URS CORP /NEW/ - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


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

For the quarterly period ended January 31, 2004


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

For the Transition Period from to

Commission file number 1-7567

URS CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		94-1381538
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

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

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

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

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

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


Class		Outstanding at March 1, 2004
Common Stock, $.01 par value		34,633,889

URS CORPORATION AND SUBSIDIARIES

This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “intend,” “plan,” “predict,” and similar terms in connection with our revenue and earnings projections, other financial information, our legal proceedings, our future capital resources, and our future growth opportunities as well as future economic and industry conditions. We believe that our expectations are reasonable and are based on reasonable assumptions. However, such forward-looking statements by their nature involve risks and uncertainties. We caution that a variety of factors, including but not limited to the following, could cause our business and financial results to differ materially from those expressed or implied in our forward-looking statements: the recent economic downturn; our dependence on government appropriations; changes in regulations; our ability to manage our contracts; our highly-leveraged position; our ability to service our debt; pending and future litigation; industry competition; our ability to attract and retain key individuals; risks associated with international operations; our ability to successfully integrate our accounting and management information systems; and other factors discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 23, Risk Factors That Could Affect Our Financial Conditions and Results of Operations beginning on page 36, as well as in other reports subsequently filed from time to time with the United States Securities and Exchange Commission. We assume no obligation to revise or update any forward-looking statements.


PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
January 31, 2004 and October 31, 2003			2
Consolidated Statements of Operations and Comprehensive Income
Three months ended January 31, 2004 and 2003			3
Consolidated Statements of Cash Flows
Three months ended January 31, 2004 and 2003			4
Notes to Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			44
Item 4. Controls and Procedures			44
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings			45
Item 2. Changes in Securities and Use of Proceeds			45
Item 3. Defaults Upon Senior Securities			45
Item 4. Submission of Matters to a Vote of Security Holders			45
Item 5. Other Information			45
Item 6. Exhibits and Reports on Form 8-K			45

PART I
FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)


	January 31, 2004			October 31, 2003
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,646		$	15,508
Accounts receivable, including retainage of $45,858 and $42,617, respectively		516,169			525,603
Costs and accrued earnings in excess of billings on contracts in process		397,874			393,670
Less receivable allowances		(35,547	)		(33,106	)

Net accounts receivable		878,496			886,167

Deferred income taxes		12,393			13,315
Prepaid expenses and other assets		36,393			24,675

Total current assets		932,928			939,665
Property and equipment at cost, net		148,563			150,553
Goodwill, net		1,004,680			1,004,680
Purchased intangible assets, net		10,604			11,391
Other assets		61,500			61,323

	$	2,158,275		$	2,167,612

LIABILITIES, AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	26,298		$	23,885
Accounts payable and subcontractor payable, including retainage of $8,973 and $7,409, respectively		156,387			172,500
Accrued salaries and wages		129,906			125,774
Accrued expenses and other		82,314			86,874
Billings in excess of costs and accrued earnings on contracts in process		81,962			83,002

Total current liabilities		476,867			492,035
Long-term debt		771,227			788,708
Deferred income taxes		55,452			55,411
Deferred compensation and other		66,056			66,385

Total liabilities		1,369,602			1,402,539

Commitments and contingencies (Note 5)
Stockholders’ equity:
Common shares, par value $.01; authorized 50,000 shares; 34,364 and 33,668 shares issued, respectively; and 34,312 and 33,616 shares outstanding, respectively		343			336
Treasury stock, 52 shares at cost		(287	)		(287	)
Additional paid-in capital		499,931			487,824
Accumulated other comprehensive income (loss)		2,003			(906	)
Retained earnings		286,683			278,106

Total stockholders’ equity		788,673			765,073

	$	2,158,275		$	2,167,612

See Notes to Consolidated Financial Statements

URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(In thousands)


	Three Months Ended
	January 31,
	2004			2003
Cash flows from operating activities:
Net income	$	8,577		$	5,950

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,453			11,497
Amortization of financing fees		1,981			1,751
Provision for doubtful accounts		3,547			740
Deferred income taxes		963			(1,700	)
Stock compensation		671			2,956
Tax benefit of stock options		1,492			—
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings in excess of billings on contracts in process		4,124			16,649
Prepaid expenses and other assets		(11,532	)		(5,198	)
Accounts payable, accrued salaries and wages and accrued expenses		(16,530	)		(25,430	)
Billings in excess of costs and accrued earnings on contracts in process		(1,040	)		2,772
Deferred compensation and other		(329	)		(2,609	)
Other, net		2,551			3,095

Total adjustments and changes		(3,649	)		4,523

Net cash provided by operating activities		4,928			10,473

Cash flows from investing activities:
Capital expenditures, less equipment purchased through capital leases		(4,484	)		(3,169	)

Net cash used by investing activities		(4,484	)		(3,169	)

Cash flows from financing activities:
Long-term debt principal payments		(20,450	)		(4,290	)
Long-term debt borrowings		345			300
Net borrowings (payments) under the line of credit		6,157			(2,903	)
Capital lease obligation payments		(4,655	)		(4,180	)
Short-term note borrowings		—			87
Short-term note payments		(46	)		(118	)
Proceeds from sale of common shares from employee stock purchase plan and exercise of stock options		9,950			3,672
Payments of financing fees		(1,607	)		—

Net cash used by financing activities		(10,306	)		(7,432	)

Net decrease in cash		(9,862	)		(128	)
Cash and cash equivalents at beginning of period		15,508			9,972

Cash and cash equivalents at end of period	$	5,646		$	9,844

Supplemental information:
Interest paid	$	17,978		$	8,102

Taxes paid	$	11,447		$	1,784

Equipment acquired through capital lease obligations	$	3,192		$	6,204

Conversion of Series D preferred stock to common stock	$	—		$	46,733

See Notes to Consolidated Financial Statements

URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

NOTE 1. ACCOUNTING POLICIES

Overview

The terms “we”, “us”, and “our” used in this quarterly report refer to URS Corporation and its consolidated subsidiaries unless otherwise indicated. We offer a comprehensive range of professional planning and design, system engineering and technical assistance, program and construction management, and operations and maintenance services for transportation, hazardous waste management, industrial process and petrochemical refinement, general building and water/wastewater treatment projects. We are also a leading provider of operations and maintenance, logistics and technical services to the Department of Defense and other federal government agencies. Headquartered in San Francisco, we operate in more than 20 countries with approximately 26,000 employees providing 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.

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements include the accounts of our consolidated subsidiaries, all of which are wholly owned and certain joint ventures. We form joint ventures with third parties, which we may or may not control, in order to jointly bid, negotiate and execute projects. Unconsolidated joint ventures are accounted for using the equity method. We consolidate our proportionate share of joint venture revenues, cost of revenues and gross profit generated by controlled joint ventures related to construction activities in the Consolidated Statements of Operations and Comprehensive Income. All other controlled joint ventures are consolidated. All significant intercompany transactions and accounts have been eliminated in consolidation.

You should read our unaudited interim consolidated financial statements in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended October 31, 2003. The results of operations for the three months ended January 31, 2004 are not necessarily indicative of the operating results for the full year and future operating results.

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

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

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

Income Per Common Share

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

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


	Three Months Ended
	January 31,
	2004		2003
	(In thousands, except
	per share data)
Numerator — Basic
Net income	$	8,577	$	5,950

Denominator — Basic
Weighted-average common stock outstanding		33,836		32,324

Basic income per share	$	.25	$	.18

Numerator — Diluted
Net income	$	8,577	$	5,950

Denominator — Diluted
Weighted-average common stock outstanding		33,836		32,324
Effect of dilutive securities Stock options		1,176		250

		35,012		32,574

Diluted income per share	$	.24	$	.18

The following outstanding stock options were not included in the computation of diluted income per share because the exercise price was greater than the average market value of the shares of common stock in the periods presented.


	Three Months Ended
	January 31,
	2004		2003
	(In thousands, except
	per share data)
Number of stock options where exercise price exceeds average price		54		2,900
Stock option exercise price range where exercise price exceeds average price:
Low	$	27.30	$	17.06
High	$	33.20	$	33.90
Average stock price during the period	$	24.83	$	16.81

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

Stock-Based Compensation

We account for stock issued to employees and outside directors in accordance with Accounting Principles Board Opinion No. 25 (“APB 25”), "Accounting for Stock Issued to Employees.” Accordingly, compensation cost is measured based on the excess, if any, of the market price of our common stock over the exercise price of a stock option, determined on the date the option is granted.

The Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation — Transition and Disclosure,” which amends the disclosure requirements of Statement No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation,” to require prominent disclosure 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 also requires disclosure of pro forma results on an interim basis as if we had applied the fair value recognition provisions of SFAS 123. We do not currently expect to adopt the fair value based method of accounting for stock-based employee compensation.

We continue to apply APB 25 and related interpretations in accounting for our 1991 Stock Incentive Plan and 1999 Equity Incentive Plan (“the Plans”). All of our options are awarded with an exercise price that is equal to the market price of our common stock on the date of the grant and accordingly, no compensation cost has been recognized in connection with options granted under the Plans. Had compensation cost for awards under the Plans been determined in accordance with SFAS 123, as amended, our net income and earnings per share would have been reduced to the pro forma amounts indicated below:

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


	Three Months Ended January 31,
	2004		2003
	(In thousands, except per
	share data)
Numerator — Basic
Net income:
As reported	$	8,577	$	5,950
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of tax		1,557		1,759

Pro forma net income	$	7,020	$	4,191

Denominator — Basic
Weighted-average common stock outstanding		33,836		32,324

Basic income per share:
As reported	$	.25	$	.18
Pro forma	$	.21	$	.13
Numerator — Diluted
Net income:
As reported	$	8,577	$	5,950
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of tax		1,557		1,759

Pro forma net income	$	7,020	$	4,191

Denominator — Diluted
Weighted-average common stock outstanding		35,012		32,574

Diluted income per share:
As reported	$	.24	$	.18
Pro forma	$	.20	$	.13


	Three Months Ended
	January 31,
	2004			2003
Risk-free interest rates		4.04%-4.18	%		3.93%-3.98	%
Expected life	7.3 years			7.5 years
Volatility		47.13	%		48.10	%
Expected dividends	None			None

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

Adopted and Recently Issued Statements of Financial Accounting Standards

In January 2003, the FASB issued Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which is an interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements.” FIN 46 requires a variable interest entity (“VIE”) to be consolidated by a company that is considered to be the primary beneficiary of that VIE. In December 2003, the FASB issued FIN 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46-R”), to address certain FIN 46 implementation issues.

