UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     

URS CORPORATION

(Exact name of registrant as specified in its charter)

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

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

Large accelerated filer þ      Accelerated filer o      Non-Accelerated filer 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 þ

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 July 31, 2006
Common Stock, $.01 par value		51,922,082

 

 

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,” “intend,” “may,” “plan,” “predict,” “will,” and similar terms used in reference to our future revenue and business trends; future accounting policies and actuarial estimates; future stock-based liabilities and estimates; future retirement based contributions, liabilities and estimates; future outcomes of our legal proceedings; future maintenance of our insurance coverage; future guarantees and debt service; 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; changes in our book of business; our compliance with government contract procurement regulations; our dependence on government appropriations; our ability to make accurate estimates and control costs; our ability to bid on, win, execute and renew contracts; our partners ability to perform on projects; environmental issues and liabilities; liabilities for pending and future litigation; the impact of changes in laws and regulations; our ability to maintain adequate insurance coverage; a decline in defense spending; industry competition; our ability to attract and retain key individuals; risks associated with changes in equity compensation; our leveraged position and ability to service our debt; risks associated with international operations; project management and accounting software risks; terrorist and natural disaster risks; our relationships with our labor unions; 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 35, Risk Factors beginning on page 54, 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.		Consolidated Financial Statements
		Consolidated Balance Sheets June 30, 2006 and December 30, 2005			2
		Consolidated Statements of Operations and Comprehensive Income Three months and six months ended June 30, 2006 and July 1, 2005			3
		Consolidated Statements of Cash Flows Six months ended June 30,2006 and July 1, 2005			4
		Notes to Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			52
Item 4.		Controls and Procedures			53
PART II.		OTHER INFORMATION:
Item 1.		Legal Proceedings			54
Item 1A.		Risk Factors			54
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			63
Item 3.		Defaults Upon Senior Securities			63
Item 4.		Submission of Matters to a Vote of Security Holders			63
Item 5.		Other Information			64
Item 6.		Exhibits			64
EXHIBIT 10.4
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I
FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

URS CORPORATION AND SUBSIDIARIES

		June 30, 2006				December 30, 2005
ASSETS
Current assets:
Cash and cash equivalents, including $19,165 and $61,319 of short-term money market funds, respectively		$	77,256			$	101,545
Accounts receivable, including retainage of $31,057 and $37,280, respectively			636,106				630,340
Costs and accrued earnings in excess of billings on contracts in process			544,036				513,943
Less receivable allowances			(44,178	)			(44,293	)
Net accounts receivable			1,135,964				1,099,990
Deferred tax assets			20,180				18,676
Prepaid expenses and other assets			78,468				52,849
Total current assets			1,311,868				1,273,060
Property and equipment at cost, net			156,710				146,470
Goodwill			988,100				986,631
Purchased intangible assets, net			4,535				5,379
Other assets			51,309				57,908
		$	2,512,522			$	2,469,448
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdrafts		$	22,967			$	1,547
Notes payable and current portion of long-term debt			24,230				20,647
Accounts payable and subcontractors payable, including retainage of $14,175 and $13,323, respectively			239,814				288,561
Accrued salaries and wages			197,971				196,825
Accrued expenses and other			90,775				82,404
Billings in excess of costs and accrued earnings on contracts in process			120,769				108,637
Total current liabilities			696,526				698,621
Long-term debt			241,699				297,913
Deferred tax liabilities			22,364				19,785
Other long-term liabilities			113,418				108,625
Total liabilities			1,074,007				1,124,944
Commitments and contingencies (Note 5)
Minority interest			2,113				—
Stockholders’ equity:
Preferred stock, authorized 3,000 shares; no shares outstanding			—				—
Common shares, par value $.01; authorized 100,000 shares; 51,925 and 50,432 shares issued, respectively; and 51,873 and 50,380 shares outstanding, respectively			519				504
Treasury stock, 52 shares at cost			(287	)			(287	)
Additional paid-in capital			959,928				925,087
Accumulated other comprehensive loss			(3,769	)			(3,985	)
Retained earnings			480,011				423,185
Total stockholders’ equity			1,436,402				1,344,504
		$	2,512,522			$	2,469,448

See Notes to Consolidated Financial Statements

URS CORPORATION AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		June 30,				July 1,				June 30,				July 1,
		2006				2005				2006				2005
Revenues		$	1,069,991			$	961,616			$	2,068,140			$	1,883,616
Direct operating expenses			690,931				620,617				1,322,235				1,209,456
Gross profit			379,060				340,999				745,905				674,160
Indirect, general and administrative expenses			316,874				318,061				636,045				606,603
Operating income			62,186				22,938				109,860				67,557
Interest expense			5,850				10,261				10,985				20,833
Income before income taxes and minority interest			56,336				12,677				98,875				46,724
Income tax expense			23,599				5,060				41,592				19,020
Minority interest in income of consolidated subsidiaries, net of tax			99				—				457				—
Net income			32,638				7,617				56,826				27,704
Other comprehensive income (loss):
Minimum pension liability adjustments, net of tax (benefit)			—				(270	)			(2,366	)			(270	)
Foreign currency translation adjustments			2,538				(3,115	)			2,582				(3,781	)
Comprehensive income		$	35,176			$	4,232			$	57,042			$	23,653
Earnings per share (Note 1):
Basic		$	.64			$	.17			$	1.13			$	.63
Diluted		$	.63			$	.17			$	1.11			$	.61
Weighted-average shares outstanding (Note 1):
Basic			50,635				44,844				50,469				44,288
Diluted			51,519				46,158				51,425				45,454

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(In thousands)

