Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended October 31, 2002

OR

For the Transition Period from _____ to _____
Commission file number 1-7567

URS CORPORATION

(415) 774-2700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. x

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

On January 3, 2003, there were 30,124,289 shares of the registrant’s Common Stock outstanding. The aggregate market value of the Common Stock of the registrant held by non-affiliates on January 3, 2003 and April 30, 2002 (the last business day of the registrant’s most recently completed second fiscal quarter) were $298.3 million and $563.3 million, respectively, based upon the closing sales price of the registrant’s Common Stock on such date as reported in the consolidated transaction reporting system. For purposes of this calculation, executive officers, directors and holders of 10% or more of the outstanding shares of Common Stock of the registrant are deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Documents Incorporated by Reference

Items 10, 11, and 12 of Part III incorporate information by reference from the registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 25, 2003.

Table of Contents

URS CORPORATION AND SUBSIDIARIES

     This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here. Factors that might cause such a difference include, but are not limited to, those discussed elsewhere in this Annual Report on Form 10-K.

1

Table of Contents

ITEM 1. BUSINESS

     We are an engineering firm that provides a comprehensive range of professional planning, design, program and construction management, and operations and maintenance services. We provide these services in eight markets, which are surface transportation, air transportation, railroads and mass transit, industrial process and petrochemical refinement, general building and facilities, water/wastewater treatment, hazardous waste management and military platform support. We provide services to state, local and federal government agencies, as well as to private clients in the chemical, pharmaceutical, manufacturing, forest product, energy, oil, gas, mining, healthcare, water supply, retail and commercial development, telecommunication and utility industries. With our workforce of over 25,000 full time and temporary employees, we conduct business through a network of approximately 240 principal offices and contract-specific job sites throughout the world, including the United States of America, Canada, Mexico, Central and South America, Europe, the Middle East and the Asia/Pacific region.

     We are one of the largest professional engineering firms in the United States. Over the past several years, we have grown through both internal marketing initiatives and strategic mergers and acquisitions, which has enabled us to:

	•		expand and enhance the breath of services we provide to our clients;
	•		expand and diversify our client base;
	•		provide clients with access to services worldwide;
	•		enhance cross selling opportunities; and
	•		capitalize on increased federal government spending.

     The following is a discussion of some of our significant historical mergers and acquisitions:

     In August 2002, we acquired Carlyle-EG&G Holdings Corp. and Lear Siegler Services, Inc. (collectively, “EG&G”). EG&G provides management and operations and maintenance capabilities in support of large military installations and operations. EG&G’s services include the management of complex government installations and ranges, including oversight of all construction, testing and operation of base systems and processes, operation and maintenance of chemical agent disposal systems, management of base logistics and transportation and support of high security environments. The EG&G acquisition has expanded our federal client base and our operations and maintenance services, especially for the Department of Defense.

     In June 1999, we acquired Dames & Moore Group (“Dames & Moore”), one of the largest engineering services firms in the United States at that time. Dames and Moore provided consulting, planning, environmental, engineering, and project and construction management services to a diversified group of local, state, and federal government, private sector, and foreign clients. Prior to our acquisition (and consistent with the trend towards consolidation in our industry), Dames & Moore pursued a growth strategy by acquiring professional services firms, including Radian International, Walk-Haydel, O’Brien Kreitzberg, and BRW, that provided services relating to process engineering, transportation, construction management, and other specialized engineering. The Dames & Moore acquisition expanded our private industry and international client base.

     In February 1999, we acquired Thorburn Colquhoun Holdings plc, a civil and structural engineering consulting firm based in the United Kingdom. This acquisition expanded our presence in the United Kingdom.

     In November 1997, we acquired Woodward-Clyde Group, Inc. (“Woodward Clyde”). Woodward Clyde specialized in geotechnical and environmental engineering services, including implementation of solutions for problems relating to hazardous waste, air pollution, water pollution, facility permitting and regulatory compliance. The Woodward Clyde acquisition enabled us to provide services in a broader geographic area, both domestically and internationally and in markets that we did not previously service.

     In March 1996, we acquired Greiner Engineering, Inc. (“Greiner”), an engineering and architectural design services firm based in Irving, Texas. Greiner provided a broad range of engineering, planning, architectural, environmental analysis, design, surveying, program management and other services to state, local, and federal government and private sector clients throughout the United States and abroad. The Greiner acquisition expanded our client base and enabled us to compete for larger contracts.

2

Table of Contents

Services

     We provide planning, design, program and construction management, and operations and maintenance services to local, state and federal government agencies, as well as private sector and foreign clients. We provide our services through approximately 110 principal offices and 130 contract-specific job sites. On contract job sites, we provide specific services to federal government agencies under stand-alone contracts.

     Planning. Our planning services include conceptual design, technical and economic feasibility studies, community involvement program development and archaeological investigations. In many instances, we use the planning process to develop a blueprint, or overall scheme, for a project. We use planning analyses and reports to identify and evaluate alternatives, estimate usage levels, determine financial feasibility, assess available technology, ascertain economic and environmental impacts and recommend optimal courses of action. Our planning services can include master planning, land use planning, feasibility studies, transportation planning, policy development and evaluation, zoning, permitting and ensuring compliance with applicable regulations.

     Included in our planning services category are the development of engineering and implementation plans related to the construction of new facilities and the renovation, maintenance and expansion of existing facilities, including bridges, highways, roads, airports, mass transit systems, railroads, schools, courthouses, hospitals, and water and wastewater treatment facilities. Also included are assessment of and planning for remediation activities at military bases and environmental assessment, due diligence and permitting at commercial and industrial facilities.

     We also use our planning capabilities to provide support for homeland defense and global threat reduction programs. Such services include threat scenario generation, risk analysis, effect analysis, development of emergency response strategies and first responder training for the military and other federal agencies. In addition, we provide specialized and classified technology analysis, technical advisory services and training for the elimination and dismantlement of weapons of mass destruction.

     Design. We provide a broad range of design and design-related services. Representative design services include:

	•		architectural and interior design;
	•		civil, structural, mechanical, electrical, sanitary, environmental, water resource, geotechnical/underground, dam, mining and seismic engineering design; and
	•		engineering and design studies for the upgrade and maintenance of military hardware.

     We develop client project requirements and then integrate and coordinate the various design elements. The result of providing our design services is a set of contract documents that may include plans, specifications and cost estimates, all of which are then used by our clients in the actual construction of a project. The documents we prepare include detail design characteristics, materials specification and the schedule for construction. Other critical tasks in the design process may include value analysis and the assessment of construction and maintenance requirements.

     Program and Construction Management. Our program and construction management services include:

	•		master scheduling of both the design and construction phases of a project;
	•		construction and life-cycle cost estimation;
	•		cash flows analyses;
	•		value engineering;
	•		constructability reviews;
	•		environmental and specialized engineering;

3

Table of Contents

	•		construction and bid management; and
	•		construction or demolition of buildings.

     Once construction has begun, we oversee and coordinate the activities of construction contractors. This frequently involves acting as the owner’s representative for on-site supervision and inspection of the contractors’ work. In our oversight role, we monitor a project’s schedule, cost and quality. We may act as a general contractor or sub-contractor on some demolition and environmental contracts. We also provide comprehensive services for the management of large military programs for naval, ground, vessel and airborne platforms. These services include logistics planning, acquisition management, risk management of weapons systems, safety management and subcontractor management.

     Operations and Maintenance. We have traditionally provided oversight of day-to-day operations and ongoing repair, maintenance and monitoring services for environmental systems (such as water treatment plants) and transportation facilities (such as railroads). In addition, we provide management and operations and maintenance services in support of large military installations and operations, including:

	•		oversight of construction, testing and operation of base systems and processes;
	•		operation and maintenance of chemical agent disposal systems;
	•		management of base logistics; and
	•		support of high security systems.

     Management of base logistics involves the management and operation of government warehousing and distribution centers, as well as government property and asset management. We also provide a range of services for vehicle, vessel and aircraft systems maintenance, modification, overhaul and life service extension. In addition, we provide comprehensive flight training services for fixed wing and rotary wing aircraft, including courseware development, classroom instruction and simulator instruction.

Markets

     We focus on infrastructure projects related to surface, air and rail transportation systems, industrial processes and facilities, and environmental programs involving water/wastewater treatment and hazardous waste management. As a result of the EG&G acquisition, we have extended our focus to the military platform support market. We perform our business development and sales activities primarily through our network of offices around the world. In addition, we coordinate national and global marketing efforts on large projects and for multi-national clients on a company-wide basis.

     Surface Transportation. We provide a full range of planning and design services for all types of surface transportation systems and networks, including highways, interchanges, bridges, tunnels, toll facilities, intelligent transportation systems, parking facilities and port and marine structures. Historically, we have emphasized the design of new transportation systems, but in recent years we have focused on the rehabilitation of existing systems.

     Air Transportation. We provide comprehensive services for the development of new airports and the modernization and expansion of existing facilities. Some of our projects include construction, renovation, expansion, design, development and maintenance of:

	•		airport terminals, hangars, air cargo buildings and air traffic control towers;
	•		runways and taxiways;
	•		baggage, communications, security and fueling systems; and
	•		infrastructure systems such as people mover systems, roadways, parking garages and utilities.

4

Table of Contents

     We have completed projects at both general aviation and large-hub international airports. We have played a major role in the expansion and modernization of existing airports as well as in the development of new facilities worldwide. In the growing area of security systems at airports, we provide a full range of planning, design, program and construction management and operations and maintenance services.

     Rail Transportation. We provide services to freight and passenger railroads and urban mass transit agencies. We have planned, designed and managed the construction of commuter rail systems, freight rail systems, heavy and light rail transit systems and high-speed rail systems. Our specialized expertise in transportation structures, including terminals, stations, parking facilities, bridges, tunnels and power, signals and communications systems complements these capabilities.