1) Non-Special purpose entities (“SPEs”) created prior to February 1, 2003. We are required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. While not required, we could elect to adopt FIN 46 or FIN 46-R for these non-SPEs as of the end of the first interim or annual reporting period ending after December 15, 2003. In general, we account for these investments in accordance with Emerging Issues Task Force Issue 00-01, “Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures.” While we form joint ventures with third parties, which we may or may not control, in order to jointly bid, negotiate and execute projects, we currently do not have any VIEs. If we determine that any of these joint ventures require consolidation under FIN 46-R, it could have a material impact on revenues and costs, but not net income in our consolidated financial statements for interim or annual periods in filings subsequent to January 31, 2004.

2) All entities, regardless of whether a SPE, that were created subsequent to January 31, 2003. We are required to apply the provisions of FIN 46 unless we elect to early adopt the provisions of FIN 46-R as of the first interim or annual reporting period ending after December 15, 2003. If we do not elect to early adopt FIN 46-R, then we are required to apply FIN 46-R to these entities as of the end of the first interim or annual reporting period ending after March 15, 2004. We have not entered into any material joint venture or partnership agreements subsequent to January 31, 2003 and we did not enter into any such material agreements during our first interim period ended January 31, 2004. If we enter into any significant joint venture and partnership agreements in the future that would require consolidation under FIN 46 or FIN 46-R, it could have a material impact on our consolidated financial statements in future filings.

In December of 2003, the FASB issued Statement of Financial Accounting Standards No. 132 (Revised) (“Revised SFAS 132”), “Employer’s Disclosure about Pensions and Other Postretirement Benefits.” Revised SFAS 132 retains disclosure requirements in original SFAS 132 and requires additional disclosures relating to assets, obligations, cash flows and net periodic benefit cost. Revised SFAS 132 is effective for fiscal years ending after December 15, 2003, except that certain disclosures are effective for fiscal years ending after June 15, 2004. Interim period disclosures are effective for interim periods beginning after December 15, 2003. Revised SFAS 132 will impact the disclosures in financial statements beginning in our second quarter of the fiscal year ending October 31, 2004.

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

Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. SAB 104 applies to our service related contracts. We do not have any material multiple element arrangements and thus SAB 104 does not impact our financial statements nor is adoption of SAB 104 considered a change in accounting principle.

On January 12, 2004, FASB issued FASB Staff Position No. FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1”). FSP 106-1 permits employers that sponsor postretirement benefit plans (plan sponsors) that provide prescription drug benefits to retirees to make a one-time election to defer accounting for any effects of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “Act”). Without FSP 106-1, plan sponsors would be required under Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“SFAS 106”), to account for the effects of the Act in the fiscal period that includes December 8, 2003, the date the President signed the Act into law. We have elected to make this deferral, which will remain in effect until the earlier of (a) the issuance of guidance by the FASB on how to account for the federal subsidy to be provided to plan sponsors under the Act, or (b) the remeasurement of plan assets and obligations subsequent to January 31, 2004. Our measures of accumulated postretirement benefit obligations and net periodic postretirement benefit cost which are included in our financial statements do not reflect the effects of the Act on our post-retirement medical plans. Final guidance on this deferral could require us to change previously reported information.

Reclassifications

Certain reclassifications have been made to our 2003 financial statements to conform to the 2004 presentation with no effect on consolidated net income, equity or cash flows as previously reported.

NOTE 2. ACQUISITION

On January 28, 2003, our stockholders approved the conversion of all outstanding shares of the Series D Preferred Stock that had been issued in connection with the acquisition of Carlyle-EG&G Holdings Corp. and Lear Siegler Services, Inc. (collectively, “EG&G”). The conversion of Series D Preferred Stock to common stock constituted a change in control as defined under the terms of our employment arrangements with some executives resulting in the accelerated vesting of restricted common stock previously granted, which increased general and administrative expenses by approximately $2.5 million for the first quarter ended January 31, 2003.

Amortization expense of our purchased intangible assets was $0.8 million and $1.5 million for the quarters ended January 31, 2004 and 2003, respectively.

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

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:


	January 31,			October 31,
	2004			2003
	(In thousands)
Equipment	$	157,813		$	156,170
Furniture and fixtures		26,331			26,334
Leasehold improvements		30,968			29,657
Construction in progress		3,256			2,643

		218,368			214,804
Less: accumulated depreciation and amortization		(108,467	)		(102,028	)

		109,901			112,776

Capital leases		82,443			78,437
Less: accumulated amortization		(43,781	)		(40,660	)

		38,662			37,777

Property and equipment at cost, net	$	148,563		$	150,553

As of January 31, 2004 and October 31, 2003, we capitalized development costs of internal-use software of $58.4 million and $58.3 million, respectively. We amortize the capitalized software costs using the straight-line method over an estimated useful life of ten years.

Property and equipment is depreciated by using the following estimated useful life.


		Estimated Useful Life
Equipment		4 - 10 years
Capital leases		4 - 10 years
Furniture and fixtures		10 years
Leasehold improvements		9 months - 20 years

Depreciation and amortization expense of property and equipment for the periods ended January 31, 2004 and 2003 was $10.0 million and $10.2 million, respectively.

NOTE 4. CURRENT AND LONG-TERM DEBT

Our Senior Secured Credit Facility

Our Senior Secured Credit Facility (the “Credit Facility”). Our Credit Facility consists of two term loans, Term Loan A and Term Loan B, in the original aggregate principal amount of $475.0 million and a revolving line of credit in the amount of $200.0 million. As of January 31, 2004 and October 31, 2003, we had outstanding $343.8 million and $357.8 million in principal amounts outstanding, respectively, under the term loan facilities. As of January 31, 2004, we also had $6.2 million drawn on the revolving line of credit and had outstanding standby letters of credit aggregating to $62.4 million, reducing the amount available to us under our revolving credit facility to $131.4 million.

Effective January 30, 2003, we amended our Credit Facility to increase the maximum leverage ratio of consolidated total funded debt to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), as defined by our Credit Facility. This amendment is effective thru the second quarter of fiscal 2004. As a result of the amendment, the leverage ratio range increased from 3.75-4.00:1 to 3.75-4.50:1. In addition, the applicable interest rate margins increased by 0.25% on our Credit Facility. The amendment also provided that if we achieved the original leverage ratio of 3.90:1 or less for fiscal year 2003,

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

our interest rate margins would revert to the original interest rate margins. As we achieved the original leverage ratio in fiscal year 2003, the applicable interest rate margins were reduced by 0.25% on January 26, 2004, back to the original interest rate margins.

On November 6, 2003, we amended our Credit Facility to allow us to use 100% of the net proceeds of an equity issuance of up to $220.0 million and a portion of excess cash flow to repurchase or redeem our 11½% Senior Notes due 2009 (the “11½% notes”), our 12¼% Senior Subordinated Notes due 2009 (the “12¼% notes”) and our 6½% Convertible Subordinated Debentures due 2012 (the “6½% debentures”).

On December 16, 2003, we amended our Credit Facility, reducing the applicable interest rate margins by 0.75% on our Term Loan B. Borrowings from our Credit Facility are subject to one of two interest rates: either a base rate, as defined by the bank, or current LIBOR rate. After the amendment, the applicable margin for LIBOR loans ranges from 2.50% to 2.75% and for the base rate loans ranges from 1.50% to 1.75%. The Term Loan A and revolving line of credit applicable interest rate margins were not impacted.

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

Revolving Line of Credit. We maintain a revolving line of credit to fund daily operating cash needs and to support standby letters of credit. Overall use of the revolving line of credit is driven by collection and disbursement activities during the normal course of business. Our regular daily cash needs follow a predictable pattern that typically parallels our payroll cycles, which drives, if necessary, our borrowing requirements.

Our average daily revolving line of credit balances for the first quarter ended January 31, 2004 and 2003 were $7.2 million and $45.1 million, respectively. The maximum amounts outstanding at any one point in time during the first quarter ended January 31, 2004 and 2003 were $33.1 million and $70.0 million, respectively. As of January 31, 2004 and 2003, we had an outstanding balance of $6.2 million and $24.4 million, respectively. The effective average interest rates paid on the line of credit were approximately 6.3% during both of the first quarters ended January 31, 2004 and 2003.

Notes

11½% Senior Notes. We issued $200.0 million in aggregate principal amount of the 11½% notes due 2009 for proceeds, net of $4.7 million of original issue discount, of $195.3 million. The 11½% notes remained outstanding as of January 31, 2004 and October 31, 2003. Interest on the 11½% notes is payable semi-annually in arrears on March 15 and September 15 of each year. The 11½% notes are effectively subordinate to our Credit Facility and senior to our 12¼% notes and 6½% debentures described below.

12¼% Senior Subordinated Notes. We issued $200.0 million in aggregate principal amount of the 12¼% notes due 2009. The 12¼% notes remained outstanding as of January 31, 2004 and October 31, 2003. Interest on the 12¼% notes is payable semi-annually in arrears on May 1 and November 1 of each year. The 12¼% notes are effectively subordinate to our Credit Facility and our 11½% notes.

8 5/8% Senior Subordinated Debentures (the “8 5/8% debentures”). On January 15, 2004, we retired the entire outstanding balance of $6.5 million of our 8 5/8% debentures.

6½% Convertible Subordinated Debentures. As of January 31, 2004 and October 31, 2003, we owed $1.8 million on our 6½% debentures due 2012.

Notes payable and other indebtedness. As of January 31, 2004 and October 31, 2003, we had $11.2 million and $10.9 million of outstanding notes payable, respectively, which includes notes primarily

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

used as our financing vehicle to purchase office equipment, computer equipment and furniture. These notes have three-year to five-year terms with interest rates ranging from approximately 4% to 7%.

NOTE 5. COMMITMENTS AND CONTINGENCIES

Various 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, the outcome of which can not be predicted with certainty. In some actions, parties are seeking damages, including punitive or treble damages that substantially exceed our insurance coverage. Based on our previous experience with claim settlements and the nature of the pending legal proceedings, however, we do not believe that any of the legal proceedings are likely to result in a settlement or judgment against us or our subsidiaries that would materially exceed our insurance coverage and, therefore, have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Currently, we have limits of $125 million per loss and $125 million in the aggregate annually for general liability, professional errors and omissions liability and contractor’s pollution liability insurance. These policies include self-insured claim retention amounts of $4 million, $5 million and $5 million, respectively.

Excess limits provided for these coverages are on a “claims made” basis, covering only claims actually made during the policy period currently in effect. Thus, if we do not continue to maintain these policies, we will have no coverage for claims made after the termination date even for claims based on events that occurred during the term of coverage. We intend to maintain these policies; however, we may be unable to maintain existing coverage levels. In addition, claims may exceed the available amount of insurance. We believe that the 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.

As of January 31, 2004, we had the following guarantee obligations:

We have guaranteed the credit facility of EC III, LLC, a 50%-owned, unconsolidated joint venture, in the event of a default by the joint venture. This joint venture was formed in the ordinary course of business, to perform a contract for the federal government. The term of the guarantee is equal to the remaining term of the underlying debt, which is two years. The maximum potential amount of future payments, which we could be required to make under this guarantee at January 31, 2004, was $6.5 million.

