebtedness (1)
            
            
            30.6
            
            
            
            10.0
            
            
            
            16.0
            
            
            
            4.6
            
            
            
            —
            
            
            
            —Total
      debt
            
            
            1,154.2
            
            
            
            18.1
            
            
            
            120.7
            
            
            
            1,015.4
            
            
            
            —
            
            
            
            —Operating
      lease obligations (2)
            
            
            607.4
            
            
            
            155.0
            
            
            
            247.7
            
            
            
            136.8
            
            
            
            67.9
            
            
            
            —Pension
      and other retirement plans funding requirements (3)
            
            
            248.8
            
            
            
            33.7
            
            
            
            52.6
            
            
            
            41.7
            
            
            
            120.8
            
            
            
            —Purchase
      obligations (4)
            
            
            14.0
            
            
            
            6.4
            
            
            
            7.6
            
            
            
            —
            
            
            
            —
            
            
            
            —Interest
      (5)
            
            
            226.5
            
            
            
            58.5
            
            
            
            118.1
            
            
            
            49.9
            
            
            
            —
            
            
            
            —Asset
      retirement obligations (6)
            
            
            4.3
            
            
            
            0.7
            
            
            
            1.1
            
            
            
            1.4
            
            
            
            1.1
            
            
            
            —Other
      contractual obligations (7)
            
            
            41.0
            
            
            
            12.5
            
            
            
            2.5
            
            
            
            0.3
            
            
            
            —
            
            
            
            25.7Total
      contractual obligations
            
            $
            2,296.2
            
            
            $
            284.9
            
            
            $
            550.3
            
            
            $
            1,245.5
            
            
            $
            189.8
            
            
            $
            25.7




(1)
            Amounts
      shown exclude unamortized debt issuance costs of $16.9 million for the
      2007 Credit Facility.  For capital lease obligations, amounts
      shown exclude interest of $1.7
million.





(2)
            Operating
      leases are predominantly real estate
leases.





(3)
            Amounts
      consist of pension and other retirement plan funding requirements for
      various pension, post-retirement, and other retirement
    plans.





(4)
            Purchase
      obligations consist primarily of software maintenance
      contracts.


62




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





(6)
            Asset
      retirement obligations represent the estimated costs of removing and
      restoring our leased properties to the original condition pursuant to our
      real estate lease agreements.





(7)
            Other
      contractual obligations include net liabilities for anticipated
      settlements under Financial Accounting Standards Board (“FASB”)
      Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes, an interpretation of FASB Statement No. 109” (“FIN
      48”) tax liabilities, including interest.  Generally, it is not
      practicable to forecast or estimate the payment dates for our FIN 48
      liabilities.  Therefore, we included the estimated liabilities
      under the “Other” column above.  In addition, we do not expect
      that the payment of any of the above-mentioned FIN 48 liabilities will
      have a material impact on our
liquidity.





Off-balance
Sheet Arrangements




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




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




·
            As
      of September 26, 2008, we had $235.3 million in standby letters of credit
      under our 2007 Credit Facility.  We use letters of credit
      primarily to support contract performance obligations, insurance programs,
      bonding arrangements and real estate leases.  We are required to
      reimburse the issuers of letters of credit for any payments they make
      under the outstanding letters of credit.  Our 2007 Credit
      Facility covers the issuance of our standby letters of credit and is
      critical for our normal operations.  If we default on the 2007
      Credit Facility, our ability to issue or renew standby letters of credit
      would impair our ability to maintain normal
  operations.




·
            We have guaranteed the credit facility of one of our
      unconsolidated joint ventures in the event of a default by the joint
      venture.  This joint venture was formed in the ordinary course
      of business to perform a contract for the U.S. federal
      government.  The term of the guarantee was equal to the
      remaining term of the underlying credit facility.  As of
      September 26, 2008, the amount of the guarantee was $15.0
      million.  The credit facility will be renewed on a
      month-to-month basis and the guarantee will be extended until the contract
      is completed, which is expected to be May 31,
  2009.




·
            We
      have guaranteed a letter of credit issued on behalf of one of our
      unconsolidated construction joint ventures, in which we are a 60% owner
      with no significant influence over operations.  The total amount
      of the letter of credit was $7.2 million as of September 26,
      2008.




·
            We
      have agreed to indemnify one of our joint venture partners up to $25.0
      million for any potential losses and damages, and liabilities associated
      with lawsuits in relation to general and administrative services we
      provide to the joint venture.  Currently, we have no indemnified
      claims under this guarantee.




·
            As
      of September 26, 2008, the amount of a guarantee used to collateralize the
      credit facility of our United Kingdom operating subsidiary and bank
      guarantee lines of our European subsidiaries was $9.3
    million.




63




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




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




·
            In
      the ordinary course of business, we cause surety bonds to be issued
      generally in connection with contract performance obligations that are not
      required to be recorded in our condensed consolidated balance
      sheets.  We are obligated to reimburse the issuer of our surety
      bonds for any payments made hereunder.  Each of our commitments
      under performance bonds generally ends concurrently with the expiration of
      our related contractual obligation.




2007
Credit Facility




Our 2007
Credit Facility consists of two term loan facilities in the original aggregate
amount of $1.4 billion and a revolving credit facility in the amount of $700.0
million, which is also available for issuing letters of credit.  In
June 2008, we entered into the first amendment to the 2007 Credit Facility,
which allows us to repurchase up to one million shares of our common stock
annually, provided that we maintain designated financial
criteria.  During the three months ended September 26, 2008, we
repurchased one million shares of our common stock as permitted by the amended
2007 Credit Facility.




As of
September 26, 2008 and December 28, 2007, the outstanding balance of the term
loan A was $866.3 million and $999.6 million at interest rates of 4.73% and
6.79%, respectively.  As of both September 26, 2008 and December 28,
2007, the outstanding balance of the term loan B was $238.7 million and $275.4
million at interest rates of 5.73% and 7.54%, respectively.  We did
not have any amounts outstanding under our revolving line of credit as of
September 26, 2008 and December 28, 2007.  As of September 26, 2008,
we were in compliance with the covenants of the 2007 Credit
Facility.


64




Revolving
Line of Credit




Our
revolving line of credit information is summarized as follows:




(In
      millions, except percentages)
            
            Nine
      Months Ended
                September
      26, 2008
            
            
            Year
      Ended
              December
      28, 2007Effective
      average interest rates paid on the revolving line of
credit
            
            
            5.7
            %
            
            
            8.2
            %Average
      daily revolving line of credit balances
            
            $
            0.3
            
            
            $
            2.3Maximum
      amounts outstanding at any one point in time
            
            $
            7.7
            
            
            $
            40.3




Other
Indebtedness




Notes payable, foreign credit lines
and other indebtedness.  As of September 26, 2008 and December
28, 2007, we had outstanding amounts of $30.6 million and $29.7 million,
respectively, in notes payable and foreign lines of credit.  Notes
payable primarily include notes used to finance the purchase of office
equipment, computer equipment and furniture.  The weighted-average
interest rates of the notes were approximately 6.0% and 6.5% as of September 26,
2008 and December 28, 2007, respectively.