     Industrial Process. We provide full-service capabilities, such as facility siting and permitting, environmental management and pollution control, waste management and remediation engineering, process engineering and design and property redevelopment, to private companies engaged in industrial process markets.

     Facilities and Logistic Support Services. We provide design services for new facilities and the rehabilitation and expansion of existing ones. Our facility design services cover a broad range of building types, including facilities used for education, criminal justice, healthcare, transportation and sports and recreation purposes. With increased interest in historic preservation, adaptive reuse and seismic safety, a significant portion of our practice focuses on facility assessments, code and structural evaluations and renovation projects to maintain aging building infrastructure. We also provide comprehensive services for the operation and maintenance of complex government installations, including military bases and ranges. Logistics support services, which focus on the development of integrated logistics chains to ensure readiness and rapid response, are provided to a number of Department of Defense agencies. In addition, we provide logistics support services for the management and operation of warehousing and distribution centers, and government property and asset management.

     Water/Wastewater Management. We provide services for the planning, design and construction of all types of water/wastewater management facilities and systems for the protection of water supplies in locations throughout the world, including new and expanded water supply, storage, distribution and treatment, municipal wastewater treatment and sewer, watershed and stormwater management and flood control systems. Our services also include water quality studies. Furthermore, we provide services in the areas of design and seismic retrofit of earth, rockfill and roller-compacted concrete dams, as well as the design of reservoirs, impoundments, including mine tailings disposal and large outfall structures.

     Hazardous Waste Management. We provide a variety of services relating to hazardous waste and air pollution management, as well as specialized global threat reduction. Our hazardous waste management services include the planning and conduct of initial site investigations, the design of remedial actions for site clean-up and the provision of construction management services during the site clean-up process. In connection with these services, we identify and develop measures to dispose of hazardous and toxic waste effectively at contaminated sites. Our air pollution management services include air quality monitoring and design modifications required to meet national and local air quality standards. This work requires specialized knowledge of, and compliance with, complex applicable regulations, as well as the permitting and approval processes. Our specialized global threat reduction services focus on the elimination and dismantlement of nuclear, chemical and biological weapons of mass destruction (“WMD”). These services include technical WMD advisory services and training of client personnel who are responsible for the operation and maintenance of chemical agent disposal facilities.

     Military Platform Support. Following a steady decline in uniformed military and Department of Defense civilian personnel levels throughout the 1990s, federal agencies have increasingly used outside consultants for major naval, ground, vessel and airborne acquisition programs. The military also faces a significant shortage of instructor pilots with combat experience and is turning to private sector companies like ours to provide these services. We provide a suite of services to the military and Department of Defense in areas where they lack sufficient resources. These services include:

	•		management, technical consulting and advisory services;
	•		undergraduate and graduate-level instruction for pilots of military fixed wing and rotary wing aircraft; and

5

Table of Contents

•

maintenance, modification and overhaul services for military vehicles and aircraft.

     We also provide these services for weapons systems.

Clients

     We provide our services to a broad range of clients, including state, local and municipal agencies, the federal government and private sector businesses. Our state and local government clients include various state departments of transportation, water utilities and wastewater authorities, environmental protection agencies, schools and colleges, judiciary agencies, hospitals and airport authorities. Representative federal agencies include all branches of the Department of Defense, the Environmental Protection Agency, the Coast Guard, the United States Postal Service, the Department of Energy, the Department of Justice, the Department of Treasury, the Federal Emergency Management Agency, and the General Services Administration. Our private sector clients include various Fortune 500 clients from a broad range of industries, including petro-chemical, telecommunications, oil and gas, power, semi-conductor, mining and forest products.

     For the five fiscal years ended October 31, 2002, we attributed our revenues to the following categories:

International Business

     We currently derive approximately 9% of our revenues from international operations. The focus of our international business is to provide a range of services to multi-national and domestic private sector businesses, and local, state and federal governmental agencies. The international markets that we serve are primarily those relating to industrial processes, facilities, hazardous waste management and surface transportation. We conduct our international business in the United Kingdom, Western Europe and the Middle East, the Asia/Pacific region (including Australia, New Zealand, Singapore and Indonesia) and the Americas excluding the U.S. (including Canada, Mexico, and Central and South America).

     For more information on our business by segment, please refer to Note 8, “Segment and Related Information” to our Consolidated Financial Statements and Supplementary Data included under Item 8 of this report.

Contract Pricing and Terms of Engagement

     We earn our revenues from cost-plus, fixed-price and time-and-materials contracts. If estimated total costs on any contract indicate a loss, we charge the entire estimated loss to operations in the period the loss first becomes known.

6

Table of Contents

     Cost-Plus Contracts. We have two major types of cost-plus contracts:

	•		Cost-Plus Fixed Fee. Under our cost-plus fixed fee contracts, we charge clients negotiated rates based on our direct and indirect costs. In negotiating a cost-plus contract, we estimate all recoverable direct and indirect costs and then add a profit component, which is either a percentage of total recoverable costs or a fixed negotiated fee, to arrive at a total dollar estimate for the project. We receive payment and recognize revenues based on the actual total number of labor hours we expend and total costs we incur. If the actual total number of labor hours we expended is lower than the total number of labor hours we have estimated, our revenues from that project will be lower than we have estimated. If the actual labor hours we expended exceed the initial negotiated amount, we must obtain a contract modification to receive payment and to recognize revenues for such overage.
	•		Cost-Plus Award Fee. Certain cost-plus contracts provide for an award or penalty fee based on performance criteria in lieu of a fixed fee. We recognize revenues to the extent of costs actually incurred plus a proportionate amount of the fee earned. We take these award or penalty fees on contracts into consideration when estimating sales and profit rates, and we record revenues related to the award fees when there is sufficient information to assess anticipated contract performance. If revenues related to the award or penalty fees are based solely on a single significant event, we generally do not record these fees until the event actually occurs.

     Labor costs and subcontractor services are the principal components of our direct costs on cost-plus contracts. Some of these contracts include a provision that the total actual costs plus the fee will not exceed a guaranteed price negotiated with the client. Federal Acquisition Regulations, which are applicable to all federal government contracts and which are partially incorporated in many local and state agency contracts, limit the recovery of certain specified indirect costs on contracts subject to such regulations. Cost-plus contracts covered by Federal Acquisition Regulations and certain state and local agencies also require an audit of actual costs and provide for upward or downward adjustments if actual recoverable costs differ from billed recoverable costs. In accordance with industry practice, most of our federal government contracts are subject to termination at the discretion of the client. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination.

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

	•		Fixed-Price Per Unit (“FPPU”). Under our FPPU contracts, clients pay us a set fee for each service transaction that we complete. We are generally guaranteed a minimum number of service transactions at a fixed price, but our actual profit margins on any FPPU contract depend on the number of service transactions we ultimately complete. We recognize revenues under FPPU contracts as we complete and bill the related service transactions to our clients. If our costs per service transaction turn out to exceed our estimates, our profit margins will decrease and we may realize a loss on the project.
	•		Firm Fixed-Price (“FFP”). Our FFP contracts have historically accounted for most of our fixed-price contracts. Under FFP contracts, our clients agree to pay us an agreed sum negotiated in advance for the specified scope of work. We recognize revenues on FFP contracts using the percentage-of-completion method and in performing our calculations we include a proportion of the earnings that we expect to realize on a contract equal to the ratio that costs incurred bear to total estimated costs. We calculate percentage-of-completion on a contract-by-contract basis to arrive at the total estimated revenues recognized under fixed-price contracts. We do not adjust our revenues downward if we incur costs below our original estimated costs. Similarly, we do not recognize additional revenues if we incur costs in excess of estimates required to complete the project, unless there is an approved change of scope in the work to be performed. Accordingly, our profit margins on any FFP contract depend on the accuracy of our estimates and will increase to the extent that our actual costs are below the contracted amounts. Conversely, if our costs exceed these estimates, our profit margins will decrease and we may realize a loss on a project.

7

Table of Contents

     Our fixed-price work is generally limited in scope, and we generally do not pursue fixed-price development or construction contracts. We have a comprehensive risk management process to ensure that contracts are priced appropriately and that we are adequately compensated for our work.

     Time-and-Materials Contracts. Under our time-and-materials contracts, we negotiate hourly billing rates and charge our clients based on the actual time that we expend on a project. In addition, clients reimburse us for our actual out-of-pocket costs of materials and other direct incidental expenditures that we incur in connection with our performance under the contract. Our profit margins on time-and-materials contracts fluctuate based on actual labor and overhead costs that we directly charge or allocate to contracts compared with negotiated billing rates. We recognize revenues under these contracts based on the actual number of hours we spend on the projects plus any actual out-of-pocket costs of materials and other direct incidental expenditures that we incur on the projects.

Backlog, Project Designations and Indefinite Delivery Contracts

     Backlog. Our contract backlog was $2,565 million at October 31, 2002 and $1,684 million at October 31, 2001. Our contract backlog consists of the amount billable at a particular point in time for future services under signed contracts, including the full term of multi-year government contracts for which funds must be appropriated on an annual basis. We include indefinite delivery contracts, which are executed contracts requiring the issuance of task orders, in contract backlog only to the extent the task orders are actually issued and funded. Of our contract backlog of $2,565 million at October 31, 2002, we expect to fill approximately 55%, or $1,411 million, within our fiscal year ending October 31, 2003.

