e10vqt

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ______________________


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

For the Transition Period from November 1, 2004 to December 31, 2004

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, 26^th Floor
San Francisco, California		94111-2728
(Address of principal executive offices)		(Zip Code)

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).Yes þ No o

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 February 1, 2005

Common Stock, $.01 par value		44,196,270

URS CORPORATION AND SUBSIDIARIES

This Transition 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, future impact of health care regulations, future maintenance of our insurance coverage, future outcomes of our legal proceedings, future guarantees and debt service obligations, our future capital resources, our future ability to collect accounts receivable, our future accounting and project management information system conversion 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: the on-going economic downturn; our inability to comply with government contract procurement regulations; changes in our book of business; our dependence on government appropriations and procurements; our ability to profitably execute our contracts and guarantees; our leveraged position; our ability to service our debt; liability for pending and future litigation; the impact of changes in the 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 international operations; our ability to successfully integrate our accounting and project management software; our relationship with our labor unions; and other factors discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 42, Risk Factors That Could Affect Our Financial Conditions and Results of Operations 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 [December 31, 2004 and October 31, 2004]			2
Consolidated Statements of Operations and Comprehensive Income [Two months ended December 31, 2004 and 2003]			3
Consolidated Statements of Cash Flows [Two months ended December 31, 2004 and 2003]			4
Notes to Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			42
Item 3. Quantitative and Qualitative Disclosures About Market Risk			62
Item 4. Controls and Procedures			62
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings			62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			62
Item 3. Defaults Upon Senior Securities			63
Item 4. Submission of Matters to a Vote of Security Holders			63
Item 5. Other Information			63
Item 6. Exhibits			64
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

PART I

FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

URS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	December 31,			October 31,
	2004			2004
	(unaudited)				(Restated, See Note 2)
ASSETS
Current assets:
Cash and cash equivalents, including $58,000 and $25,000 of short-term money market funds, respectively	$	108,007		$	69,267
Accounts receivable, including retainage of $43,844 and $41,382, respectively		581,628			575,939
Costs and accrued earnings in excess of billings on contracts in process		398,743			413,391
Less receivable allowances		(38,719	)		(37,292	)

Net accounts receivable		941,652			952,038
Deferred income taxes		20,614			16,612
Prepaid expenses and other assets		18,863			21,043

Total current assets		1,089,136			1,058,960
Property and equipment at cost, net		142,907			143,212
Goodwill		1,004,680			1,004,680
Purchased intangible assets, net		7,749			8,244
Other assets		52,010			53,654

	$	2,296,482		$	2,268,750

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdraft	$	70,871		$	60,282
Current portion of long-term debt		48,338			41,619
Accounts payable and subcontractors payable, including retainage of $13,302 and $13,414, respectively		138,250			177,322
Accrued salaries and wages		171,004			153,175
Accrued expenses and other		58,901			60,517
Billings in excess of costs and accrued earnings on contracts in process		84,393			79,474

Total current liabilities		571,757			572,389
Long-term debt		508,584			502,118
Deferred income taxes		36,305			31,477
Other long-term liabilities		97,715			95,542

Total liabilities		1,214,361			1,201,526

Commitments and contingencies (Note 6)
Stockholders’ equity:
Common shares, par value $.01; authorized 100,000 shares; 43,838 and 43,593 shares issued, respectively; and 43,786 and 43,542 shares outstanding, respectively		438			435
Treasury stock, 52 shares at cost		(287	)		(287	)
Additional paid-in capital		734,843			727,134
Accumulated other comprehensive income		6,418			395
Retained earnings		340,709			339,547

Total stockholders’ equity		1,082,121			1,067,224

	$	2,296,482		$	2,268,750

See Notes to Consolidated Financial Statements

URS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(In thousands)


	Two Months Ended
	December 31,
	2004			2003
Cash flows from operating activities:
Net income	$	1,163		$	5,448

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,909			7,200
Amortization of financing fees		978			1,343
Provision for doubtful accounts		2,673			1,082
Deferred income taxes		827			674
Stock compensation		1,058			398
Tax benefit of stock compensation		1,465			200
Changes in assets and liabilities:
Accounts receivable and costs and accrued earnings in excess of billings on contracts in process		7,713			(29,312	)
Prepaid expenses and other assets		2,180			(1,753	)
Accounts payable, accrued salaries and wages and accrued expenses		(22,860	)		(28,659	)
Billings in excess of costs and accrued earnings on contracts in process		4,919			5,411
Other long-term liabilities		2,174			(250	)
Other, net		5,800			(1,317	)

Total adjustments and changes		13,836			(44,983	)

Net cash provided (used) by operating activities		14,999			(39,535	)

Cash flows from investing activities:
Capital expenditures, less equipment purchased through capital leases		(1,597	)		(2,830	)

Net cash used by investing activities		(1,597	)		(2,830	)

Cash flows from financing activities:
Long-term debt principal payments		(990	)		(275	)
Long-term debt borrowings		21			20
Net borrowings under the line of credit		12,750			20,038
Net change in book overdraft		10,589			24,007
Capital lease obligation payments		(3,724	)		(2,214	)
Short-term note borrowings		1,583			—
Short-term note payments		(79	)		(6	)
Proceeds from sale of common stock from employee stock purchase plan and exercise of stock options		5,188			871
Payments for financing fees		—			(1,607	)

Net cash provided by financing activities		25,338			40,834

Net increase (decrease) in cash and cash equivalents		38,740			(1,531	)
Cash and cash equivalents at beginning of period		69,267			36,275

Cash and cash equivalents at end of period	$	108,007		$	34,744

Supplemental information:
Interest paid	$	4,982		$	17,268

Taxes paid	$	10,217		$	251

Equipment acquired through capital lease obligations	$	3,541		$	148

See Notes to Consolidated Financial Statements

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

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

Overview

The terms “we,” “us,” and “our” used in this transition 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 securities, 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 27,600 employees providing services to federal, state, and local government agencies, as well as to private industry clients in the United States and internationally.

Fiscal Year Change — On November 30, 2004, our Board of Directors approved a change in our future fiscal year end, from October 31 to the Friday closest to December 31 in order to simplify our internal reporting processes and also make it easier for investors to evaluate our results. As such, the period from November 1, 2004 to December 31, 2004 was treated as a transition period. Effective January 1, 2005, we began reporting our financial results on a 52/53 week fiscal year ending on the Friday closest to December 31^st, with interim quarters ending on the Fridays closest to March 31^st, June 30^th and September 30^th. Our fiscal year 2005 began on January 1, 2005 and will end on December 30, 2005.

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. These financial statements include the accounts of our wholly-owned subsidiaries. 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 nonconsolidated joint ventures are accounted for using the equity method. All significant intercompany transactions and accounts have been eliminated in consolidation.

You should read our unaudited interim consolidated financial statements in conjunction with the audited consolidated financial statements and related notes contained in our amended Annual Report on Form 10-K/A for the fiscal year ended October 31, 2004. The results of operations for the two months ended December 31, 2004 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 presentation 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.

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

Cash and Cash Equivalents/ Book Overdraft

At December 31, 2004, we had a book overdraft for some of our disbursement accounts. This overdraft 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.

Income Taxes

We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Income tax expense is the amount of tax payable for the period plus or minus the change in deferred tax assets and liabilities during the period.

Our effective income tax rates for the two months ended December 31, 2004 and 2003 were 49% and 40%, respectively. The higher effective income tax rate for the two months ended December 31, 2004 was a result of higher non-deductible expenses and operating losses for the current two-month period in foreign subsidiaries that operate in jurisdictions with income tax rates lower than the U.S. federal statutory rate.

Income Per Common Share

Basic income per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted income per common share is computed giving effect to all potentially dilutive shares of common stock that were outstanding during the period. Potentially dilutive shares of common stock consist of the incremental shares of common stock issuable upon the exercise of stock options. Diluted income per share is computed by dividing net income by the sum of the weighted-average common shares and potentially dilutive common shares that were outstanding during the period.

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

A reconciliation of the numerator and denominator of basic and diluted income per common share is provided as follows:


	Two Months Ended
	December 31,
	2004		2003
	(In thousands, except per
	share data)
Numerator — Basic
Net income	$	1,163	$	5,448

Denominator — Basic
Weighted-average common stock shares outstanding		43,643		33,682

Basic income per share	$	.03	$	.16

Numerator — Diluted
Net income	$	1,163	$	5,448

Denominator — Diluted
Weighted-average common stock shares outstanding		43,643		33,682
Effect of dilutive securities
Stock options		1,670		1,100

		45,313		34,782

Diluted income per share	$	.03	$	.16

Our 6¹/2% Convertible Subordinated Debentures (“6¹/2% debentures”) are due in 2012 and are convertible into shares of our common stock at the rate of $206.30 per share. However, the effect of the assumed conversion of the 6¹/2% debentures was not included in our computation of diluted income per share because it would be anti-dilutive.

We did not include 27 thousand and 1.1 million of potential shares associated with outstanding stock options in our computation of diluted income per share for the two months ended December 31, 2004 and 2003, respectively, because the exercise prices of the options were greater than the average per share market value of our common stock.

Stock-Based Compensation

We continue to apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related accounting interpretations for our 1991 Stock Incentive Plan and 1999 Equity Incentive Plan (collectively, the “Plans”). All of our options are awarded with an exercise price that is equal to the market price of our common stock on the date of the grant and accordingly, no compensation cost has been recognized in connection with options granted under the Plans. We use the Black-Scholes option pricing model to calculate the estimated stock option compensation expense based on the fair value of stock options granted. The following assumptions were used to calculate the estimated stock option compensation expense using the fair value method of accounting:

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


	Two Months Ended
	December 31,
	2004	2003
Risk-free interest rates	4.2%-4.38%	4.18%
Expected life	6.89 years	6.38 years
Volatility	45.47%	47.29%
Expected dividends	None	None

If the compensation cost for awards under the Plans had been determined in accordance with Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation,” as amended, our net income and earnings per share would have been reduced to the pro forma amounts indicated below:


	Two Months Ended
	December 31,
	2004			2003
	(In thousands, except per share
	data)
Numerator — Basic
Net income:
As reported	$	1,163		$	5,448
Add: Total stock-based compensation expense as reported		540			239
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of tax		1,888			1,825

Pro forma net income (loss)	$	(185	)	$	3,862

Denominator — Basic
Weighted-average common stock shares outstanding		43,643			33,682

Basic income per share:
As reported	$	.03		$	.16
Pro forma	$	.00		$	.11
Numerator — Diluted
Net income:
As reported	$	1,163		$	5,448
Add: Total stock-based compensation expense as reported		540			239
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of tax		1,888			1,825

Pro forma net income (loss)	$	(185	)	$	3,862

Denominator — Diluted
Weighted-average common stock shares outstanding		45,313			34,782

Diluted income per share:
As reported	$	.03		$	.16
Pro forma	$	.00		$	.11

Adopted and Recently Issued Statements of Financial Accounting Standards

In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Medicare Act”) was signed into law. The Medicare Act introduced a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. On January 12, 2004 and May 19, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 106-1 (“FSP 106-1”) and 106-2 (“FSP 106-2”), respectively, both entitled “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” FSP 106-2 supersedes FSP 106-1. FSP 106-2 provides guidance on accounting for the effects of the Medicare Act and requires specific disclosures. Based on an analysis of the Medicare Act, FSP 106-2, and facts available to us, we formed a conclusion that the majority of the health care benefits we provide to retirees is not actuarially

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

equivalent to Medicare Part D and therefore, the effects of the Medicare Act would not have a significant impact on our consolidated financial statements.

If it is later determined that the drug benefit is actuarially equivalent based on new information available to us, a re-measurement of plan assets and obligations will be performed on the date that actuarial equivalence is determined and the effect of the subsidy will be treated as an actuarial gain. Currently, our measures of the accumulated post-retirement benefit obligation and net periodic pension costs of our post-retirement plans do not reflect any amount associated with the subsidy.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised), “Share-Based Payment” (“Revised SFAS 123”). Revised SFAS 123 replaces SFAS 123 and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Revised SFAS 123 is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Revised SFAS 123 requires that the costs resulting from all stock-based compensation transactions be recognized in the financial statements. Revised SFAS 123 applies to all stock-based compensation awards granted, modified or settled in interim or fiscal periods after the required effective date, and shall not apply to awards granted in periods before the required effective date, except if prior awards are modified, repurchased or cancelled after the effective date. Revised SFAS 123 also amends Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows,” to require that excess tax benefits from the exercises of stock-based compensation awards be reported as a financing cash inflow rather than as a reduction of taxes paid.

Adoption of Revised SFAS 123 will require us to record an expense for our equity-related compensation plans using a fair value method. We are currently evaluating which transition method we will use upon adoption of Revised SFAS 123 and the potential impacts adoption could have on our compensation plans. Revised SFAS 123 will have a significant impact on our financial statements as we historically have recorded our compensation cost in accordance with APB 25, which does not require the recording of an expense for our equity-related compensation plans if options were granted at a price equal to the fair market value of the stocks on the grant date.