We
maintain foreign lines of credit, which are collateralized by the assets of our
foreign subsidiaries and, in some cases, parent guarantees.  As of
September 26, 2008 and December 28, 2007, we had $16.2 million and $15.0 million
in lines of credit available under these facilities,
respectively.  The amount outstanding under foreign lines of credit
totaled $0.8 million as of September 26, 2008.  There was no amount
outstanding as of December 28, 2007.




Capital Leases.  As
of September 26, 2008 and December 28, 2007, we had approximately $18.6 million
and $22.7 million in obligations under our capital leases, respectively,
consisting primarily of leases for office equipment, computer equipment and
furniture.




Other
Activities




Derivative Financial
Instruments.  As of September 26, 2008 and December 28, 2007,
the fair values of our interest rate swap liabilities were $6.7 million and $3.9
million, respectively.  The increase in these liabilities was due to
falling short-term market interest rates.  The short-term portion of
the swap liabilities was recorded in accrued expenses and other on our Condensed
Consolidated Balance Sheets, and the long-term portion of the swap liabilities
was recorded in other long-term liabilities.  The adjustments to fair
values of the swap liabilities were recorded in accumulated other comprehensive
income.  We have recorded no gain or loss on our Condensed
Consolidated Statements of Operations and Comprehensive Income as our interest
rate swaps were deemed to be an effective hedge.




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES




The
preparation of consolidated financial statements in conformity with GAAP
requires us to make estimates and assumptions in the application of certain
accounting policies that affect amounts reported in our consolidated financial
statements and related footnotes included in Item 1 of this
report.  In preparing these financial statements, we have made our
best estimates and judgments of certain amounts, after considering
materiality.  Historically, our estimates have not materially differed
from actual results.  Application of these accounting policies,
however, involves the exercise of judgment and the use of assumptions as to
future uncertainties.  Consequently, actual results could differ from
our estimates.




65




The
accounting policies that we believe are most critical to an investor’s
understanding of our financial results and condition and that require complex
judgments by management are included in our Annual Report on Form 10-K for the
year ended December 28, 2007.  There were no material changes to these
critical accounting policies during the nine months ended September 26,
2008.




ADOPTED
AND RECENTLY ISSUED ACCOUNTING STANDARDS




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement”
(“SFAS 157”), which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosure requirements about fair value
measurements.  SFAS 157 applies to other accounting pronouncements
that require or permit fair value measurements.  The fair value
measurement of financial assets and financial liabilities became effective for
us beginning in fiscal year 2008.  Two FASB Staff Positions (“FSP”) on
this statement were subsequently issued.  FSP No. 157-1, issued on
February 14, 2007, excluded SFAS No. 13, “Accounting for Leases” (“SFAS
13”), and other accounting pronouncements that address fair value measurements
for purposes of lease classification or measurement under SFAS
13.  However, this scope exception does not apply to assets acquired
and liabilities assumed in a business combination, which are required to be
measured at fair value under SFAS No. 141, “Business Combinations” (“SFAS
141”), or , “Business
Combinations(Revised 2007)” (“SFAS 141(R)”), regardless of whether those
assets and liabilities are related to leases.  This FSP was effective
upon our initial adoption of SFAS 157.  FSP No. 157-2, issued on
February 12, 2007, delayed the effective date of this statement for
non-financial assets and non-financial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring
basis.  This FSP will be effective for us in fiscal year
2009.  Accordingly, our adoption of SFAS 157 on December 29, 2007 was
limited to financial assets and liabilities and did not have a material impact
on our consolidated financial position, results of operations or cash
flows.  We are currently evaluating the anticipated effect of this
statement on the non-financial assets and non-financial liabilities of our
consolidated financial statements.




In
September 2006, the FASB issued SFAS No. 158, “Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans” (“SFAS
158”).  This statement requires (1) recognition on the balance sheet
of an asset for a defined benefit plan’s overfunded status or a liability for
such a plan’s underfunded status, (2) measurement of a defined benefit plan’s
assets and its obligations that determine its funded status as of the end of the
employer’s fiscal year, and (3) recognition, as a component of other
comprehensive income, of the changes in a defined benefit plan’s funded
status.  We adopted the recognition and disclosure provisions of SFAS
158 on December 29, 2006, the end of our fiscal year 2006.  We adopted
the requirement to measure our defined benefit plan assets and benefit
obligations as of our fiscal year ended December 28, 2007.  Our
adoption of this requirement did not have a material impact on our consolidated
financial position, results of operations or cash flows for fiscal year
2007.




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159
permits entities to choose to measure selected financial assets and liabilities
and other eligible items at fair value, which are not otherwise currently
required to be measured at fair value.  Under SFAS 159, the decision
to measure items at fair value is made at specified election dates on an
irrevocable instrument-by-instrument basis.  Entities electing the
fair value option would be required to recognize changes in fair value in
earnings and to expense upfront cost and fees associated with the items for
which the fair value option is elected.  Entities electing the fair
value option are required to distinguish on the face of the statement of
financial position, the fair value of assets and liabilities for which the fair
value option has been elected and similar assets and liabilities measured using
another measurement attribute.  SFAS 159 became effective for us as of
the beginning of our fiscal year 2008.  We did not elect the fair
value option for any financial assets or liabilities during the nine months
ended September 26, 2008.




66




In
December 2007, the FASB ratified a consensus reached by the Emerging Issues Task
Force (“EITF”) on Issue 07-1, "Accounting for Collaborative
Arrangements" (“EITF 07-1”).  The EITF agreed on the definition
of a collaborative arrangement and concluded that revenues and costs incurred
with third parties in connection with collaborative arrangements should be
presented on a gross or a net basis in accordance with the guidance in EITF
99-19, “Reporting Revenue
Gross as a Principal versus Net as an Agent.”  Payments to or
from participants should be accounted for based on the appropriate authoritative
accounting literature, by analogy to other authoritative literature, or by a
consistently applied accounting policy election.  Companies are also
required to disclose the nature and purpose of collaborative arrangements along
with the accounting policies and the classification and amounts of significant
financial statement amounts related to the arrangements.  EITF 07-1
will be effective for us beginning in our fiscal year 2009, and is to be applied
retrospectively to all periods presented for all collaborative arrangements
existing as of the effective date.  We are currently evaluating the
impact of adopting EITF 07-1 on our consolidated financial
statements.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”).  This
statement amends Accounting Research Bulletin No. 51, “Consolidated Financial
Statements.”  This statement establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  Noncontrolling interests are
currently described as minority interests in our Condensed Consolidated
Financial Statements.  SFAS 160 requires that noncontrolling interests
be presented as a separate line item under stockholders’ equity on the Condensed
Consolidated Balance Sheet.  SFAS 160 requires prospective
application, except that the presentation and disclosure of minority interests
is retrospectively applied for all periods presented.  SFAS 160 will
be effective for us in fiscal year 2009, which will begin on January 3, 2009.
Early adoption is prohibited.  We are currently evaluating the impact
of adopting SFAS 160 on our consolidated financial statements.