		Six Months Ended
		June 30,				July 1,
		2006				2005
Cash flows from operating activities:
Net income		$	56,826			$	27,704
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			19,279				19,869
Amortization of financing fees			929				2,873
Costs incurred for extinguishment of debt			—				33,107
Provision for doubtful accounts			2,948				5,057
Deferred income taxes			1,075				3,136
Stock-based compensation			7,909				3,492
Excess tax benefits from stock-based compensation			(2,609	)			—
Tax benefit of stock compensation			4,753				4,602
Minority interest in net income of consolidated subsidiaries			457				—
Changes in assets and liabilities:
Accounts receivable and costs and accrued earnings in excess of billings on contracts in process			(38,923	)			(54,116	)
Prepaid expenses and other assets			(25,045	)			(17,630	)
Accounts payable, accrued salaries and wages and accrued expenses			(38,510	)			50,076
Billings in excess of costs and accrued earnings on contracts in process			12,132				14,760
Distributions from unconsolidated affiliates, net			17,640				7,139
Other long-term liabilities			1,656				3,923
Other liabilities, net			(9,385	)			(15,987	)
Total adjustments and changes			(45,694	)			60,301
Net cash from operating activities			11,132				88,005
Cash flows from investing activities:
Proceeds from disposal of property and equipment			—				1,900
Capital expenditures, less equipment purchased through capital leases			(9,794	)			(9,095	)
Net cash from investing activities			(9,794	)			(7,195	)
Cash flows from financing activities:
Long-term debt principal payments			(68,481	)			(503,526	)
Long-term debt borrowings			552				351,271
Net borrowings (payments) under the lines of credit			5,295				(13,711	)
Net change in book overdraft			21,420				(69,842	)
Capital lease obligation payments			(8,834	)			(6,871	)
Short-term note borrowings			2,336				1,875
Short-term note payments			(2,613	)			(3,340	)
Excess tax benefits from stock-based compensation			2,609				—
Proceeds from common stock offering, net of related expenses			—				130,260
Proceeds from sale of common stock from employee stock purchase plan and exercise of stock options			22,089				25,626
Tender and call premiums paid for debt extinguishment			—				(19,419	)
Payments for financing fees			—				(4,416	)
Net cash from financing activities			(25,627	)			(112,093	)
Net decrease in cash and cash equivalents			(24,289	)			(31,283	)
Cash and cash equivalents at beginning of period			101,545				108,007
Cash and cash equivalents at end of period		$	77,256			$	76,724
Supplemental information:
Interest paid		$	9,408			$	20,879
Taxes paid		$	33,043			$	21,360
Equipment acquired through capital leases		$	18,651			$	12,563

See Notes to Consolidated Financial Statements

URS CORPORATION AND SUBSIDIARIES

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

Overview

     The terms “we,” “us,” and “our” used in this quarterly report refer to URS Corporation and its consolidated subsidiaries unless otherwise indicated. We operate through two divisions: the URS Division and the EG&G Division. We offer a comprehensive range of professional planning and design, systems engineering and technical assistance, program and construction management, and operations and maintenance services for transportation, facilities, environmental, homeland security, defense systems, installations and logistics, commercial/industrial, and water/wastewater treatment projects. Headquartered in San Francisco, we operate in more than 20 countries with approximately 29,400 employees providing services to the U.S. federal government, state and local government agencies, and private industry clients in the United States and abroad.

     The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 interim 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 fiscal year ended December 30, 2005. The results of operations for the six months ended June 30, 2006 are not indicative of the operating results for the full year or for future years.

     In the opinion of management, the accompanying unaudited interim 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 interim consolidated financial statements in conformity with GAAP necessarily requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and 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 financial statements include the financial position, results of operations and cash flows of our wholly-owned subsidiaries and joint ventures required to be consolidated under Financial Accounting Standards Board Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46(R)”). All intercompany transactions and accounts were eliminated in consolidation. We participate in joint ventures formed for the purpose of bidding, negotiating and executing projects. Sometimes we function as the sponsor or manager of the projects performed by the joint venture. Investments in unconsolidated joint ventures and our equity in their earnings are not material to our consolidated financial statements. Investments in unconsolidated joint ventures are accounted for using the equity method.

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

Cash and Cash Equivalents/Book Overdrafts

     We consider all highly liquid investments with acquisition date maturities of three months or less to be cash equivalents. At June 30, 2006 and December 30, 2005, we had book overdrafts for some of our disbursement accounts. These overdrafts represented transactions that had not cleared the bank accounts at the end of the reporting period. We transferred cash on an as-needed basis to fund these items as they cleared the bank in subsequent periods.

     At June 30, 2006 and December 30, 2005, cash and cash equivalents included $45.7 million and $43.5 million, respectively, held and used 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 unvested restricted stock awards and units. Diluted EPS is computed using the treasury stock method for stock options and unvested restricted stock awards and units. The treasury stock method assumes conversion of all potentially dilutive shares of common stock whereby the proceeds from assumed exercises are used to hypothetically repurchase stock at the average market price for the period. Potentially dilutive shares of common stock outstanding include stock options, and unvested restricted stock awards and units, which includes consideration of stock-based compensation required by Statement of Financial Accounting Standards No. 123 (Revised), “Share-Based Payment” (“SFAS 123(R)”). 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.