In December 2004, the FASB issued FASB Staff Position No. 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” which provides guidance on applying FASB Statement No. 109, “Accounting for Income Taxes,” to the tax deduction on qualified production activities provided under the American Jobs Creation Act of 2004 (“the Act”). In addition, FASB issued FASB Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” which provides guidance on the Act’s repatriation provision. The deduction for qualified production activities under the Act became effective January 1, 2005, and therefore was not available to us during our transition period; however, we are currently evaluating the impact of the provisions of the FASB guidance related to qualified production activities on our effective tax rate for future periods. The FASB has also provided guidance for the appropriate point at which a Company should reflect in its financial statements the effects of a one-time tax benefit on the repatriation of foreign earnings. Based on current facts and circumstances, we have concluded that we currently do not qualify for this one-time tax benefit.

NOTE 2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

During the preparation of our transition Form 10-Q for the two month period ended December 31, 2004, we determined that, while some of our book overdrafts had historically been reported as current liabilities, others were offset against cash and cash equivalent balances and should instead have been reported as current liabilities. Consequently, we have restated our consolidated balance sheets as of October 31, 2004 and 2003 to report the gross amounts of cash and cash equivalents and to change the classification of book overdraft balances from accrued expenses to book overdrafts. We have also made corresponding adjustments to our consolidated statements of cash flows for the years ended October 31, 2004, 2003 and 2002, to reflect the book overdrafts as financing activities rather than operating activities. The restatement was based on the guidance in Financial Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts, an interpretation of APB Opinion No. 10 and FASB Statement No. 105,” (“FIN 39”), which permits offsetting of assets and liabilities only if the debtor has a valid, legal right of offset as defined by FIN 39. The restatement does not affect our previously reported stockholders’ equity as of any date, nor any of our previously issued consolidated statements of operations and comprehensive income.

The effect of the restatements on the balance sheets at October 31, 2004 and 2003 is as follows:


	As of October 31, 2004
	As Reported		Adjustments			As Restated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	32,299	$	36,968		$	69,267
All other current assets		989,693		—			989,693

Total current assets		1,021,992		36,968			1,058,960
All other assets		1,209,790		—			1,209,790

	$	2,231,782	$	36,968		$	2,268,750

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdraft	$	—	$	60,282		$	60,282
Accrued expenses and other		83,831		(23,314	)		60,517
All other current liabilities		451,590		—			451,590

Total current liabilities		535,421		36,968			572,389
Long-term liabilities		629,137		—			629,137

Total liabilities		1,164,558		36,968			1,201,526
Stockholders’ equity		1,067,224		—			1,067,224

	$	2,231,782	$	36,968		$	2,268,750


	Year Ended October 31, 2002
	As Reported			Adjustments			As Restated
	(In thousands)
Cash flows from operating activities:
Net income	$	55,171		$	—		$	55,171
Adjustments to reconcile net income to net cash provided by operating activities:
Change in assets and liabilities:
Accounts payable, accrued salaries and wages and accrued expenses		(5,851	)		(20,442	)		(26,293	)
All other adjustments to reconcile net income to net cash provided by operating activities		39,187			—			39,187

Total adjustments and changes		33,336			(20,442	)		12,894
Net cash provided by operating activities		88,507			(20,442	)		68,065

Cash flows from investing activities:		(388,093	)		—			(388,093	)
Cash flows from financing activities:
Net change in book overdraft		—			21,197			21,197
All other cash flows from financing activities		286,160			—			286,160

Net cash used by financing activities		286,160			21,197			307,357

Net increase (decrease) in cash and cash equivalents		(13,426	)		755			(12,671	)
Cash and cash equivalents at beginning of year		23,398			22,058			45,456

Cash and cash equivalents at end of year	$	9,972		$	22,813		$	32,785

The effect of the restatements on the summarized financial information of our reportable segments at October 31, 2004 and 2003 is as follows:


	As of October 31, 2004
	As Reported			Adjustments		As Restated
				(In thousands)
Total assets:
URS Division	$	906,506		$	34,487	$	940,993
EG&G Division		237,913			—		237,913

		1,144,419			34,487		1,178,906
Corporate		1,692,632			2,481		1,695,113
Eliminations		(605,269	)		—		(605,269	)

Total assets	$	2,231,782		$	36,968	$	2,268,750


	As of October 31, 2004
Subsidiary Guarantors	As Reported		Adjustments			As Restated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	7,556	$	24,755		$	32,311
All other current assets		833,447		—			833,447

Total current assets		841,003		24,755			865,758
All other assets		142,944		—			142,944

	$	983,947	$	24,755		$	1,008,702

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdraft	$	—	$	48,069		$	48,069
Accrued expenses and other		60,951		(23,314	)		37,637
All other current liabilities		362,292		—			362,292

Total current liabilities.		423,243		24,755			447,998
Long-term liabilities		59,690		—			59,690

Total liabilities		482,933		24,755			507,688
Stockholders’ equity		501,014		—			501,014

	$	983,947	$	24,755		$	1,008,702


	As of October 31, 2004
Subsidiary Non-Guarantors	As Reported		Adjustments		As Restated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,433	$	9,732	$	11,165
All other current assets		130,289		—		130,289

Total current assets		131,722		9,732		141,454
All other assets		28,750		—		28,750

	$	160,472	$	9,732	$	170,204

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdraft	$	—	$	9,732	$	9,732
Accrued expenses and other		4,977		—		4,977
All other current liabilities		50,417		—		50,417

Total current liabilities.		55,394		9,732		65,126
Long-term liabilities		823		—		823

Total liabilities		56,217		9,732		65,949
Stockholders’ equity		104,255		—		104,255

	$	160,472	$	9,732	$	170,204


	As of October 31, 2003
Corporate	As Reported		Adjustments		As Restated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	9,099	$	—	$	9,099
All other current assets		21,953		—		21,953

Total current assets		31,052		—		31,052
All other assets		1,636,187		—		1,636,187

	$	1,667,239	$	—	$	1,667,239

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdraft	$	—	$	—	$	—
Accrued expenses and other		34,286		—		34,286
All other current liabilities		11,698		—		11,698

Total current liabilities.		45,984		—		45,984
Long-term liabilities		856,182		—		856,182

Total liabilities		902,166		—		902,166
Stockholders’ equity		765,073		—		765,073

	$	1,667,239	$	—	$	1,667,239


	As of October 31, 2003
Subsidiary Guarantors	As Reported		Adjustments			As Restated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2,316	$	12,791		$	15,107
All other current assets		798,783		—			798,783

Total current assets		801,099		12,791			813,890
All other assets		153,307		—			153,307

	$	954,406	$	12,791		$	967,197

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdraft	$	—	$	22,295		$	22,295
Accrued expenses and other		39,206		(9,504	)		29,702
All other current liabilities		355,987		—			355,987

Total current liabilities.		395,193		12,791			407,984
Long-term liabilities		61,320		—			61,320

Total liabilities		456,513		12,791			469,304
Stockholders’ equity		497,893		—			497,893

	$	954,406	$	12,791		$	967,197

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

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:


	December 31,			October 31,
	2004			2004
	(In thousands)
Equipment	$	153,278		$	149,144
Furniture and fixtures		20,855			20,414
Leasehold improvements		32,893			31,486
Construction in progress		4,328			4,802

		211,354			205,846
Accumulated depreciation and amortization		(105,228	)		(99,448	)

		106,126			106,398

Equipment, furniture and fixtures under capital leases		81,962			80,607
Accumulated amortization		(45,181	)		(43,793	)

		36,781			36,814

Property and equipment at cost, net	$	142,907		$	143,212

As of December 31, 2004 and October 31, 2004, we capitalized internal-use software development costs of $58.9 million and $58.8 million, respectively. We amortize the capitalized software costs using the straight-line method over an estimated useful life of ten years.

Property and equipment is depreciated 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		9 months – 20 years

Depreciation expense related to property and equipment was $6.4 million and $6.7 million for the two months ended December 31, 2004 and 2003, respectively.

Amortization expense related to purchased intangible assets was $0.5 million for each of the two-month periods ended December 31, 2004 and 2003.

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

NOTE 4. EMPLOYEE RETIREMENT PLANS

Executive Plan

In July 1999, as amended and restated in September 2003, we entered into a Supplemental Executive Retirement Agreement (the “Executive Plan”) with Martin M. Koffel, our Chief Executive Officer, to provide an annual lifetime retirement benefit. The components of our net periodic pension costs related to the Executive Plan for the two-month periods ended December 31, 2004 and 2003 were as follows:


	Two Months Ended
	December 31,
	2004		2003
	(In thousands)
Service cost	$	—	$	152
Interest cost		86		72

Net periodic benefit cost	$	86	$	224

Radian SERP and SCA

In fiscal year 1999, we acquired and assumed some of the defined benefit pension plans and post-retirement benefit plans of Radian International, L.L.C. (“Radian”). These retirement plans cover a selected group of Radian employees and former employees who will continue to be eligible to participate in the retirement plans.

The Radian defined benefit plans include a Supplemental Executive Retirement Plan (“SERP”) and a Salary Continuation Agreement (“SCA”), which are intended 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 two-month periods ended December 31, 2004 and 2003 were as follows:


	Two Months Ended
	December 31,
	2004		2003
	(In thousands)
Interest cost		104		118
Amortization of net loss		9		3

Net periodic benefit cost	$	113	$	121

In fiscal year 2002, we acquired and assumed the obligations of the defined benefit pension plan (“EG&G pension plan”) and post-retirement medical plan (“EG&G post-retirement medical plan”) of EG&G Technical Services, Inc. These plans cover some of our hourly and salaried employees of the EG&G Division and a joint venture in which the EG&G Division participates. The components of our net periodic pension and post-retirement benefit costs relating to the EG&G pension plan and the EG&G post-retirement medical plan were as follows:

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

EG&G pension plan


	Two Months Ended
	December 31,
	2004			2003
	(In thousands)
Service cost	$	1,025		$	842
Interest cost		1,434			1,335
Expected return on plan assets		(1,516	)		(1,413	)
Amortization of:
Prior service cost		(345	)		(288	)
Net loss		298			17

Net periodic benefit cost	$	896		$	493

EG&G post-retirement medical plan


	Two Months Ended
	December 31,
	2004			2003
	(In thousands)
Service cost	$	44		$	42
Interest cost		46			46
Expected return on plan assets		(41	)		(48	)
Amortization of:
Net loss		15			1

Net periodic benefit cost	$	64		$	41

NOTE 5. CURRENT AND LONG-TERM DEBT

Senior Secured Credit Facility

Our Senior Secured Credit Facility (“Credit Facility”) consists of two term loans, Term Loan A and Term Loan B, and a revolving line of credit. Borrowings under the Credit Facility bear interest at either a base rate or a Eurodollar rate plus, in each case, an interest rate margin that varies with our financial performance. As of December 31, 2004 and October 31, 2004, we had $353.8 million in principal amounts outstanding, respectively, under the term loan facilities. As of December 31, 2004 and October 31, 2004, the interest rates on both Term Loans were 4.42% and 3.94%, respectively.

The sixth amendment to our Credit Facility, dated November 29, 2004, permitted us to change our fiscal year to a calendar year basis. The seventh amendment, dated January 27, 2005, reduced the interest rate margins on our Credit Facility by 0.25% and provided for an additional 0.25% reduction if either Standard & Poor’s or Moody’s upgrades us from our current credit ratings, which are BB and Ba2, respectively. The seventh amendment also eliminated restrictions on the amount of cash we are able to use in an acquisition.

As of December 31, 2004, we were in compliance with all of our Credit Facility covenants.

Revolving Line of Credit

As a part of our Credit Facility, we maintain a revolving line of credit to fund daily operating cash needs and to support standby letters of credit. During the ordinary course of business, the use of the revolving line of credit is driven by collection and disbursement activities. Our daily cash needs follow a predictable

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

pattern that typically parallels our payroll cycles, which drive, if necessary, our short-term borrowing requirements.

Our average daily revolving line of credit balances for the two-month periods ended December 31, 2004 and 2003 were $1.6 million and $8.2 million, respectively. The maximum amounts outstanding at any one point in time during the two-month periods ended December 31, 2004 and 2003 were $18.0 million and $33.1 million, respectively.

As of December 31, 2004, we had drawn $18.0 million on our revolving line of credit and had outstanding standby letters of credit aggregating to $55.3 million, reducing the amount available to us under our revolving credit facility to $151.7 million. As of October 31, 2004, we had drawn $5.3 million on our revolving line of credit and had outstanding standby letters of credit aggregating to $56.1 million, reducing the amount available to us under our revolving credit facility to $163.6 million. The effective average interest rates paid on the revolving line of credit during the two months ended December 31, 2004 and 2003 were approximately 5.9% and 5.5%, respectively.

Other Indebtedness

11 1/2% Senior Notes. As of December 31, 2004 and October 31, 2004, we had outstanding amounts of $130 million in 11 1/2% notes due 2009. Interest is payable semi-annually in arrears on March 15 and September 15 of each year. These notes are effectively subordinate to our Credit Facility, capital leases, notes payable and senior to our subordinated indebtedness, including our 12 1/4% notes, and our 6 1/2% debentures described below.