In
December 2007, the FASB issued SFAS 141(R), which replaced SFAS
141.  This statement establishes principles and requirements for how
the acquirer of a business recognizes and measures, in its financial statements,
the identifiable assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree.  With limited exceptions, assets and
liabilities should be measured and recorded at their acquisition-date fair
value.  This statement also requires contractual contingent assets
acquired and contractual contingent liabilities assumed to be recorded at
acquisition-date fair values and noncontractual contingencies to be treated the
same way only if they are more likely than not to meet the definition of an
asset or liability in FASB Concepts Statement No. 6, “Elements of Financial
Statements.”  If this criterion is not met at the acquisition
date, the acquirer would account for the contingencies using other applicable
GAAP.  This statement also requires the expensing of
acquisition-related costs as incurred. SFAS 141(R) also provides guidance for
recognizing and measuring the goodwill acquired in a business combination and
determines what information is required to be disclosed to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination.  SFAS 141(R) will be applied prospectively at
our adoption date, effective at the beginning of our fiscal year
2009.  Early adoption is prohibited.  Finally, SFAS 141(R)
requires pre-acquisition tax exposures and any subsequent changes to tax
exposures to be recorded as adjustments to our income statement instead of as
adjustments to goodwill on our balance sheet.  We are currently
evaluating the impact of adopting SFAS 141(R) on our consolidated financial
statements.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS 161”).  SFAS 161
amends SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” requiring enhanced disclosures to
improve the transparency of financial reporting about an entity’s derivative and
hedging activities.  SFAS 161 requires disclosures to provide
additional information on how and why derivative instruments are being
used.  This statement will be effective for us at the beginning of our
fiscal year 2009 and applies to interim period financial
statements.  We are currently evaluating the impact of adopting SFAS
161 on our consolidated financial statements.




In May
2008, the FASB issued SFAS No.162, “The Hierarchy of Generally Accepted
Accounting Principles.”  This statement mandates that the GAAP
hierarchy reside in the accounting literature as opposed to the audit literature
and has the practical impact of elevating FASB Statements of Financial
Accounting Concepts in the GAAP hierarchy.  This statement will become
effective 60 days following SEC approval.  We do not believe that the
adoption of this statement will impact our financial statements.




67




In May
2008, FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No.
60.”  The scope of this statement is limited to financial
guarantee insurance (and reinsurance) contracts.  The statement will
be effective for us at the beginning of our fiscal year 2009.  We do
not believe that the adoption of this statement will impact our financial
statements.




In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.”  This FSP states that share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents prior to
vesting is a participating security and should be included in the earnings
allocation in computing EPS under the two-class method described in SFAS No.
128, “Earnings per
Share.”  Our 2008 Equity Incentive Plan and related stock award
agreements provide that unvested restricted stock units and unvested restricted
stock awards may include nonforfeitable dividend rights and, consequently, are
participating securities as defined in this FSP.  This FSP will be
effective for us beginning in our fiscal year 2009.  We are currently
evaluating the impact of adopting FSP EITF 03-6-1 on our consolidated financial
statements.




ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK




Interest
Rate Risk




We are
exposed to changes in interest rates as a result of our borrowings under our
2007 Credit Facility.  We have three floating-for-fixed interest rate
swaps with notional amounts totaling $900.0 million to hedge against changes in
floating interest rates.  The notional amount of the swaps is less
than the outstanding debt and, as such, we are exposed to increasing or
decreasing market interest rates on the unhedged portion.  Based on
outstanding indebtedness of $1.1 billion under our 2007 Credit Facility at
September 26, 2008, if market rates average 1% higher in the next twelve months,
our net-of-tax interest expense would increase by approximately $3.3 million.  Conversely, if market rates average 1%
lower in the next twelve months, our net-of-tax interest expense would decrease
by approximately $3.3 million.  This analysis is computed taking
into account our current outstanding balances of our 2007 Credit Facility,
assumed interest rates, current debt payment schedule and the existing swaps,
which include $500 million expiring in January 2009.  The result of
this analysis would change if the underlying assumptions were
modified.




Foreign
Currency Risk




The
majority of our transactions are in U.S. dollars; however, our foreign
subsidiaries conduct businesses in various foreign
currencies.  Therefore, we are subject to currency exposures and
volatility because of currency fluctuations, inflation changes and economic
conditions in these countries.  We currently have no foreign currency
hedges.  We attempt to minimize our exposure to foreign currency
fluctuations by matching our revenues and expenses in the same currency for our
contracts.  We had $13.4 million of foreign currency translation loss,
net of tax, and $0.7 million of foreign currency translation gains, net of tax,
for the three months ended September 26, 2008 and September 28, 2007,
respectively. We had $8.0 million of foreign currency translation loss, net
of tax, and $3.9 million of foreign currency translation gains, net of tax,
for the nine months ended September 26, 2008 and September 28, 2007,
respectively.




ITEM 4.  CONTROLS AND PROCEDURES




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




68




Evaluation
of Disclosure Controls and Procedures




Our CEO
and CFO are responsible for establishing and maintaining “disclosure controls
and procedures” (as defined in rules promulgated under the Exchange Act) for our
company.  Based on their evaluation, our CEO and CFO have concluded
that our disclosure controls and procedures were effective, as of the end of the
period covered by this report, to provide reasonable assurance that the
information required to be disclosed by us in the reports that we filed or
submitted to the SEC under the Exchange Act were (1) recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
(2) accumulated and communicated to our management, including our principal
executive and principal financial officers, to allow timely decisions regarding
required disclosures.




Changes
in Internal Control over Financial Reporting




During
the quarter ended September 26, 2008, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




Inherent
Limitations on Effectiveness of Controls




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




PART
II


OTHER
INFORMATION




ITEM 1.  LEGAL PROCEEDINGS




Various
legal proceedings are pending against us and certain of our subsidiaries
alleging, among other things, breach of contract or tort in connection with the
performance of professional services.  The outcome of these
proceedings cannot be predicted with certainty.  See Note 9,
“Commitments and Contingencies,” to our “Condensed Consolidated Financial
Statements” included under Part I – Item 1 of this report for a discussion of
some of these recent changes in our legal proceedings.  In some
actions, parties are seeking damages, including punitive or treble damages that
substantially exceed our insurance coverage.




Currently,
our insurance program includes limits totaling $515.0 million per loss and in
the aggregate for general liability; $215.0 million per loss and in the
aggregate for professional errors and omissions liability; and $100.0 million
per loss and in the aggregate for contractor’s pollution liability (in addition
to other policies for specific projects).  The general liability,
professional errors and omissions liability, and contractor’s pollution
liability limits are in excess of a self-insured retention of $10.0 million for
each covered claim.




69




Excess
insurance policies provide for coverages on a “claims-made” basis, covering only
claims actually made and reported during the policy period currently in
effect.  Thus, if we do not continue to maintain these policies, we
will have no coverage for claims made after the termination date even for claims
based on events that occurred during the term of coverage.  While we
intend to maintain these policies, we may be unable to maintain existing
coverage levels.  We have maintained insurance without lapse for many
years with limits in excess of losses sustained.




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




ITEM 1A.  RISK FACTORS




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




Demand
for our services is cyclical and vulnerable to economic downturns and reductions
in government and private industry spending.  If the economy weakens,
then our revenues, profits and our financial condition may rapidly
deteriorate.