     In accordance with the disclosure requirements of Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”), a reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows:

		Three Months Ended								Six Months Ended
		June 30,				July 1,				June 30,				July 1
		2006				2005				2006				2005
		(In thousands, except per share data)
Numerator — Basic
Net income		$	32,638			$	7,617			$	56,826			$	27,704
Denominator — Basic
Weighted-average common stock shares outstanding			50,635				44,844				50,469				44,288
Basic earnings per share		$	.64			$	.17			$	1.13			$	.63
Numerator — Diluted
Net income		$	32,638			$	7,617			$	56,826			$	27,704
Denominator — Diluted
Weighted-average common stock shares outstanding			50,635				44,844				50,469				44,288
Effect of dilutive securities
Stock options and restricted stock awards and units			884				1,314				956				1,166
			51,519				46,158				51,425				45,454
Diluted earnings per share		$	.63			$	.17			$	1.11			$	.61

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

     In our computation of diluted EPS, we excluded the following potential shares of issued and unexercised stock options, and unvested restricted stock awards and units, which have an anti-dilutive effect on EPS.

Three Months

Three Months

Six Months

Six Months

Ended

Ended

Ended

Ended

June 30, 2006

July 1, 2005

June 30, 2006

July 1, 2005

(In thousands)

Number of stock options and unvested restricted stock awards and units

420

3

420

23

Adopted and Recently Issued Statements of Financial Accounting Standards

Stock-Based Compensation

     We adopted SFAS 123(R) on December 31, 2005, the beginning of our 2006 fiscal year, using the modified prospective transition method, which requires measurement of compensation expense for all stock-based awards at fair value on the grant date and recognition of compensation over the service period for awards expected to vest. Upon adoption, our consolidated financial statements reflect the impact of SFAS 123(R), but in accordance with the modified prospective transition method, prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).

     On November 10, 2005, the Financial Accounting Standard Board (“FASB”) issued FASB Staff Position No. SFAS 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” (“SFAS 123(R)-3”). The alternative transition method permitted by SFAS 123(R)-3 is a simplified method for establishing the beginning balance of the additional paid-in capital pool (“APIC Pool”) related to the tax effects of employee share-based compensation. We are in the process of evaluating whether to adopt the simplified method contained in SFAS 123(R)-3.

     See Note 7, “Stock-Based Compensation,” for a further discussion.

     In June 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes,” which prescribes a recognition threshold and measurement process for recording, in the financial statements, uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on recognition or de-recognition and measurement and classification of FIN 48 liability; accruals of interest and penalties; accounting for changes in judgment in interim periods; and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48 will be effective for us at the beginning of fiscal year 2007. We are in the process of determining the effect that the adoption of FIN 48 will have on our financial statements.

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

NOTE 2. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

		June 30,				December 30,
		2006				2005
		(In thousands)
Equipment		$	165,468			$	156,893
Furniture and fixtures			22,679				21,469
Leasehold improvements			44,679				41,676
Construction in progress			4,724				4,660
			237,550				224,698
Accumulated depreciation and amortization			(132,063	)			(120,950	)
			105,487				103,748
Capital leases (1)			118,018				100,275
Accumulated amortization			(66,795	)			(57,553	)
			51,223				42,722
Property and equipment at cost, net		$	156,710			$	146,470

     As of June 30, 2006 and December 30, 2005, we capitalized internal-use software development costs of $62.7 million and $61.0 million, respectively. We amortize the capitalized software costs using the straight-line method over an estimated useful life of ten years.

     We depreciate property and equipment using the following estimated useful lives:

		Estimated Useful Life
Equipment		4 – 10 years
Capital leases		3 – 10 years
Furniture and fixtures		5 – 10 years
Leasehold improvements		6 months – 20 years

     Depreciation expense related to property and equipment was $9.6 million and $9.3 million for the three months ended June 30, 2006 and July 1, 2005, respectively. Depreciation expense related to property and equipment was $18.4 million for both six-month periods ended June 30, 2006 and July 1, 2005. Amortization expense related to purchased intangible assets was $0.5 million and $0.7 million for the three months ended June 30, 2006 and July 1, 2005, respectively. Amortization expense related to purchased intangible assets was $0.9 million and $1.5 million for the six months ended June 30, 2006 and July 1, 2005, respectively.

NOTE 3. EMPLOYEE RETIREMENT PLANS

Executive Plan

     We entered into a Supplemental Executive Retirement Agreement (the “Executive Plan”) in July 1999, which was amended and restated in September 2003, with our Chief Executive Officer (“CEO”) to provide an annual lifetime retirement benefit, which was fully earned as of June 30, 2006. We are currently in discussions with our CEO to extend the terms of his employment agreement. The components of our net

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

periodic pension costs related to the Executive Plan for the three months and six months ended June 30, 2006 and July 1, 2005 were as follows:

		Three Months Ended								Six Months Ended
		June 30,				July 1,				June 30,				July 1,
		2006				2005				2006				2005
		(In thousands)
Amortization of net loss		$	8			$	—			$	16			$	—
Interest cost			140				131				280				262
Net periodic benefit cost		$	148			$	131			$	296			$	262

Radian SERP and SCA

     URS maintains the Radian defined benefit plans, which include a Supplemental Executive Retirement Plan (“SERP”) and a Salary Continuation Agreement (“SCA”). Their purpose is to supplement the retirement benefits provided by other benefit plans upon the participants attaining minimum age and years of service requirements. The components of our net periodic pension costs related to the SERP and SCA for the three months and six months ended June 30, 2006 and July 1, 2005 were as follows:

		Three Months Ended								Six Months Ended
		June 30,				July 1,				June 30,				July 1,
		2006				2005				2006				2005
		(In thousands)
Amortization of net loss		$	17			$	18			$	34			$	36
Interest cost			157				145				314				290
Net periodic benefit cost		$	174			$	163			$	348			$	326

Final Salary Pension Fund

     In fiscal year 1999, we acquired Dames & Moore Group, Inc. and assumed the Dames & Moore United Kingdom Final Salary Pension Fund (“Final Salary Pension Fund”).