12 1/4% Senior Subordinated Notes. As of December 31, 2004 and October 31, 2004, we had outstanding amounts of $10 million in 12 1/4% notes due and payable on February 14, 2005. Interest is payable semi-annually in arrears on May 1 and November 1 of each year. These notes are effectively subordinate to our Credit Facility, our 11 1/2% notes, capital leases and notes payable.

6 1/2% Convertible Subordinated Debentures. As of December 31, 2004 and October 31, 2004, we owed $1.8 million due 2012. Our 6 1/2% debentures are subordinate to our Credit Facility, our 11 1/2% notes, capital leases and notes payable.

Notes payable, foreign credit lines and other indebtedness. As of December 31, 2004 and October 31, 2004, we had outstanding amounts of $13.4 million and $8.8 million, respectively, in notes payable and foreign lines of credit. Notes payable primarily include notes used as our financing vehicle to purchase office equipment, computer equipment and furniture. These notes have three-year to five-year original terms with interest rates ranging from approximately 4% to 11%. The weighted average interest rate was approximately 5.8% and 6.2%, respectively, at December 31, 2004 and October 31, 2004.

We maintain foreign lines of credit, which are collateralized by the assets of our foreign subsidiaries. As of December 31, 2004, we had drawn $1.6 million under these foreign lines of credit, reducing the amount available to $1.6 million. As of October 31, 2004, we had not drawn on our foreign lines of credit and had $3.0 million available under these foreign lines of credit.

Fair Value of Financial Instruments

The fair values of the 11 1/2% notes and the 12 1/4% notes will fluctuate depending on market conditions and our performance and at times may differ from their carrying values. As of December 31, 2004 and October 31, 2004, the total fair values of the 11 1/2% notes and the 12 1/4% notes were approximately $161.5 million for each of the two periods.

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

NOTE 6. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, we are subject to certain contractual guarantees and governmental audits or investigations and we are 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 proceeding that were disclosed in Note 9 to our consolidated financial statements included in our amended Annual Report on Form 10-K/A for the fiscal year ended October 31, 2004:

•   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 a contract with a Saudi Arabian government ministry (the “Ministry”). LSI’s performance under the contract was completed in November 2000, but since that time various claims have been made against LSI, including breach of a joint venture and other agreements, and the failure to pay rent and taxes.

    Two Saudi Arabian landlords have pursued claims over disputed rents and have received judgments in Saudi Arabian legal proceedings totaling $7.9 million. We continue to pursue defense disputing these claims and judgments.

    During fiscal year 2004, an arbitration ruling by the International Chamber of Commerce (“ICC”) was issued against LSI that included a monetary award of $4.9 million to a joint venture partner (the “claimant”). During August 2004, the claimant filed an action in the United States District Court in Maryland to confirm and enforce the ICC award. We are contesting the confirmation and enforceability of portions of the award.

    In addition, the Ministry directed payment of a performance bond issued in its favor under this contract in the amount of approximately $5.6 million. One of the conditions for closing out the contract and LSI’s obligations under the bond is the successful resolution of a pending tax assessment issued by the Saudi Arabian taxing authority assessing LSI approximately $5.1 million in taxes for the years 1999 through 2002. We disagree with the Saudi Arabian taxing authority’s assessment and are providing responses, additional information and documentation. However, Banque Saudi Fransi received the demand for release of the bond and notified LSI that it has released it to the Ministry and that it will seek to recover this amount in a proceeding against LSI. We have informed Banque Saudi Fransi that we believe the Ministry had no basis for seeking payment on the bond. LSI is also pursuing a claim against the Ministry for wrongfully demanding the bond.

    We have adequately provided for any enforceable obligations arising relative to these contingencies, based on current facts and circumstances.

•   Lebanon: Prior to our acquisition of Dames and Moore Group, Inc., in 1999, which included wholly-owned subsidiary Radian, Radian entered into a contract to provide environmental remediation to a Lebanese company (“Solidere”) involved in the development and reconstruction of the central district of Beirut. Various disputes have arisen under this contract, including an allegation by Solidere that Radian breached the contract by, among other things, failing to reduce the level of chemical and biological constituents, including methane gas, at the project site to the contract level. The parties sought to resolve their disputes in an arbitration proceeding filed with the ICC.

    During July 2004, an ICC arbitration panel ruled against Radian and ordered Radian to prepare a plan to reduce the level of methane gas at the project site to the contract level, to pay approximately $2.4 million in attorney fees and other expenses to Solidere, and authorized Solidere to withhold project payments. At December 31, 2004, Solidere had withheld project

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

payments amounting to $11.4 million. We are complying with the terms of the ICC arbitration panel’s ruling and also continue to be actively engaged in attempting to resolve the various disputes directly with Solidere through alternate resolution strategies that may be more advantageous to both parties.

Solidere is also seeking damages for delays of up to $8.5 million and has drawn upon an $8.5 million bank guarantee at Saradar Bank, Sh.M.L. (“Saradar”) and in July 2004 Saradar filed a reimbursement claim in the First Court in Beirut, Lebanon to recover the $8.5 million bank guarantee from Radian and our co-defendant Wells Fargo Bank, N.A. We believe that we are not obligated under the bank guarantee and are vigorously defending this matter.

Prior to entering into the Solidere contract, Radian obtained a project-specific, $50 million insurance policy from Alpina Insurance Company (“Alpina”) with a $1 million deductible, which we believe is available to support our claims in excess of the deductible. The Solidere contract contains a $20 million limitation on damages. During October 2004, Alpina notified us of a denial of insurance coverage. Also, during October 2004, we filed a breach of contract and bad faith claim against Alpina in United States District Court for the Northern District of California seeking declaratory relief and monetary damages. In addition, during December 2004, Alpina paid us $375 thousand.

• Tampa-Hillsborough County Expressway Authority: In 1999, we entered into an agreement with the Tampa-Hillsborough County Expressway Authority (the “Authority”) to provide foundation design and other services in connection with the construction of the Lee Roy Selmon Elevated Expressway structure in Tampa, Florida. In 2004, during construction, one pier out of over 200 piers subsided substantially, causing damage to a segment of the Expressway. The Authority has halted construction and has indicated it intends to pursue claims against us and potentially other parties associated with the project, claiming defects related to services provided. We are working with the Authority and other parties to develop a remediation plan and the costs associated with the remedy. Sufficient information is not currently available upon which to assess liabilities associated with a remediation plan.

Currently, we have limits of $125 million per loss and $125 million in the aggregate annually for general liability, professional errors and omissions liability and contractor’s pollution liability insurance (in addition to other policies for some specific projects). These policies include self-insured claim retention amounts of $4 million, $5 million and $5 million, respectively. In some actions, parties are seeking damages, including punitive or treble damages that substantially exceed our insurance coverage or are not insured.

Excess limits provided for these coverages are on a “claims made” basis, covering only claims actually made 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 legal proceedings, audits or investigations 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 the legal proceedings, audits or investigations described above, individually or collectively, are likely to exceed established loss accruals or our various professional errors and omissions, project-specific and potentially other insurance polices and, therefore, we do not believe that they are likely to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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

As of December 31, 2004, 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 debt, which is 14 months. The maximum potential amount of future payments that we could be required to make under this guarantee at December 31, 2004, was $6.5 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. 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 7. 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. 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. 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 investment in subsidiaries.

Total assets information for October 31, 2004 presented in the following has been restated to gross amounts of cash and cash equivalents as explained in Note 2, “Restatement of Consolidated Financial Statements”.


	December 31, 2004
			Property
	Net		and
	Accounts		Equipment at Cost,
	Receivable		Net		Total Assets
	(In thousands)
URS Division	$	728,850	$	132,277	$	940,273
EG&G Division		212,802		7,254		230,573

		941,652		139,531		1,170,846
Corporate		—		3,376		1,715,036
Eliminations		—		—		(589,400	)

Total	$	941,652	$	142,907	$	2,296,482

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

Geographic areas

Our revenues by geographic areas are shown below:


	Two Months Ended
	December 31,
	2004			2003
	(In thousands)
Revenues
United States	$	514,325		$	446,959
International		53,403			43,498
Eliminations.		(731	)		(792	)

Total revenues	$	566,997		$	489,665

Major Customers

For the two months ended December 31, 2004 and 2003, we had multiple contracts with the following major customer, who contributed more than ten percent of our total consolidated revenues:


	URS Division		EG&G Division		Total
			(In millions)
Two months ended December 31, 2004
The U.S. Army (1)	$	17.1	$	91.2	$	108.3

Two months ended December 31, 2003
The U.S. Army (1)	$	13.3	$	69.8	$	83.1

(1)

The U.S. Army includes the U.S. Army Corps of Engineers.

NOTE 8. RELATED PARTY TRANSACTION

On January 19, 2005, affiliates of Blum Capital Partners, L.P. (collectively, the “Blum Affiliates”) sold 2,000,000 shares of our common stock in an underwritten secondary offering. The general partner of Blum Capital Partners, L.P. is a member of our Board of Directors. The Blum Affiliates have granted the underwriter an option to purchase up to 300,000 additional shares of our common stock held by the Blum Affiliates to cover over-allotments, if any.

NOTE 9. SUPPLEMENTAL GUARANTOR INFORMATION

Substantially all of our domestic operating subsidiaries have guaranteed our obligations under our Credit Facility, our 12 1/4% notes and our 11 1/2% notes (collectively, the “Notes”). Each of the subsidiary guarantors has fully and unconditionally guaranteed our obligations on a joint and several basis.

Substantially all of our income and cash flows are generated by our subsidiaries. We have no operating assets or operations other than our investments in our subsidiaries. As a result, funds necessary to meet our debt service obligations are provided in large part by distributions or advances from our subsidiaries. Financial conditions and operating requirements of the subsidiary guarantors may limit our ability to obtain cash from our subsidiaries for the purposes of meeting our debt service obligations, including the payment of principal and interest on our Notes and our Credit Facility. In addition, although the terms of our Notes and our Credit Facility limit us and our subsidiary guarantors’ ability to place contractual restrictions on the flow of funds to us, legal restrictions, including local regulations, and contractual

URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
(unaudited)


	As of December 31, 2004
							Subsidiary
				Subsidiary			Non-
	Corporate			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	58,982		$	34,696		$	14,329		$	—		$	108,007
Accounts receivable		—			492,969			88,659			—			581,628
Costs and accrued earnings in excess of billings on contracts in process		—			344,656			54,087			—			398,743
Less receivable allowance		—			(31,933	)		(6,786	)		—			(38,719	)

Net accounts receivable		—			805,692			135,960			—			941,652
Deferred income taxes		20,614			—			—			—			20,614
Prepaid expenses and other assets.		9,525			8,383			955			—			18,863

Total current assets		89,121			848,771			151,244			—			1,089,136
Property and equipment at cost, net		3,376			124,886			14,645			—			142,907
Goodwill		1,004,680			—			—			—			1,004,680
Purchased intangible assets, net		7,749			—			—			—			7,749
Investment in subsidiaries		589,400			—			—			(589,400	)		—
Other assets		20,710			16,208			15,092			—			52,010

	$	1,715,036		$	989,865		$	180,981		$	(589,400	)	$	2,296,482


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdraft	$	—		$	59,765		$	11,106		$	—		$	70,871
Current portion of long-term debt.		29,116			17,582			1,640			—			48,338
Accounts payable and subcontractors payable		(3,197	)		125,509			15,938			—			138,250
Accrued salaries and wages		4,158			147,431			19,415			—			171,004
Accrued expenses and other		21,656			32,614			4,631			—			58,901
Billings in excess of costs and accrued earnings on contracts in process		—			63,831			20,562			—			84,393

Total current liabilities		51,733			446,732			73,292			—			571,757
Long-term debt		483,933			24,601			50			—			508,584
Deferred income taxes		36,305			—			—			—			36,305
Other long-term liabilities		60,944			36,158			613			—			97,715

Total liabilities		632,915			507,491			73,955			—			1,214,361

Stockholders’ equity:
Total stockholders’ equity		1,082,121			482,374			107,026			(589,400	)		1,082,121

	$	1,715,036		$	989,865		$	180,981		$	(589,400	)	$	2,296,482

URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)


	As of October 31, 2004
						Subsidiary		(Restated, See Note 2)
			Subsidiary			Non-
	Corporate		Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	25,791	$	32,311		$	11,165		$	—		$	69,267
Accounts receivable		—		493,654			82,285			—			575,939
Costs and accrued earnings in excess of billings on contracts in process		—		360,212			53,179			—			413,391
Less receivable allowance		—		(31,162	)		(6,130	)		—			(37,292	)

Net accounts receivable		—		822,704			129,334			—			952,038
Deferred income taxes		16,612		—			—			—			16,612
Prepaid expenses and other assets.		9,345		10,743			955			¾			21,043

Total current assets		51,748		865,758			141,454			—			1,058,960
Property and equipment at cost, net		3,469		126,113			13,630			—			143,212
Goodwill		1,004,680		—			—			—			1,004,680
Purchased intangible assets, net		8,244		—			—			—			8,244
Investment in subsidiaries		605,269		—			—			(605,269	)		—
Other assets		21,703		16,831			15,120			¾			53,654