If the
economy remains weak or declines further or government spending is
reduced, then our revenues, book of business, net income and overall financial
condition may deteriorate.  Demand for our services is cyclical and
vulnerable to economic downturns and reductions in government and private
industry spending, which may result in clients delaying, curtailing or canceling
proposed and existing projects.  For example, there was a decrease in
our URS Division revenues of $77.9 million, or 3.4%, in fiscal year 2002
compared to fiscal year 2001 as a result of the general economic
decline.




The
global economic turmoil caused by the decline in the housing market and
constraints in the credit market may cause clients to delay, curtail or cancel
proposed and existing projects; thus decreasing the overall demand for our
services and weakening our financial condition.




Our
clients may be impacted by the global economic turmoil caused by the decline in
the housing market and constraints in the credit market.  As a result,
they may delay, curtail or cancel proposed and existing projects; thus
decreasing the overall demand for our services and adversely impacting our
liquidity.  The current economic volatility has also made it very
difficult for us to predict its impact on our business or to forecast our
business and financial trends.  In addition, our clients may find it
more difficult to raise capital in the future due to substantial limitations on
the availability of credit and other uncertainties in the federal, municipal and
corporate credit markets.  For example, an increase in home
foreclosures or the decline in home values may result in a decrease in state and
local tax revenue that could lead to lower state and local government spending
for our services.  Also, our clients may find it increasingly
difficult to timely pay invoices for our services, which would impact our future
cash flows and liquidity.  Any inability to timely collect our
invoices may lead to an increase in our account receivables and potentially to
increased write-offs of uncollectible invoices.  Also, global demand
for commodities has increased the costs for some raw materials, which may
increase the overall project cost and more rapidly deplete the funds already
allocated to be spent on projects.




70




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




If we do
not realize a substantial amount of our book of business, our operations could
be harmed and our expected profits and revenues could be significantly
reduced.  We account for all contract awards that may eventually be
recognized as revenues as our “book of business,” which includes backlog,
designations, option years and indefinite delivery contracts
(“IDCs”).  Our backlog consists of the monetary value of signed
contracts, including task orders that have been issued under IDCs.  As
of September 26, 2008, our book of business was estimated at approximately $33.1
billion, which included $18.0 billion of our backlog.  Our
designations consist of projects that clients have awarded to us, but for which
we do not yet have signed contracts.  Our option year contracts are
multi-year contracts with base periods, plus option years that are exercisable
by our clients without the need for us to go through another competitive bidding
process.  Our IDCs are signed contracts under which we perform work
only when our clients issue specific task orders.  Our book of
business estimates may not result in realized revenues in any particular period
because clients may delay, modify or terminate projects and contracts and may
decide not to exercise contract options or issue task orders.  This
uncertainty is particularly acute in light of the current economic
turmoil.




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




As a
government contractor, we enter into many contracts, such as our projects with
the DOE at the Hanford River Corridor Closure Project and the Idaho Cleanup
Projects.  We are affected by and must comply with federal, state,
local and foreign laws and regulations relating to the formation, administration
and performance of government contracts.  For example, we must comply
with the U.S. Federal Acquisition Regulation (“FAR”), the Truth in Negotiations
Act, the Cost Accounting Standards (“CAS”) and the Services Contract Act
security regulations, as well as many other laws and
regulations.  These laws and regulations affect how we transact
business with our clients and in some instances, impose additional costs on our
business operations.  Even though we take precautions to prevent and
deter fraud, misconduct and non-compliance, we face the risk that our employees
or outside partners may engage in misconduct, fraud or other improper
activities.  Government agencies, such as the U.S. Defense Contract
Audit Agency (“DCAA”), routinely audit and investigate government
contractors.  These government agencies review and audit a government
contractor’s performance under its contracts, a government contractor’s direct
and indirect cost structure, and a government contractor’s compliance with
applicable laws, regulations and standards.  For example, during the
course of its audits, the DCAA may question our incurred project costs and, if
the DCAA believes we have accounted for these costs in a manner inconsistent
with the requirements for the FAR or CAS, the DCAA auditor may recommend to our
U.S. government corporate administrative contracting officer to disallow such
costs.  We can provide no assurance that the DCAA or other government
audits will not result in material disallowances for incurred costs in the
future.  In addition, government contracts are subject to a variety of
other socioeconomic requirements relating to the formation, administration,
performance and accounting for these contracts.  We may also be
subject to qui tam
litigation brought by private individuals on behalf of the government under the
Federal Civil False Claims Act, which could include claims for treble
damages.  Government contract violations could result in the
imposition of civil and criminal penalties or sanctions, contract termination,
forfeiture of profit, and/or suspension of payment, any of which could make us
lose our status as an eligible government contractor.  We could also
suffer serious harm to our reputation.  Any interruption or
termination of our government contractor status could reduce our profits and
revenues significantly.




71




The
completion of our merger with WGI substantially increased our indebtedness,
which could adversely affect our liquidity, cash flows and financial
condition.




On
November 15, 2007, in order to complete the WGI acquisition, we entered into the
2007 Credit Facility, which provides for two term loan facilities in the
aggregate amount of $1.4 billion and a revolving credit facility in the amount
of $700.0 million, which is also available for issuing letters of
credit.  All loans outstanding under the 2007 Credit Facility bear
interest, at our option, at either the base rate or LIBOR plus, in each case, an
applicable margin.  The applicable margin will adjust to a
leverage-based performance pricing grid based on our Consolidated Leverage
Ratio.  As of September 26, 2008, our outstanding balance under the
2007 Credit Facility was $1.1 billion.  We have hedged $900.0 million
of our 2007 Credit Facility using floating-for-fixed interest rate
swaps.  The $900.0 million notional amount of the swaps is less than
the outstanding debt and, as such, we are exposed to increasing or decreasing
market interest rates on the unhedged portion.  Based on assumed
interest rates and the Consolidated Leverage Ratio (our ratio of consolidated
total funded debt to consolidated earnings before interest, taxes, depreciation
and amortization), our debt service obligations, comprised of interest during
the next twelve months will be approximately $55.6 million, excluding
amortization of financing fees, FIN 48 interest expense and other interest
expense not related to the term loan facilities.  If our Consolidated
Leverage Ratio is higher than assumed, our interest expense and unused revolving
line of credit fees will increase.  Based on the expected outstanding
indebtedness of approximately $1.1 billion under the 2007 Credit Facility, if
market rates were to average 1% higher or lower during that same twelve-month
period, our net-of-tax interest expense would increase or decrease by
approximately $3.3 million, respectively.  This analysis is computed
based on our current outstanding balances of our 2007 Credit Facility, assumed
interest rates, current debt payment schedule and the existing swaps, which
include $500 million expiring in January 2009.  The result of this
analysis would change if the underlying assumptions were modified.  As a
result of this increase in debt, demands on our cash resources will
increase.  The increased level of debt could, among other
things:




·
            require
      us to dedicate a substantial portion of our cash flow from operations to
      the servicing and repayment of our debt, thereby reducing funds available
      for working capital, capital expenditures, dividends, acquisitions and
      other purposes;