     The components of our net periodic pension costs relating to the Final Salary Pension Fund for the three months and six months ended June 30, 2006 and July 1, 2005 were as follows:

		Three Months Ended								Six Months Ended
		June 30,				July 1,				June 30,				July 1,
		2006				2005				2006				2005
		(In thousands)
Service cost		$	195			$	297			$	382			$	545
Interest cost			225				253				442				463
Expected return on plan assets			(105	)			(142	)			(206	)			(261	)
Amortization of:
Transition obligation			20				25				40				47
Net loss			48				20				93				36
Net periodic benefit cost		$	383			$	453			$	751			$	830

     We expect to make cash contributions during fiscal year 2006 of approximately $0.6 million to the Final Salary Pension Fund.

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

EG&G Pension Plan and Post-retirement Medical Plan

     The EG&G Division maintains a defined benefit pension plan (“EG&G pension plan”) and post-retirement medical plan (“EG&G post-retirement medical plan”). These plans cover some of the EG&G Division’s hourly and salaried employees as well as the EG&G employees of a joint venture in which the EG&G Division participates.

EG&G Pension Plan

     The components of our net periodic pension costs relating to the EG&G pension plan for the three months and six months ended June 30, 2006 and July 1, 2005 were as follows:

		Three Months Ended								Six Months Ended
		June 30,				July 1,				June 30,				July 1,
		2006				2005				2006				2005
		(In thousands)
Service cost		$	1,825			$	1,636			$	3,650			$	3,272
Interest cost			2,350				2,135				4,700				4,270
Expected return on plan assets			(2,300	)			(2,292	)			(4,600	)			(4,584	)
Amortization of:
Prior Service cost			(525	)			(518	)			(1,050	)			(1,036	)
Net loss			425				406				850				812
Net periodic benefit cost		$	1,775			$	1,367			$	3,550			$	2,734

     We expect to make cash contributions during fiscal year 2006 of approximately $7.0 million to the EG&G pension plan.

EG&G Post-retirement Medical Plan

     The components of our net periodic pension costs relating to the EG&G post-retirement medical plan for the three months and six months ended June 30, 2006 and July 1, 2005 were as follows:

		Three Months Ended								Six Months Ended
		June 30,				July 1,				June 30,				July 1,
		2006				2005				2006				2005
Service cost		$	75			$	70			$	150			$	140
Interest cost			76				69				152				138
Expected return on plan assets			(59	)			(64	)			(118	)			(128	)
Amortization of:
Net loss			—				20				—				40
Net periodic benefit cost		$	92			$	95			$	184			$	190

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

NOTE 4. CURRENT AND LONG-TERM DEBT

     Current and long-term debt consists of the following:

		June 30,				December 30,
		2006				2005
		(In thousands)
Bank term loans, payable in quarterly installments		$	205,000			$	270,000
111/2% senior notes due 2009 (net of discount and issue costs of $9 and $27)			2,816				2,798
Obligations under capital leases			46,022				36,187
Notes payable, foreign credit lines and other indebtedness			12,091				9,575
Total current and long-term debt			265,929				318,560
Less:
Current portion of long-term debt			2,816				2,798
Current portion of notes payable, foreign credit lines and other indebtedness			9,735				6,964
Current portion of capital leases			11,679				10,885
Long-term debt		$	241,699			$	297,913

Credit Facility

     Our senior credit facility (“Credit Facility”) consists of a 6-year term loan of $350.0 million and a 5-year revolving line of credit of $300.0 million, against which up to $200.0 million is available to issue letters of credit. As of June 30, 2006, we had $205.0 million outstanding under the term loan, $76.3 million in letters of credit and no amount outstanding under the revolving line of credit.

     All loans outstanding under our Credit Facility bear interest at either LIBOR or our bank’s base rate plus an applicable margin, at our option. The applicable margin will change based upon our credit rating as reported by Moody’s Investor Services and Standard & Poor’s. The LIBOR margins range from 0.625% to 1.75% and the base rate margins range from 0.0% to 0.75%. As of June 30, 2006 and December 30, 2005, the LIBOR margin was 1.00% for both the term loan and revolving line of credit. As of June 30, 2006 and December 30, 2005, the interest rates on our term loan were 6.50% and 5.53%, respectively.

     As of June 30, 2006, we were in compliance with all of the covenants of our Credit Facility.

Revolving Line of Credit

     A summary of our revolving line of credit information is as follows:

		Three Months Ended				Six Months Ended
		June 30, 2006				June 30, 2006
		(In millions, except percentages)
Effective average interest rates paid on the revolving line of credit			7.7	%			7.4	%
Average daily revolving line of credit balances		$	0.1			$	0.6
Maximum amounts outstanding at any one point		$	1.5			$	21.8

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

Other Indebtedness

     11¹/2% Senior Notes (“11¹/2% notes”). As of June 30, 2006 and December 30, 2005, we had outstanding amounts of $2.8 million, of the original outstanding principal, due 2009. Interest is payable semi-annually in arrears on March 15 and September 15 of each year. The 11¹/2% notes are effectively subordinate to our Credit Facility, capital leases and notes payable. As of June 30, 2006, we were in compliance with all of the covenants of our 11¹/2% notes.