	$	1,695,113	$	1,008,702		$	170,204		$	(605,269	)	$	2,268,750


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdraft	$	2,481	$	48,069		$	9,732		$	—		$	60,282
Current portion of long-term debt.		24,361		17,200			58			—			41,619
Accounts payable and subcontractors payable		11,040		150,729			15,553			—			177,322
Accrued salaries and wages		3,480		132,866			16,829			—			153,175
Accrued expenses and other		17,903		37,637			4,977			—			60,517
Billings in excess of costs and accrued earnings on contracts in process		—		61,497			17,977			—			79,474

Total current liabilities		59,265		447,998			65,126			—			572,389
Long-term debt		475,935		26,095			88			—			502,118
Deferred income taxes		31,477		—			—			—			31,477
Other long-term liabilities		61,212		33,595			735			¾			95,542

Total liabilities		627,889		507,688			65,949			—			1,201,526

Stockholders’ equity:
Total stockholders’ equity		1,067,224		501,014			104,255			(605,269	)		1,067,224

	$	1,695,113	$	1,008,702		$	170,204		$	(605,269	)	$	2,268,750

URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands)
(unaudited)


	Two Months Ended December 31, 2004
						Subsidiary
				Subsidiary		Non-
	Corporate			Guarantors		Guarantors			Eliminations			Consolidated
Revenues	$	—		$	514,325	$	53,403		$	(731	)	$	566,997
Direct operating expenses		—			339,799		30,459			(731	)		369,527

Gross profit		—			174,526		22,944			—			197,470
Indirect, general and administrative expenses		4,664			158,400		25,562			—			188,626

Operating income (loss)		(4,664	)		16,126		(2,618	)		—			8,844
Interest expense, net		6,218			310		33			—			6,561

Income (loss) before income taxes		(10,882	)		15,816		(2,651	)		—			2,283
Income tax expense (benefit)		(5,338	)		7,758		(1,300	)		—			1,120

Income (loss) before equity in net earnings of subsidiaries		(5,544	)		8,058		(1,351	)		—			1,163
Equity in net earnings of subsidiaries		6,707			—		—			(6,707	)		—

Net income (loss)		1,163			8,058		(1,351	)		(6,707	)		1,163
Other comprehensive income:
Minimum pension liability adjustments, net of tax		—			4,141		—			—			4,141
Foreign currency translation adjustments		—			—		1,882			—			1,882

Comprehensive income	$	1,163		$	12,199	$	531		$	(6,707	)	$	7,186


	Two Months Ended December 31, 2003
						Subsidiary
				Subsidiary		Non-
	Corporate			Guarantors		Guarantors			Eliminations			Consolidated
Revenues	$	—		$	446,959	$	43,498		$	(792	)	$	489,665
Direct operating expenses		—			292,239		23,038			(792	)		314,485

Gross profit		—			154,720		20,460			—			175,180
Indirect, general and administrative expenses		4,906			128,710		20,086			—			153,702

Operating income (loss)		(4,906	)		26,010		374			—			21,478
Interest expense (income), net		12,162			312		(74	)		—			12,400

Income (loss) before income taxes		(17,068	)		25,698		448			—			9,078
Income tax expense (benefit)		(6,824	)		10,276		178			—			3,630

Income (loss) before equity in net earnings of subsidiaries		(10,244	)		15,422		270			—			5,448
Equity in net earnings of subsidiaries		15,692			—		—			(15,692	)		—

Net income		5,448			15,422		270			(15,692	)		5,448
Other comprehensive loss:
Foreign currency translation adjustments		—			—		(48	)		—			(48	)

Comprehensive income	$	5,448		$	15,422	$	222		$	(15,692	)	$	5,400

URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)


	Two Months Ended December 31, 2004
							Subsidiary
				Subsidiary			Non-
	Corporate			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	1,163		$	8,058		$	(1,351	)	$	(6,707	)	$	1,163

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		98			6,132			679			—			6,909
Amortization of financing fees		978			—			—			—			978
Provision for doubtful accounts		—			2,223			450			—			2,673
Deferred income taxes		827			—			—			—			827
Stock compensation		1,058			—			—			—			1,058
Tax benefit of stock compensation		1,465			—			—			—			1,465
Equity in net earnings of subsidiaries		(6,707	)		—			—			6,707			—
Changes in assets and liabilities:
Accounts receivable and costs and accrued earnings in excess of billings on contracts in process		—			14,788			(7,075	)		—			7,713
Prepaid expenses and other assets		(178	)		2,358			—			—			2,180
Accounts payable, accrued salaries and wages and accrued expenses		19,297			(42,880	)		5,784			(5,061	)		(22,860	)
Billings in excess of costs and accrued earnings on contracts in process		—			2,333			2,586			—			4,919
Other long-term liabilities		(268	)		2,564			(122	)		—			2,174
Other, net		88			622			29			5,061			5,800

Total adjustments and changes		16,658			(11,860	)		2,331			6,707			13,836

Net cash provided (used) by operating activities		17,821			(3,802	)		980			—			14,999

Cash flows from investing activities:
Capital expenditures		(15	)		(859	)		(723	)		—			(1,597	)

Net cash used by investing activities		(15	)		(859	)		(723	)		—			(1,597	)

Cash flows from financing activities:
Long-term debt principal payments		—			(990	)		—			—			(990	)
Long-term debt borrowings		—			21			—			—			21
Net borrowings under the line of credit		12,750			—			—			—			12,750
Net change in book overdraft		(2,481	)		11,696			1,374			—			10,589
Capital lease obligation payments		(46	)		(3,629	)		(49	)		—			(3,724	)
Short-term note borrowings		—			—			1,583			—			1,583
Short-term note payments		(26	)		(53	)		—			—			(79	)
Proceeds from sale of common shares from employee stock purchase plan and exercise of stock options		5,188			—			—			—			5,188

Net cash provided by financing activities		15,385			7,045			2,908			—			25,338

Net increase in cash and cash equivalents		33,191			2,384			3,165			—			38,740
Cash and cash equivalents at beginning of year.		25,791			32,311			11,165			—			69,267

Cash and cash equivalents at end of year	$	58,982		$	34,695		$	14,330		$	—		$	108,007

URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)


	Two Months Ended December 31, 2003
							Subsidiary
				Subsidiary			Non-
	Corporate			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	5,448		$	15,422		$	270		$	(15,692	)	$	5,448

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		41			6,481			678			—			7,200
Amortization of financing fees		1,343			—			—			—			1,343
Provision for doubtful accounts		—			754			328			—			1,082
Deferred income taxes		674			—			—			—			674
Stock compensation		398			—			—			—			398
Tax benefit of stock compensation		200			—			—			—			200
Equity in net earnings of subsidiaries		(15,692	)		—			—			15,692			—
Changes in assets and liabilities:
Accounts receivable and costs and accrued earnings in excess of billings on contracts in process		—			(30,177	)		865			—			(29,312	)
Prepaid expenses and other assets		(307	)		1,614			(3,060	)		—			(1,753	)
Accounts payable, accrued salaries and wages and accrued expenses		(24,723	)		(7,365	)		3,381			48			(28,659	)
Billings in excess of costs and accrued earnings on contracts in process		—			3,864			1,547			—			5,411
Other long-term liabilities		(246	)		(158	)		154			—			(250	)
Other, net		308			(1,549	)		(28	)		(48	)		(1,317	)

Total adjustments and changes		(38,004	)		(26,536	)		3,865			15,692			(44,983	)

Net cash used by operating activities		(32,556	)		(11,114	)		4,135			—			(39,535	)

Cash flows from investing activities:
Capital expenditures		(886	)		(1,759	)		(185	)		—			(2,830	)

Net cash used by investing activities		(886	)		(1,759	)		(185	)		—			(2,830	)

Cash flows from financing activities:
Long-term debt principal payments		—			(275	)		—			—			(275	)
Long-term debt borrowings		—			20			—			—			20
Net payments under the line of credit		20,038			—			—			—			20,038
Net change in book overdraft		5,562			17,090			1,355			—			24,007
Capital lease obligation payments		(9	)		(2,137	)		(68	)		—			(2,214	)
Short-term note borrowings		—			—			—			—			—
Short-term note payments		—			(6	)		—			—			(6	)
Proceeds from sale of common shares from employee stock purchase plan and exercise of stock options		871			—			—			—			871
Payment for financing fees		(1,607	)		—			—			—			(1,607	)

Net cash provided by financing activities		24,855			14,692			1,287			—			40,834

Net increase (decrease) in cash and cash equivalents		(8,587	)		1,819			5,237			—			(1,531	)
Cash and cash equivalents at beginning of year		9,099			15,107			12,069			—			36,275

Cash and cash equivalents at end of year	$	512		$	16,926		$	17,306		$	—		$	34,744

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 described here. You should read this discussion in conjunction with: the section, “Risk Factors That Could Affect Our Financial Condition and Results of Operations,” beginning on page 54 and the consolidated financial statements and notes thereto contained in Item 1, “Consolidated Financial Statements;” the footnotes to this report for the two months ended December 31, 2004; the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements included in our amended Annual Report on Form 10-K/A for the fiscal year ended October 31, 2004, which was previously filed with the Securities and Exchange Commission. See Note 2 to Consolidated Financial Statements, Restatement of Consolidated Financial Statements, in Item 1, of this transition report on Form 10-Q.

Fiscal Year Change

On November 30, 2004, our Board of Directors approved a change in our fiscal year-end from October 31 to the Friday closest to December 31 in order to simplify our internal reporting processes and also make it easier for investors to evaluate our results. As such, the period from November 1, 2004 to December 31, 2004 was treated as a transition period. Effective January 1, 2005, we began reporting our financial results on a 52/53 week fiscal year ending on the Friday closest to December 31^st, with interim quarters ending on the Fridays closest to March 31^st, June 30^th and September 30^th. Our fiscal year 2005 began on January 1, 2005 and will end on December 30, 2005.

OVERVIEW

Business Summary

We are one of the world’s largest engineering design services firms and a major federal government contractor for systems engineering and technical assistance, and operations and maintenance services. Our business focuses primarily on providing fee-based professional and technical services in the engineering and construction services and defense markets, although we perform some construction work. As a service company, we are labor and not capital intensive. We derive income from our ability to generate revenues and collect cash from our clients through the billing of our employees’ time and our ability to manage our costs. We operate our business through two segments: the URS Division and the EG&G Division.

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

Two months ended December 31, 2004 Revenues

Consolidated revenues for the two months ended December 31, 2004 increased 15.8% over the consolidated revenues for the two months ended December 31, 2003. Approximately half of the increase in revenues was due to more working days in the two months ended December 31, 2004 compared to the same period last year. The remaining increase in revenues was due to various factors discussed below in each of our client markets.

Revenues from our federal government clients for the two months ended December 31, 2004 increased approximately 22% compared with the same period last year. The additional working days in the two-month period ended December 31, 2004 contributed approximately nine of the 22% increase in revenues

from our federal government clients. The remainder of the increase reflects the continued growth in the services we provided to the Department of Defense, or DOD, and the Department of Homeland Security, or DHS, as a result of additional military spending on engineering and technical services and operations and maintenance activities. The heightened military operations in the Middle East also contributed to an increase in our work to repair, maintain and upgrade military equipment. This work was primarily performed in the United States, under existing outsourcing contracts. In addition, we continued to see increases in our work to design and upgrade military defense systems. Our services to the DHS grew, with an increased volume of work under contracts with the U.S. Customs Service and the Federal Emergency Management Agency. We also continued to benefit from increased task orders issued under Indefinite Delivery Contracts, or IDCs, with the federal government for facilities and environmental projects.

Revenues from our state and local government clients for the two months ended December 31, 2004 increased by approximately 12% compared with the same period last year. Approximately three-fourths of the increase was attributable to the additional working days in the two months ended December 31, 2004. The remainder of the increase reflects growth in the work volume provided to our state and local government clients. This market continued to be affected by the budget deficits that state and local governments have faced over the past two years. Although we have begun to see selected pockets of growth emerge in some parts of the country, particularly in the Southeast, the West and the Midwest remained weak, with spending on capital projects significantly below historic levels. In addition, the delays surrounding the passage of a replacement bill for the Transportation Equity Act for the 21^st Century (“TEA-21”), which provides federal matching funds for state and local transportation projects, continued to negatively impact our revenues in this market. Our ability to shift resources to airport and educational facility projects helped us mitigate the downturn in other portions of the state and local government market.

Revenues from our domestic private industry clients for the two months ended December 31, 2004 increased approximately 5% compared with the same period last year, primarily as a result of the additional working days in the two months ended December 31, 2004. Market conditions continued to be challenging for many of our multinational clients, and capital spending was constrained. Some portions of the private industry market, including power and oil and gas, showed continued signs of recovery. However, other portions of the private industry market, such as manufacturing and the chemical and pharmaceutical industries, remained weak. The decline in revenues from our domestic private industry clients reflected that continuing weakness. This decline was partially offset by revenues generated through our Master Service Agreements contracts, or MSAs, with multinational companies.