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





·
            adversely
      affect our ability to obtain surety
bonds;





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





·
            create
      competitive disadvantages compared to other companies with less
      indebtedness;





·
            adversely
      affect our stock price; and




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


72




We
may not be able to generate or borrow enough cash to service our indebtedness,
which could result in bankruptcy or otherwise impair our ability to maintain
sufficient liquidity to continue our operations.  We rely
primarily on our ability to generate cash in the future to service our
indebtedness.  If we do not generate sufficient cash flows to meet our
debt service and working capital requirements, we may need to seek additional
financing.  If we are unable to obtain financing on terms that are
acceptable to us, we could be forced to sell our assets or those of our
subsidiaries to make up for any shortfall in our payment obligations under
unfavorable circumstances.  Our 2007 Credit Facility limits our
ability to sell assets and also restricts our use of the proceeds from any such
sale.  If we default on our debt obligations, our lenders could
require immediate repayment of our entire outstanding debt.  If our
lenders require immediate repayment on the entire principal amount, we will not
be able to repay them in full, and our inability to meet our debt obligations
could result in bankruptcy or otherwise impair our ability to maintain
sufficient liquidity to continue our operations.
  Because
we are a holding company, we may not be able to service our debt if our
subsidiaries do not make sufficient distributions to us.




We have
no direct operations and no significant assets other than investments in the
stock of our subsidiaries.  Because we conduct our business operations
through our operating subsidiaries, we depend on those entities for payments and
dividends to generate the funds necessary to meet our financial
obligations.  Legal restrictions, including state and local tax
regulations and contractual obligations associated with secured loans, such as
equipment financings, could restrict or impair our subsidiaries’ ability to pay
dividends or make loans or other distributions to us.  The earnings
from, or other available assets of, these operating subsidiaries may not be
sufficient to make distributions to enable us to pay interest on our debt
obligations when due or to pay the principal of such debt at
maturity.  As of September 26, 2008, our debt service obligations,
comprised of interest during the next twelve months, are estimated to be
approximately $55.6 million, excluding amortization of financing fees, FIN 48
interest expense and other interest expense not related to the term loan
facilities.  Based on the current outstanding indebtedness of $1.1
billion under our 2007 Credit Facility, of which $0.2 billion is unhedged, if
market rates were to average 1% higher during that same twelve-month period, our
net of tax interest expense would increase by approximately $3.3 million. 
This analysis is computed based on our current outstanding balances of our 2007
Credit Facility, assumed interest rates, current debt payment schedule and the
existing swaps, which include $500 million expiring in January 2009. 
The result of this analysis would change if the underlying assumptions were
modified.


73




Restrictive
covenants in our 2007 Credit Facility may restrict our ability to pursue
business strategies.
  Our 2007
Credit Facility and our other outstanding indebtedness include covenants
limiting our ability to, among other things:
  ·
              incur
      additional indebtedness;
 
 ·
              pay
      dividends to our stockholders;
 
 ·
              repurchase
      or redeem our stock;
 
 ·
              repay
      indebtedness that is junior to our 2007 Credit
  Facility;
 
 ·
              make
      investments and other restricted
payments;
 
 ·
              create
      liens securing debt or other encumbrances on our
  assets;
 
 ·
              enter
      into sale-leaseback transactions;
 
 ·
              enter
      into transactions with our stockholders and
  affiliates;
 
 ·
              sell
      or exchange assets; and
 
 ·
              acquire
      the assets of, or merge or consolidate with, other
    companies.
  Our 2007
Credit Facility also requires that we maintain financial ratios, which we may
not be able to achieve.  The covenants may impair our ability to
finance future operations or capital needs or to engage in other favorable
business activities.


74




Our
inability to successfully integrate WGI would impede us from realizing all of
the benefits of the acquisition, which could severely weaken our results of
operations.
  Our
inability to successfully integrate WGI, which we acquired in November 2007,
would impede us from realizing all of the benefits of the acquisition and could
severely weaken our business operations.  Our future success will
depend, in part, on our ability to successfully integrate the businesses of URS
with the Washington Division.  We are devoting significant management
attention and resources to integrating the Washington Division into
URS. The integration process may disrupt our business and, if implemented
ineffectively, preclude realization of the full benefits expected by us and
could seriously harm our results of operation.  In addition, the
overall integration of the two companies may result in unanticipated problems,
expenses, liabilities, competitive responses, loss of customer relationships,
and diversion of management’s attention, and may cause our stock price to
decline.  The difficulties of combining the operations of the
Washington Division into URS include, among others:
  ·
              coordinating
      bid and marketing functions;
 
 ·
              unanticipated
      issues in integrating information, communications and other
      systems;
 
 ·
              unanticipated
      incompatibility of logistics, marketing and administration
      methods;
 
 ·
              maintaining
      employee morale and retaining key
employees;
 
 ·
              integrating
      the business cultures of both
companies;
 
 ·
              preserving
      important strategic and customer
relationships;
 
 ·
              consolidating
      corporate and administrative infrastructures and eliminating duplicative
      operations;
 
 ·
              the
      diversion of management’s attention from ongoing business
      concerns; and
 
 ·
              coordinating
      geographically separate
organizations.
  In
addition, even if the operations of the Washington Division are integrated
successfully with URS, we may not realize the full benefits of the acquisition,
including the synergies, cost savings, or sales or growth opportunities that we
expect.  These benefits may not be achieved within the anticipated
time frame, or at all.  As a result, we cannot assure you that the
integration of the Washington Division with URS will result in the realization
of the full benefits anticipated from the acquisition, which could severely
weaken our results of operation.


Because
we depend on federal governments for a significant portion of our revenues, our
inability to win or renew government contracts during regulated procurement
processes could harm our operations and reduce our profits and revenues
significantly.




Revenues
from our federal market sector represented approximately 35% of our total
revenues for the nine months ended September 26, 2008.  Government
contracts are awarded through a regulated procurement process.  The
federal government has increasingly relied upon multi-year contracts with
pre-established terms and conditions, such as IDCs, that generally require those
contractors that have previously been awarded the IDC to engage in an additional
competitive bidding process before a task order is issued.  The
increased competition, in turn, may require us to make sustained efforts to
reduce costs in order to realize revenues and profits under government
contracts.  If we are not successful in reducing the amount of costs
we incur, our profitability on government contracts will be negatively
impacted.  Moreover, even if we are qualified to work on a government
contract, we may not be awarded the contract because of existing government
policies designed to protect small businesses and underrepresented minority
contractors.  Our inability to win or renew government contracts
during regulated procurement processes could harm our operations and reduce our
profits and revenues.