     Notes payable, foreign credit lines and other indebtedness. As of June 30, 2006 and December 30, 2005, we had outstanding amounts of $12.1 million and $9.6 million, respectively, in notes payable and foreign lines of credit. Notes payable consists primarily of notes used to finance small acquisitions, and the purchase of office equipment, computer equipment and furniture. The weighted average interest rates of these notes were approximately 6.2% and 5.6% as of June 30, 2006 and December 30, 2005, respectively.

     We maintain foreign lines of credit, which are collateralized by the assets of our foreign subsidiaries and letters of credit. As of June 30, 2006, we had $13.1 million in lines of credit available under these facilities, with $5.6 million outstanding. As of December 30, 2005, we had $10.0 million in lines of credit available under these facilities, with no amounts outstanding. The interest rates were 5.7% and 6.6% as of June 30, 2006 and December 30, 2005, respectively.

     Capital Leases. As of June 30, 2006, we had $46.0 million in obligations under our capital leases, consisting primarily of leases for office equipment, computer equipment and furniture.

Fair Value of Financial Instruments

     The fair values of the 11¹/2% notes fluctuate depending on market conditions and our performance and at times may differ from their carrying values. We believe that the fair value of our remaining 11¹/2% notes approximate their carrying value in the amount of $2.8 million as of June 30, 2006 and December 30, 2005.

Maturities

     As of June 30, 2006, the amounts of our long-term debt outstanding (excluding capital leases) that mature in the next five years and thereafter, are as follows:

		(In thousands)
Less than one year		$	12,551
Second year			1,053
Third year			31,117
Fourth year			41,395
Fifth year			133,637
Thereafter			153
		$	219,906

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

Costs Incurred for Extinguishment of Debt

     The write-off of the pre-paid financing fees, debt issuance costs and discounts and the amounts paid for call premiums are included in the indirect, general and administrative expenses of our Consolidated Statements of Operations and Comprehensive Income. We did not incur any costs related to the extinguishment of debt during the six months ended June 30, 2006. During the three months and six months ended July 1, 2005, we incurred the following costs to extinguish our old senior credit facility (“Old Credit Facility”), 11¹/2% notes, and 12¹/4% senior subordinated notes (“12¹/4% Notes”) due 2009 as detailed below:

		Three Months Ended July 1, 2005
		Old Credit				111/2%				121/4%
		Facility				Notes				Notes				Total
		(in thousands)
Write-off of pre-paid financing fees, debt issuance costs and discounts		$	6,012			$	7,527			$	—			$	13,539
Tender premiums and expenses			—				18,806				—				18,806
Total		$	6,012			$	26,333			$	—			$	32,345

		Six Months Ended July 1, 2005
		Old Credit				111/2%				121/4%
		Facility				Notes				Notes				Total
		(in thousands)
Write-off of pre-paid financing fees, debt issuance costs and discounts		$	6,012			$	7,527			$	149			$	13,688
Tender/Call premiums and expenses			—				18,806				613				19,419
Total		$	6,012			$	26,333			$	762			$	33,107

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

NOTE 5. COMMITMENTS AND CONTINGENCIES

     In the ordinary course of business, we are subject to certain 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 proceedings in particular:

	•		Saudi Arabia: Prior to our acquisition of Lear Seigler Services, Inc. (“LSI”) in August 2002, 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’s operational performance under the F-5 Contract was completed in November 2000 and the Ministry has yet to pay a $12.2 million account receivable owed to LSI. The following legal proceedings ensued:
			Two Saudi Arabian landlords have pursued claims over disputed rents in Saudi Arabia. The Saudi Arabian landlord of the Al Bilad complex received a judgment in Saudi Arabia against LSI for $7.9 million. The $7.9 million judgment remains unpaid and LSI is currently pursuing a countersuit in Saudi Arabia against the Al Bilad landlord. Another landlord has obtained a judgment in Saudi Arabia against LSI for $1.2 million. The $1.2 million judgment also remains unpaid and LSI successfully appealed the decision in June 2005 in Saudi Arabia, which was remanded for future proceedings.
			LSI is involved in a dispute relating 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 disagrees with the Zakat assessment and provided responses, additional information and documentation to Zakat and the Tax Preliminary Appeal Committee. On June 6, 2006, 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.
			Despite LSI’s position on the taxing authority’s assessment, in 2004 the Ministry directed payment of a performance bond outstanding under the F-5 Contract in the amount of approximately $5.6 million. Banque Saudi Fransi paid the bond to the Ministry and thereafter filed a reimbursement claim against LSI in December 2004 in the United Kingdom’s High Court of Justice, Queen’s Bench Division, Commercial Court. LSI believes Banque Saudi Fransi’s payment of the performance bond amount was inappropriate and constituted a contractual violation of our performance bond agreement. In April 2005, LSI responded to the Banque Saudi Fransi’s claim and the Commercial Court granted Banque Saudi Fransi an application for summary judgment of approximately $5.6 million, plus attorney fees and interest. The Court of Appeal of England & Wales (Civil Division) granted LSI an appeal of this judgment on December 6, 2005, on the condition that LSI secured the judgment. LSI has satisfied this condition by providing Banque Saudi Fransi with a letter of credit covering the amount of the judgment. On July 20, 2006, the Court of Appeal issued a draft judgment in favor of Banque Saudi Fransi. We are currently reviewing our legal options. We accrued a charge of $7.0 million related to this matter during the year ended December 30, 2005.
			LSI intends to continue to vigorously defend these matters.
			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