     Project Designations. Some of our clients also have designated us as the recipient of certain of their future contracts. These “project designations” are projects that clients have awarded to us but for which we do not yet have signed contracts. On any measurement date, we include as project designations task orders under executed indefinite delivery contracts that we expect our clients to issue over the next 12 months. Project designations also include option years on existing contracts and our pro-rata share of joint venture project designations. We estimate total project designations to be $4,529 million at October 31, 2002, as compared to $939 million at October 31, 2001. Historically, a significant portion of our project designations is converted into signed contracts, but we cannot provide any assurance that our historical rates of conversion will remain unchanged in the future.

     Indefinite Delivery Contracts. Indefinite delivery contracts are signed contracts under which we perform work only when the client issues specific task orders. Generally, the terms of these contracts exceed one year and often include a maximum term and potential value. Certain indefinite delivery contracts are for a definite time period with renewal option periods at the client’s discretion. While we believe that we will continue to receive work under these contracts over their entire term, because of the uncertainty of renewals and our dependence on the issuance of individual task orders for new projects, we cannot be assured that we will ultimately realize the maximum potential values for any particular indefinite delivery contract. Because of the increasing frequency with which our government and private sector clients use this contracting method, however, we believe the potential value of these contracts should be included along with our backlog and project designations as an indicator of our future business. When a client notifies us of the scope and pricing of task orders, we transfer the estimated value of such task orders to our project designations. When such task orders are signed and funded, we transfer their value into backlog. As of October 31, 2002 and 2001, the estimated remaining values on our indefinite delivery contracts valued over $3 million totaled $1,860 million and $1,518 million, respectively.

8

Table of Contents

     As of October 31, 2002, our five largest indefinite delivery contracts were:

The names of the clients and the complete titles of the contracts listed in the table above are:

Competition

     The engineering services industry is highly fragmented and very competitive. As a result, in each specific market area, we compete with a wide range of other engineering and consulting firms. Some of our competitors have achieved substantially more market penetration in certain of the markets in which we compete, and have substantially more financial resources and/or financial flexibility than we do. In addition, client needs in the federal sector are changing significantly with an increasing number of clients insisting on large “omnibus” contracts requiring prime contractors to have diverse capabilities. Federal agencies have also increased their emphasis on past performance as a key factor in selecting contractors. To our knowledge, no firm currently dominates any significant portion of our market areas. Competition in our industry is based on quality of service, reputation, expertise, price, local presence, and the ability to provide services globally. We believe we have an exemplary reputation based on high quality of performance on our current and past contracts. Accordingly, we believe that we are well positioned to compete in the market areas we serve. Our key competitors are major public and private companies engaged in comparable services and in related markets, including: Bechtel Group, Inc., Jacobs Engineering Group Inc., AECOM Technology Corporation, Fluor Corporation, Lockheed Martin Corporation, DynCorp, Northrop Grumman Corporation, TRW, Inc., Earth Tech Inc. (a subsidiary of Tyco International), CH2M HILL Companies, Ltd., Halliburton KBR (a subsidiary of Halliburton Company) and Parsons Brinckerhoff Inc.

Regulation

     We engage in various service activities which are subject to government oversight, including environmental laws and regulations, general government procurement laws and regulations, and other regulations and requirements imposed by specific government agencies with whom we conduct business.

     Environmental. A substantial portion of our business involves the planning, design and program and construction management of pollution control facilities, as well as the assessment and management of remediation activities at 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.

     Some environmental laws, such as the federal Superfund law and similar state statutes, can impose liability for the entire cost of clean-up for contaminated facilities or sites upon present and former owners and operators as well as generators, transporters and persons arranging for the treatment or disposal of such substances. We have been named as a potentially responsible party at several Superfund sites. In addition, while we strive to handle hazardous and toxic substances with care and in accordance with safe methods, the possibility of accidents, leaks, spills and the

9

Table of Contents

events of force majeure always exist. Humans exposed to these materials, including workers or subcontractors engaged in the transportation and disposal of hazardous materials and persons in affected areas may be injured or sickened, resulting in lawsuits, which expose us to liability that may result in substantial damage awards against us. Liabilities for contamination or human exposure to hazardous or toxic materials 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.

     Certain of our business operations are covered by Public Law 85-804, which provides for government indemnification against claims and damages arising out of unusually hazardous activities performed at the request of the government. Due to changes in public policies and law, however, government indemnification may not be available in the case of any future claims or liabilities relating to other hazardous activities that we undertake to perform.

     Government Procurement. The services we provide to the federal government are subject to the Federal Acquisition Regulations and other rules and regulations applicable to government contracts. These rules and regulations, among other things:

	•		require certification and disclosure of all cost and pricing data in connection with the contract negotiations;
	•		impose accounting rules that define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost-based government contracts; and
	•		restrict the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

     In addition, services provided to the Department of Defense are monitored by the Defense Contract Management Agency and audited by the U.S. Defense Contract Audit Agency (“DCAA”). Some of our facilities have permanent on-site government auditors.

     Our government clients can also terminate or modify any of their contracts with us at their convenience, and many of our government contracts are subject to renewal or extension annually. For more information on risks associated with our government-related business, please refer to the section entitled “Risk Factors That Could Affect Our Financial Condition and Results of Operations” included under Item 7 of this report.

     Other regulations and requirements. We provide certain services, such as the maintenance, modification, overhaul and service life-extension of military aircraft, which require specialized professional qualifications and are subject to military specifications and standards. In addition, in the ordinary course of business, we and members of our professional staff are subject to a variety of state, local and foreign licensing and permit requirements.

Raw Materials

     Our business is not heavily dependent on raw materials, but any raw materials we require for the conduct of our business are generally available from numerous sources. We do not foresee any unavailability of raw materials, which would have a material adverse effect on our business in the near term.

Insurance

     Currently, we have limits of $125.0 million per loss and $125.0 million in the aggregate annually for general liability, professional errors and omissions liability, and contractor’s pollution liability insurance. These policies include self-insured claim retention amounts of $1.0 million, $3.0 million and $0.25 million, respectively. With respect to various claims against Dames and Moore that arose from professional errors and omissions prior to the acquisition, we have maintained a self-insured retention amount of $5.0 million per claim. Excess limits provided for our 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 excess 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 and, even if we do, claims may

10

Table of Contents

exceed the available amount of insurance. We believe that any settlement of existing claims will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. We have maintained insurance without lapse for many years with limits in excess of losses sustained.

Employees

     As of October 31, 2002, we had approximately 25,000 employees. At various times, we may also employ up to several thousand workers on a temporary or part-time basis to meet our contractual obligations. Approximately 2,000 of our employees are covered by collective bargaining agreements. These agreements are subject to amendment on various dates ranging from January 2003 to August 2006. We believe that employee relations are good.

Available Information

     Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available free of charge on our web site at www.urscorp.com.

ITEM 2. PROPERTIES

     We lease office space in 285 locations, branches and project sites throughout the world. Most of the leases are for a minimum term of one to a maximum of ten years with options for renewal, expansions, contraction and termination, sublease rights and allowances for improvements. Our significant lease agreements expire at various dates through the year 2013. We believe that our current facilities are sufficient for the operation of our business and that suitable additional space in various local markets is available to accommodate any needs that may arise.

ITEM 3. LEGAL PROCEEDINGS

     On January 18, 2002, the Attorney General of the State of Michigan filed a civil action against Radian International, L.L.C. (“Radian”), one of our subsidiaries, under the title Jennifer M. Granholm, Attorney General of the State of Michigan, and the Michigan Department of Environmental Quality v. Radian, L.L.C., (Ingham County Michigan Circuit Court). The complaint alleges violations by Radian of the Michigan Hazardous Waste Management Act and the Michigan Air Pollution Control Act and related regulations. The claimed violations arose out of an environmental remediation project undertaken by Radian in 1997 and 1998 (prior to our acquisition of Radian as part of the Dames & Moore acquisition in 1999) at the Midland, Michigan facility of Dow Chemical Co., during which minor amounts of pollutants may have been released into the air in the course of performing maintenance of a hazardous waste incinerator. The complaint seeks payment of civil penalties, costs, attorney’s fees and other relief against Radian. The Michigan Attorney General’s office has offered to settle the matter for $1.2 million.

     Various other legal proceedings are pending against us and certain of our subsidiaries alleging, among other things, breaches of contract or negligence in connection with the performance of professional services. In some actions, parties are seeking damages, including punitive or treble damages that substantially exceed our insurance coverage. Based on our previous experience with claims settlement and the nature of the pending legal proceedings, however, we do not believe that any of these legal proceedings are likely to result in a settlement or judgment against us or our subsidiaries, that would materially exceed our insurance coverage or have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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

     None

11

Table of Contents

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

12

Table of Contents

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The shares of our common stock are listed on the New York Stock Exchange and the Pacific Exchange (under the symbol “URS”). At January 3, 2003, we had approximately 4,791 stockholders of record. The following table sets forth the high and low closing sale prices of our common stock, as reported by The Wall Street Journal, for the periods indicated.

     We have not paid cash dividends since 1986, and at the present time, we do not anticipate paying dividends on our outstanding common stock in the near future. In addition, we are precluded from paying dividends on our outstanding common stock pursuant to our senior secured credit facility with our lender and the indentures governing our 8 5/8% Senior Subordinated Debentures, our 12 1/4% Senior Subordinated Notes and our 11 1/2% Senior Notes. Please refer to Note 6, “Current and Long-Term Debt” and Note 11, “Stockholders’ Equity” to our Consolidated Financial Statements and Supplementary Data included under Item 8 of this report.