75




Each
year client funding for some of our government contracts may rely on government
appropriations or public-supported financing. If adequate public funding is
delayed or is not available, then our profits and revenues could
decline.
  Each year
client funding for some of our government contracts may directly or indirectly
rely on government appropriations or public supported financing.  For
example, the passage of the SAFETEA-LU federal highway and transit bill in
August of 2005 has provided additional funding for various clients’ state
transportation projects, for which we provide services.  Legislatures
may appropriate funds for a given project on a year-by-year basis, even though
the project may take more than one year to perform.  In addition,
public-supported financing such as state and local municipal bonds, may be only
partially raised to support existing infrastructure projects.  As a
result, a project we are currently working on may only be partially funded and
thus additional public funding may be required in order to complete our
contract.  Public funds and the timing of payment of these funds may
be influenced by, among other things, the state of the economy, competing
political priorities, curtailments in the use of government contracting firms,
rise in raw material costs, delays associated with a lack of a sufficient number
of government staff to oversee contracts, budget constraints, the timing and
amount of tax receipts and the overall level of government
expenditures.  If adequate public funding is not available or is
delayed, then our profits and revenues could decline.
  Our
government contracts may give the government the right to modify, delay,
curtail, renegotiate or terminate existing contracts at their convenience at any
time prior to their completion, which may result in a decline in our profits and
revenues.
  Government
projects in which we participate as a contractor or subcontractor may extend for
several years.  Generally, government contracts include the right for
the government to modify, delay, curtail, renegotiate or terminate contracts and
subcontracts at their convenience any time prior to their
completion.  Any decision by a government client to modify, delay,
curtail, renegotiate or terminate our contracts at their convenience may result
in a decline in our profits and revenues.


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




It is
important for us to accurately estimate and control our contract costs so that
we can maintain positive operating margins and profitability.  We
generally enter into four principal types of contracts with our clients:
cost-plus, fixed-price, target-price and time-and-materials.  Under
cost-plus contracts, which may be subject to contract ceiling amounts, we are
reimbursed for allowable costs and fees, which may be fixed or
performance-based.  If our costs exceed the contract ceiling or are
not allowable under the provisions of the contract or any applicable
regulations, we may not be reimbursed for all of the costs we
incur.  Under fixed-price contracts, we receive a fixed price
regardless of what our actual costs will be.  Consequently, we realize
a profit on fixed-price contracts only if we control our costs and prevent cost
over-runs on the contracts.  As a result of the WGI acquisition, the
number and size of our target-price and fixed-price contracts have increased,
which may increase the volatility of our profitability.  Under
time-and-materials contracts, we are paid for labor at negotiated hourly billing
rates and for other expenses.  Profitability on our contracts is
driven by billable headcount and our ability to manage costs.  If we
are unable to control costs, we may incur losses on our contracts, which could
decrease our operating margins and significantly reduce or eliminate our
profits.  Many of our contracts require us to satisfy specified
design, engineering, procurement or construction milestones in order to receive
payment for the work completed or equipment or supplies procured prior to
achievement of the applicable milestone.  As a result, under these
types of arrangements, we may incur significant costs or perform significant
amounts of services prior to receipt of payment.  If the customer
determines not to proceed with the completion of the project or if the customer
defaults on its payment obligations, we may face difficulties in collecting
payment of amounts due to us for the costs previously incurred or for the
amounts previously expended to purchase equipment or supplies.




76




Our
actual business and financial results could differ from the estimates and
assumptions that we use to prepare our financial statements, which may reduce
our profits.
  To
prepare financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions as of the
date of the financial statements, which affect the reported values of assets and
liabilities, revenues and expenses, and disclosures of contingent assets and
liabilities.  For example, we may recognize revenue over the life of a
contract based on the proportion of costs incurred to date compared to the total
costs estimated to be incurred for the entire project.  Areas
requiring significant estimates by our management include:
  ·
              the
      application of the “percentage-of-completion” method of accounting and
      revenue recognition on contracts, change orders and contract
      claims;
 
 ·
              provisions
      for uncollectible receivables and customer claims and recoveries of costs
      from subcontractors, vendors and
others;
 
 ·
              provisions
      for income taxes and related valuation
  allowances;
 
 ·
              value
      of goodwill and recoverability of other intangible
  assets;
 
 ·
              valuation
      of assets acquired and liabilities assumed in connection with business
      combinations;
 
 ·
              valuation
      of defined benefit pension plans and other employee benefit
      plans;
 
 ·
              valuation
      of stock-based compensation expense;
and
 
 ·
              accruals
      for estimated liabilities, including litigation and insurance
      reserves.
  Our
actual business and financial results could differ from those estimates, which
may reduce our profits.


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




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




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




A decline
in our stock price and market capitalization (such as our recent stock price
decline) could result in an impairment of a material amount of our
goodwill.  Because we have grown through acquisitions, goodwill and
other intangible assets represent a substantial portion of our
assets.  Goodwill and other net intangible assets were $3.7 billion as
of September 26, 2008.  We perform an analysis on our goodwill
balances to test for impairment on an annual basis or whenever events occur that
may indicate impairment possibly exists.  Goodwill is deemed to be
impaired if the net book value exceeds the estimated fair value.  Any
impairment charges will reduce our earnings.  Goodwill impairment
analysis and measurement is a process that requires significant judgment and
considers a number of variables.  If our goodwill or intangible assets
were to become impaired, we would be required to write off the impaired amount,
which would reduce our profits.




77




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


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




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




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




We often
partner with third parties so that we can jointly bid and perform on a
particular project.  The success of these and other joint ventures
depends, in large part, on the satisfactory performance of the contractual
obligations by our joint venture partners.  If our partners do not
meet their obligations, the joint ventures may be unable to adequately perform
and deliver its contracted services.  Under these circumstances, we
may be obligated to pay financial penalties or provide additional services to
ensure the adequate performance and delivery of the contracted
services.  In addition, each partner may be jointly and severally
liable for the other partner’s actions or contract performance.  These
additional obligations could result in reduced profits and revenues or, in some
cases, significant losses for us with respect to the joint venture, which could
also affect our reputation in the industries we serve.




78




Our
dependence on subcontractors and equipment and material providers could reduce
our profits.
  As the
size and complexity of our projects have increased, we have increasingly relied
on third-party subcontractors and equipment and material
providers.  For example, our work performing large construction and
contract mining projects involve the procurement of heavy equipment and
construction materials.  To the extent that we cannot engage
subcontractors or acquire equipment and materials at reasonable costs, our
ability to complete a project in a timely fashion or at a profit may be
impaired.  If the amount we are required to pay for these goods and
services exceed our estimates, we could experience reduced profit or experience
losses in the performance of these contracts.  In addition, if a
subcontractor or a manufacturer is unable to deliver its services, equipment or
materials according to the negotiated terms for any reason, including the
deterioration of its financial condition, we may be required to purchase the
services, equipment or materials from another source at a higher
price.  This may reduce the profit to be realized or result in a loss
on a project for which the services, equipment or materials are
needed.


If
we experience delays and/or defaults in client payments, we could suffer
liquidity problems or we could be unable to recover all
expenditures.




Because
of the nature of our contracts, at times we may commit resources in a client’s
projects before receiving any payments to cover our
expenditures.  Client payment delays may require us to make a working
capital investment, which could impact our liquidity.  The current
tightening of credit could exacerbate this risk, as more clients may be unable
to secure sufficient credit to pay their invoices when due.  If a
client defaults in making its payments on a project to which we have devoted
significant resources, it could have an adverse effect on our financial position
and liquidity.




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




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




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




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




79


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




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




Our
business exposes us to potential liability claims and legal proceedings which
may reduce our profits and revenues.