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

			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. LSI intends to continue to vigorously pursue this matter.
	•		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”) in the amount of $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”).
			Radian and Solidere initially sought to resolve their disputes in an arbitration before the International Chamber of Commerce (“ICC”). Solidere alleges that Radian’s activities and services resulted in the production of chemical and biological pollutants, including methane gas, at the Normandy Project. 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 Site; and, ii) pay approximately $2.4 million in attorney fees and other expenses. The ICC also authorized Solidere to withhold project payments.
			Since the July 2004 ruling, numerous other legal actions have been 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 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. Solidere’s February 13 filing seeks to recover the costs to remediate the Normandy 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 28, 2006, Mouawad – Edde SARL, filed a request for arbitration 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.
			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 matter is currently under submission by the First Court in Beirut. The current instability in Lebanon may delay the Court’s ruling.
			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

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

			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.
			As of June 30, 2006, Solidere had withheld project payments amounting to $10.1 million. We have recorded this amount as accounts receivable and retainage and have included it in our consolidated accounts receivable. In addition, Radian has recorded $5.6 million in consolidated costs and accrued earnings in excess of billings on contracts in process and $3.6 million in consolidated other assets.
			Radian will continue to vigorously pursue its claims against Solidere and Alpina. Radian and URS Corporation will also continue to vigorously defend the claims asserted against them.
	•		Tampa-Hillsborough County Expressway Authority: In 1999, URS Corporation Southern, a wholly-owned subsidiary, entered into an agreement (“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, a 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 were reported at the time of the incident. The Authority has completed and is implementing a plan to remediate the Expressway. In October 2005, the Authority filed a lawsuit in the Thirteenth Judicial Circuit of Florida against URS Corporation Southern, URS Holdings and an unrelated third party, alleging breach of contract and professional negligence resulting in damages to the Authority exceeding $120 million. Sufficient information is not currently available to assess liabilities associated with a remediation plan. 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 that Westchester has paid to the Authority and for any future amounts paid by Westchester for claims which the Authority has submitted for losses caused by the subsidence of the pier. URS Corporation Southern removed Westchester’s lawsuit to United States District Court for the Middle District of Florida and also filed multiple counterclaims against Westchester for insurance coverage under the Westchester policy.
			URS Corporation Southern and URS Holdings intend to continue to vigorously defend this matter.
	•		Rocky Mountain Arsenal: In January of 2002, URS Group, Inc., a wholly-owned subsidiary of URS Corporation, 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. URS Group, Inc. believes that contractual misrepresentations resulted in contract cost overruns in excess of $10.0 million, of which $4.4 million is included in our costs and accrued earnings in excess of billings on contracts in process. In October 2004, URS Group, Inc. filed a complaint asserting a breach of contract seeking recovery of the cost overruns against Foster Wheeler Environmental, and Tetra Tech FW, Inc. both subsidiaries of Tetra Tech, Inc. (“Tetra”), in District Court for the County of Denver in the State of Colorado. In June 2006, a $1.1 million judgment was issued by the District Court against Tetra on the matter. However, URS Group, Inc. believes that the recent judgment, even though issued in its favor, did not adequately address the underlying merits of URS Group Inc.’s claims and therefore, URS Group, Inc. appealed the recent judgment to the Colorado Court of Appeals in June 2006. URS Group, Inc. intends to continue to vigorously pursue this matter.

     Currently, we have limits of $125.0 million per loss and $125.0 million in the aggregate for a 13-month period for general liability, professional errors and omissions liability and contractor’s pollution liability insurance (in addition to other policies for some specific projects). The general liability policy

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

includes a self-insured claim retention of $4.0 million (or $10.0 million in some circumstances). The professional errors and omissions liability and contractor’s pollution liability insurance policies each include a self-insured claim retention amount of $10.0 million each. In some actions, parties may seek punitive and treble damages that substantially exceed our insurance coverage.

     Excess limits provided for these coverages are 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. We intend to maintain these policies; however, 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.

     Although the outcome of our contingencies cannot be predicted with certainty and no assurances can be provided, based on our previous experience in such matters, we do not believe that any of our contingencies described above, individually or collectively, are likely to materially exceed established loss accruals or our various professional errors and omissions, project-specific and potentially other insurance policies. However, the resolution of outstanding contingencies is subject to inherent uncertainty and it is reasonably possible that such resolution could have an adverse effect on us.

     As of June 30, 2006, we had the following guarantee obligations and commitments:

     We have guaranteed the credit facility of one of our 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 federal government. The term of the guarantee is equal to the remaining term of the underlying credit facility, which will expire on September 30, 2007. The amount of the guarantee was $6.5 million at June 30, 2006.

     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 to insure 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. 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. Currently, we have no material guarantee claims for which losses have been recognized.

NOTE 6. SEGMENT AND RELATED INFORMATION

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

     These two segments operate under separate management groups and produce discrete financial information. Management also reviews the operating results of these two segments separately. The accounting policies of the reportable segments are the same as those described in the summary of

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

significant accounting policies. The information disclosed in our consolidated financial statements is based on the two segments that comprise our current organizational structure.

     The following table presents summarized financial information of our reportable segments. “Eliminations” in the following tables include elimination of inter-segment sales and elimination of investments in subsidiaries.