Issuance of Unregistered Securities

     On August 22, 2002 we issued an aggregate of 4,957,359 shares of our Common Stock valued at $112.3 million (based on the price of our Common Stock on the closing date) and an aggregate of 100,000 shares of our Series D Senior Cumulative Convertible Participating Preferred Stock (the “Series D Preferred Stock”) to Carlyle-EG&G, L.L.C. and EG&G Technical Services Holdings, L.L.C. in connection with our acquisition of EG&G. The Series D Preferred Stock has an aggregate liquidation preference of approximately $46.7 million (based on the trading price of our Common Stock on the closing date). Our issuance of the Series D Preferred Stock shares was exempt from registration under the Securities Act of 1933 pursuant to Regulation D and Section 4(2) thereof. For information on the terms governing conversion of the Series D Preferred Stock, please refer to Note 10, “Preferred Stock” to our Consolidated Financial Statements and Supplementary Data included under Item 8 of this report.

     To finance the EG&G acquisition, we also issued $200 million in aggregate principal amount of our 11 1/2% Senior Notes due 2009 to certain qualified institutional buyers in a Rule 144A offering with Credit Suisse First Boston Corporation, Wells Fargo Securities, LLC, BNP Paribas Securities Corp., The Royal Bank of Scotland plc, BMO Nesbitt Burns Corp. and ING Financial Markets LLC.

13

Table of Contents

ITEM 6. SUMMARY OF SELECTED FINANCIAL INFORMATION

     The following selected financial data for the five fiscal years ended October 31, 2002 is derived from our audited consolidated financial statements and reflects our August 2002 acquisition of EG&G and our June 1999 acquisition of Dames & Moore, both of which were accounted for under the purchase accounting method. The selected financial data also reflects a $7.6 million loss on extinguishment of debt we recorded in the fourth quarter in the year ended October 31, 2002. You should read the selected financial data presented below in conjunction with the information contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto contained in Item 8, “Consolidated Financial Statements and Supplementary Data” of this report.

SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)

14

Table of Contents

ITEM 7. 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. As you read this section, you should also refer to our financial statements and the notes thereto contained in Item 8 of this report, “Consolidated Financial Statements and Supplementary Data,” which contain additional information regarding our financial condition and results of operations.

Overview

     We are an engineering services firm with domestic and international clients that include local, state and federal government agencies and private clients in a broad array of industries. We earn revenues from fixed-price, cost-plus and time-and-materials contracts. The principal components of our direct operating costs are labor costs for employees who are directly involved in providing services to clients and subcontractor costs. Other direct operating costs include expenses associated with specific projects including materials and incidental expenditures. Indirect, general and administrative (“IG&A”) expenses include salaries and benefits for management, administrative, marketing and sales personnel, bid and proposal costs, occupancy and related overhead costs.

     Substantially all of our cash flow is generated by 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. Under certain circumstances, legal and contractual restrictions as well as the financial condition and operating requirements of the subsidiaries may limit our ability to obtain cash from the subsidiaries.

     On August 22, 2002, we acquired EG&G, a provider of operations and maintenance services to various federal agencies, including NASA, the Departments of Justice, Energy and Transportation and Defense. Services offered by EG&G include the management of complex government installations and ranges, including oversight of all construction, testing and operation of base systems and processes, operation and maintenance of chemical agent disposal systems, management of base logistics and transportation and support of high security environments. For more information on the EG&G acquisition, please refer to Note 2, “Acquisition” to our Consolidated Financial Statements and Supplementary Data included under Item 8 of this report.

     During the past 12 months and in particular during the second half of 2002, our revenues and profit margins were impacted by certain negative trends in our state and local government business and our private sector business. We experienced a decrease in demand for our services provided in the state and local government sector. We believe this decrease in demand was the result of state and local governments deferring projects because of the current economic conditions and the related sharp decline in personal income, sales and corporate tax revenues at the state and local levels which are used to fund these projects. In our private sector business, particularly with large industrial and petrochemical clients, we faced increased pricing pressures due to the current economic conditions, which have resulted in decreased margins in the second half of 2002. In contrast, our federal government business remained strong and grew during the last fiscal year. We believe that the EG&G acquisition will shift our business in the direction of markets that we believe offer good growth potential for the Company. The EG&G acquisition increased our federal government business from 19% to 41% of our pro forma consolidated revenues during the fiscal year ended October 31, 2002 (here, “pro forma consolidated revenues” means our consolidated revenues calculated as if the EG&G acquisition had occurred as of the beginning of our fiscal year).

Critical Accounting Policies

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the consolidated financial statements and related footnotes included in Item 8 of this report. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving consideration to materiality. Historically, our estimates have not materially differed from actual results. Application of these accounting policies, however, involves exercise of judgment and use of assumptions as to future uncertainties. Consequently, actual results could differ from these estimates. See Note 1, “Accounting Policies” to our Consolidated Financial Statements and Supplementary Data included under Item 8 of this report.

15

Table of Contents

     Material accounting policies that we believe are the most critical to an investor’s understanding of our financial results and condition and require complex management judgment have been expanded and are discussed below. Information regarding our other accounting policies is included under Item 8, “Consolidated Financial Statements and Supplementary Data” of this report.

Revenue Recognition

     We earn our revenues from cost-plus, fixed-price and time-and-materials contracts. At October 31, 2002, we had approximately 5,000 major active jobs, none of which represented more than 5% of our total revenues for the year. If estimated total costs on any contract indicate a loss, we charge the entire estimated loss to operations in the period the loss first becomes known.

     Cost-Plus Contracts. We have two major types of cost-plus contracts:

	•		Cost-Plus Fixed Fee. Under our cost-plus fixed fee contracts, we charge clients negotiated rates based on our direct and indirect costs. In negotiating a cost-plus contract, we estimate all recoverable direct and indirect costs and then add a profit component, which is either a percentage of total recoverable costs or a fixed negotiated fee, to arrive at a total dollar estimate for the project. We receive payment and recognize revenues based on the actual total number of labor hours we expend and total costs we incur. If the actual total number of labor hours we expended is lower than the total number of labor hours we have estimated, our revenues from that project will be lower than we have estimated. If the actual labor hours we expended exceed the initial negotiated amount, we must obtain a contract modification to receive payment and to recognize revenues for such overage.
	•		Cost-Plus Award Fee. Certain cost-plus contracts provide for an award or penalty fee based on performance criteria in lieu of a fixed fee. We recognize revenues to the extent of costs actually incurred plus a proportionate amount of the fee earned. We take these award or penalty fees on contracts into consideration when estimating sales and profit rates, and we record revenues related to the award fees when there is sufficient information to assess anticipated contract performance. If revenues related to the award or penalty fees are based solely on a single significant event, we generally do not record these fees until the event actually occurs.

     Labor costs and subcontractor services are the principal components of our direct costs on cost-plus contracts. Some of these contracts include a provision that the total actual costs plus the fee will not exceed a guaranteed price negotiated with the client. Federal Acquisition Regulations, which are applicable to all federal government contracts and which are partially incorporated in many local and state agency contracts, limit the recovery of certain specified indirect costs on contracts subject to such regulations. Cost-plus contracts covered by Federal Acquisition Regulations and certain state and local agencies also require an audit of actual costs and provide for upward or downward adjustments if actual recoverable costs differ from billed recoverable costs. In accordance with industry practice, most of our federal government contracts are subject to termination at the discretion of the client. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination.

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

	•		Fixed-Price Per Unit (“FPPU”). Under our FPPU contracts, clients pay us a set fee for each service transaction that we complete. We are generally guaranteed a minimum number of service transactions at a fixed price, but our actual profit margins on any FPPU contract depend on the number of service transactions we ultimately complete. We recognize revenues under FPPU contracts as we complete and bill the related service transactions to our clients. If our costs per service transaction turn out to exceed our estimates, our profit margins will decrease and we may realize a loss on the project.
	•		Firm Fixed-Price (“FFP”). Our FFP contracts have historically accounted for most of our fixed-price contracts. Under FFP contracts, our clients agree to pay us an agreed sum negotiated in advance for the specified scope of work. We recognize revenues on FFP contracts using the percentage-of-completion method and in performing our calculations we include a proportion of the earnings that we expect to

16

Table of Contents

realize on a contract equal to the ratio that costs incurred bear to total estimated costs. We calculate percentage-of-completion on a contract-by-contract basis to arrive at the total estimated revenues recognized under fixed-price contracts. We do not adjust our revenues downward if we incur costs below our original estimated costs. Similarly, we do not recognize additional revenues if we incur costs in excess of estimates required to complete the project, unless there is an approved change of scope in the work to be performed. Accordingly, our profit margins on any FFP contract depend on the accuracy of our estimates and will increase to the extent that our actual costs are below the contracted amounts. Conversely, if our costs exceed these estimates, our profit margins will decrease and we may realize a loss on a project.

     Time-and-Materials Contracts. Under our time-and-materials contracts, we negotiate hourly billing rates and charge our clients based on the actual time that we expend on a project. In addition, clients reimburse us for our actual out-of-pocket costs of materials and other direct incidental expenditures that we incur in connection with our performance under the contract. Our profit margins on time-and-materials contracts fluctuate based on actual labor and overhead costs that we directly charge or allocate to contracts compared with negotiated billing rates. We recognize revenues under these contracts based on the actual number of hours we spend on the projects plus any actual out-of-pocket costs of materials and other direct incidental expenditures that we incur on the projects.

Goodwill

     In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 142 supercedes Accounting Principles Board Opinion No. 17 and addresses the financial accounting and reporting standards for goodwill and intangible assets subsequent to their initial recognition. SFAS 142 requires that goodwill be separately disclosed from other intangible assets in the statement of financial position, and that it is no longer amortized. It also requires that goodwill and other intangible assets be tested for impairment at least annually. The provisions of SFAS 142 are effective for fiscal years beginning after December 15, 2001 and must be applied to all goodwill and other intangible assets that are recognized in an entity’s balance sheet at the beginning of that fiscal year. Early application of SFAS 142 is permitted for entities with fiscal years beginning after March 15, 2001, provided that the first interim period financial statements have not been issued previously. We adopted SFAS 142 on November 1, 2001 and ceased to amortize goodwill on that date.