Revenues from our international clients for the two months ended December 31, 2004 increased approximately 23% compared with the same period last year. Approximately two-thirds of the increase was attributable to the additional working days in the two months ended December 31, 2004 and approximately one-fourth of the increase was due to foreign currency exchange fluctuations. The remainder of the increase was due to growth in our businesses, primarily surface and air transportation projects in Australia and New Zealand, and facilities and environmental projects in Europe.

Cash Flows, Debt and Equity

We generated $15.0 million in net cash provided by operating activities for the two months ended December 31, 2004. Our ratio of debt to total capitalization (total debt divided by the sum of debt and total stockholders’ equity) was approximately 34% both at October 31, 2004 and December 31, 2004. (See “Consolidated Statements of Cash Flows” to our “Consolidated Financial Statements” included under Item 1 of this report.)

Fiscal Year 2005 Trends

We expect revenue growth from our federal government clients to remain strong in fiscal year 2005, based on anticipated spending by the DOD and the DHS. Operations in the Middle East are expected to generate increased work related to the development of weapons systems, the training of military pilots, and the maintenance, upgrade and repair of military vehicles. Revenues from the homeland security market are also expected to increase, particularly from preparedness training exercises and the design of security improvements for federal buildings and key components of this country’s infrastructure.

We expect the state budget situation to continue to improve moderately during fiscal year 2005 as the economy improved and as sales and income tax increased. However, state budgets for fiscal year 2006 will not be approved until June for most states and a successor bill to TEA-21 is not expected to be passed until the Spring of 2005. As a result, we believe that growth in this market will not occur until the second half of fiscal year 2005. Some revenue growth may be achieved through transportation projects funded by bond and tax measures passed in November 2004. In addition, funding from the Vision-100 program (the successor bill to AIR-21), which provides funding for airport and air transportation projects, and from airport user fees are expected to lead to an increase in airport revenues.

Revenues from the private industry market are expected to increase slightly during the 2005 fiscal year. Most of our private sector multinational clients are not expected to significantly increase their domestic capital spending for environmental and engineering projects in 2005. In spite of continuing weakness in the private industry market, we expect revenue growth opportunities from our work under MSAs. In addition, in response to stricter emissions control regulations associated with the Clear Skies Act, we expect to see increased activity in the design and implementation of air pollution control systems on coal-fired power plants.

Excluding the effect of foreign currency fluctuations, we expect continued revenue growth in our international business due to growth in surface transportation, facilities and environmental projects in our Asia Pacific and European operations during fiscal year 2005.

RESULTS OF OPERATIONS

Consolidated


	Two Months Ended December 31,
								Percentage
					Increase			increase
	2004		2003		(decrease)			(decrease)
	(In millions, except percentages)
Revenues	$	567.0	$	489.7	$	77.3			15.8	%
Direct operating expenses		369.5		314.5		55.0			17.5	%

Gross profit		197.5		175.2		22.3			12.7	%

Indirect, general and administrative expenses		188.6		153.7		34.9			22.7	%

Operating income		8.9		21.5		(12.6	)		(58.6	%)
Interest expense, net		6.6		12.4		(5.8	)		(46.8	%)

Income before taxes		2.3		9.1		(6.8	)		(74.7	%)
Income tax expense		1.1		3.6		(2.5	)		(69.4	%)

Net income	$	1.2	$	5.5	$	(4.3	)		(78.2	%)

Diluted net income per common share	$	.03	$	.16	$	(0.13	)		(81.3	%)

Two months ended December 31, 2004 compared with December 31, 2003

Our consolidated revenues for the two months ended December 31, 2004 increased by 15.8% compared with the same period last year. The two months ended December 31, 2004 included more working days than the two months ended December 31, 2003. Approximately half of the revenue increase resulted from revenues generated during the additional days in which services were provided to clients. The remaining increase was due to an increase in the volume of work performed during the two months ended December 31, 2004, compared with the same period last year. The following table presents our consolidated revenues by client type for the two months ended December 31, 2004 and 2003.


	Two Months Ended December 31,
							Percentage
					Increase		increase
	2004		2003		(decrease)		(decrease)
	(In millions, except percentages)
Revenues
Federal government clients	$	275	$	225	$	50		22	%
State and local government clients		105		94		11		12	%
Domestic private industry clients		134		128		6		5	%
International clients		53		43		10		23	%

Total Revenues	$	567	$	490	$	77		16	%

Revenues from our federal government clients for the two months ended December 31, 2004 increased by 22% compared with the same period last year. The increased number of working days in the two-month period ended December 31, 2004 contributed approximately nine of the 22% increase in revenues from our federal government clients. The remainder of the increase reflects the continued growth in defense-related work, as we continued to benefit from additional military spending on engineering and technical services and operations and maintenance activities. As a result of increased military activity, our work volume increased under existing outsourcing contracts to provide engineering and technical services to refurbish and upgrade military equipment and systems. We also continued to benefit from increased task orders issued under IDCs for the federal government for facilities and environmental projects.

The majority of our work in the state and local government, the domestic private industry and the international sectors is derived from our URS Division. Further discussion of the factors and activities that drove changes in operations on a segment basis for the two months ended December 31, 2004 can be found beginning on page 47.

Our consolidated direct operating expenses for the two months ended December 31, 2004, which consist of direct labor, subcontractor costs and other direct expenses, increased by 17.5% compared with the same period last year. The factors that caused revenue growth also drove an increase in our direct operating expenses. Volume increases in work on existing contracts with lower profit margins caused direct operating expenses to increase at a faster rate than revenues.

Our consolidated gross profit for the two months ended December 31, 2004 increased by 12.7% compared with the same period last year, primarily due to the increase of our revenue volume described previously. Our gross margin percentage, however, fell from 35.8% to 34.8%. The decrease in gross profit margin percentage was caused by a change in revenue mix between the two periods, with a significantly higher volume of revenue coming from contracts with profit margins that were lower than those typically achieved through our historic portfolio of contracts.

Our consolidated indirect, general and administrative (“IG&A”) expenses for the two months ended December 31, 2004 increased by 22.7% compared with the same period last year. Our employee benefit costs, including holiday, healthcare, workers’ compensation and retirement-related costs, increased $24.9 million, or 37.6%, over the prior period. Of that amount, the cost of our employees’ holiday benefits during the two months ended December 31, 2004 increased $9.7 million, or 14.5%, over the previous year.

The increase in the cost of our employees’ holiday benefits was caused by applying the accounting method we use to recognize the cost of holidays in a two-month reporting period compared to an annual reporting period. Typically, at the beginning of each fiscal year, we estimate the cost of the holidays we provide to our employees during the full year. These costs are then recognized over the course of the year, in proportion to our labor costs, as our labor costs are incurred. This estimate is updated as necessary during the course of the year. As a result, in a typical fiscal year, during the two months that end on December 31, we recognize approximately about one-sixth (1/6) of our annual holiday cost. However, the two months ended December 31, 2004 was a transition period between our fiscal year that ended October 31, 2004, and our next

fiscal year, which began on January 1, 2005. The transition period was considered a complete accounting cycle, and therefore we expensed the costs of all holidays that actually fell during the transition period rather than one-sixth of a full year’s holiday costs. As a result, the transition period effectively included the costs of approximately four holidays, rather than the costs of approximately one and one-half holidays which were recognized in the two months ended December 31, 2003.

The remaining increase in employee benefit costs occurred primarily because of the higher number of working days, and the additional employees necessary to perform the services required by the increased volume of our revenue-generating activities and the higher costs associated with those employee benefits.

During the two months ended December 31, 2004, our travel expenses increased by $3.2 million over the same period last year because of the additional work days in the period and the increased volume of work. The remaining increases were incurred for internal and external program support and other general and administrative costs resulting from a higher business volume.

Our consolidated net interest expense for the two months ended December 31, 2004 decreased due to lower debt balances.

Our effective income tax rates for the two months ended December 31, 2004 and 2003 were 49% and 40%, respectively. The higher effective income tax rate for the two months ended December 31, 2004 was a result of higher certain non-deductible expenses and operating losses for the current two-month period in foreign subsidiaries that operate in jurisdictions with income tax rates lower than the U.S. federal statutory rate.

Our consolidated operating income, net income and earnings per share decreased as a result of the factors previously described.

Reporting Segments

Two months ended December 31, 2004 compared with December 31, 2003


				Direct						Indirect,			Operating
				Operating			Gross			General and			Income
	Revenues			Expenses			Profit			Administrative			(Loss)
	(In millions)
Two months ended December 31, 2004
URS Division	$	370.3		$	227.5		$	142.8		$	137.3		$	5.5
EG&G Division		197.0			142.3			54.7			46.6			8.0
Eliminations		(0.3	)		(0.3	)		—			—			—

		567.0			369.5			197.5			183.9			13.5
Corporate		—			—			—			4.7			(4.7	)

Total	$	567.0		$	369.5		$	197.5		$	188.6		$	8.8


Two months ended December 31, 2003
URS Division	$	336.1		$	206.5		$	129.6		$	112.1		$	17.5
EG&G Division		153.7			108.1			45.6			36.7			8.9
Eliminations		(0.1	)		(0.1	)		—			—			—

		489.7			314.5			175.2			148.8			26.4
Corporate		—			—			—			4.9			(4.9	)

Total	$	489.7		$	314.5		$	175.2		$	153.7		$	21.5


Increase (decrease) for two months ended December 31, 2004 vs. 2003
URS Division	$	34.2		$	21.0		$	13.2		$	25.2		$	(12.0	)
EG&G Division		43.3			34.2			9.1			9.9			(0.8	)
Eliminations		(0.2	)		(0.2	)		—			—			—

		77.3			55.0			22.3			35.1			(12.8	)
Corporate		—			—			—			(0.2	)		0.2

Total	$	77.3		$	55.0		$	22.3		$	34.9		$	(12.6	)


Percentage Increase (decrease) for two months ended December 31, 2004 vs. 2003
URS Division		10.2	%		10.2	%		10.2	%		22.5	%		(68.6	%)
EG&G Division		28.2	%		31.6	%		20.0	%		27.0	%		(9.0	%)
Elimination		200.0	%		200.0	%		—			—			—
Corporate		—			—			—			(4.1	%)		4.1	%
Total		15.8	%		17.5	%		12.7	%		22.7	%		(58.6	%)

URS Division

The URS Division’s revenues for the two months ended December 31, 2004 increased 10.2% compared with the same period last year. Approximately seven of the 10% increase in revenues was due to more working days in the two months ended December 31, 2004 than the same period last year. The remaining increase in revenues was due to the various factors discussed below in each of our client markets.

The following table presents the URS Division’s revenues by client type for the two months ended December 31, 2004 and 2003.


	Two Months Ended December 31,
							Percentage
					Increase		increase
	2004		2003		(decrease)		(decrease)
	(In millions, except percentages)
Revenues
Federal government clients	$	79	$	71	$	8		11	%
State and local government clients		105		94		11		12	%
Domestic private industry clients		134		128		6		5	%
International clients		53		43		10		23	%

Total revenues	$	371	$	336	$	35		10	%

Revenues from our federal government clients in the URS Division for the two months ended December 31, 2004 increased by 11% compared with the same period last year. The increased number of working days in the two-month period ended December 31, 2004 contributed to approximately two-thirds of the increase in revenues from our federal government clients. The remainder of the increase was driven by growth in our federal business, including environmental and facilities projects under existing contracts. Revenues from homeland security projects also contributed to this growth as we continued to provide a range of engineering services to the DHS. This work includes designs to help protect federal facilities from terrorists as well as disaster recovery services for the Federal Emergency Management Agency, which is now a part of DHS.

Revenues from our state and local government clients for the two months ended December 31, 2004 increased by approximately 12% compared with the same period last year. Approximately three-fourths of the increase was attributable to the increased number of working days in the two months ended December 31, 2004. The remainder of the increase reflects growth in the work volume provided to our state and local government clients. This market continued to be affected by the budget deficits that state and local governments have faced over the past two years. Although we have begun to see selected pockets of growth emerge in some parts of the country, particularly in the Southeast, the West and the Midwest remained weak, with spending on capital projects significantly below historic levels. In addition, the continuing delay in the passage of the successor bill to TEA-21 continued to negatively impact our revenues in this market. However, we continued to benefit from our successful strategy to shift resources away from surface transportation projects to other portions of the state and local government market – such as K-12 schools, water/wastewater and air transportation – where funding is more stable or growing.

Revenues from our domestic private industry clients for the two months ended December 31, 2004 increased by approximately 5% compared with the same period last year, primarily as a result of the additional working days in the two months ended December 31, 2004. Although we saw some indications of recovery in capital spending by our domestic private industry clients, many of our clients, particularly in the manufacturing and chemical industries, remained cautious. However, our strategic focus of the past several years to win MSAs with major domestic private industry clients in the pharmaceutical, automotive, oil and gas, and power sectors helped to offset the decline in revenues in this part of the business. We also benefited from stricter air pollution control limits under the Clear Skies Act, which has resulted in increased revenues from emissions control projects at power plants.