		June 30, 2006
						Property
		Net				and
		Accounts				Equipment
		Receivable				at Cost, Net				Total Assets
		(In thousands)
URS Division		$	866,042			$	143,894			$	1,151,520
EG&G Division			269,922				8,203				295,506
			1,135,964				152,097				1,447,026
Corporate			—				4,613				1,751,396
Eliminations			—				—				(685,900	)
Total		$	1,135,964			$	156,710			$	2,512,522

		December 30, 2005
						Property
		Net				and
		Accounts				Equipment
		Receivable				at Cost, Net				Total Assets
		(In thousands)
URS Division		$	801,440			$	132,983			$	1,084,127
EG&G Division			298,550				8,491				320,616
			1,099,990				141,474				1,404,743
Corporate			—				4,996				1,687,184
Eliminations			—				—				(622,479	)
Total		$	1,099,990			$	146,470			$	2,469,448

		Three Months Ended June 30, 2006
						Operating				Depreciation
						Income				and
		Revenues				(Loss)				Amortization
		(In thousands)
URS Division		$	689,512			$	50,541			$	8,804
EG&G Division			385,274				22,794				1,044
Eliminations			(4,795	)			(300	)			—
			1,069,991				73,035				9,848
Corporate			—				(10,849	)			244
Total		$	1,069,991			$	62,186			$	10,092

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

		Three Months Ended July 1, 2005
						Operating				Depreciation
						Income				and
		Revenues				(Loss)				Amortization
		(In thousands)
URS Division		$	622,085			$	47,774			$	8,178
EG&G Division			340,932				17,997				1,328
Eliminations			(1,401	)			(82	)			—
			961,616				65,689				9,506
Corporate			—				(42,751	)			576
Total		$	961,616			$	22,938			$	10,082

		Six Months Ended June 30, 2006
						Operating				Depreciation
						Income				and
		Revenues				(Loss)				Amortization
		(In thousands)
URS Division		$	1,332,899			$	92,873			$	16,709
EG&G Division			745,631				38,115				2,082
Eliminations			(10,390	)			(654	)			—
			2,068,140				130,334				18,791
Corporate			—				(20,474	)			488
Total		$	2,068,140			$	109,860			$	19,279

		Six Months Ended July 1, 2005
						Operating				Depreciation
						Income				and
		Revenues				(Loss)				Amortization
		(In thousands)
URS Division		$	1,230,154			$	90,744			$	16,509
EG&G Division			656,382				30,728				2,640
Eliminations			(2,920	)			(179	)			—
			1,883,616				121,293				19,149
Corporate			—				(53,736	)			720
Total		$	1,883,616			$	67,557			$	19,869

     We define our segment operating income (loss) as total segment net income, before income tax and net interest expense. Our long-lived assets primarily consist of our property and equipment.

Geographic areas

     Our revenues and net property and equipment at cost by geographic area are shown below.

		Three Months Ended								Six Months Ended
		June 30,				July 1,				June 30,				July1,
		2006				2005				2006				2005
		(In thousands)
Revenues
United States		$	973,949			$	864,593			$	1,879,642			$	1,699,361
International			97,666				100,566				191,857				188,663
Eliminations			(1,624	)			(3,543	)			(3,359	)			(4,408	)
Total revenues		$	1,069,991			$	961,616			$	2,068,140			$	1,883,616

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

     No individual foreign country contributed more than 10% of our consolidated revenues for the three months and six months ended June 30, 2006 and July 1, 2005.

		June 30,				December 30,
		2006				2005
		(In thousands)
Property and equipment at cost, net
United States		$	138,064			$	129,182
International			18,646				17,288
Total Property and equipment at cost, net		$	156,710			$	146,470

Major Customers

     We have multiple contracts with the U.S. Army, which collectively contributed more than 10% of our total consolidated revenues; however, we are not dependent on any single contract on an ongoing basis, and the loss of any contract would not have a material adverse effect on our business.

		URS Division				EG&G Division				Total
						(In millions)
Three months ended June 30, 2006
The U.S. Army (1)		$	24.1			$	194.2			$	218.3
Three months ended July 1, 2005
The U.S. Army (1)		$	24.8			$	168.3			$	193.1
Six months ended June 30, 2006
The U.S. Army (1)		$	52.0			$	377.7			$	429.7
Six months ended July 1, 2005
The U.S. Army (1)		$	50.4			$	315.1			$	365.5

NOTE 7. STOCK-BASED COMPENSATION

     On October 12, 1999, our stockholders approved the 1999 Equity Incentive Plan (“1999 Plan”). An aggregate of 1.5 million shares of common stock initially were reserved for issuance under the 1999 Plan, and the 1999 Plan provides an automatic reload of shares every July 1 through 2009 equal to the lesser of 5% of the outstanding common stock or 1.5 million shares. On March 26, 1991, our stockholders approved the 1991 Stock Incentive Plan (“1991 Plan”). The 1991 Plan provided for the grant of up to 3.3 million restricted shares, stock units and options. When the 1999 Plan was approved, the remaining shares available for grant under the 1991 Plan were added to the 1999 Plan.

     As of June 30, 2006, we had reserved approximately 9.6 million shares and had issued options and restricted stock awards and units in the aggregate amount of approximately 7.8 million shares under the 1999 Plan.

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

     We adopted SFAS 123(R) on December 31, 2005, the beginning of our 2006 fiscal year, using the modified prospective transition method. Accordingly, results of prior periods have not been restated to reflect and do not include the impact of SFAS 123(R). Upon adoption of SFAS 123(R), we recorded stock-based compensation expense for all stock-based compensation awards granted prior to, but not yet recognized as of December 31, 2005 based on the fair value at the grant date in accordance with the original provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” In addition, we recorded compensation expense for the share-based payment awards granted between December 31, 2005 and June 30, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). We used the Black-Scholes option pricing model to measure the estimated fair value of stock-based option awards issued under our Stock Incentive Plans and our ESPP.

