UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark one)

For the quarterly period ended April 1, 2005

OR

For the Transition Period from ____________ to _____________

Commission file number 1-7567

URS CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

URS CORPORATION AND SUBSIDIARIES

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “will,” and similar terms used in reference to our future revenue and business prospects, future accounting and actuarial estimates, future impact of SFAS 123(R), future outcomes of our legal proceedings and maintenance of our insurance, future guarantees and debt service obligations, future capital resources, future of our accounting and project management information system, future effectiveness of our disclosure and internal controls and future economic and industry conditions. We believe that our expectations are reasonable and are based on reasonable assumptions. However, such forward-looking statements by their nature involve risks and uncertainties. We caution that a variety of factors, including but not limited to the following, could cause our business and financial results to differ materially from those expressed or implied in our forward-looking statements: an economic downturn, changes in our book of business; our inability to comply with government contract procurement regulations; our dependence on government appropriations and procurements; our ability to profitably execute our contracts and guarantees; our leveraged position; our ability to service our debt; liability for pending and future litigation; the impact of changes in laws and regulations; our ability to maintain adequate insurance coverage; a decline in defense spending; industry competition; our ability to attract and retain key individuals; risks associated with SFAS 123(R); risks associated with international operations; risks associated with our accounting and project management software; our relationship with our labor unions; and other factors discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 24, Risk Factors That Could Affect Our Financial Conditions and Results of Operations beginning on page 35, 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.

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PART I
FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

URS CORPORATION AND SUBSIDIARIES

See Notes to Consolidated Financial Statements

2

URS CORPORATION AND SUBSIDIARIES

See Notes to Consolidated Financial Statements

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URS CORPORATION AND SUBSIDIARIES

See Notes to Consolidated Financial Statements

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URS CORPORATION AND SUBSIDIARIES

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

Overview

     The terms “we,” “us,” and “our” used in this quarterly report refer to URS Corporation and its consolidated subsidiaries unless otherwise indicated. We operate through two divisions: the URS Division and the EG&G Division. We offer a comprehensive range of professional planning and design, systems engineering and technical assistance, program and construction management, and operations and maintenance services for transportation, facilities, environmental, homeland security, defense systems, installations and logistics, commercial/industrial, and water/wastewater treatment projects. Headquartered in San Francisco, we operate in more than 20 countries with approximately 27,800 employees providing services to federal, state, and local government agencies, as well as to private industry clients in the United States and internationally.

     Effective January 1, 2005, we adopted a 52/53 week fiscal year ending on the Friday closest to December 31^st, with interim quarters ending on the Fridays closest to March 31^st, June 30^th and September 30^th. We filed a transition report on Form 10-Q with the Securities and Exchange Commission (“SEC”) for the two months ended December 31, 2004. Our 2005 fiscal year began on January 1, 2005 and will end on December 30, 2005.

     The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements include the financial position, results of operation and cash flows of our wholly-owned subsidiaries and joint ventures required to be consolidated under Financial Accounting Standards Board Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46-R”). We participate in joint ventures formed for the purpose of bidding, negotiating and executing projects. Sometimes we function as the sponsor or manager of the projects performed by the joint venture. Investments in unconsolidated joint ventures are accounted for using the equity method. All significant intercompany transactions and accounts have been eliminated in consolidation.

     You should read our unaudited interim consolidated financial statements in conjunction with the audited consolidated financial statements and related notes contained in our amended Annual Report on Form 10-K/A for the fiscal year ended October 31, 2004. The results of operations for the three months ended April 1, 2005 are not indicative of the operating results for the full year or for future years.

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

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

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

Cash and Cash Equivalents/Book Overdraft

     At April 1, 2005 and March 31, 2004, we had book overdrafts for some of our disbursement accounts. These overdrafts represented transactions that had not cleared the bank accounts at the end of the reporting period. We transferred cash on an as-needed basis to fund these items as they cleared the bank in subsequent periods.