Revenues from our international clients for the two months ended December 31, 2004 increased by 23% compared with the same period last year. Approximately two-thirds of the increase was attributable to the additional working days in the two months ended December 31, 2004 and one-fourths of the increase was due to foreign currency exchange fluctuations. The remainder of the increase was due to growth in our Asia

Pacific and European regions. The revenue growth in the Asia Pacific region was due to increases in surface and air transportation projects in Australia and New Zealand, driven in part by improvements in the respective country’s economies. The revenue growth in Europe was due to increases in facilities and environmental projects.

The URS Division’s direct operating expenses for the two months ended December 31, 2004 increased by 10.2% compared with the same period last year. The factors that caused revenue growth also drove an increase in our direct operating expenses.

The URS Division’s gross profit for the two months ended December 31, 2004 increased by 10.2% compared with the same period last year, primarily due to the increase in revenue volume previously described. Our gross profit margin percentage remained the same at 38.6% for the two periods ended December 31, 2004 and 2003.

The URS Division’s IG&A expenses for the two months ended December 31, 2004 increased by 22.5% compared with the same period last year. This increase was due to an additional $15.5 million in employee benefit costs, including an $8.9 million increase in the cost of our employees’ holiday benefit for reasons described previously, and higher healthcare, workers’ compensation and retirement costs. The remainder of the increase was due to $2.4 million in indirect labor, $1.6 million in sales and business development expenses, $1.5 million in rent expense, $1.9 million in travel expense, $1.3 million in bad debt expense and $1.0 million in other miscellaneous general and administrative expenses. These increases were primarily due to the additional work days in the period and the increased volume of work.

EG&G Division

The EG&G Division’s revenues for the two months ended December 31, 2004 grew by 28.2% compared with the same period last year. Approximately two-thirds of the increase was driven by continued growth in defense-related work, as we continued to benefit from additional military spending on engineering and technical services, and operations and maintenance activities. In addition, due to increased military activity, our work under existing outsourcing contracts to provide engineering and technical services to refurbish and upgrade military equipment and systems increased. This work involved improvements to communications equipment, weapons systems, and engines on aircraft and ground vehicles such as tanks, high-mobility multipurpose wheeled vehicles and various armored personnel carriers. Homeland security revenues remained strong, with increased work in the design, development and conduct of security preparedness exercises around the country. The remainder of the increase was attributable to the increased number of working days in the two months ended December 31, 2004.

The EG&G Division’s direct operating expenses for the two months ended December 31, 2004 increased by 31.6% compared with the same period last year. Higher revenues drove an increase in our direct operating expenses. In addition, a greater volume of work on existing contracts with lower profit margins caused direct operating expenses to increase faster than revenues.

The EG&G Division’s gross profit for the two months ended December 31, 2004 increased by 20.0% compared with the same period last year. The increase in gross profit was primarily due to increased revenues from existing defense technical services and military equipment maintenance contracts; however, gross profit grew at a slower rate than revenue because the contracts that generated most of the increase in revenue generated lower gross profit compared to our historic portfolio of contracts. Our gross profit margin percentage decreased to 27.8 % from 29.7% for the two months ended December 31, 2004 and 2003.

The EG&G Division’s IG&A expenses for the two months ended December 31, 2004 increased by 27.0% compared with the same period last year. The increase was primarily due to a higher business volume. The EG&G Division’s indirect expenses are generally variable in nature, and as such, any increase in business volume tends to result in higher indirect expenses. Of the total increase, approximately $8.9 million was due to volume increases in employee benefit costs, including a $0.8 million increase in the cost of our employees’ holiday benefit for reasons described previously, and higher healthcare, workers’ compensation and retirement costs. Other employee-related expenses, such as travel and recruiting expenses, increased by

$1.4 million, due to a higher employee headcount as a result of the increase in work volume. Indirect expenses as a percentage of revenues decreased to 23.7% from 23.9% for the two months ended December 31, 2004 and 2003, respectively, due to the increase in our revenues compared with the same period last year.

Liquidity and Capital Resources


	Two Months Ended December 31,
	2004			2003
	(In millions)
Cash flows provided (used) by operating activities	$	15.0		$	(39.5	)
Cash flows provided (used) by investing activities		(1.6	)		(2.8	)
Cash flows provided by financing activities		25.3			40.8
Proceeds from sale of common shares and exercise of stock options		5.2			0.9

Our primary sources of liquidity are cash flows from operations and borrowings from our Credit Facility. Our primary uses of cash are to fund our working capital and capital expenditures and to service 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 12 months and beyond. If we experience a significant change in our business such as the consummation of a significant acquisition, we would likely need to acquire additional sources of financing. We believe that we would be able to obtain adequate resources to address significant changes in our business at reasonable rates and terms, as necessary, based on our past experience with business acquisitions.

We are dependent on the cash flows generated by our subsidiaries and, consequently, on their ability to collect on their respective accounts receivables. Substantially all of our cash flows are generated by our subsidiaries. As a result, the funds necessary to meet our debt service obligations are provided in large part by distributions or advances from our subsidiaries. The financial condition and operational requirements of our subsidiaries may limit our ability to obtain cash from them.

Billings and collections on accounts receivable can impact our operating cash flows. Management places significant emphasis on collection efforts, has assessed the allowance accounts for receivables as of December 31, 2004 and has deemed them to be adequate; however, future economic conditions may adversely impact some of our clients’ ability to pay our bills or the timeliness of their payments. Consequently, it may also impact our ability to consistently collect cash from them to meet our operating needs.

Operating Activities

The increase in cash flows from operations for the two months ended December 31, 2004, compared with the same period last year, was primarily due to the following factors:

• an increase $37.0 million resulting from an increase in average daily collections in the two months ended December 31, 2004; and

• an increase of $5.8 million resulting from timing payments on accounts payable.

Our cash balances were unusually high at December 31, 2004 due to very strong collections between Christmas and the end of December. We manage our cash aggressively, whereby we maintain funds in our bank accounts that will cover only that day’s funding requirements. We invest excess cash in overnight money market funds at financial institutions other than the banks from which we make disbursement transactions, and then replenish our bank accounts the following day for the preceding day’s funding requirements. As a result, the amount of cash that we maintain in our bank disbursement accounts is not always adequate to satisfy the disbursements that we have released, but have yet to clear the bank. Because the aggregate amount of uncleared transactions exceeds our bank account balances, the differences are classified as “Bank Overdraft,” in the accompanying consolidated balance sheets. Changes in the amount of Book Overdraft are categorized as financing activities.

Investing Activities

As a professional services organization, we are not capital intensive. Capital expenditures historically have been primarily for computer-aided design, accounting and project management information systems, and general purpose computer equipment to accommodate our growth. Capital expenditures, excluding purchases financed through capital leases, during the two months ended December 31, 2004 and 2003, were $1.6 million and $2.8 million, respectively.

Financing Activities

The decrease of $15.4 million in net cash provided by financing activities for the two months ended December 31, 2004 compared with the same period last year was due to the following major factors:

•   a decrease of $13.4 million in the net change in book overdraft;

•   a decrease in other net borrowings of $8.0 million associated with funding daily operations; offset by

•   an increase of $4.3 million in proceeds from the sale of common stock from the exercise of stock options, resulting from the increase in our common stock price; and

•   a payment of $1.6 million in financing fees during the two months ended December 31, 2003.

Below is a table containing information about our contractual obligations and commercial commitments followed by narrative descriptions as of December 31, 2004.



			Principal Payments Due by Period
Contractual Obligations			Less Than						After 5
(Principal Only):	Total		1 Year		1-3 Years		4-5 Years		Years
	(In thousands)
As of December 31, 2004:
Senior Secured Credit Facility:
Term loan A	$	83,610	$	17,288	$	66,322	$	—	$	—
Term loan B		270,198		1,386		5,542		263,270		—
Line of credit		18,000		—		18,000		—		—
11 1/2% senior notes (1)		130,000		—		—		130,000		—
12 1/4% senior subordinated notes		10,000		10,000		—		—		—
6 1/2% convertible subordinated debentures (1)		1,798		—		—		—		1,798
Capital lease obligations		32,032		13,948		12,984		5,057		43
Notes payable, foreign credit lines and other indebtedness		13,359		5,716		7,636		7		—

Total debt		558,997		48,338		110,484		398,334		1,841
Pension funding requirements (2)		5,131		5,131		—		—		—
Purchase obligations (3)		5,658		3,225		2,433		—		—
Operating lease obligations (4)		462,911		89,291		150,997		118,091		104,532

Total contractual obligations	$	1,032,697	$	145,985	$	263,914	$	516,425	$	106,373

(1)		Amounts shown exclude remaining original issue discounts of $2.1 million and $18 thousand for our 11¹/2% notes and our 6¹/2% Convertible Subordinated Debentures, respectively.

(2)		These pension funding requirements are for the EG&G pension plans based on actuarially determined estimates and management assumptions. We chose not to make estimates beyond one year based on a variety of factors, including amounts required by local laws and regulations, and other funding requirements.

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

(4)		These operating leases are predominantly real estate leases.

Off-balance Sheet Arrangements. As of December 31, 2004, we had a total available balance of $55.3 million in standby letters of credit under our Credit Facility. Letters of credit are used primarily to support 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. The Credit Facility covers the issuance of our standby letters of credit and is critical for our normal operations. If we default on this 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 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 debt, which is 14 months. The maximum potential amount of future payments, which we could have been required to make under this guarantee at December 31, 2004, was $6.5 million.

We have an agreement to indemnify one of our joint venture lenders 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.

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; however, we cannot estimate the amount of any guarantee until a determination has been made that a material defect has occurred. Currently, we have no guarantee claims for which losses have been recognized.

Senior Secured Credit Facility. The sixth amendment to our Credit Facility, dated November 29, 2004, permitted us to change our fiscal year to a calendar year basis. The seventh amendment, dated January 27, 2005, reduced the interest rate margins on our Credit Facility by 0.25% and provided for an additional 0.25% reduction if either Standard & Poor’s or Moody’s upgrades us from our current credit ratings, which are BB and Ba2, respectively. The seventh amendment also eliminated restrictions on the amount of cash we are able to use in an acquisition.

Capital Leases. As of December 31, 2004, we had $32.0 million in obligations under our capital leases, consisting primarily of leases for office equipment, computer equipment and furniture.

Operating Leases. As of December 31, 2004, we had approximately $462.9 million in obligations under our operating leases, consisting primarily of real estate leases.

Related-Party Transactions. On January 19, 2005, affiliates of Blum Capital Partners, L.P. (collectively, the “Blum Affiliates”) sold 2,000,000 shares of our common stock in an underwritten secondary offering. The general partner of Blum Capital Partners, L.P. is a member of our Board of Directors. The Blum Affiliates have granted the underwriter an option to purchase up to 300,000 additional shares of our common stock held by the Blum Affiliates to cover over-allotments, if any.

Derivative Financial Instruments. We are exposed to risk of changes in interest rates as a result of borrowings under our Credit Facility. During the two months ended December 31, 2004, we did not enter into any interest rate derivatives due to our assessment of the costs/benefits of interest rate hedging given the current low interest rate environment. However, we may enter into derivative financial instruments in the future depending on changes in interest rates.

Enterprise Resource Program (“ERP”). During fiscal year 2001, we commenced a project to consolidate all of our accounting and project management information systems and convert to a new ERP system. As of February 1, 2005, approximately 65% of our total revenues are processed on this new ERP system. We expect to convert substantially all of the remaining URS Division’s legacy systems over the next 12 months. Beginning in 2006, we intend to convert the EG&G Division’s accounting systems to the ERP system.

Oracle Corporation acquired PeopleSoft Inc. in January 2005. It is possible that Oracle Corporation may discontinue further development, integration or long-term software maintenance support for our ERP system. Should any of such events occur, we will be required to seek alternatives to our existing ERP system.

The capitalized costs of implementing our new ERP system, including hardware, software licenses, consultants and internal staffing costs will be approximately $65.0 million, excluding the potential costs associated with the conversion of the EG&G Division’s ERP system. As of December 31, 2004, we had capitalized costs of approximately $58.9 million for this project, with the remaining costs to be incurred through fiscal year 2005. We have been financing a substantial portion of these costs through capital lease arrangements with various lenders. If, and to the extent, that financing cannot be obtained through capital leases, we will draw on our revolving line of credit as alternative financing for expenditures to be incurred for this project.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States 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, giving consideration to 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.

The accounting policies that we believe are most critical to an investor’s understanding of our financial results and condition, and require complex management judgment are included in our amended Annual Report on Form 10-K/A for the year ended October 31, 2004. To date, there have been no material changes to these critical accounting policies during the two months ended December 31, 2004.

Adopted and Recently Issued Statements of Financial Accounting Standards

Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 106-1 (“FSP 106-1”) and 106-2 (“FSP 106-2”), respectively, both entitled “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” FSP 106-2 supersedes FSP 106-1. FSP 106-2 provides guidance on accounting for the effects of the Medicare Act and requires specific disclosures. Based on an analysis of the Medicare Act, FSP 106-2, and facts available to us, we formed a conclusion that the majority of the health care benefits we provide to retirees is not actuarially equivalent to Medicare Part D and therefore, the effects of the Medicare Act would not have a significant impact on our consolidated financial statements.