We also maintain a variety of commercial commitments that are generally made to provide support for provisions of our contracts. In addition, letters of credit are provided to clients and others in the ordinary course of business against advance payments and to support other business arrangements. We are required to reimburse the issuers of letters of credit for any payments they make under the letters of credit.

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

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

other costs or losses are determined to be probable, we recognize such guarantee losses. Currently, we have no guarantee claims for which losses have been recognized.

NOTE 6. SEGMENT AND RELATED INFORMATION

We operate our business through two segments: the URS Division and the EG&G Division. These two segments operate under separate management groups and produce discrete financial information. Their operating results are also reviewed separately by management. The information disclosed in our consolidated financial statements is based on the two segments, which comprise our current organizational structure.

The following table shows summarized financial information (in thousands) on our reportable segments. Included in the “Eliminations” column are elimination of inter-segment sales and elimination of investment in subsidiaries. We have reclassified our reporting segment information for the first quarter of fiscal year 2003 to conform to our presentation for fiscal year 2004.


	January 31, 2004
			Property
	Net		and
	Accounts		Equipment
	Receivable		at Cost, Net		Total Assets
	(In thousands)
URS Division	$	694,464	$	139,833	$	877,395
EG&G Division		184,032		6,037		211,746

		878,496		145,870		1,089,141
Corporate		—		2,693		1,682,520
Eliminations		—		—		(613,386	)

Total	$	878,496	$	148,563	$	2,158,275


	October 31, 2003
			Property
	Net		and
	Accounts		Equipment
	Receivable		at Cost, Net		Total Assets
	(In thousands)
URS Division	$	703,676	$	142,712	$	887,259
EG&G Division		182,491		6,255		202,476

		886,167		148,967		1,089,735
Corporate		—		1,586		1,678,548
Eliminations		—		—		(600,671	)

Total	$	886,167	$	150,553	$	2,167,612

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


	Three Months Ended January 31,
	2004
				Operating			Depreciation
				Income			and
	Revenues			(Loss)			Amortization
	(In thousands)
URS Division	$	527,526		$	30,992		$	9,184
EG&G Division		244,333			10,683			1,205
Eliminations		(132	)		—			—

		771,727			41,675			10,389
Corporate		—			(8,315	)		64

Total	$	771,727		$	33,360		$	10,453


	Three Months Ended January 31,
	2003
			Operating			Depreciation
			Income			and
	Revenues		(Loss)			Amortization
	(In thousands)
URS Division	$	536,064	$	32,772		$	9,403
EG&G Division		221,969		9,247			1,331

		758,033		42,019			10,734
Corporate		—		(10,829	)		763

Total	$	758,033	$	31,190		$	11,497

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

Geographic areas

Our revenues by geographic areas are shown below:


	Three Months Ended January 31,
	2004			2003
	(In thousands)
Revenues
United States	$	702,640		$	698,581
International		70,859			60,249
Eliminations		(1,772	)		(797	)

Total revenues	$	771,727		$	758,033

Major Customers

For the three months ended January 31, 2004, we had multiple contracts with two major customers, who contributed more than ten percent of our total consolidated revenues, as listed below:


	URS Division		EG&G Division		Total
			(In millions)
Department of the U.S. Army (1)	$	21.1	$	102.0	$	123.1
Department of the U.S. Air Force	$	18.6	$	64.6	$	83.2

(1)

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

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

NOTE 7. RELATED PARTY TRANSACTIONS

Some of our officers, directors and employees may 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. These officers, directors and employees may continue to dispose of shares of our common stock in this manner and for similar purposes.

NOTE 8. GUARANTOR INFORMATION

Substantially all of our domestic operating subsidiaries have guaranteed our obligations under our Credit Facility, our 12¼% notes and our 11½% notes (or collectively, the “Notes”). Each of the subsidiary guarantors has fully and unconditionally guaranteed our obligations on a joint and several basis.

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

The following pages contain: our condensed consolidating balance sheets as of January 31, 2004 and October 31, 2003; our condensed consolidating statements of operations and comprehensive income for the three months ended January 31, 2004 and 2003; and our condensed consolidating statements of cash flows for the three months ended January 31, 2004 and 2003. Entries necessary to consolidate our subsidiaries are reflected in the eliminations column. Complete financial statements of our subsidiaries that guarantee our Credit Facility, our Notes would not provide additional material information that would be useful in assessing the financial condition of such subsidiaries.

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


	As of January 31, 2004
							Subsidiary
				Subsidiary			Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	(2,508	)	$	4,053		$	4,101		$	—		$	5,646
Accounts receivable		—			449,044			67,125			—			516,169
Costs and accrued earnings in excess of billings on contracts in process		—			347,953			49,921			—			397,874
Less receivable allowance		—			(28,227	)		(7,320	)		—			(35,547	)

Net accounts receivable		—			768,770			109,726			—			878,496

Deferred income taxes		12,393			—			—			—			12,393
Prepaid expenses and other assets		12,038			22,162			2,193			—			36,393

Total current assets		21,923			794,985			116,020			—			932,928
Property and equipment at cost, net		2,693			132,096			13,774			—			148,563
Goodwill, net		1,004,680			—			—			—			1,004,680
Purchased intangible assets, net		10,604			—			—			—			10,604
Investment in subsidiaries		613,386			—			—			(613,386	)		—
Other assets		29,234			31,250			1,016			—			61,500

	$	1,682,520		$	958,331		$	130,810		$	(613,386	)	$	2,158,275

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	9,438		$	16,851		$	9		$	—		$	26,298
Accounts payable and subcontractor payable		(1,880	)		146,466			11,801			—			156,387
Accrued salaries and wages		451			114,011			15,444						129,906
Accrued expenses and other		53,208			24,155			4,951			—			82,314
Billings in excess of costs and accrued earnings on contracts in process		—			69,565			12,397			—			81,962

Total current liabilities		61,217			371,048			44,602						476,867
Long-term debt		739,421			31,463			343			—			771,227
Deferred income taxes		55,452			—			—						55,452
Deferred compensation and other		37,757			27,953			346			—			66,056

Total liabilities		893,847			430,464			45,291			—			1,369,602

Stockholders’ equity:
Total stockholders’ equity		788,673			527,867			85,519			(613,386	)		788,673

	$	1,682,520		$	958,331		$	130,810		$	(613,386	)	$	2,158,275

URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)


	As of October 31, 2003
						Subsidiary
			Subsidiary			Non-
	Parent		Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	9,099	$	3,955		$	2,454		$	—		$	15,508
Accounts receivable		—		457,837			67,766			—			525,603
Costs and accrued earnings in excess of billings on contracts in process				350,235			43,435						393,670
Less receivable allowance		—		(26,756	)		(6,350	)		—			(33,106	)

Net accounts receivable		—		781,316			104,851			—			886,167

Deferred income taxes		13,315		—			—			—			13,315
Prepaid expenses and other assets		8,637		17,476			(1,438	)		—			24,675

Total current assets		31,051		802,747			105,867			—			939,665
Property and equipment at cost, net		1,586		135,655			13,312			—			150,553
Goodwill, net		1,004,680		—			—			—			1,004,680
Purchased intangible assets, net		11,391		—			—			—			11,391
Investment in subsidiaries		600,671		—			—			(600,671	)		—
Other assets		29,169		31,086			1,068			—			61,323

	$	1,678,548	$	969,488		$	120,247		$	(600,671	)	$	2,167,612

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	7,060	$	16,814		$	11		$	—		$	23,885
Accounts payable and subcontractor payable		2,835		156,885			12,780			—			172,500
Accrued salaries and wages		1,804		110,583			13,387						125,774
Accrued expenses and other		53,147		28,520			5,207			—			86,874
Billings in excess of costs and accrued earnings on contracts in process		—		72,237			10,765			—			83,002

Total current liabilities		64,846		385,039			42,150			—			492,035
Long-term debt		755,798		32,515			395			—			788,708
Deferred income taxes		55,411		—			—			—			55,411
Deferred compensation and other		37,420		28,805			160			—			66,385

Total liabilities		913,475		446,359			42,705			—			1,402,539

Stockholders’ equity:
Total stockholders’ equity		765,073		523,129			77,542			(600,671	)		765,073

	$	1,678,548	$	969,488		$	120,247		$	(600,671	)	$	2,167,612

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


	Three Months Ended January 31, 2004
						Subsidiary
				Subsidiary		Non-
	Parent			Guarantors		Guarantors		Eliminations			Consolidated
Revenues	$	—		$	702,640	$	70,859	$	(1,772	)	$	771,727
Direct operating expenses		—			450,824		38,461		(1,772	)		487,513

Gross profit		—			251,816		32,398		—			284,214

Indirect expenses:
Indirect, general and administrative		8,315			210,927		31,612		—			250,854
Interest expense, net		18,473			336		254		—			19,063

		26,788			211,263		31,866		—			269,917

Income (loss) before taxes		(26,788	)		40,553		532		—			14,297
Income tax expense (benefit)		(10,707	)		16,209		218		—			5,720

Income (loss) before equity in net earnings of subsidiaries		(16,081	)		24,344		314		—			8,577
Equity in net earnings of subsidiaries		24,658			—		—		(24,658	)		—

Net income		8,577			24,344		314		(24,658	)		8,577
Other comprehensive income:
Foreign currency translation adjustment		—			—		2,909		—			2,909

Comprehensive income	$	8,577		$	24,344	$	3,223	$	(24,658	)	$	11,486

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


	Three Months Ended January 31, 2003
						Subsidiary
				Subsidiary		Non-
	Parent			Guarantors		Guarantors		Eliminations			Consolidated
Revenues	$	—		$	698,581	$	60,249	$	(797	)	$	758,033
Direct operating expenses		—			450,693		33,701		(797	)		483,597

Gross profit		—			247,888		26,548		—			274,436

Indirect expenses:
Indirect, general and administrative		10,829			208,935		23,482		—			243,246
Interest expense, net		20,621			472		187		—			21,280

		31,450			209,407		23,669		—			264,526

Income (loss) before taxes		(31,450	)		38,481		2,879		—			9,910
Income tax expense (benefit)		(12,433	)		15,212		1,181		—			3,960

Income (loss) before equity in net earnings of subsidiaries		(19,017	)		23,269		1,698		—			5,950
Equity in net earnings of subsidiaries		24,967			—		—		(24,967	)		—

Net income		5,950			23,269		1,698		(24,967	)		5,950
Other comprehensive income:
Foreign currency translation adjustment		—			—		2,325		—			2,325

Comprehensive income	$	5,950		$	23,269	$	4,023	$	(24,967	)	$	8,275

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


	Three Months Ended January 31, 2004
							Subsidiary
				Subsidiary			Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	8,577		$	24,344		$	314		$	(24,658	)	$	8,577