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, excluding unvested restricted stock. Diluted income per common share is computed giving effect to all potentially dilutive shares of common stock that were outstanding during the period. Potentially dilutive shares of common stock consist of the incremental shares of common stock issuable upon the exercise of stock options or upon conversion of our 6 1/2% Convertible Subordinated Debentures (“6 1/2% debentures”). Diluted income per share is computed by dividing net income by the sum of the weighted-average common shares and potentially dilutive common shares that were outstanding during the period.

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

     Our 6 1/2% debentures are due in 2012 and are convertible into shares of our common stock at the rate of $206.30 per share. However, the effect of the assumed conversion of the 6 1/2% debentures was not included in our computation of diluted income per share because it would be anti-dilutive.

     We did not include 52 thousand and 28 thousand of potential shares associated with outstanding stock options in our computation of diluted income per share for the three months ended April 1, 2005 and March 31, 2004, respectively, because the exercise prices of the options were greater than the average per share market value of our common stock.

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

Stock-Based Compensation

     We award stock options to our employees under our 1991 Stock Incentive Plan and 1999 Equity Incentive Plan (collectively, the “Stock Option Plans”). These stock options are awarded with an exercise price that is equal to the market price of our common stock on the date of the grant. We also grant restricted stock, which are shares of common stock that are issued at no cost to key employees. In addition, we have an Employee Stock Purchase Plan (“ESPP”) under which eligible employees may authorize payroll deductions of up to ten percent of their compensation, subject to Internal Revenue Code limitations, to purchase common stock at a price of 85 percent of the lower of the fair market value as of the beginning or end of the six-month offering period.

     As permitted under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), we continue to apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related accounting interpretations for stock-based compensation. Under APB 25, the compensation expense associated with employee stock awards is measured as the difference, if any, between the price to be paid by an employee and the fair value of the common stock on the grant date. Accordingly, we recognize no compensation expense with respect to stock-based option awards. Stock purchased through the ESPP as currently structured qualifies under a specific exception under APB 25, and as a result, we do not recognize any compensation expense with respect to such purchases either. Compensation expense is recognized for modifications of stock-based option awards in accordance with APB 25. In addition, we record compensation expense related to restricted stock over the applicable vesting period and such compensation expense is measured at the fair market value of the restricted stock at the date of grant.

     Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS 148”), requires prominent disclosure of pro forma results in both annual and interim financial statements as if we had applied the fair value recognition provisions of SFAS 123. We use the Black-Scholes option pricing model to measure the estimated fair value of stock options and the ESPP. The following assumptions were used to estimate stock option and ESPP compensation expense using the fair value method of accounting:

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

     If the compensation cost for awards under the Stock Option Plans and the ESPP had been determined in accordance with SFAS 123, our net income and earnings per share would have been reduced to the pro forma amounts indicated below:

Adopted and Recently Issued Statements of Financial Accounting Standards

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (Revised), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) replaces SFAS 123 and supersedes APB 25. In April 2005, the SEC adopted Rule 4-01(a) of Regulation S-X, which defers the required effective date of SFAS 123(R) to the first fiscal year beginning after June 15, 2005, instead of the first interim period beginning after June 15, 2005 as originally required. SFAS 123(R) will become effective for us on December 31, 2005 (the “Effective Date”), but early adoption is allowed. SFAS 123(R) requires that the costs resulting from all stock-based compensation transactions be recognized in the financial statements. SFAS 123(R) applies to all stock-based compensation awards granted, modified or settled in interim or fiscal periods after the required Effective Date, but does not apply to awards granted in periods before the required Effective Date, unless they are modified, repurchased or cancelled after the Effective Date. SFAS 123(R) also amends Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows,” to require that excess tax benefits from the exercises of stock-based compensation awards be reported as a financing cash inflow rather than as a reduction of taxes paid.