Risk Factors That Could Affect Our Financial Condition and Results of Operations

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

We continue to experience the adverse effects from the ongoing economic downturn. If the economic downturn continues or worsens, then our revenues, profits and our financial condition may deteriorate.

In response to reduced revenues caused by the ongoing economic downturn, our clients may cut costs, or delay, curtail or cancel proposed and existing projects. Our government clients may face budget deficits that prohibit them from funding proposed and existing projects. Our clients may also demand better pricing terms. In addition, the economic downturn may impact our clients’ ability to pay our bills and our ability to collect cash from our clients needed to fund our business operations. Although some economic fundamentals have been improving, our business generally lags the overall recovery in the economy and, therefore, we do not know whether or when any improving economic indicators will positively affect our revenues and profits. If the economic downturn continues or worsens, then our revenues, profits and overall financial condition may deteriorate.

As a government contractor, we are subject to a number of procurement laws and regulations and government audits, any deemed violation of which could lead to sanctions, contract termination or ineligibility for future government contracts.

We must comply with and are affected by 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 Federal Acquisition Regulation (“FAR”), the Truth in Negotiations Act, the Cost Accounting Standards (“CAS”), the Service Contract Act, and DOD security regulations, as well as many other rules and regulations. These laws and regulations affect how we transact business with our clients and in some instances, impose added costs to our business operations.

As a federal government contractor, we must maintain our status as a responsible contractor. Even though we take precautions to prevent and deter fraud and misconduct, 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 agencies review or audit a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. A violation of specific laws and regulations 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 ineligible to perform services for governmental agencies. We could also suffer serious harm to our reputation.

In addition, during the course of its audits, the DCAA may question incurred costs if the DCAA believes we have accounted for such costs in a manner inconsistent with the requirements for the FAR or CAS and recommend that our U.S. government corporate administrative contracting officer disallow such costs. Historically, we have not experienced significant disallowed costs as a result of such audits. However, we can provide no assurance that the DCAA audits will not result in material disallowances for incurred costs in the future.

Because we depend on federal, state and local governments for a significant portion of our revenue, our inability to win profitable government contracts could harm our operations and adversely affect our net income.

Revenues from federal government contracts and state and local government contracts represented approximately 49% and 19%, respectively of our total revenues for the two months ended December 31, 2004. Our inability to win profitable government contracts could harm our operations and adversely affect our net income. Government contracts are typically awarded through a heavily regulated procurement process. Some government contracts are awarded to multiple competitors, which increases overall competition and pricing pressure and may require us to make sustained post-award efforts to realize revenues under these contracts, which negatively impact our profitability under the contracts. Moreover, even if we are qualified to work on a new government contract, we may not be awarded the contract because of existing government policies designed to protect small businesses and underrepresented minority contractors. Finally, government clients can generally terminate or modify their contracts at their convenience.

Unexpected termination of a substantial portion of our book of business could harm our operations and adversely affect our future revenues.

We account for all contract awards that may be recognized as revenues as our book of business, which includes backlog, designations, option years and indefinite delivery contracts. Our backlog consists of the amount billable at a particular point in time for future services under signed contracts. Our designations consist of projects that clients have awarded 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 indefinite delivery contracts are signed contracts under which we perform work only when our client issues specific task orders. Our book of business estimates may not result in actual revenues in any particular period since clients may terminate or delay projects, or decide not to award task orders under indefinite delivery contracts. Unexpected termination of a substantial portion of our book of business could harm our operations and adversely affect our future revenues.

Funding for many of our multi-year government contracts must be appropriated each year. If appropriations are not made in subsequent years for a multiple-year contract, we will not realize all of our potential revenues and profits from that contract.

We derive a significant amount of our revenues from multi-year government contracts, many of which are appropriated on an annual basis. Legislatures typically appropriate funds for a given program on a year-by-year basis, even though contract performance may take more than one year. As a result, at the beginning of a project, the related contract may only be partially funded, and additional funding is normally committed only as appropriations are made in each subsequent year. These appropriations, and the timing of payment of appropriated amounts, may be influenced by, among other things, the state of the economy, competing political priorities, curtailments in the use of government contracting firms, budget constraints, the timing and amount of tax receipts and the overall level of government expenditures. If appropriations are not made in subsequent years of a multiple-year contract, we will not realize all of our potential revenues and profits from that contract.

If we are unable to accurately estimate the overall risks, revenues or costs on contracts, then we may incur losses on those contracts or generate lower profits.

We generally enter into three principal types of contracts with our clients: cost-plus, fixed-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 our costs. Under fixed-price contracts, we receive a fixed price unrelated to the actual costs we incur. Consequently, we realize a profit on fixed-price contracts only if we control our costs and prevent cost over-runs on the contracts. Under time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and for other expenses. Profitability on these types of contracts is driven by billable headcount and control of cost over-runs.

Accounting for these contracts requires judgment relative to assessing their estimated risks, revenues and costs. Due to the size and nature of many of our contracts, the estimation of overall risk, revenues and costs at completion is complicated and subject to many variables. Changes in underlying assumptions, circumstances or estimates may also adversely affect financial performance in future periods. If we are unable to accurately estimate the overall revenues or costs on a contract, then we may incur a loss on the contract or generate a lower profit.

If we guarantee the timely completion or performance standards of a project, we could incur additional costs to cover our guarantee obligations.

We may guarantee to our client that we will complete a project by a scheduled date. We also may sometimes guarantee that a project, when completed, will achieve specified performance standards. If the project is not completed by the scheduled date or subsequently fails to meet guaranteed 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 to achieve the required performance standards. In some cases, should we fail to meet required performance standards, we may also be subject to agreed-upon damages, which are fixed in amount 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 that project.

Our use of the percentage-of-completion method of accounting could result in 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. Generally, our use of this method results in recognition of revenues and profits ratably over the life of the contract, based on the proportion of costs incurred to date to total costs expected to be incurred. The effect of revisions to revenues and estimated costs is recorded when the amounts are known and 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 and 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 partners fail to perform their contractual obligations on a project, we could be exposed to legal liability, loss of reputation or reduced profit on the project.

We sometimes enter into subcontracts, joint ventures and other contractual arrangements with outside partners so that we can jointly bid on and execute a particular project. Success on these joint projects depends largely on whether our partners fulfill their contractual obligations satisfactorily. If any of our partners fails to satisfactorily perform their contractual obligations as a result of financial or other difficulties, we may be required to make additional investments and provide additional services in order to make up for our partner’s shortfall. If we are unable to adequately address our partner’s performance issues, then our client could terminate the joint project, exposing us to legal liability, loss of reputation or reduced profit on the project.

Our substantial indebtedness could adversely affect our financial condition.

As of December 31, 2004, we had $556.9 million of outstanding indebtedness. This level of indebtedness could have a negative impact on us because it may:

•   limit our ability to borrow money or sell stock for working capital, capital expenditures, debt service requirements or other purposes;

•   limit our flexibility in planning for, or reacting to, changes in our business;

•   place us at a competitive disadvantage if we are more highly leveraged than our competitors;

•   restrict us from making strategic acquisitions or exploiting business opportunities;

•   make us more vulnerable to a downturn in our business or the economy;

•   require us to maintain certain financial ratios, which we may not be able to achieve; and

•   require us to dedicate a substantial portion of our cash flows from operations to the repayments of our indebtedness, thereby reducing the availability of cash flows to fund working capital, capital expenditures and for other general corporate purposes.

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 dividends and other payments to generate the funds necessary to meet our financial obligations. Legal restrictions, including local regulations and contractual obligations associated with secured loans, such as equipment financings, may restrict our subsidiaries’ ability to pay dividends or make loans or other distributions to us. The earnings from, or other available assets of, these operating subsidiaries may not be sufficient to make distributions to enable us to pay interest on our debt obligations when due or to pay the principal of such debt at maturity.

Restrictive covenants in our Credit Facility and the indentures relating to our outstanding notes and our other outstanding indebtedness may restrict our ability to pursue business strategies.

Our Credit Facility and our indentures relating to our outstanding notes and our other outstanding indebtedness restrict our ability to, among other things:

•   incur additional indebtedness;

•   pay dividends and make distributions to our stockholders;

•   repurchase or redeem our stock;

•   repay indebtedness that is junior to our Credit Facility or our outstanding indebtedness;

•   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;

•   acquire the assets of, or merge or consolidate with, other companies;

•   pledge assets that would result in less security for our debt holders; and

•   make capital expenditures.

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

We may incur substantial costs of compliance with, or liabilities under, environmental laws and regulations.

Our environmental business involves the planning, design, program and construction management and operation and maintenance of pollution control facilities, hazardous waste or Superfund sites and military bases. In addition, we contract with U.S. governmental entities to destroy hazardous materials, including chemical agents and weapons stockpiles. These activities require us to manage, handle, remove, treat, transport and dispose of toxic or hazardous substances. Federal laws, including but not limited to the Resource Conservation and Recovery Act of 1976, as amended, or RCRA, and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or CERCLA, as well as other governmental laws strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances and impose liability for environmental contamination caused by such substances. In addition, so-called “toxic tort” litigation has increased markedly in recent years as people injured by hazardous substances seek recovery for personal injuries and/or property damages. 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.

Changes in environmental laws, regulations and programs could reduce demand for our environmental services, which could negatively impact our revenues.

Our environmental business is driven by federal, state, local and foreign laws, regulations and programs related to pollution and environmental protection. Accordingly, a relaxation or repeal of these laws and regulations, or changes in governmental policies regarding the funding, implementation or enforcement of these programs, could result in a decline in demand for environmental services that could negatively impact our revenues.

Our liability for damages due to legal proceedings may significantly reduce our net income.

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 which cannot be predicted with certainty. In some actions, parties are seeking damages that exceed our insurance coverage or are not insured. Our services may require us to make judgments and recommendations about environmental, structural and other physical conditions at project sites. If our judgments and recommendations are later found to be incomplete or incorrect, then we may be liable for the resulting damages. If we sustain damages that exceed our insurance coverage or that are not insured, there could be a material adverse effect on our net income.

A general decline in U.S. defense spending could harm our operations and adversely affect our future revenues.

Revenues under contracts with the U.S. Department of Defense and other defense-related entities represented approximately 36% our total revenues for the two months ended December 31, 2004. While spending authorization for defense-related programs has increased significantly in recent years due to greater homeland security and foreign military commitments, as well as the trend to outsource federal government jobs to the private sector, these spending levels may not be sustainable. Future levels of expenditures and authorizations for these programs 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 could harm our operations and adversely affect our future revenues.

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

Our industry is highly fragmented and intensely competitive. Our competitors are numerous, ranging from small private firms to multi-billion dollar public companies. In addition, the technical and professional aspects 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. These competitive forces could have a material adverse effect on our business, financial condition and results of operations by reducing our relative share in the markets we serve.

We rely heavily on our senior management and our professional and technical staff. 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 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. In addition, we rely heavily upon the expertise and leadership of our senior management. The failure to attract and retain key individuals could impair our ability to provide services to our clients and conduct our business effectively.

Recent changes in accounting for equity-related compensation could significantly impact our ability to attract and retain key employees.

On December 16, 2004, the FASB issued Revised SFAS 123, which will require us to recognize, as an expense, the fair value of stock options and other equity-related compensation to employees as of the first interim reporting period beginning after June 15, 2005. Since we historically have used equity-related compensation as one component of our employee compensation program, the proposed accounting change could make the use of equity-related compensation less attractive and, therefore, make it more difficult to attract and retain key employees.

Our international operations are subject to a number of risks that could harm our operations and adversely affect our future revenues.

As a multinational company, we have operations in over 20 countries and we derived approximately 9% of our revenues from international operations for the two-month periods ended December 31, 2004 and 2003, respectively. International business is subject to a variety of special risks, including:

•   greater risk of uncollectible accounts and longer collection cycles;

•   currency fluctuations;

•   logistical and communications 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 liability under the Foreign Corrupt Practices Act; and

•   general economic and political conditions in these foreign markets.

These and other risks associated with international operations could harm our overall operations and adversely affect our future 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 exposure to international operations may be more or less than the percentage of revenues we attribute to the international category.

Our business activities may require our employees to travel to and work in high security risk countries, which may result in employee 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 or acts of terrorism. For example, we have employees working in Iraq, a high security risk country with substantial civil unrest and acts of terrorism. As a result, we may be subject to costs related to employee injury, repatriation or other unforeseen costs.

If we are not able to successfully develop, integrate or maintain third party support for our ERP system in a timely manner, we may incur unexpected costs that could harm our results of operations, including the possibility of abandoning our current ERP system and migrating to another ERP system.