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		851			8,580			1,022			—			10,453
Amortization of financing fees		1,981			—			—			—			1,981
Provision for doubtful accounts		—			2,578			969			—			3,547
Deferred income taxes		963			—			—			—			963
Stock compensation		671			—			—			—			671
Tax benefit of stock options		1,492			—			—			—			1,492
Equity in net earnings of subsidiaries		(24,658	)		—			—			24,658			—
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings in excess of billings on contracts in process		—			9,967			(5,843	)		—			4,124
Prepaid expenses and other assets		(3,215	)		(4,686	)		(3,631	)		—			(11,532	)
Accounts payable, accrued salaries and wages and accrued expenses		14,535			(36,596	)		8,443			(2,912	)		(16,530	)
Billings in excess of costs and accrued earnings on contracts in process		—			(2,671	)		1,631			—			(1,040	)
Deferred compensation and other		337			(851	)		185			—			(329	)
Other, net		(249	)		(163	)		51			2,912			2,551

Total adjustments and changes		(7,292	)		(23,842	)		2,827			24,658			(3,649	)

Net cash provided by operating activities		1,285			502			3,141			—			4,928

Cash flows from investing activities:
Capital expenditures		(1,171	)		(1,830	)		(1,483	)		—			(4,484	)

Net cash used by investing activities		(1,171	)		(1,830	)		(1,483	)		—			(4,484	)

Cash flows from financing activities:
Long-term debt principal payments		(20,450	)		—			—			—			(20,450	)
Long-term debt borrowings		—			345			—			—			345
Net borrowings under the line of credit		6,157			—			—			—			6,157
Capital lease obligation payments		(26	)		(4,618	)		(11	)		—			(4,655	)
Short-term note payments		(41	)		(5	)		—			—			(46	)
Proceeds from sale of common shares from employee stock purchase plan and exercise of stock options		4,246			5,704			—			—			9,950
Payment of financing fees		(1,607	)		—			—			—			(1,607	)

Net cash used by financing activities		(11,721	)		1,426			(11	)		—			(10,306	)

Net increase (decrease) in cash		(11,607	)		98			1,647			—			(9,862	)
Cash and cash equivalents at beginning of year		9,099			3,955			2,454			—			15,508

Cash and cash equivalents at end of year	$	(2,508	)	$	4,053		$	4,101		$	—		$	5,646

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


	Three Months Ended January 31, 2003
							Subsidiary
				Subsidiary			Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	5,950		$	23,269		$	1,698		$	(24,967	)	$	5,950

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,617			9,073			807			—			11,497
Amortization of financing fees		1,751			—			—			—			1,751
Provision for doubtful accounts		—			264			476			—			740
Deferred income taxes		(1,700	)		—			—			—			(1,700	)
Stock compensation		2,956			—			—			—			2,956
Equity in net earnings of subsidiaries		(24,967	)		—			—			24,967			—
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings in excess of billings on contracts in process		—			20,571			(3,922	)		—			16,649
Prepaid expenses and other assets		(534	)		(5,361	)		697			—			(5,198	)
Accounts payable, accrued salaries and wages and accrued expenses		31,975			(54,331	)		(174	)		(2,900	)		(25,430	)
Billings in excess of costs and accrued earnings on contracts in process		—			2,628			144			—			2,772
Deferred compensation and other		545			(3,484	)		330			—			(2,609	)
Other, net		(10,432	)		10,701			(74	)		2,900			3,095

Total adjustments and changes		1,211			(19,939	)		(1,716	)		24,967			4,523

Net cash provided (used) by operating activities		7,161			3,330			(18	)		—			10,473

Cash flows from investing activities:
Capital expenditures		(44	)		(1,665	)		(1,460	)		—			(3,169	)

Net cash used by investing activities		(44	)		(1,665	)		(1,460	)		—			(3,169	)

Cash flows from financing activities:
Long-term debt principal payments		(4,000	)		(147	)		(143	)		—			(4,290	)
Long-term debt borrowings		—			300			—			—			300
Net payments under the line of credit		(2,903	)		—			—			—			(2,903	)
Capital lease obligation payments		(28	)		(4,152	)		—			—			(4,180	)
Short-term note borrowings		—			87			—			—			87
Short-term note payments		(20	)		(35	)		(63	)		—			(118	)
Proceeds from sale of common shares from employee stock purchase plan and exercise of stock options		3,672			—			—			—			3,672

Net cash used by financing activities		(3,279	)		(3,947	)		(206	)		—			(7,432	)

Net increase (decrease) in cash		3,838			(2,282	)		(1,684	)		—			(128	)
Cash and cash equivalents at beginning of year		(4,000	)		9,802			4,170			—			9,972

Cash and cash equivalents at end of year	$	(162	)	$	7,520		$	2,486		$	—		$	9,844

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

Our fiscal year ends on October 31. The following discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those described here. You should read this section in conjunction with the section, “Risk Factors That Could Affect Our Financial Condition and Results of Operations,” beginning on page 36 and the consolidated financial statements and notes thereto contained in Item 1, “Consolidated Financial Statements,” and the footnotes for the three months ended January 31, 2004 of this report, as well as the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial Statements included in the Annual Report on Form 10-K for the fiscal year ended October 31, 2003, which was previously filed with the Securities and Exchange Commission.

OVERVIEW

We are one of the world’s largest engineering design services firms and a leading federal government contractor for operations and maintenance services. Our business focuses primarily on providing fee-based professional and technical services in the engineering and construction services market, although we perform some limited construction work. As a service company, we are labor and not capital intensive. Our income derives from our ability to generate revenues and collect cash for our employees’ time in excess of our direct operating costs and indirect, general and administrative (“IG&A”) expenses.

Our business operations are affected by general economic conditions, government budget appropriations, competition and our ability to identify and capture opportunities in the markets we serve. Over the past several years, we have grown our business through acquisitions and internal initiatives, which has enabled us to expand and diversify our client base and service offerings and the markets we serve.

On a macroeconomic level, the economic and industry-wide factors that positively affect our revenues include population growth, an aging federal work force, the outsourcing of non-military functions by the Department of Defense, an emphasis on greater national security, an emphasis on protecting the environment, an emphasis on improving and building the nation’s infrastructure and a trend towards the use of Master Service Agreements (executed contracts with pre-determined terms and conditions that require the issuance of work orders.) by our private industry clients. The primary factors negatively affecting our revenues include the continued effects of the economic downturn, including government budget shortfalls, excess industrial capacity and pricing pressure from our private industry clients. Economic and industry factors specifically affecting our costs include increases in employee benefits expenditures due to economy-wide increases in health care costs, leasing and rental expenses, insurance costs driven by losses incurred by insurers, and regulatory compliance costs and legal expenses primarily due to the implementation of the Sarbanes-Oxley Act of 2002 as well as other government regulations.

On a company-specific level, our revenues are driven by our ability to identify growth opportunities, reallocate our labor resources to profitable markets, secure new contracts, renew existing client agreements and provide outstanding services. Moreover, as a professional services company, the quality of our employees is integral to our revenue generation.

Our direct operating costs are driven primarily by the compensation and benefits we pay to our employees who work directly on our projects, the cost of hiring subcontractors and other expenses associated with specific projects, such as materials and incidental expenditures. IG&A expenses are driven by salaries and benefits for management, administrative, and marketing and sales personnel, bid and proposal costs, occupancy and related overhead costs.

We strive to anticipate changes in the demand for our services and aggressively manage our labor force appropriately. Through our intense budgeting process, all levels of management participate in the planning, reviewing and managing of our business plans. This process allows us to adjust our cost structures

to changing market needs, competitive landscapes and economic factors. Our emphasis on cost control helps us manage our margins even if revenues do not grow at the rate we anticipate.

As discussed below in the “Results of Operations” subsection of this Item 2, our consolidated revenues for the first quarter of fiscal 2004 were $771.7 million, an increase of $13.7 million, or 1.8%, over the amount we reported for the same period of fiscal year 2003, primarily as a result of increases in our services to federal government clients, offset by a decrease in revenues from our private industry clients.

Revenues from our federal government clients were approximately $356 million for the first quarter of fiscal year 2004, an increase of $24 million or 7% compared with approximately $332 million for the same period last year. This increase was driven by our growth in the defense and homeland security, operations and maintenance, and environmental and facilities projects. We continue to expect modest revenue growth of approximately 5%-7% from our federal government clients in fiscal year 2004 based on growth trends in defense spending, the homeland security market, and federal environmental and facilities projects.

Revenues from our state and local government clients were approximately $150 million for the first quarter of both fiscal year 2004 and 2003. While we do not expect significant growth in the state and local government market in the near future, revenues for the first quarter of fiscal year 2004 show that this market continues to stabilize. State tax revenues have stabilized, and states continue to find innovative ways to fund infrastructure projects. In addition, we are benefiting from our successful shifting of resources away from surface transportation projects to other portions of the state and local government market where funding is more stable or growing. However, many of the budget challenges underlying our state and local government market remain. Several states are delaying the planning, design and construction of some transportation projects. We continue to expect flat to modest revenue growth of up to approximately 5% from our state and local government clients for fiscal year 2004, based on a continuation of the trends identified above.

Revenues from our domestic private industry clients were approximately $195 million for the first quarter of fiscal year 2004, a decrease of $21 million or 10%, compared with approximately $216 million for the same period last year. Revenues from our domestic private industry clients continue to be affected by reduced levels of capital spending and cost-cutting measures by these clients, and the consequential pressures exerted by them on our margins. These downward trends were partially offset by increases in revenues generated by the power sector and increased activity under our growing number of Master Service Agreements. Revenues from our domestic private industry clients were affected more by seasonality in the first quarter of fiscal year 2004 than in prior years due to the November and December holidays falling in the middle of the week. We continue to expect revenues from our private domestic industry clients to be flat during fiscal year 2004, based on a continuation of the trends identified above.

Revenues from our international clients were approximately $71 million for the first quarter of fiscal year 2004, an increase of $11 million or 18%, compared with approximately $60 million for the same period last year. This increase was primarily due to the effect of foreign currency exchange fluctuations and, to a lesser extent, the growth in our surface transportation, power and oil and gas business in the Asia/Pacific region. We continue to expect revenues from our international clients to be flat during fiscal year 2004.

As discussed below in the “Liquidity and Capital Resources” subsection of this Item 2, management continues to emphasize generating positive cash flows from operations, repaying our debt and de-leveraging our balance sheet. Consistent with our strategy, we reduced our debt by $15.1 million, reducing our total debt to capitalization (total debt plus preferred stock and total stockholders’ equity) ratio from 52% at October 31, 2003 to approximately 50% at January 31, 2004. (See “Consolidated Statements of Cash Flows” to our “Consolidated Financial Statements” included under Item 1.) We believe continued operating cash flow generation will enable us to pay down additional debt in excess of scheduled amounts during the next 12 months.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

The accounting policies that we believe are most critical to an investor’s understanding of our financial results and condition and require complex management judgment are discussed below. Information regarding our other accounting policies is included in our Annual Report on Form 10-K for the year ended October 31, 2003.