     Upon adoption of SFAS 123(R), we will be required to record an expense for our stock-based compensation plans using a fair value method. We are currently evaluating which transition method we will

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

use upon adoption of SFAS 123(R) and the potential impacts it will have on our compensation plans. SFAS 123(R) will impact our financial statements as we historically have recorded our stock-based compensation in accordance with APB 25, which does not require the recording of an expense for our stock-based compensation plans for options granted at a price equal to the fair market value of the stocks on the grant date and for the fair value of the ESPP.

     In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) to provide implementation guidance on SFAS 123(R). SAB 107 was issued to assist registrants in implementing SFAS 123(R) while enhancing the information that investors receive.

     In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, “Inventory Costs, and Amendment of Accounting Research Bulletin No. 43 (“ARB No. 43”), Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43 Chapter 4, “Inventory Pricing,” by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) be recognized as current period charges. The provisions of SFAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 will not have a material effect on our consolidated financial statements.

Reclassifications

     We have made reclassifications to our fiscal year 2004 financial statements to conform them to the fiscal year 2005 presentation. These reclassifications have no effect on consolidated net income, net cash flows and equity.

NOTE 2. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

     As of April 1, 2005 and December 31, 2004, we capitalized internal-use software development costs of $59.3 million and $58.9 million, respectively. We amortize the capitalized software costs using the straight-line method over an estimated useful life of ten years.

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

     Property and equipment is depreciated using the following estimated useful lives:

     Depreciation expense related to property and equipment was $9.1 million and $10.2 million for the three months ended April 1, 2005 and March 31, 2004, respectively.

     Amortization expense related to purchased intangible assets was $0.7 million and $0.8 million for the three months ended April 1, 2005 and March 31, 2004, respectively.

NOTE 3. EMPLOYEE RETIREMENT PLANS

Executive Plan

     In July 1999, as amended and restated in September 2003, we entered into a Supplemental Executive Retirement Agreement (the “Executive Plan”) with Martin M. Koffel, our Chief Executive Officer, to provide an annual lifetime retirement benefit. The components of our net periodic pension costs related to the Executive Plan for the three months ended April 1, 2005 and March 31, 2004 were as follows:

Radian SERP and SCA

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

     The Radian defined benefit plans include a Supplemental Executive Retirement Plan (“SERP”) and a Salary Continuation Agreement (“SCA”), which are intended to supplement the retirement benefits provided by other benefit plans upon the participants attaining minimum age and years of service requirements. The components of our net periodic pension costs related to the SERP and SCA for the three months ended April 1, 2005 and March 31, 2004 were as follows:

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

EG&G Pension Plan

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

EG&G Post-retirement Medical Plan

NOTE 4. CURRENT AND LONG-TERM DEBT

Senior Secured Credit Facility

     Our Senior Secured Credit Facility (“Credit Facility”) consists of two term loans, Term Loan A and Term Loan B, and a revolving line of credit. Borrowings under the Credit Facility bear interest at either a base rate or a Eurodollar rate plus, in each case, an interest rate margin that varies with our financial performance. As of April 1, 2005 and December 31, 2004, we had $353.8 million in principal amounts outstanding under the term loan facilities for the respective two periods. As of April 1, 2005 and December 31, 2004, the interest rates on both Term Loans A and B were 4.46% and 4.42%, respectively.

     We had previously amended our Credit Facility on six separate occasions. The seventh amendment, dated January 27, 2005, reduced the interest rate margins on our Credit Facility by 0.25% and provided for an additional 0.25% reduction if either Standard & Poor’s or Moody’s upgrades us from our current credit ratings, which are BB and Ba2, respectively. The seventh amendment also eliminated restrictions on the amount of cash we are able to use in an acquisition.

     As of April 1, 2005, we were in compliance with all of our Credit Facility covenants.

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

Revolving Line of Credit

     As a part of our Credit Facility, we maintain a revolving line of credit to fund daily operating cash needs and to support standby letters of credit. During the ordinary course of business, the use of the revolving line of credit is driven by collection and disbursement activities. Our daily cash needs follow a predictable pattern that typically parallels our payroll cycles, which drive, if necessary, our short-term borrowing requirements.