We are consolidating all of our accounting and project management information systems to an ERP software system developed and customized for us by PeopleSoft Inc. As of January 1, 2005, approximately 65% of our total revenues were processed on this ERP system. We expect to convert substantially all of the remaining URS Division’s legacy systems over the next 12 months. We intend to convert the EG&G Division’s accounting system to the ERP system beginning in 2006. We depend on PeopleSoft Inc. to develop, integrate and provide long-term software maintenance support for our ERP system. As a result of Oracle Corporation’s acquisition of PeopleSoft, Inc. in January 2005, it is possible that Oracle may discontinue further development, integration or long-term software maintenance support for our ERP system. In the event we do not successfully complete the development and integration of our ERP system or are unable to obtain necessary long-term third party software maintenance support, we may be required to incur unexpected costs that could harm our results of operations, including the possibility of abandoning our current ERP system and migrating all of our accounting and project management information systems to another ERP system.

If our intangible assets become impaired, our earnings will be negatively impacted.

Our balance sheet includes goodwill and other intangible assets, the values of which are material. If any of our intangible assets were to become impaired, we would be required to write-off the impaired amount. The write-off would negatively affect our earnings.

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

As of December 31, 2004, approximately 8% 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.

Delaware law and our charter documents and the change of control provisions of our outstanding notes may impede or discourage a takeover, which could cause the market price of our shares to decline.

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 existing 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 certain provisions of 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, which, under certain circumstances, could reduce the market price of our common stock. In addition, if we undergo a change of control, we may be required to repurchase our 11 1/2% notes and our 12 1/4% notes, in each case at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. This feature in our outstanding notes may also discourage a person or a group from attempting to acquire us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to changes in interest rates as a result of our borrowings under our Credit Facility. Based on outstanding indebtedness of $353.8 million under our Credit Facility at December 31, 2004, if market rates averaged 1% higher in the next twelve months, our net of tax interest expense would increase by approximately $2.1 million. Conversely, if market rates averaged 1% lower in the next twelve months, our net of tax interest expense would decrease by approximately $2.1 million.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining “disclosure controls and procedures” (as defined in rules promulgated under the Exchange Act) for our company.

On February 7, 2005, in connection with the preparation of this report, our management, in consultation with the Audit Committee of the Board of Directors (the “Audit Committee”), concluded that it was necessary to correct our application of Financial Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts, an interpretation of APB Opinion No. 10 and FASB Statement No. 105” (“FIN 39”). Management concluded that, while some of our book overdrafts historically had been reported as current liabilities, others were offset against cash and cash equivalent balances and should have been reported as current liabilities under FIN 39. Accordingly, we have restated our consolidated balance sheets as of October 31, 2004 and 2003 to report the gross amounts of cash and cash equivalents and to change the classification of book overdraft balances from accrued expenses to book overdrafts. We also have made corresponding adjustments to our consolidated statements of cash flows for the years ended October 31, 2004, 2003 and 2002 to reflect the book overdrafts as financing activities rather than operating activities. The restatement was based on guidance in FIN 39, which permits offsetting of assets and liabilities only if the debtor has a valid, legal right of offset as defined by FIN 39. Our restated financial statements were filed with the SEC on February 9, 2005 as Item 8 to our Annual Report on Form 10-K/A.

In connection with the restatement, our independent registered public accounting firm reported to our Audit Committee that it considers our prior treatment of book overdrafts under FIN 39 to be a matter which they consider to be a “material weakness” (as defined by the Public Company Accounting Oversight Board (the “PCAOB”) in its Auditing Standard No. 2). As defined by the PCAOB, a material weakness is a significant deficiency, or a combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our management and Audit Committee concur with the conclusion reached by our independent registered public accounting firm and have taken steps to remediate the material weakness. Specifically, we have provided our financial reporting and treasury personnel with training on the requirements of FIN 39, modified our cash management procedures and established an additional review control over the evaluation of the classification of cash balances and the determination of the nature of rights of setoff.

In light of the material weakness described above, our Chief Executive Officer and Chief Financial Officer believe that our disclosure controls and procedures were not effective as of the end of the period covered by this report since they resulted in a need to restate our financial statements as described above.

(b) Changes in internal controls. There were no changes in our internal controls over financial reporting during the two months period ended December 31, 2004 that materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting. However, contemporaneously with the filing of this report, we have implemented changes to our internal controls to correct the material weakness identified, as described above.

(c) Limitations on the effectiveness of controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving these objectives, and our Chief Executive Officer and Chief Financial Officer believe that our disclosure controls and procedures were not effective at the “reasonable assurance” level as of the end period covered by this report since they resulted in a need to restate our financial statements as described above. However, with the changes in our internal controls implemented contemporaneously with the filing of this report, our Chief Executive Officer and Chief Financial Officer now believe that these controls and procedures are effective at the “reasonable assurance” level.

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 which cannot be predicted with certainty. See Note 5, “Commitments and Contingencies” for a discussion of some of these legal proceedings. In some actions, parties are seeking damages, including punitive or treble damages that substantially exceed our insurance coverage.

Although the outcome of our legal proceedings can not 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 the legal proceedings described above, individually or collectively, are likely to exceed established loss accruals or our various professional errors and omissions, project-specific and potentially other insurance polices and, therefore, we do not believe that they are likely to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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 stock shares during November and December of 2004. No purchases were made pursuant to a publicly announced repurchase plan or program.

(d) Maximum

Number (or

of Shares

Approximate Dollar

(a) Total

Purchased as Part

Value) of Shares

Number of

(b) Average

of Publicly

that May Yet be

Price Paid

Announced Plans

Purchased Under the

Period

Purchased (1)

per Share

or Programs

Plans or Programs

(in thousands, except average price paid per share)

November, 2004 - November 30, 2004

28.67

—

December 1, 2004 - December 31, 2004

—

Total

—

(1) Stock-for-stock exchanges for payments of exercise cost and withholding taxes upon exercises of stock options or vesting of restricted or deferred stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.


	Year Ended October 31, 2004
	As Reported			Adjustments			As Restated
	(In thousands)
Cash flows from operating activities:
Net income	$	61,704		$	—		$	61,704
Adjustments to reconcile net income to net cash provided by operating activities:
Change in assets and liabilities:
Accounts payable, accrued salaries and wages and accrued expenses		36,732			(13,810	)		22,922
All other adjustments to reconcile net income to net cash provided by operating activities		10,894			—			10,894

Total adjustments and changes		47,626			(13,810	)		33,816
Net cash provided by operating activities		109,330			(13,810	)		95,520

Cash flows from investing activities:		(19,016	)		—			(19,016	)
Cash flows from financing activities:
Net change in book overdraft		—			30,011			30,011
All other cash flows from financing activities		(73,523	)		—			(73,523	)

Net cash used by financing activities		(73,523	)		30,011			(43,512	)

Net increase in cash and cash equivalents		16,791			16,201			32,992
Cash and cash equivalents at beginning of year		15,508			20,767			36,275

Cash and cash equivalents at end of year	$	32,299		$	36,968		$	69,267


	Year Ended October 31, 2003
	As Reported			Adjustments			As Restated
	(In thousands)
Cash flows from operating activities:
Net income	$	58,104		$	—		$	58,104
Adjustments to reconcile net income to net cash provided by operating activities:
Change in assets and liabilities:
Accounts payable, accrued salaries and wages and accrued expenses		(12,126	)		10,939			(1,187	)
All other adjustments to reconcile net income to net cash provided by operating activities		120,165			—			120,165

Total adjustments and changes		108,039			10,939			118,978
Net cash provided by operating activities		166,143			10,939			177,082

Cash flows from investing activities:		(18,246	)		—			(18,246	)
Cash flows from financing activities:
Net change in book overdraft		—			(12,985	)		(12,985	)
All other cash flows from financing activities		(142,361	)		—			(142,361	)

Net cash used by financing activities		(142,361	)		(12,985	)		(155,346	)

Net increase (decrease) in cash and cash equivalents		5,536			(2,046	)		3,490
Cash and cash equivalents at beginning of year		9,972			22,813			32,785

Cash and cash equivalents at end of year	$	15,508		$	20,767		$	36,275

	•	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 a contract with a Saudi Arabian government ministry (the “Ministry”). LSI’s performance under the contract was completed in November 2000, but since that time various claims have been made against LSI, including breach of a joint venture and other agreements, and the failure to pay rent and taxes.

		Two Saudi Arabian landlords have pursued claims over disputed rents and have received judgments in Saudi Arabian legal proceedings totaling $7.9 million. We continue to pursue defense disputing these claims and judgments.

		During fiscal year 2004, an arbitration ruling by the International Chamber of Commerce (“ICC”) was issued against LSI that included a monetary award of $4.9 million to a joint venture partner (the “claimant”). During August 2004, the claimant filed an action in the United States District Court in Maryland to confirm and enforce the ICC award. We are contesting the confirmation and enforceability of portions of the award.

		In addition, the Ministry directed payment of a performance bond issued in its favor under this contract in the amount of approximately $5.6 million. One of the conditions for closing out the contract and LSI’s obligations under the bond is the successful resolution of a pending tax assessment issued by the Saudi Arabian taxing authority assessing LSI approximately $5.1 million in taxes for the years 1999 through 2002. We disagree with the Saudi Arabian taxing authority’s assessment and are providing responses, additional information and documentation. However, Banque Saudi Fransi received the demand for release of the bond and notified LSI that it has released it to the Ministry and that it will seek to recover this amount in a proceeding against LSI. We have informed Banque Saudi Fransi that we believe the Ministry had no basis for seeking payment on the bond. LSI is also pursuing a claim against the Ministry for wrongfully demanding the bond.

		We have adequately provided for any enforceable obligations arising relative to these contingencies, based on current facts and circumstances.

	•	Lebanon: Prior to our acquisition of Dames and Moore Group, Inc., in 1999, which included wholly-owned subsidiary Radian, Radian entered into a contract to provide environmental remediation to a Lebanese company (“Solidere”) involved in the development and reconstruction of the central district of Beirut. Various disputes have arisen under this contract, including an allegation by Solidere that Radian breached the contract by, among other things, failing to reduce the level of chemical and biological constituents, including methane gas, at the project site to the contract level. The parties sought to resolve their disputes in an arbitration proceeding filed with the ICC.

		During July 2004, an ICC arbitration panel ruled against Radian and ordered Radian to prepare a plan to reduce the level of methane gas at the project site to the contract level, to pay approximately $2.4 million in attorney fees and other expenses to Solidere, and authorized Solidere to withhold project payments. At December 31, 2004, Solidere had withheld project


	October 31, 2004
			Property
	Net		and
	Accounts		Equipment
	Receivable		at Cost, Net		Total Assets
	(In thousands)
	(Restated, See Note 2)
URS Division	$	739,828	$	133,444	$	940,992
EG&G Division		212,210		6,299		237,913

		952,038		139,743		1,178,905
Corporate		—		3,469		1,695,114
Eliminations		—		—		(605,269	)

Total	$	952,038	$	143,212	$	2,268,750


	Two Months Ended December 31, 2004
				Operating			Depreciation
				Income			and
	Revenues			(Loss)			Amortization
	(In thousands)
URS Division	$	370,285		$	5,483		$	5,593
EG&G Division		197,004			8,025			1,218
Eliminations		(292	)		—			—

		566,997			13,508			6,811
Corporate		—			(4,664	)		98

Total	$	566,997		$	8,844		$	6,909

	•	an increase $37.0 million resulting from an increase in average daily collections in the two months ended December 31, 2004; and

	•	an increase of $5.8 million resulting from timing payments on accounts payable.

	•	a decrease of $13.4 million in the net change in book overdraft;

	•	a decrease in other net borrowings of $8.0 million associated with funding daily operations; offset by

	•	an increase of $4.3 million in proceeds from the sale of common stock from the exercise of stock options, resulting from the increase in our common stock price; and

	•	a payment of $1.6 million in financing fees during the two months ended December 31, 2003.

	•	limit our ability to borrow money or sell stock for working capital, capital expenditures, debt service requirements or other purposes;

	•	limit our flexibility in planning for, or reacting to, changes in our business;

	•	place us at a competitive disadvantage if we are more highly leveraged than our competitors;

	•	restrict us from making strategic acquisitions or exploiting business opportunities;

	•	make us more vulnerable to a downturn in our business or the economy;

	•	require us to maintain certain financial ratios, which we may not be able to achieve; and

	•	require us to dedicate a substantial portion of our cash flows from operations to the repayments of our indebtedness, thereby reducing the availability of cash flows to fund working capital, capital expenditures and for other general corporate purposes.

	•	incur additional indebtedness;

	•	pay dividends and make distributions to our stockholders;

	•	repurchase or redeem our stock;

	•	repay indebtedness that is junior to our Credit Facility or our outstanding indebtedness;

	•	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;

	•	acquire the assets of, or merge or consolidate with, other companies;

	•	pledge assets that would result in less security for our debt holders; and

	•	make capital expenditures.

	•	greater risk of uncollectible accounts and longer collection cycles;

	•	currency fluctuations;

	•	logistical and communications 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 liability under the Foreign Corrupt Practices Act; and

	•	general economic and political conditions in these foreign markets.

	31.1	Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. FILED HEREWITH.

	31.2	Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. FILED HEREWITH.

	32	Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. FILED HEREWITH.


Dated: February 9, 2005	URS CORPORATION
	/s/ Reed N. Brimhall
	Reed N. Brimhall
	Vice President, Corporate Controller and Chief Accounting Officer