Revenue Recognition

Our revenues arise primarily from the professional and technical services performed by our employees or, in certain cases, by subcontractors we engage to perform on our behalf under contracts we enter into with our clients. The revenues we recognize, therefore, are derived from our ability to charge our clients for those services under our contracts.

We enter into three major types of contracts: “cost-plus contracts,” “fixed-price contracts” and “time-and-materials contracts.” Within each of the major contract types are variations on the basic contract mechanism. Fixed-price contracts generally present us with the highest level of financial and performance risk, but often also provide the highest potential financial returns. Cost-plus contracts present us with lower risk, but generally provide lower returns and often include more onerous terms and conditions. Time-and-materials contracts generally represent the time spent by our professional staff at stated or negotiated billing rates. A more detailed discussion of our revenue recognition on contract types is included in Note 1, “Accounting Policies,” to our “Consolidated Financial Statements and Supplementary Data” included under Item 8 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2003.

We earn our revenues from performance on cost-plus, fixed-price and time-and-materials contracts. At January 31, 2004, we had over 12,000 active projects, none of which represented more than 4% of our total revenues for the first quarter ended January 31, 2004. If our estimate of costs at completion on any contract indicates that a loss will be incurred, we charge the entire estimated loss to operations in the period the loss becomes evident.

We account for our professional planning, design and various other types of engineering projects, including systems engineering and program and construction management contracts on the “percentage-of-completion” method, wherein revenue is recognized as project progress occurs. Service-related contracts, including operations and maintenance services and a variety of technical assistance services, are accounted for over the period of performance, in proportion to the costs of performance, evenly over the period or over units of production.

Most of our percentage-of-completion projects follow the “cost-to-cost” method of determining the percentage of completion. Under the cost-to-cost method, we make periodic estimates of our progress towards project completion by analyzing costs incurred to date, plus an estimate of the amount of costs that we expect to incur until the completion of the project. Revenue is then calculated on a cumulative basis (project-to-date) as the total contract value multiplied by the current percentage-of-completion. The revenue for the current period is calculated as cumulative revenues less project revenues already recognized. The process of estimating costs on engineering and construction projects combines professional engineering, cost estimating, pricing and accounting skills. The recognition of revenues and profit is dependent upon the accuracy of a variety of estimates, including engineering progress, materials quantities, achievement of milestones and other incentives, penalty provisions, labor productivity and cost estimates. Such estimates are

based on various judgments we make with respect to those factors and are difficult to accurately determine until the project is significantly underway.

For some contracts, using the cost-to-cost method in estimating percentage-of-completion may overstate the progress on the project. For instance, in a project where a large amount of permanent materials are purchased, including the costs of these materials in calculating the percentage-of-completion may overstate the actual progress on the project. For these types of projects, actual labor hours spent on the project may be a more appropriate measure of the progress on the project. For projects where the cost-to-cost method does not appropriately reflect the progress on the projects, we use alternative methods such as actual labor hours for measuring progress on the project and recognize revenue accordingly.

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

Once contract performance is underway, we may experience changes in conditions, client requirements, specifications, designs, materials and expectations regarding the period of performance. Such changes may be initiated by us or by our clients. The majority of such changes presents little or no financial risk to us. Generally, a “change order” will be negotiated between our client and ourselves to reflect how the change is to be resolved and who is responsible for the financial impact of the change. Occasionally, however, disagreements can arise regarding changes, their nature, measurement, timing and other characteristics that impact costs and, therefore, revenues. When the change becomes a point of dispute between our client and us, we then consider it as a claim.

Costs related to change orders and claims are recognized when they are incurred. Change orders are included in total estimated contract revenue when it is probable that the change order will result in a bona fide addition to contract value that can be reliably estimated. Claims are included in total estimated contract revenues only to the extent that contract costs related to the claims have been incurred and when it is probable that the claim will result in a bona fide addition to contract value that can be reliably estimated. No profit is recognized on claims until final settlement occurs. This can lead to a situation where costs are recognized in one period and revenues are recognized in a subsequent period when client agreement is obtained or claims resolution occurs. A more detailed discussion of change orders and claims is included in Note 1, “Accounting Policies,” to our “Consolidated Financial Statements and Supplementary Data” included under Item 8 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2003.

Goodwill

Since our adoption of Statement of Financial Accounting Standards No. 142 (“SFAS 142”) on November 1, 2001, we no longer amortize goodwill. SFAS 142 requires goodwill and other intangible assets to be tested for impairment at least annually. We believe the following methodology we use in testing impairment of goodwill, which includes significant judgments and estimates, provides us with a reasonable basis in determining whether an impairment charge should be taken.

We regularly evaluate whether events and circumstances have occurred which may indicate a possible impairment of goodwill. In evaluating whether there is an impairment of goodwill, we calculate the estimated fair value of our company considering the average closing sales price of our common stock, interest-bearing obligations 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 units¹ based on discounted cash flows. We then compare the resulting fair values by reporting units to the 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 (which is a reasonable estimate of the value of goodwill

¹ A reporting unit, as defined in SFAS 142, is an operating segment or a component of a segment where (1) the component constitutes a business for which discrete financial information is available, and (2) management regularly reviews the operating results of that component.

for the purpose of measuring an impairment loss) of the reporting unit’s goodwill to 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 at that time. In evaluating whether there was an impairment of goodwill, we also take into consideration changes in our business mix and changes in our discounted cash flows, in addition to our average closing stock price. We do not believe any events have occurred during the first quarter of fiscal year 2004 that would cause an impairment of goodwill.

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 determine our estimated allowance for uncollectible amounts based on management’s evaluation of the financial condition of our clients. We regularly evaluate 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; and

• current economic conditions that may affect a client’s ability to pay.

In addition to the above factors, we also evaluate the collectibility of accounts receivable in dispute with clients regarding the adequacy of services performed or products delivered.

Adopted and Recently Issued Statements of Financial Accounting Standards

require consolidation under FIN 46 or FIN 46-R, it could have a material impact on our consolidated financial statements in future filings.

On December 17, 2003, the Staff of the Securities and Exchange Commission (SEC or the Staff) issued Staff Accounting Bulletin No. 104 (“SAB 104”), "Revenue Recognition,” which supercedes SAB 101, “Revenue Recognition” in Financial Statements. SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Additionally, SAB 104 rescinds the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers (the “FAQ”) issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. SAB 104 applies to our service related contracts. We do not have any material multiple element arrangements and thus SAB 104 does not impact our financial statements nor is adoption of SAB 104 considered a change in accounting principle.

RESULTS OF OPERATIONS

Consolidated


	Three Months Ended January 31,
	2004		2003
	(In millions)
*Consolidated*
Revenues	$	771.7	$	758.0
Direct operating expenses		487.5		483.6

Gross profit		284.2		274.4

Indirect expenses:
Indirect, general and administrative		250.8		243.2
Interest expense, net		19.1		21.3

		269.9		264.5

Income before taxes		14.3		9.9
Income tax expense		5.7		3.9

Net income	$	8.6	$	6.0

Diluted net income per common share	$	.24	$	.18

First quarter ended January 31, 2004 compared with January 31, 2003

Our consolidated revenues were $771.7 million for the quarter ended January 31, 2004, an increase of $13.7 million, or 1.8%, over the amount we reported for the same period last year. The increase in revenues was due to increases in our services to federal government clients. This increase was partially offset by a decrease in revenues from our private industry clients, as discussed in the “Overview” section above.

Our consolidated direct operating expenses for the quarter ended January 31, 2004, which consist of direct labor, subcontractor costs and other direct expenses, increased by $3.9 million over the amount we reported for the same period last year. This increase was mainly due to the revenue activities discussed in the preceding paragraph and in the “Overview” section above.

Our consolidated gross profit was $284.2 million for the quarter ended January 31, 2004, an increase of $9.8 million, or 3.6%, over the amount we reported for the same period last year. The increase in gross profit was primarily attributable to the factors that drove net revenue growth, as discussed in the “Overview” section above.

Our consolidated IG&A expenses for the quarter ended January 31, 2004 increased by $7.6 million, or 3.1%, over the amount we reported for the same period last year. The increase in IG&A expenses was due to $5.7 million in employee benefit cost increases resulting primarily from increased health-care costs, $1.9 million in sales and business development expenses resulting from increased sales and proposal activities and $2.8 million increase in bad debt expenses. These increases were offset by several items, primarily a $4.1 million decrease in indirect labor resulting from an increase in labor utilization, as our employees performed more project-related work.

Our consolidated net interest expense for the quarter ended January 31, 2004 decreased by $2.2 million due to repayments of our long-term debt.

Our consolidated earnings before income taxes were $14.3 million for the quarter ended January 31, 2004, compared to $9.9 million for the same period last year. Our effective income tax rates for the quarters ended January 31, 2004 and 2003 were approximately 39.9% and 39.4%, respectively.

We reported net income of $8.6 million, or $0.24 per share on a diluted basis, for the quarter ended January 31, 2004, compared with $6.0 million, or $0.18 per share on a diluted basis, for the same period last year.

Our consolidated backlog of signed contracts was $3,681.6 million at January 31, 2004, as compared with $3,661.8 million at October 31, 2003.

Reporting Segments


				Direct					Indirect,
				Operating			Gross		and General
(In millions)	Revenues			Expenses			Profit		Administrative
Three months ended January 31, 2004
URS Division	$	527.5		$	314.8		$	212.7	$	181.9
EG&G Division		244.3			172.8			71.5		60.7
Eliminations		(0.1	)		(0.1	)		—		—

		771.7			487.5			284.2		242.6
Corporate		—			—			—		8.3

Total	$	771.7		$	487.5		$	284.2	$	250.9

Three months ended January 31, 2003
URS Division	$	536.1		$	325.3		$	210.8	$	178.0
EG&G Division		221.9			158.3			63.6		54.5
Corporate		—			—			—		10.8

Total	$	758.0		$	483.6		$	274.4	$	243.3

URS Division

URS Division’s revenues were $527.5 million for the quarter ended January 31, 2004, a decrease of $8.6 million, or 1.6%, from the amount we reported in the same period last year. This decrease was mainly due to decreases in revenues from our private industry clients, partially offset by the revenue growth from our federal government clients, the effect of foreign currency exchange fluctuations and small revenue growth from our international businesses, as discussed in the “Overview” section above.

URS Division’s direct operating expenses for the first quarter of fiscal year 2004 decreased by $10.5 million, or 3.2%, from the amount we reported in the same period last year. This decrease tracked with the factors affecting our revenues as a result of the items discussed in the “Overview” section above.

URS Division’s gross profit was $212.7 million for the first quarter of fiscal year 2004, an increase of $1.9 million, or 0.9% over the amount we reported for the same period last year. The increase was primarily a result of an increase in our labor utilization and a decrease in other direct costs as a percentage of revenues.