     Our average daily revolving line of credit balances for the three-month periods ended April 1, 2005 and March 31, 2004 were $3.5 million and $24.4 million, respectively. The maximum amounts outstanding at any one point in time during the three-month periods ended April 1, 2005 and March 31, 2004 were $19.4 million and $55.0 million, respectively.

     As of April 1, 2005, we had drawn $12.0 million against our revolving line of credit and had outstanding standby letters of credit aggregating to $58.8 million, reducing the amount available to us under our revolving credit facility to $154.2 million. As of December 31, 2004, we had drawn $18.0 million against our revolving line of credit and had outstanding standby letters of credit aggregating to $55.3 million, reducing the amount available to us under our revolving credit facility to $151.7 million. The effective average interest rates paid on the revolving line of credit during the three months ended April 1, 2005 and March 31, 2004 were approximately 5.9% and 5.8%, respectively.

Other Indebtedness

     11 1/2% Senior Notes (“11 1/2% notes”). As of April 1, 2005 and December 31, 2004, we had outstanding amounts of $130 million due 2009. Interest is payable semi-annually in arrears on March 15 and September 15 of each year. These notes are effectively subordinate to our Credit Facility, capital leases, notes payable and senior to our 6 1/2% debentures described below.

     12 1/4% Senior Subordinated Notes (“12 1/4% notes”). On February 14, 2005, we retired the entire outstanding balance of $10 million. As of December 31, 2004, we owed $10 million.

     6 1/2% Convertible Subordinated Debentures. As of April 1, 2005 and December 31, 2004, we owed $1.8 million due 2012. Our 6 1/2% debentures are subordinate to our Credit Facility, our 11 1/2% notes, capital leases and notes payable.

     Notes payable, foreign credit lines and other indebtedness. As of April 1, 2005 and December 31, 2004, we had outstanding amounts of $10.7 million and $13.4 million, respectively, in notes payable and foreign lines of credit. The weighted average interest rate of the notes was approximately 5.8% for each of the two periods at April 1, 2005 and December 31, 2004.

     We maintain foreign lines of credit, which are collateralized by the assets of our foreign subsidiaries. As of April 1, 2005, we had not drawn on our foreign lines of credit and had $3.1 million available under these facilities. As of December 31, 2004, we had drawn $1.6 million under our foreign lines of credit, reducing the amount available to $1.6 million. The interest rate was 7.3% for each of the two periods at April 1, 2005 and December 31, 2004.

Fair Value of Financial Instruments

     The fair values of the 11 1/2% notes and the 12 1/4% notes fluctuate depending on market conditions and our performance and at times may differ from their carrying values. On February 14, 2005, we retired the entire outstanding balance of $10 million on the 12 1/4% notes. As of April 1, 2005, the total fair value of the 11 1/2% notes was $148.2 million. As of December 31, 2004, the total fair values of the 11 1/2% notes and the 12 1/4% notes were approximately $161.5 million.

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

Costs Incurred for Extinguishment of Debt

     As a result of the retirement of our 12 1/4% notes, we incurred $0.8 million in costs to extinguish this note during the three months ended April 1, 2005, as detailed below:

     We did not incur any costs related to the extinguishment of debt during the three months ended March 31, 2004. The write-off of the pre-paid financing fees, debt issuance costs and discounts and the amounts paid for call premiums are included in the indirect, general and administrative expenses of our Consolidated Statements of Operations and Comprehensive Income.

NOTE 5. COMMITMENTS AND CONTINGENCIES

     In the ordinary course of business, we are subject to certain contractual guarantees and governmental audits or investigations and we are involved in various legal proceedings that are pending against us and our subsidiaries alleging, among other things, breach of contract or tort in connection with the performance of professional services, the various outcomes of which cannot be predicted with certainty. The following provides updated information regarding proceedings that were described in Note 9 to our consolidated financial statements included in our Annual Report on Form 10-K/A for the fiscal year ended October 31, 2004:

	•	Saudi Arabia: Prior to our acquisition of Lear Seigler Services, Inc. (“LSI”) in August 2002, LSI provided aircraft maintenance support services on F-5 aircraft under a contract with a Saudi Arabian government ministry (the “Ministry”). LSI’s performance under the contract was completed in November 2000 and the following legal proceedings ensued:
		Two Saudi Arabian landlords have pursued claims over disputed rents in Saudi Arabia. The Saudi Arabian landlord of the Al Bilad complex received a judgment in Saudi Arabia against LSI for $7.9 million. Another landlord has obtained a judgment also in Saudi Arabia against LSI for $1.2 million. The second judgment is under appeal. We continue to pursue defenses disputing these claims and judgments, and are pursuing a countersuit against the landlord of the Al Bilad complex.
		During fiscal year 2004, an arbitration ruling by the International Chamber of Commerce (“ICC”) was issued against LSI that included a monetary award of $5.5 million to a joint venture partner (the “claimant”). During August 2004, the claimant filed an action in the United States District Court in Maryland to confirm and enforce the ICC award and in April 2005, the District Court issued an order supporting the claimant’s award, which order we intend to appeal upon the issuance of formal judgment.
		In addition, the Ministry directed payment of a performance bond issued in its favor under this contract in the amount of approximately $5.6 million. One of the conditions for closing out the contract and LSI’s obligations under the bond is the successful resolution of a pending tax assessment issued by the Saudi Arabian taxing authority assessing LSI approximately $5.1 million in taxes for the years 1999 through 2002. We disagree with the Saudi Arabian taxing authority’s assessment and are providing responses, additional information and documentation.

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

		However, Banque Saudi Fransi paid the amount of the performance bond to the Ministry and filed a claim against LSI in a United Kingdom legal proceeding in the High Court of Justice, Queen’s Bench Division, Commercial Court to recover the $5.6 million. We believe the bank’s payment of the bond amount was inappropriate and a contractual violation of our performance bond agreement. On January 2005, LSI filed a claim against the Ministry in United States District Court in Texas for wrongful demand of the performance bond, to collect all outstanding accounts receivable, to collect a claim for additional housing costs incurred at the direction of the Ministry, and for other contractual violations of the F-5 Contract.
		We have adequately provided for any enforceable obligations arising relative to these contingencies, based on current facts and circumstances.
	•	Lebanon: Prior to our acquisition of Dames and Moore Group, Inc. in 1999, which included Radian International, LLC, a wholly-owned subsidiary (“Radian”), Radian entered into a contract to provide environmental remediation to a Lebanese company (“Solidere”) involved in the development and reconstruction of the central district of Beirut. Various disputes have arisen under this contract, including an allegation by Solidere that Radian breached the contract by, among other things, failing to reduce the level of chemical and biological constituents, including methane gas, at the project site to the contract level. The parties sought to resolve their disputes in an arbitration proceeding filed with the ICC.
		During July 2004, an ICC arbitration panel ruled against Radian and ordered Radian to prepare a plan to reduce the level of methane gas at the project site to the contract level, to pay approximately $2.4 million in attorney fees and other expenses to Solidere, and authorized Solidere to withhold project payments. At April 1, 2005, Solidere had withheld project payments amounting to $10.3 million. In addition, we have deferred other costs amounting to $8.1 million. We are complying with the terms of the ICC arbitration panel’s ruling and also continue to be actively engaged in attempting to resolve the various disputes directly with Solidere through alternate resolution strategies that may be more advantageous to both parties.
		Solidere is also seeking damages for delays of up to $8.5 million and has drawn upon an $8.5 million bank guarantee at Saradar Bank, Sh.M.L. (“Saradar”). In July 2004, Saradar filed a reimbursement claim in the First Court in Beirut, Lebanon to recover the $8.5 million bank guarantee from Radian and our co-defendant Wells Fargo Bank, N.A. We believe that we are not obligated under the bank guarantee and are vigorously defending this matter.
		Prior to entering into the Solidere contract, Radian obtained a project-specific, $50 million insurance policy from Alpina Insurance Company (“Alpina”) with a $1 million deductible, which we believe is available to support our claims in excess of the deductible. The Solidere contract contains a $20 million limitation on damages. In October 2004, Alpina notified us of a denial of insurance coverage. We filed a breach of contract and bad faith claim against Alpina in United States District Court for the Northern District of California in October 2004 seeking declaratory relief and monetary damages.
	•	Tampa-Hillsborough County Expressway Authority: In 1999, we entered into an agreement with the Tampa-Hillsborough County Expressway Authority (the “Authority”) to provide foundation design and other services in connection with the construction of the Lee Roy Selmon Elevated Expressway structure in Tampa, Florida. In 2004, during construction, one pier out of over 200 piers subsided substantially, causing damage to a segment of the Expressway. The Authority has recently completed and is implementing a plan to remediate the damage to the Expressway. The Authority is pursuing claims against us and potentially other parties associated with the Expressway, alleging defects caused by services provided. Sufficient information is not currently available to assess liabilities associated with a remediation plan.