     We recognize stock-based compensation expense, net of estimated forfeitures, over the service periods of the stock-based compensation awards on a straight-line basis in indirect, general, and administrative (“IG&A”) expenses of our Consolidated Statements of Operations and Comprehensive Income. Stock option awards expire in ten years from the date of grant. Stock options, restricted stock awards, and restricted stock units vest over service periods that range from three to four years. SFAS 123(R) requires the estimation of forfeitures at the time of grant and then re-measured at least annually in order to estimate the amount of share-based awards that will ultimately vest. We estimate the forfeiture rate based on our historical experience. We allocated our stock-based compensation expenses entirely to IG&A expenses as the proportional expenses that would have been allocated to direct costs are not material. No stock-based compensation expense related to our Employee Stock Purchase Plan (“ESPP”) was recognized during the six months ended June 30, 2006 because our ESPP qualifies as a non-compensatory plan under SFAS 123(R).

     The following table presents our stock-based compensation expenses related to restricted stock awards and units, and the related income tax benefits recognized for the three months and six months ended June 30, 2006 and July 1, 2005.

		Three Months Ended								Six Months Ended
		June 30,				July 1,				June 30,				July1,
		2006				2005				2006				2005
		(In millions)
Stock-based compensation expenses:
Restricted stock awards and units		$	2.6			$	1.8			$	4.2			$	3.5
Stock options			1.5				—				3.7				—
Stock-based compensation expenses		$	4.1			$	1.8			$	7.9			$	3.5
Total income tax benefits recognized in our net income related to stock-based compensation expenses		$	1.9			$	0.7			$	3.0			$	1.4

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Continued)

     The following table presents the reduction in our income before income taxes, net income, and basic and diluted earnings per share as a result of adopting SFAS 123(R).

		Three Months Ended				Six Months Ended
		June 30, 2006				June 30, 2006
		(In millions, except per share data)
Income before income taxes		$	1.5			$	3.7
Net income		$	0.9			$	2.1
Basic earnings per share		$	.02			$	.04
Diluted earnings per share		$	.02			$	.04

     Prior to the adoption of SFAS 123(R), we presented the tax benefits from exercises and vesting of stock-based compensation awards in operating cash flows. As a result of adopting SFAS 123(R), tax benefits resulting from tax deductions in excess of the compensation expense recognized for these stock-based compensation awards are classified as a financing cash inflow and as an operating cash outflow. Cash proceeds generated from employee stock option exercises and purchases by employees under our ESPP for the three months and six months ended June 30, 2006 and July 1, 2005, are summarized below.

		Three Months Ended								Six			Months Ended
		June 30,				July 1,				June 30,				July 1,
		2006				2005				2006				2005
		(In millions)
Proceeds from employee options exercises and purchases by employees under ESPP		$	9.4			$	16.1			$	22.1			$	25.6

Employee Stock Purchase Plan

     Effective January 1, 2006, we modified our ESPP to reduce the purchase discount of our common stock from 15% to 5% of the fair market value and to apply the discount only at the end of each of the six-month offering periods. Our revised ESPP qualifies as a non-compensatory plan under SFAS 123(R) because the purchase discount does not exceed the per-share issuance costs that would have been incurred through a public stock offering and the ESPP does not contain any option features. Accordingly, we did not recognize any compensation expense for common stock purchased through our ESPP. Prior to the adoption of SFAS 123(R), we also did not recognize any compensation expense for common stock issued to employees through our ESPP in accordance with a specific exception under APB 25.

Restricted Stock Awards and Units

     In light of the impact associated with the adoption of SFAS 123(R), our current policy, which began in October 2005, is to issue restricted stock awards and units, rather than stock options, to selected employees in order to minimize the volatility of our stock-based compensation expense.

     We continue to record compensation expense related to restricted stock awards and units over the applicable vesting periods as required previously under APB 25 and now under SFAS 123(R). Such compensation expense was measured at the fair market value of the restricted stock awards and units at the grant date. As of June 30, 2006, we had unrecognized stock-based compensation expense of $41.8 million related to nonvested restricted stock awards and units. This expense is expected to be recognized over a weighted-average period of 2.25 years. The total fair values of shares vested and the grant date fair values

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (Continued)

of restricted stock awards and units granted during the six months ended June 30, 2006 and July 1, 2005 are summarized below:

		June 30, 2006				July 1, 2005
		(In millions)
Fair values of shares vested		$	5.4			$	5.2
Grant date fair values of restricted stock awards and units		$	31.1			$	0.8

     A summary of the status and changes of our nonvested restricted stock awards and units, according to their contractual terms, as of June 30, 2006 and during the six months ended June 30, 2006 are presented below:

		Six Months Ended
		June 30, 2006
						Weighted-
						Average
						Grant Date
		Shares				Fair Value
Nonvested at December 30, 2005			519,818			$	33.96
Granted			721,598			$	43.15
Vested			(17,923	)		$	26.09
Forfeited			(21,750	)		$	33.11
Nonvested at June 30, 2006			1,201,743			$	39.42

Stock Incentive Plans

     No stock options were granted during the six months ended June 30, 2006. A summary of the status and changes of the stock options under our Stock Incentive Plans, according to the contractual terms, as of June 30, 2006 and for the six months ended June 30, 2006 are presented below:

										Weighted-
						Weighted-				Average
						Average				Remaining				Aggregate
						Exercise				Contractual Term				Intrinsic Value
		Shares				Price				(in Years)				(in thousands)
Outstanding at December 30, 2005			3,076,128			$	22.18
Exercised			(457,919	)		$	19.62
Forfeited			(55,773	)		$	23.38
Outstanding at June 30, 2006			2,562,436			$	22.59				6.48			$	49,731
Vested and expected to vest at June 30, 2006			2,546,081			$	22.57				6.47			$	49,464
Options exercisable at end of period			1,727,201			$	21.28				5.77			$	35,781
Weighted-average fair value of options granted during the period			—			$	—