We engage
in engineering and construction activities where design, construction or other
failures can result in substantial injury or damages to third
parties.  In addition, we may be exposed to other liability claims
such as cost overruns, personal injury claims, property damage, labor disputes,
weather problems and unforeseen engineering, architectural, environmental and
geological problems.  Our business frequently requires us to make
judgments and recommendations about environmental, structural, geotechnical and
other conditions at project sites.  If our performance, judgments and
recommendation are later found to be incomplete or incorrect, then we may be
liable for the resulting damages.  We have been and may in the future
be named as a defendant in legal proceedings where parties may make a claim for
damages or other remedies with respect to our project or other
matters.  See Note 9, “Commitments and Contingencies,” to our
“Consolidated Financial Statements” included under Part I – Item 1 for a
discussion of some of these legal proceedings.  These claims generally
arise in the normal course of our business.  When it is determined
that we have liability, we may not be covered by insurance or, if covered, the
dollar amount of these liabilities may exceed our policy
limits.  Currently, our insurance program includes limits totaling
$515.0 million per loss and in the aggregate for general liability; $215.0
million per loss and in the aggregate for professional errors and omissions
liability; and $100.0 million per loss and in the aggregate for contractor’s
pollution liability (in addition to other policies for specific
projects).  The general liability, professional errors and omissions
liability, and contractor’s pollution liability limits are in excess of a
self-insured retention of $10.0 million for each covered claim.  In
addition, our insurance policies contain exclusions that insurance providers may
use to deny us insurance coverage. If we sustain liabilities that exceed
our insurance coverage or for which we are not insured, it could have a material
adverse impact on our results of operations and financial condition, including
our profits and revenues.







80


Unavailability
of third-party insurance coverage at an affordable price would increase our risk
exposure.




We
maintain insurance coverage as part of our overall risk management strategy and
due to requirements to maintain specific insurance coverage in many of our
contracts.  There can be no assurance, however that such insurance
coverage will continue to be available or affordable at required levels, if at
all, in the future.




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




Some of
our services are directly or indirectly impacted by changes in federal, state,
local or foreign laws and regulations pertaining to the environmental, defense
or infrastructure industries.  For example, passage of the Clean Air
Mercury environmental rules increased demand for our emission control services,
and any repeal of these rules would have a negative impact on our
revenues.  Relaxation or repeal of laws and regulations, or changes in
governmental policies regarding the environmental, defense or infrastructure
industries could result in a decline in demand for our services, which could in
turn negatively impact our revenues.




The
limitation or the modification of the Price-Anderson Act’s indemnification
authority could adversely affect our business.




The
Price-Anderson Act (“PAA”) comprehensively regulates the manufacture, use and
storage of radioactive materials, while promoting the nuclear energy industry by
offering broad indemnification to nuclear energy plant operators and DOE
contractors.  Because we provide services to the DOE relating to its
nuclear weapons facilities and the nuclear energy industry in the ongoing
maintenance and modification, as well as the decontamination and
decommissioning, of its nuclear energy plants, we may be entitled to some of the
indemnification protections under the PAA.  However, the PAA’s
indemnification provisions do not apply to all liabilities that we might incur
while performing services as a radioactive materials cleanup contractor for the
DOE and the nuclear energy industry.  If the PAA’s indemnification
authority does not extend to our services, our business could be adversely
affected by either a refusal of new facilities operations to retain us or our
inability to obtain commercially adequate insurance and
indemnification.




A decline in U.S. defense spending or
a change in budgetary priorities could reduce our profits and revenues.




Revenues
under contracts with the DOD and other defense-related clients represented
approximately 26.5% of our total revenues for the nine months ended September
26, 2008.  Past increases in spending authorization for
defense-related programs and in outsourcing of federal government jobs to the
private sector is not expected to be sustained on a long-term
basis.  For example, the DOD budget declined in the late 1980s and the
early 1990s, resulting in DOD program delays and
cancellations.  Future levels of expenditures and authorizations for
defense-related programs, including foreign military commitments, may decrease,
remain constant or shift to programs in areas where we do not currently provide
services.  As a result, a general decline in U.S. defense spending or
a change in budgetary priorities could reduce our profits and
revenues.




81




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




Our
industry is highly fragmented and intensely competitive.  For example,
according to the publication Engineering News-Record, based on information
voluntarily reported by 500 design firms, the top ten engineering design firms
accounted only for approximately 32% of the total top 500 design firm revenues
in 2006.  Our competitors are numerous, ranging from small private
firms to multi-billion dollar companies.  In addition, the technical
and professional aspects of some of our services generally do not require large
upfront capital expenditures and provide limited barriers against new
competitors.




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




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




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




Employee,
agent or partner misconduct or our overall failure to comply with laws or
regulations could weaken our ability to win contracts, which could result in
reduced revenues and profits.




Misconduct,
fraud, non-compliance with applicable laws and regulations, or other improper
activities by one of our employees, agents or partners could have a significant
negative impact on our business and reputation.  Such misconduct could
include the failure to comply with government procurement regulations,
regulations regarding the protection of classified information, regulations
prohibiting bribery and other foreign corrupt practices, regulations regarding
the pricing of labor and other costs in government contracts, regulations on
lobbying or similar activities, regulations pertaining to the internal controls
over financial reporting, environmental laws and any other applicable laws or
regulations.  For example, we regularly provide services that may be
highly sensitive or that relate to critical national security matters; if a
security breach were to occur, our ability to procure future government
contracts could be severely limited.  Other examples of potential
misconduct include time card fraud and violations of the Anti-Kickback
Act.  The precautions we take to prevent and detect these activities
may not be effective, and we could face unknown risks or losses.  Our
failure to comply with applicable laws or regulations or acts of misconduct
could subject us to fines and penalties, loss of security clearance and
suspension or debarment from contracting, which could weaken our ability to win
contracts and result in reduced revenues and profits.




82




Our
international operations are subject to a number of risks that could harm our
operations and significantly reduce our profits and revenues.




As a
multinational company, we have operations in more than 30 countries and we
derived 9.4% of our revenues from international operations for the nine months
ended September 26, 2008.  International business is subject to a
variety of risks, including:




·
            lack
      of developed legal systems to enforce contractual
  rights;





·
            greater
      risk of uncollectible accounts and longer collection
    cycles;





·
            currency
      fluctuations;





·
            logistical
      and communication challenges;





·
            potentially
      adverse changes in laws and regulatory practices, including export license
      requirements, trade barriers, tariffs and tax
  laws;





·
            changes
      in labor conditions;





·
            exposure
      to civil or criminal liability under the Foreign Corrupt Practices Act,
      Export Control, Anti-Boycott and other international trade regulations;
      and





·
            general
      economic and political conditions in foreign
  markets.




These and
other risks associated with international operations could harm our overall
operations and significantly reduce our profits and revenues.  In
addition, services billed through foreign subsidiaries are attributed to the
international category of our business, regardless of where the services are
performed and conversely, services billed through domestic operating
subsidiaries are attributed to a domestic category of clients, regardless of
where the services are performed.  As a result, our international risk
exposure may be more or less than the percentage of revenues attributed to our
international operations.