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

     Currently, we have limits of $125 million per loss and $125 million in the aggregate annually for general liability, professional errors and omissions liability and contractor’s pollution liability insurance (in addition to other policies for some specific projects). These policies include self-insured claim retention amounts of $4 million, $7.5 million and $7.5 million, respectively. In some actions, parties are seeking damages, including punitive or treble damages that substantially exceed our insurance coverage or are not insured.

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

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

     As of April 1, 2005, we had the following guarantee obligations and commitments:

     We have guaranteed the credit facility of one of our joint ventures, in the event of a default by the joint venture. This joint venture was formed in the ordinary course of business to perform a contract for the federal government. The term of the guarantee is equal to the remaining term of the underlying debt, which is 11 months. The maximum potential amount of future payments that we could be required to make under this guarantee at April 1, 2005, was $6.5 million.

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

     From time to time, we may provide guarantees related to our services or work. If our services under a guaranteed project are later determined to have resulted in a material defect or other material deficiency, then we may be responsible for monetary damages or other legal remedies. When sufficient information about claims on guaranteed projects is available and monetary damages or other costs or losses are determined to be probable, we recognize such guarantee losses. Currently, we have no material guarantee claims for which losses have been recognized.

NOTE 6. SEGMENT AND RELATED INFORMATION

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

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

     These two segments operate under separate management groups and produce discrete financial information. Their operating results also are reviewed separately by management. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The information disclosed in our consolidated financial statements is based on the two segments that comprise our current organizational structure.

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

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

     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:

Major Customers

     For the three months ended April 1, 2005 and March 31, 2004, we had multiple contracts with the following major customer, who contributed more than ten percent of our total consolidated revenues:

NOTE 7. RELATED PARTY TRANSACTION

     On January 19, 2005, affiliates of Blum Capital Partners, L.P. (collectively, the “Blum Affiliates”) sold 2,000,000 shares of our common stock in an underwritten secondary offering. The general partner of Blum Capital Partners, L.P. is a member of our Board of Directors.

17

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

NOTE 8. SUPPLEMENTAL GUARANTOR INFORMATION

     Substantially all of our domestic operating subsidiaries have guaranteed our obligations under our Credit Facility and our 11 1/2% 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, the 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 11 1/2% notes and our Credit Facility. In addition, although the terms of our 11 1/2% notes and our Credit Facility limit us and our subsidiary guarantors’ ability to place contractual restrictions on the flow of funds to us, legal restrictions, including local regulations, and contractual 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 information sets forth our condensed consolidating balance sheets as of April 1, 2005 and December 31, 2004, and our condensed consolidating statements of operations and comprehensive income and cash flows for the three months ended April 1, 2005 and March 31, 2004. Elimination entries necessary to consolidate our subsidiaries are reflected in the eliminations column. Separate complete financial statements for our subsidiaries, which guarantee our Credit Facility and our 11 1/2% notes, would not provide additional material information that would be useful in assessing the financial condition of such subsidiaries.

18

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

19

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

20

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

21

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