     As part of our adoption of SFAS 142, we completed the required initial impairment test. This test resulted in no impairment for fiscal year 2002. The adoption of SFAS 142 removed certain differences between book and tax income; therefore, our fiscal year 2002 effective tax rate has been reduced to approximately 39.5%. If we had excluded amortization expense related to goodwill that we no longer amortize from operating expenses for the two years ended October 31, 2001 and 2000, and if our effective tax rates for those years had remained at 44.5%, and 45.5%, respectively, our diluted earnings per share for the two years ended October 31, 2001 and 2000 would have increased by $0.37 and $0.38, respectively.

     We regularly evaluate whether events and circumstances have occurred that indicate a possible impairment of goodwill. In determining whether there is an impairment of goodwill, we calculate the estimated fair value of our company based on the closing sales price of our common stock and projected discounted cash flows as of the date we perform the impairment tests. We allocate a portion of the total fair value to different reporting units based on discounted cash flows. We then compare the resulting fair values by reporting units to their respective net book values, including goodwill. If the net book value of a reporting unit exceeds its fair value, we measure the amount of the impairment loss by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. To the extent that the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, we recognize a goodwill impairment loss. We perform this impairment test annually and whenever facts and circumstances indicate that there is a possible impairment of goodwill. We completed the required annual impairment test, which resulted in no impairment for fiscal year 2002. We believe the methodology we use in testing impairment of goodwill provides us with a reasonable basis in determining whether an impairment charge should be taken.

17

Table of Contents

Allowance for Uncollectible Accounts Receivable

     We reduce our accounts receivable and accrued earnings in excess of billings on contracts in process by an allowance for amounts that may become uncollectible in the future. We base our estimated allowance for uncollectible amounts primarily on management’s evaluation of the financial condition of our clients. Management regularly evaluates the adequacy of the allowance for uncollectible amounts by taking into consideration factors such as:

	•		the type of client — governmental agencies or private sector client;
	•		trends in actual and forecasted credit quality of the client, including delinquency and late payment history; and
	•		current economic conditions that may affect a client’s ability to pay.

Adoption of Statements of Financial Accounting Standards

     In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145 (“SFAS 145”) “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS 145 rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. SFAS 145 requires that gains or losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria of ABP Opinion No. 30 and is effective beginning after May 15, 2002. In addition to our adoption of SFAS 142 described above, as permitted, we elected to adopt SFAS 145 early on August 1, 2002; accordingly, we recorded a loss of $7.6 million from extinguishment of debt in indirect, general, and administrative expenses during fiscal year 2002.

Recently Issued Statements of Financial Accounting Standards

     In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 supersedes SFAS 121, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, for the disposal of a segment of a business (as previously defined in that Opinion). SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale and to resolve significant implementation issues related to SFAS 121. We adopted SFAS 144 on November 1, 2002. SFAS 144 is not expected to significantly impact the assessment of impairment of long-lived assets by us, other than the fact that SFAS 144 removes goodwill from its scope and, therefore, eliminates the requirement of SFAS 121 to allocate goodwill to long-lived assets to be tested for impairment. As indicated above, assessment of impairment of goodwill is required in accordance with the provisions of SFAS 142, which we adopted on November 1, 2001.

18

Table of Contents

     In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 replaces Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Include Certain Costs Incurred in a Restructuring)” in its entirety and addresses the significant issues relating to recognition, measurement, and reporting costs associated with an exit or disposal activity, including restructuring activities. Pursuant to SFAS 146, a liability is recorded on the date on which the obligation is incurred and should be initially measured at fair value. Under EITF Issue No. 94-3, a liability for such costs is recognized as of the date of an entity’s commitment to an exit plan as well as its measurement and reporting. SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. As permitted, we adopted SFAS 146 early on November 1, 2002. Currently, SFAS 146 is not expected to significantly impact the assessment of such liability by us.

     On November 25, 2002, the FASB issued Financial Accounting Standards Board Interpretation No. 45 (“FIN 45” or the “Interpretation”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34.” FIN 45 clarifies the requirements of FASB Statement No. 5, “Accounting for Contingencies,” relating to the guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. FIN 45 requires that upon issuance of a guarantee, the entity (i.e., the guarantor) must recognize a liability for the fair value of the obligation it assumes under that guarantee. The disclosure provisions of the Interpretation are effective for financial statements of interim or annual periods that end after December 15, 2002. The Interpretation’s provisions for initial recognition and measurement should be applied on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The guarantor’s previous accounting for guarantees that were issued before the date of FIN 45’s initial application may not be revised or restated to reflect the effect of the recognition and measurement provisions of the Interpretation. We have guarantees that will be subject to the accounting and disclosure provisions of the Interpretation, and therefore, adoption of FIN 45 will impact disclosures in the first quarter of our next fiscal year. We are currently evaluating the recognition and measurement impacts of adoption.

     In January 2003, the FASB issued Statement of Financial Accounting Standards No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS 148 amends FASB Statement No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements of the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years beginning after December 15, 2002. We intend to adopt SFAS 148 on November 1, 2003. We do not expect to change to using the fair value based method of accounting for stock-based employee compensation; and therefore, adoption of SFAS 148 is expected to impact only our future disclosures, not our financial results.

Results of Operations

Fiscal 2002 Compared with Fiscal 2001

Consolidated

     Our revenues were $2,427.8 million for the fiscal year ended October 31, 2002, an increase of $108.5 million, or 4.7%, over the amount we reported for the same period last year. The increase in revenues was primarily due to the acquisition of EG&G, which provided an additional $186.4 million in revenues. This increase was offset by a decrease in revenues from the state and local government sector, as a result of their significant reductions in current spending.

     Direct operating expenses for the fiscal year ended October 31, 2002, which consisted of direct labor, subcontractor costs, and other direct expenses, increased by $95.6 million, or 6.9% over the amount we reported for the same period last year, primarily as a result of the acquisition of EG&G, which increased direct operating expenses by $144.0 million, and as a result of the recognition of $4.0 million in cost overruns on a highway transportation project. This increase was offset by a decrease in direct operating expenses resulting from a decreased level of services provided to our state and local government clients. IG&A expenses for the fiscal year ended

19

Table of Contents

October 31, 2002, increased by $35.8 million, or 4.7%, over the amount we reported for the same period last year. The increase in IG&A expenses was primarily due to the addition of $34.9 million of expenses attributable to EG&G. The remaining $0.9 million of the total increase in IG&A expenses was due to increases in marketing and business development expenses, indirect labor, benefits, rental expense, and $7.6 million of loss on extinguishment of debt, offset by a decrease in amortization expense of $8.7 million as a result of our adoption of SFAS 142 and a decrease in external services and travel expenses. Net interest expense for the fiscal year ended October 31, 2002 decreased by $9.9 million due to repayments of our long-term debt and decreases in interest rates.

     Our earnings before income taxes were $91.1 million for the fiscal year ended October 31, 2002, compared to $104.2 million for the same period last year. Our effective income tax rates for the fiscal years ended October 31, 2002 and 2001 were approximately 39.5% and 44.5%, respectively. The decrease in effective income tax rates was primarily due to the implementation of SFAS 142, which eliminated the requirement to amortize goodwill, and to the recognition of certain state income tax credits.

     We reported net income available for common stockholders of $49.2 million, or $2.03 per share on a diluted basis, for the fiscal year ended October 31, 2002, compared to $48.6 million, or $2.41 per share on a diluted basis, for the same period last year.

     Our backlog of signed and funded contracts was $2,565.0 million at October 31, 2002 and $1,684.1 million at October 31, 2001. The value of our project designations was $4,529.2 million at October 31, 2002, as compared to $939.0 million at October 31, 2001. The increase in backlog and project designations was primarily due to the addition of backlog and project designations attributable to EG&G of $946.9 million and $3,429.0 million, respectively. If we were to exclude the effects of the EG&G acquisition, our backlog would have decreased by $66.0 million primarily as a result of the decrease in spending by our state and local government clients.

Domestic Segment Including Parent Company

     Revenues for the domestic segment (including our parent company) were $2,220.5 million for the fiscal year ended October 31, 2002, an increase of $111.3 million, or 5.3%, over the amount we reported for the same period last year. The increase in revenues was primarily due to the acquisition of EG&G, which provided an additional $186.4 million in revenues. This increase was offset by a decrease in revenues from the state and local government sector, as a result of their significant reductions in current spending.

     Domestic direct operating expenses for the fiscal year ended October 31, 2002 increased by $101.1 million, or 7.9% over the amount we reported for the same period last year. This increase in direct operating expenses was primarily attributable to the acquisition of EG&G, which accounted for $144.0 million of the increase, and as a result of the recognition of $4.0 million in cost overruns on a highway transportation project. This increase was offset by a decrease in direct operating expenses resulting from a decreased level of services provided to our state and local government clients. Domestic IG&A expenses for the fiscal year ended October 31, 2002 increased by $29.3 million, or 4.4%, from the amount we reported for the same period last year. The increase in domestic IG&A expenses was primarily due to the addition of $34.9 million of expenses from EG&G. The remaining difference of $5.6 million was due to increases in marketing and business development expenses, indirect labor, benefits, rental expense, and $7.6 million of loss on extinguishment of debt, offset by a decrease in amortization expense of $8.7 million as a result of our adoption of SFAS 142 and a decrease in external services and travel expenses. Domestic net interest expense, which included intercompany interest recorded in the fiscal year ended October 31, 2002, decreased by $7.8 million due to repayments of our long-term debt and decreases in interest rates.