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




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




83




We
rely on third-party software to run our critical accounting, project management
and financial information systems and, as a result, any sudden loss, disruption
or unexpected costs to maintain these systems could significantly increase our
operational expense as well as disrupt the management of our business
operations.




We rely
on third-party software to run our critical accounting, project management and
financial information systems.  For example, we relied on one software
vendor’s products to process a majority of our total revenues for the nine
months ended September 26, 2008.  We also depend on our third-party
software vendors to provide long-term software maintenance support for our
information systems.  Software vendors may decide to discontinue
further development, integration or long-term software maintenance support for
our information systems, in which case we may need to abandon one or more of our
current information systems and migrate some or all of our accounting, project
management and financial information to other systems, thus increasing our
operational expense as well as disrupting the management of our business
operations.




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




Force
majeure events, including natural disasters, such as Hurricane Katrina that
affected the Gulf Coast in August 2005, and terrorist attacks, such as those
that occurred in New York and Washington, D.C. on September 11, 2001, could
negatively impact the economies in which we operate.  For example,
Hurricane Katrina caused several of our Gulf Coast offices to close, interrupted
a number of active client projects and forced the relocation of our employees in
that region from their homes.  In addition, during the September 11,
2001 terrorist attacks, many client records were destroyed when our office at
the World Trade Center was destroyed.




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




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




As of
September 26, 2008, approximately 13% of our employees were covered by
collective bargaining agreements.  The outcome of any future
negotiations relating to union representation or collective bargaining
agreements may not be favorable to us.  We may reach agreements in
collective bargaining that increase our operating expenses and lower our net
income as a result of higher wages or benefits expenses.  In addition,
negotiations with unions could divert management attention and disrupt
operations, which may adversely affect our results of operations.  If
we are unable to negotiate acceptable collective bargaining agreements, we may
have to address the threat of union-initiated work actions, including
strikes.  Depending on the nature of the threat or the type and
duration of any work action, these actions could disrupt our operations and
adversely affect our operating results.




84




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




Our
success depends, in part, upon our ability to protect our proprietary
information and other intellectual property.  We rely principally on
trade secrets to protect much of our intellectual property where we do not
believe that patent or copyright protection is appropriate or
obtainable.  However, trade secrets are difficult to
protect.  Although our employees are subject to confidentiality
obligations, this protection may be inadequate to deter or prevent
misappropriation of our confidential information.  In addition, we may
be unable to detect unauthorized use of our intellectual property or otherwise
take appropriate steps to enforce our rights.  Failure to obtain or
maintain trade secret protection would adversely affect our competitive business
position.  In addition, if we are unable to prevent third parties from
infringing or misappropriating our trademarks or other proprietary information,
our competitive position could be adversely affected.




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




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




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




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




85


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




Stock
Purchases




The
following table sets forth all purchases made by us or any “affiliated
purchaser” as defined in Rule 10b-18(a)(3) of the Securities Exchange Act of
1934, as amended, of our common shares during the third quarter of
2008.




Period
      (In
      thousands, except average price paid per share)
            
            (a)
      Total Number of Shares Purchased (1)(2)
            
            
            (b)
      Average Price Paid per Share
            
            
            (c)
      Total Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs (2)
            
            
            (d)
      Maximum Number of Shares that May Yet be Purchased Under the Plans or
      ProgramsJune
      28, 2008 –
              July 25, 2008
            
            
            11
            
            
            $
            41.28
            
            
            
            —
            
            
            
            —July
      26, 2008 –
              August 22, 2008
            
            
            231
            
            
            
            45.56
            
            
            
            —
            
            
            
            —August
      23, 2008 –
              September 26,
    2008
            
            
            1,001
            
            
            
            42.30
            
            
            
            1,000
            
            
            
            2,202Total
            
            
            1,243
            
            
            
            
            
            
            
            1,000
            
            
            
            2,202




(1)
            All
      purchases, except for purchases under our stock repurchase program
      discussed in (2) below, were made pursuant to our 1991 Stock
      Incentive Plan, our 1999 Equity Incentive Plan and our 2008 Equity
      Incentive Plan (“Stock Incentive Plans”), which allow our employees to
      surrender shares of our common stock as payment toward the exercise cost
      and tax withholding obligations associated with the exercise of stock
      options or the vesting of restricted or deferred
  stock.




(2)
            On
      March 26, 2007, we announced that our Board of Directors approved a common
      stock repurchase program that allowed the repurchase of up to one million
      shares of our common stock plus additional shares issued or deemed issued
      under our Stock Incentive Plans and ESPP for the period from December 30,
      2006 through January 1, 2010 (excluding shares issuable upon the exercise
      of options granted prior to December 30, 2006).  Our stock
      repurchase program will terminate on January 1, 2010.  Pursuant
      to our 2007 Credit Facility, we were subject to covenants that limited our
      ability to repurchase our common stock.  However, on June 19,
      2008, we amended our 2007 Credit Facility so that, if we maintained
      designated financial criteria, we were allowed to repurchase up to one
      million shares of common stock annually.  Pursuant to the
      Board-approved stock repurchase program and our amended 2007 Credit
      Facility, we completed the repurchase of one million shares during the
      third quarter of 2008.




ITEM 3.  DEFAULTS UPON SENIOR SECURITIES




None.




ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS




None.




ITEM 5.  OTHER INFORMATION




None.




86


ITEM 6.  EXHIBITS




(a)                 Exhibits




Incorporated
      by ReferenceExhibit
      Number
            
            
            Exhibit
      Description
            
            
            Form
            
            
            Exhibit
            
            
            Filing
      Date
            
            
            Filed
      Herewith3.01
            
            
            Restated
      Certificate of Incorporation of URS Corporation, as filed with the
      Secretary of State of Delaware on September 9, 2008.
            
            
            
            8-K
            
            
            
            3.01
            
            
            9/11/20083.02
            
            
            By-laws
      of URS Corporation as amended and restated on September 5,
      2008.
            
            
            
            8-K
            
            
            
            3.02
            
            
            9/11/200810.1
            
            
            Employment
      Agreement between URS Corporation and Thomas H. Zarges, dated as of
      August 7, 2008.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            X*31.1
            
            
            Certification
      of URS Corporation's Chief Executive Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            X31.2
            
            
            Certification
      of URS Corporation's Chief Financial Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            X32
            
            
            Certification
      of URS Corporation's Chief Executive Officer and Chief Financial Officer
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            X**




*
            Represents
      a management contract or compensatory plan or
  arrangement.




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




87




SIGNATURES




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




URS
      CORPORATIONDated:
      November 5, 2008
              By:
              /s/ Reed
      N. BrimhallReed
      N. BrimhallVice
      President, Controllerand
      Chief Accounting Officer







88









Exhibit
      No.
            
            
            Description10.1
            
            
            Employment
      Agreement between URS Corporation and Thomas H. Zarges, dated as of August
      7, 2008.31.1
            
            
            Certification
      of URS Corporation's Chief Executive Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.31.2
            
            
            Certification
      of URS Corporation's Chief Financial Officer pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002.32
            
            
            Certification
      of URS Corporation's Chief Executive Officer and Chief Financial
      Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.




89