URS Division’s IG&A expenses for the first quarter of fiscal year 2004 increased by $3.9 million, or 2.2% over the amount we reported for the same period last year. This increase was due to $3.1 million in employee benefit cost increases resulting primarily from increased health-care costs, $2.1 million in sales and business development expenses resulting from increased sales and proposal activities and $2.8 million increase in bad debt expenses. These increases were offset by several items, primarily a $2.8 million decrease in indirect labor resulting from an increase in labor utilization, as our employees performed more project-related work.

EG&G Division

EG&G Division’s revenues were $244.3 million for the first quarter of fiscal year 2004, an increase of $22.4 million, or 10.0%, over the amount we reported for the same period last year. This increase was due to increased revenues from the growing defense and homeland security and operations and maintenance markets, as discussed in the “Overview” section above.

EG&G Division’s direct operating expenses for the first quarter of fiscal year 2004 increased by $14.5 million, or 9.2% over the amount we reported for the same period last year. The increase tracked with the factors affecting our revenues, as discussed in the “Overview” section above.

EG&G Division’s gross profit was $71.5 million for the first quarter of fiscal year 2004, an increase of $7.9 million or 12.4%, over the amount we reported for the same period last year. The increase in gross profit was due to net revenue growth from our federal clients, as discussed in the “Overview” section above.

EG&G Division’s IG&A expenses for the first quarter of fiscal year 2004 increased by $6.2 million, or 11.4%, over the amount we reported for the same period last year. The increase in IG&A expenses was primarily attributable to $5.1 million increase in employee benefits as a result of increases in the Division’s labor base and health-care costs.

Liquidity and Capital Resources


	Three Months Ended January 31,
	2004			2003
	(In millions)
Cash flows provided by operating activities	$	4.9		$	10.5
Cash flows used by investing activities		(4.5	)		(3.2	)
Cash flows used by financing activities		(10.3	)		(7.4	)
Proceeds from sale of common shares and exercise of stock options		10.0			3.7

Our primary sources of liquidity are cash flows from operations and borrowings under the credit line from our Senior Secured Credit Facility (“Credit Facility”). 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 requirements, as well as service our debt, for the next 12 months and beyond. If we experience a significant change in our business such as the execution of a significant acquisition, we would likely need to acquire additional sources of financing. Although we have no current acquisition plans, we believe that we would be able to obtain adequate resources to address significant changes in our business at reasonable rates and terms, as necessary, based on our past experience with business acquisitions. We are dependent, 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. Legal and contractual restrictions as well as the financial condition and operational requirements of our subsidiaries may limit our ability to obtain cash from them.

• Billings and collections on accounts receivable can impact our operating cash flows. Management places significant emphasis on collection efforts, has assessed the allowance accounts for receivables as of January 31, 2004 and has deemed them to be adequate; however, the recent economic downturn may adversely impact our clients’ credit-worthiness and their ability to pay our bills. Consequently, it may impact our ability to collect cash from them to meet our operating needs.

Operating Activities

The decrease in cash flows from operations for the first quarter of fiscal 2004, compared with the same period last year, was attributable to the following factors:

• A decrease in collections of accounts receivable due to slower payments made by our clients;

• The timing of required disbursements into the EG&G Division’s Voluntary Employee’s Beneficiary Association trust (the “VEBA trust”). Claims and expenses we pay are then reimbursed by the VEBA trust. A VEBA trust is a form of welfare benefit plan trust we use to administer health and dental claims whereby our contributions to the trust are tax deductible; and

• The timing of our income tax payments.

Investing Activities

As a professional services organization, we are not capital intensive. Capital expenditures historically have been primarily for computer-aided design, accounting and project management information systems, and general purpose computer equipment to accommodate our growth. Capital expenditures, excluding purchases financed through capital leases, during the first quarter of fiscal year 2004 and 2003, were $4.5 million and $3.2 million, respectively.

Financing Activities

During the first quarter of fiscal year 2004, we repaid approximately $14.0 million on our Credit Facility, made $4.7 million in payments on capital lease obligations and retired the $6.5 million outstanding balance of our 8 5/8% senior subordinated debentures. In addition, we borrowed $3.2 million under capital lease obligations for equipment purchases, drew a net amount of $6.2 million on our revolving line of credit and paid $1.6 million for financing fees. We also generated $10.0 million in proceeds from the sale of common shares under our employee stock purchase plan (“ESPP”) of $5.8 million and exercises of stock options of $4.2 million. Employee participation in the ESPP increased approximately $2 million and exercises of stock options increased approximately $4 million over the first quarter of fiscal year 2003 as a result of an increase in the price of our common stock during the quarter.

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


			Principal Payments Due by Period
			(In thousands)
Contractual Obligations			Less Than						After 5
(Principal Only):	Total		1 Year		1-3 Years		4-5 Years		Years
As of January 31, 2004:
Senior Secured Credit Facility:
Term loan A	$	87,424	$	3,015	$	57,278	$	27,131	$	—
Term loan B		256,384		—		5,246		251,138		—
Line of Credit		6,157		6,157
11½% senior notes (1)		200,000		—		—		—		200,000
12¼% senior subordinated notes		200,000		—		—		—		200,000
6½% convertible subordinated debentures (1)		1,798		—		—		—		1,798
Capital lease obligations		38,345		13,721		19,626		4,989		9
Notes payable and other indebtedness		11,213		3,405		7,766		42		—

Total debt		801,321		26,298		89,916		283,300		401,807
Operating lease obligations (2)		381,386		73,518		123,679		94,783		89,406

Total contractual obligations	$	1,182,707	$	99,816	$	213,595	$	378,083	$	491,213


							Remaining
	Total		Total Committed to		Amount		Amount
Other Commitments	Commitment		Letters Of Credit		Drawn		Available
	(In thousands)
As of January 31, 2004:
Revolving line of credit (3)	$	200,000	$	62,434	$	6,157	$	131,409
Guarantee to joint venture (4)	$	6,500		—		—		—
Indemnity agreement to joint venture partner (5)	$	25,000		—		—		—
Accrued benefit cost (6)	$	34,138		—		—		—
Accrued pension liability (7)	$	8,555		—		—		—
Accrued pension liability (8)	$	12,061		—		—		—

(1)		Amounts shown exclude remaining original issue discounts of $3.8 million and $20,000 for the 11 1/2% senior notes and the 6 1/2% convertible subordinated debentures, respectively.

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

(3)		Reflects the revolving line of credit under the Credit Facility and amounts committed to standby letters of credit as of January 31, 2004.

(4)		Amounts guaranteed in favor of Wachovia Bank, N.A. pursuant to the EC III, LLC (a 50%-owned unconsolidated joint venture) credit line facility, in a principal amount not to exceed $6.5 million.

(5)		An indemnity agreement in relation to general and administrative services provided to JT3, LLC (a 50%-owned joint venture). The agreement covers any potential losses and damages, and liabilities associated with lawsuits, in an amount not to exceed $25.0 million.

(6)		Amount represents the estimated unfunded pension liability valued at October 31, 2003 for our EG&G Division’s pension and post-retirement plans.

(7)		Amount represents the estimated unfunded pension liability valued at October 31, 2003 for our Executive’s Supplemental Executive Retirement Plan.

(8)		Amount represents the estimated unfunded pension liability valued at October 31, 2003 for the Radian International, L.L.C.’s pension plans, which include a Supplemental Executive Retirement Plan and a Salary Continuation Agreement. Radian International, L.L.C. is a subsidiary we acquired as part of our acquisition of Dames & Moore in 1999.

Our Senior Secured Credit Facility (the “Credit Facility”). Our Credit Facility originally consisted of a $125.0 million Term Loan A, a $350.0 million Term Loan B, and a $200.0 million revolving line of credit. As of January 31, 2004, we had outstanding $343.8 million in principal amount under the term loan facilities. We also had $6.2 million drawn on the revolving line of credit and had outstanding standby letters of credit aggregating to $62.4 million, reducing the amount available to us under our revolving credit facility to $131.4 million.

We have amended the Credit Facility on January 30, 2003, November 6, 2003, and December 16, 2003. The January 30, 2003 amendment provided us with increased maximum leverage ratios through April 30, 2004. As a result of the amendment, the leverage ratio range increased from 3.75-4.00:1 to 3.75-4.50:1. In addition, the applicable interest rate margins increased by 0.25% on our Credit Facility. The amendment also provided that if we achieved the original leverage ratio of 3.90:1 or less for fiscal year 2003, our interest rate margins would revert to the original interest rate margins. As we achieved the original leverage ratio in fiscal year 2003, the applicable interest rate margins were reduced by 0.25% on January 26, 2004, back to the original interest rate margins. The November 6, 2003 amendment enabled us to repurchase and redeem our outstanding notes with the proceeds of an equity issuance or cash. The December 16, 2003 amendment reduced the interest rate margin on the Term Loan B.

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

See further discussion at Note 6, “Current and Long-Term Debt,” to our “Consolidated Financial Statements” included under Item 8 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2003.

11½% Senior Notes (the “11½% notes”). We issued $200.0 million in aggregate principal amount of the 11½% notes due 2009 for proceeds, net of $4.7 million of original issue discount, of $195.3 million. The 11½% notes remained outstanding as of January 31, 2004 and October 31, 2003. Interest on the 11½% notes is payable semi-annually in arrears on March 15 and September 15 of each year. The 11½% notes are effectively subordinate to our Credit Facility and senior to our 12¼% notes and the 6½% debentures described below.

12¼% Senior Subordinated Notes (the “12¼% notes”). We issued $200.0 million in aggregate principal amount of the 12¼% notes due 2009. The 12¼% notes remained outstanding as of January 31, 2004 and October 31, 2003. Interest on the 12¼% notes is payable semi-annually in arrears on May 1 and November 1 of each year. The 12¼% notes are effectively subordinate to our Credit Facility and our 11½% notes.

8 5/8% Senior Subordinated Debentures (the “8 5/8% debentures”). On January 15, 2004, we retired the entire outstanding balance of $6.5 million of our 8 5/8% debentures.

6½% Convertible Subordinated Debentures (the “6½% debentures”). As of January 31, 2004 and October 31, 2003, we owed $1.8 million on our 6½% debentures due 2012.

Revolving Line of Credit. We maintain a revolving line of credit to fund daily operating cash needs and to support standby letters of credit. Overall use of the revolving line of credit is driven by collection and disbursement activities during the normal course of business. Our regular daily cash needs follow a predictable pattern that typically parallels our payroll cycles, which drive, if necessary, our borrowing requirements.

Notes payable and other indebtedness. As of January 31, 2004 and October 31, 2003, we had $11.2 million and $10.9 million of outstanding notes payable, respectively, which includes notes primarily used as our financing vehicle to purchase office equipment, computer equipment and furniture. These notes have three-year to five-year terms with interest rates ranging from approximately 4% to 7%.

Capital Leases. As of January 31, 2004, we had $38.3 million in obligations under our capital leases, consisting primarily of leases for office equipment, computer equipment and furniture.