International Segment

     Revenues for the international segment were $213.1 million for the fiscal year ended October 31, 2002, a decrease of $3.9 million, or 1.8%, from the amount we reported for the same period last year. The decrease was mainly due to a decrease in demand for our services, offset by the foreign currency translation effect of a weaker U.S. dollar.

20

Table of Contents

     Foreign direct operating expenses for the fiscal year ended October 31, 2002, decreased by $6.5 million, or 5.6% from the amount we reported for the same period last year. The decrease was primarily due to a decrease in subcontractors costs and other direct costs, offset by the effect of foreign currency exchange fluctuations. Foreign IG&A expenses for the fiscal year ended October 31, 2002 increased by $6.6 million, or 7.2% over the amount we reported for the same period last year, mainly due to increases in labor costs, benefits, and the effect of foreign currency fluctuations. Foreign net interest expense decreased by $2.1 million primarily due to interest incurred on lower amounts of debt payable to the domestic segment.

Fiscal 2001 Compared with Fiscal 2000

Consolidated

     Our revenues were $2,319.4 million for the fiscal year ended October 31, 2001, an increase of $113.8 million, or 5.2%, over the amount we reported for the fiscal year ended October 31, 2000. The increase was due to increased demand for our services.

     Direct operating expenses for the fiscal year ended October 31, 2001, which consisted of direct labor and other direct expenses, including subcontractor costs, increased by $48.8 million, or 3.6% over the amount we reported for the prior fiscal year primarily as a result of an increase in our use of subcontractors. Our IG&A expenses for the fiscal year ended October 31, 2001, increased by $58.7 million, or 8.4%, over the amount reported for the prior fiscal year. The increase in IG&A expenses was primarily due to increases in marketing and business development expenses, benefits and rental expense. Net interest expense for the fiscal year ended October 31, 2001 decreased by $6.3 million from the amount reported in the prior fiscal year due to repayments of our long-term debt and decreases in interest rates.

     Our earnings before income taxes were $104.2 million for the fiscal year ended October 31, 2001, compared to $91.6 million for the prior fiscal year. Our effective income tax rates for the fiscal years ended October 31, 2001 and 2000 were approximately 44.5% and 45.5%, respectively.

     We reported net income available for common stockholders of $48.6 million, or $2.41 per share on a diluted basis, for the fiscal year ended October 31, 2001, compared to $41.6 million, or $2.27 per share on a diluted basis, for the prior fiscal year.

     Our backlog of signed and funded contracts was $1,684.1 million at October 31, 2001 and $1,656.5 million at October 31, 2000. The value of our project designations was $939.0 million at October 31, 2001, as compared to $817.0 million at October 31, 2000.

Domestic Segment Including Parent Company

     Revenues for the domestic segment (including our parent company) were $2,109.2 million for the fiscal year ended October 31, 2001, an increase of $138.3 million, or 7.0%, over the amount we reported for the prior fiscal year. The increase was due to increased demand for our services.

     Domestic direct operating expenses for the fiscal year ended October 31, 2001 increased by $77.0 million, or 6.4% over the amount we reported for the prior fiscal year as a result of an increase in our use of subcontractors and an increase in other direct expenses. Domestic IG&A expenses for the fiscal year ended October 31, 2001 increased by $54.4 million, or 8.9%, over the amount we reported for the prior fiscal year, due to increases in marketing and business development expenses, benefits and rental expense. Domestic net interest expense, which included intercompany interest recorded in the fiscal year ended October 31, 2001, decreased $10.3 million due to repayments of our long-term debt and decreases in interest rates.

International Segment

     Revenues for the international segment were $217.0 million for the fiscal year ended October 31, 2001, a decrease of $18.7 million, or 7.9%, from the amount we reported for the prior fiscal year. The decrease was mainly due to decreases in foreign currency exchange rates versus the U.S. dollar and a decrease in the demand for our services in the Asia/Pacific region.

21

Table of Contents

     Foreign direct operating expenses for the fiscal year ended October 31, 2001, decreased by $22.4 million, or 16.1% from the amount we reported for the prior fiscal year. The change was primarily the result of a decrease in foreign currency exchange rates versus the U.S. dollar, as well as the decrease in our use of subcontractors and a decrease in other direct expenses. Foreign IG&A expenses for the fiscal year ended October 31, 2001 increased $4.4 million, or 5.0%, over the amount we reported for the prior fiscal year, due to increases in external services, travel, and utilities expenses. Foreign net interest expense increased by $4.0 million primarily due to interest charged by the domestic segment in the fiscal year ended October 31, 2001.

Income Taxes

     As of October 31, 2002, we had available net operating loss (“NOL”) carryforwards for federal income tax and financial statement purposes of $21.4 million. Utilization of the NOL which arose from our October 1989 quasi-reorganization and the acquisition of EG&G in August 2002 is limited pursuant to Section 382 of the Internal Revenue Code (“382 limit”). Of the total NOL, $1.5 million is subject to a 382 limit of $750,000 per year and will expire in fiscal year 2004, $17.5 million is subject to a 382 limit of $13.0 million per year and will expire in fiscal years 2019 and 2021 and $2.4 million will be carried back for refund. We also have $14.8 million of foreign NOLs available to carry forward. These NOLs are available only to offset income earned in foreign jurisdictions and will expire at various dates.

     We have recorded deferred tax assets and liabilities. Valuation allowances for deferred tax assets are established when necessary to reduce deferred tax assets to the amount expected to be realized. Our current deferred tax assets at October 31, 2002 increased from the balance at October 31, 2001 primarily due to deferred tax assets associated with our newly acquired subsidiaries, and our noncurrent deferred tax liabilities increased primarily due to the continued amortization of tax goodwill. Total tax deductible goodwill resulting from the Dames & Moore and EG&G acquisitions amounted to $362.9 million. As of October 31, 2002, $268.2 million of goodwill was unamortized for tax purposes. Based on expected future operating results, management believes that realization of deferred tax assets in excess of the valuation allowance are more likely than not. The deferred tax asset valuation allowance at October 31, 2002 decreased $0.3 million due to utilization of domestic net operating losses and $4.9 million due to the analysis, use, and adjustment of foreign losses available for use from the balance at October 31, 2001.

Liquidity and Capital Resources

     Our liquidity and capital resources are set forth in the table below as of the periods indicated:

     During the fiscal year ended October 31, 2002, we generated $87.6 million of cash from operations, received $5.8 million of proceeds from sale of a division, generated $17.0 million of proceeds from sales of common stock and exercises of stock options, and obtained net borrowings of $298.8 million for a total of $409.2 million. During the same period, we used $340.5 million to partially finance our acquisition of EG&G, $29.6 million for payment of financing fees and $52.5 million for capital expenditures. We borrowed $122.8 million and repaid $95.6 million in aggregate amount under our revolving credit line at various times during the fiscal year ended October 31, 2002.

     Our primary financing activities during the fiscal year ended October 31, 2002, were the replacement of our senior collateralized credit facility with a new $675 million senior secured credit facility, which includes a $200 million revolving line of credit, and the issuance of 11 1/2% Senior Notes due 2009 with an aggregate principal of $200 million due at maturity. The proceeds of the new senior secured credit facility and the 11 1/2% Senior Notes were used to refinance our existing debt and partially finance the acquisition of EG&G.

22

Table of Contents

     Our cash and cash equivalents amounted to $23.4 million at October 31, 2001, a decrease of $0.3 million from October 31, 2000. During the fiscal year ended October 31, 2001, we generated $47.1 million of cash from operations, received $3.5 million of proceeds from sales of subsidiaries and generated $11.8 million of proceeds from sales of common stock and exercises of stock options. During the same period, we used $42.9 million to repay debt and $19.8 million for capital expenditures.

     As a professional services organization, we are not capital intensive. Capital expenditures historically have been 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 fiscal years 2002, 2001, and 2000 were $52.5 million, $19.8 million and $15.9 million, respectively. The increase in capital expenditures during fiscal year 2002 was due to the implementation of a new accounting and project management information system. We expect capital expenditures during fiscal year 2003 to return to approximately the level we incurred in the fiscal year ended October 31, 2001.

     Our primary sources of liquidity are cash flows from operations and borrowings under the credit line from our senior secured credit facility, if necessary. Our primary uses of cash are to fund our working capital and capital expenditures and to service our debt. We believe that our primary sources of liquidity will provide sufficient resources to fund our operating and capital expenditure needs for the next 12 months and beyond. We are dependent, however, on the cash flows generated by our subsidiaries and, consequently, on their ability to collect on their respective accounts receivables. Specifically:

	•		Substantially all of our cash flows are generated by 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. Under certain circumstances, legal and contractual restrictions as well as the financial condition and reporting requirements of the subsidiaries may limit our ability to obtain cash from the subsidiaries.
	•		Collections on accounts receivable can impact our operating cash flows. Management places significant emphasis on collection efforts; however, the current economic downturn may adversely impact the credit-worthiness of our client base and our ability to collect cash to meet our operating needs.

     In addition, as discussed in more detail below, we are in the process of designing, testing and implementing a new company-wide accounting and project management information system (the “Enterprise Resource Program” or “ERP”). In connection with the implementation of the ERP, we experienced a temporary increase in accounts receivable during the fourth quarter of the fiscal year ended October 31, 2002 of approximately $60 million. As a result, we temporarily increased our borrowings under our revolving line of credit to offset the decrease in liquidity.

     Below is a table containing information for our contractual obligations and commercial commitments followed by narrative descriptions.

23

Table of Contents

     Our New Senior Secured Credit Facility. Simultaneously with the closing of the EG&G acquisition on August 22, 2002, we entered into a new senior secured credit facility, which provides for two term loan facilities in the aggregate amount of $475.0 million and a revolving credit facility in the amount of $200.0 million. The term loan facilities consist of term loan A, a $125.0 million tranche, and term loan B, a $350.0 million tranche. As of October 31, 2002, we had borrowed $475.0 million in principal amount under the term loan facilities, and we had outstanding letters of credit aggregating to $45.9 million and an outstanding balance drawn on the revolving line of credit of $27.3 million, which reduced the amount available to us under our revolving credit facility to $126.8 million.

     Principal amounts under term loan A will become due and payable on a quarterly basis beginning January 31, 2003, and thereafter through August 22, 2007. Annual required principal payments under term loan A will range from $12.5 million to a maximum of $37.5 million with term loan A expiring and all remaining outstanding principal amounts becoming due and payable in full on August 22, 2007. Principal amounts under term loan B will become due and payable on a quarterly basis beginning January 31, 2003, in the amount of $3.5 million per year through October 31, 2007, with all remaining outstanding principal amounts becoming due and payable in equal quarterly installments with the final payment due on August 22, 2008. The revolving credit facility expires and is payable in full on August 22, 2007.

     All loans outstanding under the new senior secured credit facility bear interest at a rate per annum equal to, at our option, either the base rate or LIBOR, in each case plus an applicable margin. The applicable margin will adjust according to a performance pricing grid based on our ratio of consolidated total funded debt to consolidated Earnings Before Income Taxes, Depreciation and Amortization (“EBITDA”). For the purposes of the new senior secured credit facility, consolidated EBITDA is defined as consolidated net income plus interest, depreciation and amortization expenses and amounts set aside for the payment of taxes, subject to adjustment for certain non-cash items and to pro forma adjustments related to permitted acquisitions, including the EG&G acquisition. For both the term loan A and the revolving credit facility, the applicable margin over LIBOR will range between 2.25% and 3.00%, depending on the ratio of our consolidated total funded debt to consolidated EBITDA. For the term loan B, the corresponding applicable margin over LIBOR will range between 3.25% and 3.50%. The terms “base rate” and “LIBOR” have meanings customary and appropriate for financings of this type. As of October 31, 2002, the LIBOR applicable margin was 3.0% for the term loan A and the revolving line of credit and 3.5% for the term loan B.

     We are required to prepay the loans under the new senior secured credit facility with:

•

100% of the net cash proceeds of all assets disposed of by us and our subsidiaries guaranteeing the new senior secured credit facility, net of selling expenses, taxes and prepayments of debt required in connection with the sale of such assets, subject to reinvestment rights within 270 days for asset dispositions in amounts less than $20 million and other limited exceptions;

24

Table of Contents

	•	100% of the net cash proceeds from the issuance of debt by us, provided that such percentage shall be reduced to 50% for any fiscal year in which our leverage ratio, measured as of the end of the preceding fiscal year, is less than 2.5 to 1, subject to limited exceptions;
	•	50% of the net cash proceeds from the issuance of equity by us or our subsidiaries, subject to limited exceptions; and
	•	75% of excess cash flows commencing with fiscal year 2003, provided that such percentage shall be reduced to 50% for any fiscal year in which, measured as of the end of such fiscal year, our leverage ratio is less than 2.5 to 1.

     We, at our option, may prepay the loans under the new senior secured credit facility without premium or penalty, subject to reimbursement of the lenders’ prepayment fees in the case of prepayment of LIBOR loans.

     Substantially all of our domestic subsidiaries are guarantors of the new senior secured credit facility on a joint and several basis. Our and the guaranteeing entities’ obligations are collateralized by an interest in substantially all of the our parent company’s and subsidiaries’ existing and hereafter acquired personal property and material real property, including a pledge of the capital stock of the guaranteeing entities. The equity interests of non-U.S. subsidiaries are not required to be pledged as security; however, with limited exceptions, the terms of the facility restrict the foreign assets from being used as a pledge for future liens (“negative pledge”).

     Our new senior secured credit facility contains financial covenants, including a minimum current ratio of 1.5:1, a minimum fixed charge coverage ratio (which will vary over the term of the facility between 1.05:1 and 1.20:1), and a maximum ratio of consolidated total funded debt to consolidated EBITDA (which will decrease over the term of the facility from a maximum of 4.25:1 to a minimum of 3:1). We are required to submit quarterly compliance certification to the lender under the facility. We were fully compliant with these covenants as of October 31, 2002.

     The new senior secured credit facility also contains customary events of default and customary affirmative and negative covenants including, but not limited to, restrictions on mergers, consolidations, acquisitions, asset sales, dividend payments, stock redemptions or repurchases, transactions with stockholders and affiliates, liens, capital expenditures, capital leases, negative pledges, sale-leaseback transactions, indebtedness, contingent obligations, investments and joint ventures.

     Our Old Senior Collateralized Credit Facility. Our old senior collateralized credit facility was funded on June 9, 1999, and provided for three term loan facilities in the aggregate amount of $450.0 million and a revolving credit facility in the amount of $100.0 million. The term loan facilities consisted of Term Loan A, a $250.0 million tranche, Term Loan B, a $100.0 million tranche and Term Loan C, another $100.0 million tranche. As part of the EG&G acquisition, we repaid and terminated our old senior collateralized credit facility on August 22, 2002.

     11 1/2% Senior Notes. Simultaneously with the closing of the EG&G acquisition on August 22, 2002, we issued $200.0 million in aggregate principal amount due at maturity of 11 1/2% Senior Notes due 2009 (the “11 1/2% notes”) for proceeds, net of $4.7 million of original issue discount, of approximately $195.3 million. Interest on the 11 1/2% notes is payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2003. The notes are effectively subordinate to our new senior secured credit facility and senior to our subordinated indebtedness, including the 12 1/4% notes, the 8 5/8% debentures, and the 6 1/2% debentures described below. As of October 31, 2002, all amounts remained outstanding under the 11 1/2% notes.

     Substantially all of our domestic subsidiaries fully and unconditionally guarantee the 11 1/2% notes on a joint and several basis. We may redeem any of the 11 1/2% notes beginning on September 15, 2006 at the following redemption prices (expressed as percentages of the principal amount of the 11 1/2% notes so redeemed), if we do so during the 12-month period commencing on September 15 of the years set forth below, plus, in each case, accrued and unpaid interest, if any, to the date of redemption:

25

Table of Contents

     In addition, at any time prior to or on September 15, 2005, we may redeem up to 35% of the principal amount of the 11 1/2% notes then outstanding with the net cash proceeds from the sale of capital stock. The redemption price will be equal to 111.50% of the principal amount of the redeemed 11 1/2% notes.

     If we undergo a change of control, we may be required to repurchase the 11 1/2% notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. If we sell certain of our assets, we may be required to use the net cash proceeds to repurchase the 11 1/2% notes at 100% of the principal amount plus accrued and unpaid interest to the date of purchase.

     The indenture governing the 11 1/2% notes contains certain covenants that limit our ability to incur additional indebtedness, pay dividends or make distributions to our stockholders, repurchase or redeem capital stock, make investments or other restricted payments, incur subordinated indebtedness secured by a lien, enter into transactions with our stockholders and affiliates, sell assets and merge or consolidate with other companies. The indenture governing the 11 1/2% notes also contains customary events of default, including payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and judgment defaults.

     12 1/4% Senior Subordinated Notes. In June 1999, we issued $200.0 million in aggregate principal amount of 12 1/4% Senior Subordinated Notes due 2009 (the “12 1/4% notes”), all of which remained outstanding at October 31, 2002. Interest on the 12 1/4% notes is payable semi-annually in arrears on May 1 and November 1 of each year. The 12 1/4% notes are effectively subordinate to our senior secured credit facility and our 11 1/2% notes.

     Substantially all of our domestic subsidiaries fully and unconditionally guarantee the 12 1/4% notes on a joint and several basis. We may redeem the 12 1/4% notes, in whole or in part, at any time on or after May 1, 2004 at the following redemption prices (expressed as percentages of the principal amount of the 12 1/4% notes so redeemed), if we do so during the 12-month period commencing on May 1 of the years set forth below, plus, in each case, accrued and unpaid interest, if any, to the date of redemption:

     If we undergo a change of control, we may be required to repurchase the 12 1/4% notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. If we sell certain of our assets, we may be required to use the net cash proceeds to repurchase the 12 1/4% notes at 100% of the principal amount plus accrued and unpaid interest to the date of purchase.

     The indenture governing the 12 1/4% notes contains certain covenants that limit our ability to incur additional indebtedness, pay dividends or make distributions to our stockholders, repurchase or redeem capital stock, make investments or other restricted payments, incur subordinated indebtedness secured by a lien, enter into transactions with our stockholders and affiliates, sell assets and merge or consolidate with other companies. The indenture governing the 12 1/4% notes also contains customary events of default, including payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and judgment defaults.

     8 5/8% Senior Subordinated Debentures (“8 5/8% debentures”). Our 8 5/8% debentures are due in 2004. Interest on these debentures is payable semi-annually in January and July of each year. Our 8 5/8% debentures are subordinate to our new senior secured credit facility, and the 11 1/2% notes. As of October 31, 2002, we owed approximately $6.5 million on the 8 5/8% debentures.

     6 1/2% Convertible Subordinated Debentures (“6 1/2% debentures”). Our 6 1/2% debentures are due in 2012 and are convertible into shares of our common stock at the rate of $206.30 per share. Interest on these debentures is payable semi-annually in February and August of each year. Annual sinking fund payments calculated to retire 70% of the 6 1/2% debentures prior to maturity began in February 1998. Our 6 1/2% debentures are subordinate to our new senior secured credit facility, the 11 1/2% notes, and the 12 1/4% notes. As of October 31, 2002, we owed

26

Table of Contents

approximately $1.8 million on the 6 1/2% debentures.