Operating Leases. As of January 31, 2004, we had approximately $381.4 million in obligations under our operating leases, consisting primarily of real estate leases.

Foreign Credit Lines. We maintain foreign lines of credit, which are collateralized by assets of foreign subsidiaries. At January 31, 2004 and October 31, 2003, we had no amounts outstanding under the foreign lines of credit and amounts available under these foreign lines of credit were $3.0 million and $7.5 million, respectively.

Other Related-Party Transactions. Some of our officers, directors and employees may 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. These officers, directors and employees may continue to dispose of shares of our common stock in this manner and for similar purposes.

Financing or Stock Offering Alternatives. We frequently evaluate alternative capital structures and consider the potential benefits of various financing strategies, including both debt and equity vehicles. We expect to continue to pursue opportunities to improve our capital structure when opportunities arise.

Derivative Financial Instruments. We are exposed to risk of changes in interest rates as a result of borrowings under our credit facility. During the first quarter of fiscal year 2004, we did not enter into any interest rate derivatives due to our current percentage of fixed interest rate debt and to our assessment of the costs/benefits of interest rate hedging given the current low interest rate environment. However, we may enter into derivative financial instruments in the future depending on changes in interest rates.

Enterprise Resource Program (ERP). During fiscal year 2001, we commenced a project to consolidate all of our accounting and project management information systems and convert to a new ERP purchased from PeopleSoft, Inc. (formerly J.D. Edwards & Company). As of January 31, 2004, approximately one-third of our revenues are processed on this ERP system. The remaining URS Division legacy systems are expected to convert to the new ERP system over the next two years.

The capitalized costs of implementing our new ERP system, including hardware, software licenses, consultants and internal staffing costs will be approximately $65.0 million, excluding a conversion of the EG&G Division’s ERP system. We are still considering the impact of a potential conversion of the EG&G Division’s accounting system to the ERP system. As of January 31, 2004, we had capitalized costs of approximately $58.4 million for this project, with the remaining costs to be incurred through fiscal year 2005. We have been financing a substantial portion of these costs through capital lease arrangements with various lenders. If, and to the extent, that financing cannot be obtained through capital leases, we will draw on our revolving line of credit as alternative financing for expenditures to be incurred for this project.

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-Q, the following factors could affect our financial condition and results of operations:

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

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

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

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

As a government contractor, we are subject to a number of procurement laws and regulations and other public sector liabilities, any deemed violation of which could lead to fines or penalties or a loss of business.

We must comply with and are affected by laws and regulations relating to the formation, administration and performance of government contracts. For example, we must comply with the Federal Acquisition Regulation, the Truth in Negotiations Act, the Cost Accounting Standards, Services Contract Act, and Department of Defense security regulations, as well as many other rules and regulations. These laws and regulations affect how we do business with our clients and in some instances, impose added costs on our business. A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts. Moreover, as a federal government contractor, we must maintain our status as a responsible contractor. Failure to do so could lead to suspension or debarment, making us ineligible for federal government contracts and potentially ineligible for state and local

government contracts.

Most of our government contracts are awarded through a regulated competitive bidding process. Our inability to complete existing government contracts or win new government contracts over an extended period could harm our operations and adversely affect our future revenues.

Most of our government contracts are awarded through a regulated competitive bidding process. Some government contracts are awarded to multiple competitors, which increases overall competition and pricing pressure and may require us to make sustained post-award efforts to realize revenues under the government contracts. In addition, government clients can generally terminate or modify their contract at their convenience. Moreover, even if we are qualified to work on a new government contract, we might not be awarded the contract because of existing government policies designed to protect small businesses and underrepresented minority contractors. Our inability to complete existing government contracts or win new government contracts over an extended period could harm our operations and adversely affect our future revenues.

A negative government audit or investigation could result in a substantial adjustment to our revenues and costs, which could impair our reputation and result in civil and criminal penalties.

Government agencies, such as the United States Defense Contract Audit Agency, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. If the agencies determine through these audits or investigation that costs were improperly allocated to specific contracts, we may not be reimbursed for these costs, or if we have already been reimbursed, we may be required to refund these reimbursements. Therefore, an audit could result in substantial adjustments to our revenues and costs. In addition, our internal controls may not always prevent improper conduct. If a government agency determines that we or a subcontractor engaged in improper conduct, we may also be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the government, any of which could materially affect our financial condition. In addition, we could suffer serious harm to our reputation.

Unexpected termination of our backlog of orders could harm our operations and adversely affect our future revenues.

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/indefinite quantity 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. The contracts comprising our backlog estimates may not result in actual revenues in any particular period. These estimates are based on our experience under these contracts and similar contracts and may not be accurate. Unexpected termination of a substantial portion of our backlog of orders could harm our operations and adversely affect our future revenues.

If we are unable to accurately estimate the overall risks, revenues or costs on a contract, then we may incur a lower profit or loss on the contract.

We generally enter into three principal types of contracts with our clients: cost-plus, fixed-price and time-and-materials. Under cost-plus contracts, which are subject to contract ceiling amounts, we are reimbursed for allowable costs and fees, which may be fixed or performance-based. If our costs exceed the contract ceiling or are not allowable under the provisions of the contract or any applicable regulations, we may not be able to obtain reimbursement for all such costs. Under fixed-price contracts, we receive a fixed price irrespective of the actual costs we incur and consequently, we will realize a profit on the fixed-price contract only if we can control our costs and prevent cost over-runs on the contract. Under time-and-

materials contracts, we are paid for labor at negotiated hourly billing rates and for other expenses. Profitability on these types of contracts is driven by billable headcount and control of cost over-runs.

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

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

We may guarantee to our client that we will complete a project by a scheduled date. We also may sometimes guarantee that a project, when completed, will achieve specified performance standards. If the project is not completed by the scheduled date or subsequently fails to meet guaranteed performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or to achieve the required performance standards. In some cases, should we fail to meet required performance standards, we may also be subject to agreed upon damages, which are fixed in amount by the contract. To the extent that these events occur, the total costs of the project could exceed our estimates and we could experience reduced profits or, in some cases, a loss on that project.

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

A substantial portion of our revenues and profits are measured and recognized using the percentage-of-completion method of accounting. Generally, our use of this method results in recognition of revenues and profits ratably over the life of the contract, based on the proportion of costs incurred to date to total costs expected to be incurred. The effect of revisions to revenues and estimated costs, including the achievement of award and other fees is recorded when the amounts are known and can be reasonably estimated. Such revisions could occur in any period and their effects could be material. Although we have a history of making reasonably dependable estimates of the progress towards completion of long-term engineering, program and construction management or construction contracts in process, the uncertainties inherent in the estimating process make it possible for actual costs to vary from estimates, including reductions or reversals of previously recorded revenues and profits, and such differences could be material.

If our partners fail to perform their contractual obligations on a project, we could be exposed to legal liability, loss of reputation and reduced profit or risk of loss on the project.

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

Our substantial indebtedness could adversely affect our financial condition.

As of January 31, 2004, we had $797.5 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 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 repayments of our indebtedness, thereby reducing the availability of cash flows to fund working capital, capital expenditures and for other general corporate purposes.

We may not be able to generate or borrow enough cash to service our debt, which could result in bankruptcy or otherwise impair our ability to maintain sufficient liquidity to continue our operations.

In order to service our debt, we rely primarily on our ability to generate cash in future periods. 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 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.

If we default on any of our various debt obligations, our lenders could require immediate repayment of the entire principal amount of that outstanding debt. If our lenders require immediate repayment on the entire principal amount, we will not be able to repay them in full, and our inability to meet our debt obligations could result in bankruptcy or otherwise impair our ability to maintain sufficient liquidity to continue our operations.

Because we are a holding company, we may not be able to service our debt if our subsidiaries do not make sufficient distributions to us.

We have no direct operations and no significant assets other than investments in the stock of our subsidiaries. Because we conduct our business operations through our operating subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations. Legal restrictions, including local regulations, and contractual obligations associated with secured loans, such as equipment financings, may restrict our subsidiaries’ ability to pay dividends or make loans or other distributions to us. The earnings from, or other available assets of, these operating subsidiaries may not be sufficient to make distributions to enable us to pay interest on our debt obligations when due or to pay the principal of such debt at maturity.

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

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

• incur additional indebtedness;

• pay dividends and make distributions to our stockholders;

• repurchase or redeem our stock;

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

• make investments and other restricted payments;

• create liens securing debt or other encumbrances on our assets;

• enter into sale-leaseback transactions;

• enter into transactions with our stockholders and affiliates;

• sell or exchange assets; and

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

In addition, our Credit Facility restricts our ability to enter into negative pledge agreements and imposes restrictions on our ability to make capital expenditures. Our Credit Facility also requires that we maintain certain financial ratios, which we may not be able to do. The covenants in our various debt instruments may impair our ability to finance future operations or capital needs or to engage in other favorable business activities.

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

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 sites and military bases. We also contract with U.S. governmental entities to destroy hazardous materials, including chemical agents and weapons stockpiles. Federal laws, including but not limited to the Resource Conservation and Recovery Act of 1976, as amended, or RCRA, and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or CERCLA, as well as various state and local laws strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances and impose liability for environmental contamination caused by such substances. In addition, so-called “toxic tort” litigation has increased markedly in recent years as people injured by hazardous substances seek recovery for personal injuries and/or property damages. Liabilities related to environmental contamination or human exposure to hazardous substances, or a failure to comply with applicable regulations could result in substantial costs to us, including clean-up costs, fines and civil or criminal sanctions, third party claims for property damage or personal injury or cessation of remediation activities.

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

Federal and state laws, regulations, and programs related to pollution and environmental protection generate, either directly or indirectly, much of our environmental business. Accordingly, a relaxation or repeal of these laws and regulations, or changes in governmental policies regarding the funding, implementation or enforcement of these programs, could result in a decline in demand for environmental services that may have a material effect on our revenues.

Our liability for damages due to legal proceedings may be significant. Our insurance may not be adequate to cover this risk.

Various legal proceedings are pending against us and certain of our subsidiaries resulting from the ordinary course of business, which allege among other things, breaches of contract, failure to comply with environmental laws and regulations or negligence in connection with the performance of professional services. In some actions, parties are seeking damages, including punitive or treble damages that may substantially exceed our insurance coverage or that are not insured. Our services may require us to make judgments and recommendations about environmental, structural and other physical conditions at project sites. If our judgments and recommendations are later found to be incomplete or incorrect, then we may be liable for the resulting damages. If we sustain damages that materially exceed our insurance coverage or that are not insured, there could be a material adverse effect on our liquidity, which could impair our operations.

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

Revenues under contracts with the U.S. Department of Defense and other defense-related entities represented approximately 33% our total revenues for the first quarter ended January 31, 2004. While spending authorization for defense-related programs have increased significantly in recent years due to greater homeland security and foreign military commitments and a general outsourcing trend by the federal government to outsource government jobs to the private sector, these spending levels may not be sustainable, and future levels of expenditures and authorizations for those programs may decrease, remain constant or shift to programs in areas where we do not currently provide services. Therefore, a general decline in United States defense spending could harm our operations and adversely affect our future revenues.