     Foreign Credit Lines. We maintain foreign lines of credit which are collateralized by assets of foreign subsidiaries at October 31, 2002. The average interest rate for the foreign lines of credit was 6.20% at October 31, 2002. At October 31, 2002 and 2001, amounts available under these foreign lines of credit were $12.5 million and $15.0 million, respectively. At October 31, 2002 and 2001, amounts outstanding under the foreign lines of credit were $0 million and $3.8 million, respectively. This reduced the amounts available to us under these foreign lines of credit to $12.5 million and $11.2 million, respectively.

     Capital Leases. As of October 31, 2002 and 2001, we had approximately $47.8 million and $39.2 million, in obligations under our capital leases respectively, consisting primarily of leases for office equipment, computer equipment, and furniture.

     Derivative Financial Instruments. We are exposed to risk of changes in interest rates as a result of borrowings under our credit facilities. We periodically enter into interest rate derivatives to protect against this risk. During fiscal year 2002, the only derivative instrument we held was an interest rate cap agreement relating to $204.3 million of our LIBOR bank term loan borrowings. This agreement expired on July 31, 2002 and was not renewed. As such, at October 31, 2002, we did not hold any interest rate derivatives. From an economic standpoint, the cap agreement provided us with protection against LIBOR interest rate increases above 7%. For accounting purposes, we elected not to designate the cap agreement as a hedge, and in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which we adopted on November 1, 2000, changes in the fair market value of the cap agreement were included in other expenses in the Consolidated Statements of Operations. Since interest rates throughout the fiscal year ending October 31, 2002 were significantly below the 7% cap agreement, such agreement did not have any value during the year and accordingly there were no changes in the fair value to be included in other expenses.

     Other Related Party Transactions. Mr. Koffel, Mr. Ainsworth, Mr. Rosenstein and certain of our other employees have disposed of shares of our common stock, both in cashless transactions with us and in market transactions, in connection with exercises of stock options, the vesting of restricted stock and the payment of withholding taxes due with respect to such exercises and vesting. Mr. Koffel, Mr. Ainsworth and Mr. Rosenstein, as well as our other named executives, and certain of our officers and employees may continue to dispose of shares of our common stock in this manner and for similar purposes.

     Enterprise Resource Program (ERP). During fiscal year 2001, we commenced a project to consolidate all of our accounting and project management information systems and transition to a new JD Edwards ERP system. Following our acquisition of Dames & Moore in 1999, we operated nine separate ERP systems, which we reduced to four by the end of fiscal year 2001. We converted one of our legacy accounting systems to the new ERP system, covering annualized revenues of approximately $1.2 billion, in August 2002. As we had anticipated, the initial implementation resulted in a temporary increase in account receivables of approximately $60 million during the fourth quarter of fiscal year 2002 due to delays in billings. We plan to move the rest of our operations, with the exception of the EG&G operations, onto the new system over the next 12 months. We estimate that full implementation of the new ERP system will reduce average days sales outstanding from the 100s to the low 90s.

     We estimated the capitalized costs of implementing the new ERP system, including hardware, software licenses, consultants, and internal staffing costs, will be approximately $55.0 million. As of October 31, 2002, we had incurred total capitalized costs of approximately $50.1 million for this project, with the remaining costs to be incurred over the next 12 months. We have been financing a substantial portion of these costs through capital lease arrangements with various lenders. If, and to the extent, that we can not obtain financing through capital leases, we will draw on our revolving line of credit as alternative financing for expenditures to be incurred for this project.

27

Table of Contents

Acquisition

     On August 22, 2002, we acquired all of the outstanding common shares of EG&G, a leading provider of operations and maintenance, logistics and technical services to the Department of Defense and other federal government agencies, for an aggregate purchase price of $503.6 million. The aggregate purchase price included the issuance of 4,957,359 shares of our common stock, valued at $112.3 million (based on the price of our common stock on the closing date), issuance of 100,000 shares of our Series D Senior Cumulative Convertible Participating Preferred Stock (convertible into approximately 2.1 million shares of our common stock), valued at $47.8 million (based on the price of our common stock on the closing date), $176.1 million in cash, estimated direct transaction costs of $11.8 million, and the assumption and retirement of $155.6 million of EG&G’s debt. The EG&G acquisition was partially financed with the net proceeds from the sale of the 11 1/2% notes.

     The following table summarizes the purchase price and allocation of purchase price at the date of acquisition:

     Certain information necessary to complete the purchase accounting is not yet available, including the completion of actuarial reports associated with our decision to freeze or terminate the defined benefit pension plan and analysis of the EG&G leases by a real estate valuation firm in order to determine whether the leases are favorable or unfavorable. Purchase accounting will be finalized upon receipt of actuarial studies and lease analysis.

Equity Compensation Plan Information

     The table presented below contains certain information about our equity compensation plans, which consist of the 1991 Stock Incentive Plan (“1991 Plan”), approved by the stockholders on March 26, 1991, and the 1999 Equity Incentive Plan (“1999 Plan”), approved by the stockholders on October 12, 1999. When the 1999 Plan was approved, the remaining shares available for grant under the 1991 Plan was added to the 1999 Plan. The 1999 Plan contains an automatic reload feature, which allows us to increase the shares available for future issuance. The number of shares to be reloaded annually equals the lesser of 5% of the common stock outstanding as of July 1st or 1.5 million shares of our common stock of each year through 2009.

28

Table of Contents

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 Form 10-K, the following factors could affect our financial condition and results of operations:

Failure to integrate EG&G successfully will prevent us from achieving the anticipated cost savings and other benefits on which our decision to consummate the EG&G acquisition was based.

     We will only achieve the efficiencies, cost reductions and other benefits that we expect to result from the EG&G acquisition if we can successfully integrate EG&G’s administrative, finance, technical and marketing organizations and implement appropriate operations, financial and management systems and controls. We may have insufficient management resources to accomplish the integration, and even if we are able to integrate the EG&G acquisition successfully, we may not realize the level of cost savings and other benefits that we currently expect to achieve.

The integration of EG&G’s operations with our own will involve a number of risks, including:

	•		the disruption of our business and the diversion of our management’s attention from other business concerns;
	•		unanticipated expenses related to integration;
	•		the potential failure to realize anticipated revenue opportunities associated with the EG&G acquisition;
	•		the possible loss of our key professional employees or those of EG&G;
	•		the potential failure to replicate our operating efficiencies in EG&G’s operations;
	•		our increased complexity and diversity compared to our operations prior to the EG&G acquisition;
	•		the possible negative reaction of clients to the EG&G acquisition; and
	•		unanticipated problems or legal liabilities.

29

Table of Contents

We have begun to experience the adverse effects of the current economic downturn. If the current economic downturn continues, our revenues could decline and our financial condition may deteriorate.

     In response to reduced revenues caused by the current economic downturn, our clients are likely to cut costs and delay, curtail or cancel projects with us. Our clients may also demand better pricing terms. In addition, the current economic downturn may impact our clients’ creditworthiness and our ability to collect cash from them to meet our operating needs. We have already begun to notice a decrease in our margins, and in the future, we may see an increase in the average number of days to convert billed accounts receivable into cash. Accordingly, if current economic conditions do not improve, our revenues and profits may suffer and our operating cash may decrease.

Our substantial indebtedness could adversely affect our financial condition.

     We are a highly leveraged company. As of October 31, 2002, we had approximately $954.2 million of outstanding indebtedness. This level of indebtedness could have a negative impact on us, including the following:

	•		it may limit our ability to borrow money or sell stock for working capital, capital expenditures, debt service requirements or other purposes;
	•		it may limit our flexibility in planning for, or reacting to, changes in our business;
	•		it may place us at a competitive disadvantage if we are more highly leveraged than some of our competitors;
	•		it may restrict us from making strategic acquisitions or exploiting business opportunities;
	•		it may make us more vulnerable to a downturn in our business or the economy; and
	•		it may require us to dedicate a substantial portion of our cash flows from operations to the repayment of our indebtedness which would reduce the availability of cash flows to fund working capital, capital expenditures, and other general corporate purposes.

We may not be able to generate or borrow enough cash to service our debt.

     We rely primarily on our ability to generate cash in the future to service our debt. If we do not generate sufficient cash flows to meet our debt service and working capital requirements, we may need to seek additional financing. If we are unable to obtain financing on terms that are acceptable to us, we could be forced to sell our assets or those of our subsidiaries to make up for any shortfall in our payment obligations under unfavorable circumstances.

     Our senior secured credit facility and our obligations under our outstanding notes limit our ability to sell assets and also restrict our use of the proceeds from any such sale. Furthermore, substantial portions of our assets and those of our subsidiaries are, and may continue to be, intangible assets. Therefore, even if forced to do so, we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our debt obligations.

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 the stock of our subsidiaries. Because we conduct our 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. Under certain circumstances, legal and contractual restrictions, as well as the financial condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our subsidiaries. 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.

30

Table of Contents

Restrictive covenants in our senior secured credit facility and the indentures relating to our outstanding notes may restrict our ability to pursue business strategies.

     Our senior secured credit facility and the indentures relating to our outstanding notes restrict our ability to, among other things:

	•		incur additional indebtedness or contingent obligations;
	•		pay dividends and make distributions to our stockholders;
	•		repurchase or redeem our stock;
	•		repay indebtedness that is junior to our senior secured credit facility or our outstanding notes;
	•		make investments and other restricted payments;
	•		create liens securing debt or other encumbrances on our assets;
	•		enter into sale-leaseback transactions;
	•		make capital expenditures;
	•		enter into transactions with our stockholders and affiliates;
	•		sell or exchange assets; and
	•		acquire the assets of, or merge or consolidate with, other companies.