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

We operate in highly fragmented and competitive worldwide market in our service areas. As a result, we compete with many domestic and international engineering and consulting firms. Some of our competitors have achieved substantially more market penetration in certain of the markets in which we compete. In addition, some of our competitors have substantially more financial resources and/or financial flexibility than we do. Furthermore, the engineering design services market has been undergoing consolidation, particularly in the United States. If our competitors consolidate, they will likely increase their market share and gain economies of scale that enhance their ability to compete with us. These competitive forces could have a material adverse effect on our business, financial condition and results of operations by reducing our relative share in the markets we serve.

Ownership of our common stock is concentrated among stockholders who could act in concert to take actions that favor their own personal interests to the detriment of our interests and those of our other stockholders.

As of January 30, 2004, our officers and directors and their affiliates beneficially owned approximately 26% of the outstanding shares of our common stock. Because of the concentrated ownership of our common stock, these stockholders may be able to influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination

transactions. This concentration of ownership may also have the effect of delaying, deferring or preventing a change in control.

Because we rely heavily on our senior management, professional and technical staff, a failure to attract and retain key individuals could impair our ability to provide services to our clients and otherwise conduct our business effectively.

As a professional and technical services company, we are labor intensive and therefore our ability to attract, retain and expand our senior management, professional and technical staff remains an important factor in determining our future success. From time to time it may be difficult to attract and retain qualified individuals with the expertise demanded by our clients. For example, some of our government contracts may require us to employ only individuals who have government security clearances. In addition, we rely heavily upon the expertise and leadership of our senior management. The failure to attract and retain key individuals could impair our ability to provide services to our clients and conduct our business effectively.

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

As a multinational company, we have operations in over 20 countries and derived approximately 9% and 8% of our revenues from international operations for the first quarters of fiscal year 2004 and 2003, respectively. International business is subject to a variety of special risks, including:

• greater risk of uncollectible accounts and longer collection cycles;

• currency fluctuations;

• logistical and communications challenges;

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

• changes in labor conditions;

• exposure to liability under the Foreign Corrupt Practices Act; and

• general economic and political conditions in these foreign markets.

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

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

As a multinational company, our employees often travel to and work in high security risk countries around the world that are undergoing political, social and economic upheavals resulting in war, civil unrest, criminal activity or acts of terrorism. As a result, we may be subject to costs related to employee injury, repatriation or other unforeseen costs in a high security risk country.

If we do not successfully integrate our new accounting and project management software systems, our cash flows may be impaired and we may incur further costs to integrate or upgrade our systems.

We are continuing to integrate a new company-wide accounting and project management software system. In the event we do not complete the project successfully, we may experience reduced cash flows due to an inability to issue invoices to our customers and collect cash in a timely manner. Our current consideration to integrate EG&G Division’s accounting systems with our ERP system may further complicate implementation of the new system as it may require a system modification to support EG&G Division’s business requirements.

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

Our balance sheet includes goodwill and other intangible assets, the values of which are material. If any of our intangible assets were to become impaired, we would be required to write-off the impaired amount. The write-off would negatively affect our earnings, but not our cash flows.

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

As of January 31, 2004, approximately 7% of our employees were covered by collective bargaining agreements. The outcome of any future negotiations relating to union representation or collective bargaining agreements may not be favorable to us. We may reach agreements in collective bargaining that increase our operating expenses and lower our net income as a result of higher wages or benefits. In addition, negotiations with unions could divert management attention and disrupt operations, which may adversely affect our results of operations. If we are unable to negotiate acceptable collective bargaining agreements, we may have to address the threat of union-initiated work actions, including strikes. Depending on the nature of the threat or the type and duration of any work action, these actions could disrupt our operations and adversely affect our operating results.

Failure to integrate acquired businesses or assets successfully will prevent us from achieving the anticipated cost savings and other benefits on which our decision to consummate any acquisition would have been based.

We have completed five significant acquisitions since 1996 and we will continue to pursue growth through selective strategic acquisitions of businesses and assets. However, we will only achieve the efficiencies, cost reductions and other benefits, such as diversification of our current portfolio of clients and services, which we would expect to result from these acquisitions if we successfully integrate the administrative, financial, technical and marketing organizations of acquired businesses and assets, and implement appropriate operations, financial and management systems and controls. We may have insufficient management resources to accomplish integrations, and even if we are able to do so successfully, we may not realize the level of cost savings and other benefits that we expect to achieve.

The integration of acquired operations with our own involves 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 acquisitions;

• the possible loss of our key professional employees or those of the acquired businesses;

• the potential failure to replicate our operating efficiencies in the acquired businesses’ operations;

• our increased complexity and diversity compared to our operations prior to an acquisition;

• the possible negative reaction of clients to any acquisitions; and

• unanticipated problems or legal liabilities, including responsibility as a successor-in-interest for undisclosed or contingent liabilities of acquired businesses or assets.

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

We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. In addition, our board of directors has the power, without stockholder approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock, which could be used defensively if a takeover is threatened. Our incorporation under Delaware law, the ability of our board of directors to create and issue a new series of preferred stock and certain provisions of our certificate of incorporation and by-laws could impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the market price of our common stock. In addition, if we undergo a change of control, we may be required to repurchase our 11½% notes and our 12¼% notes, in each case at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. This feature in some of our outstanding notes may also discourage a person or a group from attempting to acquire us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to changes in interest rates as a result of our borrowings under our Credit Facility. Based on outstanding indebtedness of $343.8 million under our Credit Facility at January 31, 2004, if market rates averaged 1% higher in the next twelve months, our net of tax interest expense would increase by approximately $2.1 million. Conversely, if market rates averaged 1% lower in the next twelve months, our net of tax interest expense would decrease by approximately $2.1 million.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) for our company. Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were sufficiently effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and Form 10-Q.

(b) Changes in internal controls. There were no changes in our internal controls over financial reporting during the quarter ended January 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

(c) Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Our disclosure

controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the Chief Executive Officer and the Chief Financial Officer have concluded that these controls and procedures are effective at the “reasonable assurance” level.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 5 of the Consolidated Financial Statements.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

The following exhibits are filed herewith:

10.1		Employment Agreement, dated January 29, 2004, between URS Corporation and Gary V. Jandegian. FILED HEREWITH.



10.2		Employment Agreement, dated January 30, 2004, between URS Corporation and Thomas W. Bishop. FILED HEREWITH.



10.3		EG&G Technical Services, Inc. Amended and Restated Employees Retirement Plan, dated December 31, 2003. FILED HEREWITH.



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



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

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


PART I FINANCIAL INFORMATION
	ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 31.1
EXHIBIT 31.2
Exhibit 32

1)		Non-Special purpose entities (“SPEs”) created prior to February 1, 2003. We are required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. While not required, we could elect to adopt FIN 46 or FIN 46-R for these non-SPEs as of the end of the first interim or annual reporting period ending after December 15, 2003. In general, we account for these investments in accordance with Emerging Issues Task Force Issue 00-01, “Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures.” While we form joint ventures with third parties, which we may or may not control, in order to jointly bid, negotiate and execute projects, we currently do not have any VIEs. If we determine that any of these joint ventures require consolidation under FIN 46-R, it could have a material impact on revenues and costs, but not net income in our consolidated financial statements for interim or annual periods in filings subsequent to January 31, 2004.

2)		All entities, regardless of whether a SPE, that were created subsequent to January 31, 2003. We are required to apply the provisions of FIN 46 unless we elect to early adopt the provisions of FIN 46-R as of the first interim or annual reporting period ending after December 15, 2003. If we do not elect to early adopt FIN 46-R, then we are required to apply FIN 46-R to these entities as of the end of the first interim or annual reporting period ending after March 15, 2004. We have not entered into any material joint venture or partnership agreements subsequent to January 31, 2003 and we did not enter into any such material agreements during our first interim period ended January 31, 2004. If we enter into any significant joint venture and partnership agreements in the future that would require consolidation under FIN 46 or FIN 46-R, it could have a material impact on our consolidated financial statements in future filings.

•		the type of client — governmental agencies or private sector client; and

•		current economic conditions that may affect a client’s ability to pay.

•		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. Legal and contractual restrictions as well as the financial condition and operational requirements of our subsidiaries may limit our ability to obtain cash from them.

•		Billings and collections on accounts receivable can impact our operating cash flows. Management places significant emphasis on collection efforts, has assessed the allowance accounts for receivables as of January 31, 2004 and has deemed them to be adequate; however, the recent economic downturn may adversely impact our clients’ credit-worthiness and their ability to pay our bills. Consequently, it may impact our ability to collect cash from them to meet our operating needs.

•		A decrease in collections of accounts receivable due to slower payments made by our clients;

•		The timing of required disbursements into the EG&G Division’s Voluntary Employee’s Beneficiary Association trust (the “VEBA trust”). Claims and expenses we pay are then reimbursed by the VEBA trust. A VEBA trust is a form of welfare benefit plan trust we use to administer health and dental claims whereby our contributions to the trust are tax deductible; and

•		The timing of our income tax payments.

•		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 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 repayments of our indebtedness, thereby reducing the availability of cash flows to fund working capital, capital expenditures and for other general corporate purposes.

•		incur additional indebtedness;

•		pay dividends and make distributions to our stockholders;

•		repurchase or redeem our stock;

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

•		make investments and other restricted payments;

•		create liens securing debt or other encumbrances on our assets;

•		enter into sale-leaseback transactions;

•		enter into transactions with our stockholders and affiliates;

•		sell or exchange assets; and

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

•		greater risk of uncollectible accounts and longer collection cycles;

•		currency fluctuations;

•		logistical and communications challenges;

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

•		changes in labor conditions;

•		exposure to liability under the Foreign Corrupt Practices Act; and

•		general economic and political conditions in these foreign markets.

•		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 acquisitions;

•		the possible loss of our key professional employees or those of the acquired businesses;

•		the potential failure to replicate our operating efficiencies in the acquired businesses’ operations;

•		our increased complexity and diversity compared to our operations prior to an acquisition;

•		the possible negative reaction of clients to any acquisitions; and

•		unanticipated problems or legal liabilities, including responsibility as a successor-in-interest for undisclosed or contingent liabilities of acquired businesses or assets.


Dated March 15, 2004		URS CORPORATION /s/ Kent P. Ainsworth

		Kent P. Ainsworth Executive Vice President and Chief Financial Officer


Exhibit No.		Description

10.1		Employment Agreement, dated January 29, 2004, between URS Corporation and Gary V. Jandegian.

10.2		Employment Agreement, dated January 30, 2004, between URS Corporation and Thomas W. Bishop.

10.3		EG&G Technical Services, Inc. Amended and Restated Employees Retirement Plan, dated December 31, 2003.

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

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

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