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CH2M HILL COMPANIES, LTD. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-K

Commission File Number 000-27261

CH2M HILL Companies, Ltd.
(Exact name of registrant as specified in its charter)

(303) 771-0900
(Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act:
CH2M HILL common stock, Par Value $0.01 per share

        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 ý    No o

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

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

        The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price as of June 30, 2003 was approximately $193 million. For purposes of this calculation, it is assumed that the registrant's affiliates include the registrant's Board of Directors, its executive officers, and certain of its employee benefit plans. The registrant disclaims the existence of any control relationship between it and such employee benefit plans.

        As of February 13, 2004, there were 31,492,451 shares of the registrant's stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the definitive Proxy Statement for the 2004 Annual Meeting of Shareholders are incorporated by reference in Part III of this Annual Report on Form 10-K where indicated.

CH2M HILL COMPANIES, LTD.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

Item 1.    Business

Overview

        CH2M HILL Companies, Ltd. (CH2M HILL) is a full-service, global, project delivery firm, working for clients in consulting, design, engineering, procurement, construction, and operations and maintenance. Founded in 1946, we have remained 100 percent employee owned. Today, we have over 14,000 employees, working near our clients in approximately 200 offices in over 30 countries on six continents. Throughout our history and growth, we have adhered to our founders' basic philosophy: provide innovative, cost-effective, quality solutions to each client, using technology to build a better world.

        Several years ago, we set a course to achieve the goal of industry leadership, i.e., ranked highly in every business sector in which we compete. The foundation for reaching this goal is set in our strategic vision, which has five fundamental components:

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Develop, retain, and recruit the best people in our industry



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Grow our financial strength



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Enhance our full-service capabilities, particularly in the design-build arena



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Continue our global growth, in targeted geographics



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Provide industry-leading value for our clients

        Our business strategy, built upon this foundation, focuses on four areas which we believe will further our development as an industry leader.

        First, all of our businesses are demonstrating progress in the design-build arena, while still fulfilling the needs of our clients in the traditional consulting and engineering services we provide.

        Second, we have placed an increased emphasis on the application of technology to solve our clients' problems. As our client projects have grown more complex, finding innovative technical solutions has become imperative.

        Third, success in our projects is increasingly dependent on value creation for our clients. That is, in an increasingly competitive industry, we must link our compensation to what our clients value.

        Finally, we must utilize the full array of our technical capabilities to serve clients, without regard to particular "stovepipes" or business units in which we operate. This cross-business unit collaboration and cooperation is essential to our long-term growth.

        For additional information regarding CH2M HILL, including free copies of filings with the Securities and Exchange Commission (SEC), please visit our web site at www.ch2m.com. The SEC filings, which include our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to such filings, are located in the About Us/Employee Ownership section of our web site and are made available as soon as practicable after they are filed with the SEC.

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Operating Segments

        Throughout 2003, we have provided services to clients through multiple business units in three operating segments: Environmental, Energy & Infrastructure (EE&I); Water; and Industrial. Financial information for each operating segment for each of the last three years, including 2003, is included in Note 18 of the Notes to Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K.

        During the course of 2003, we reevaluated how our business was organized and announced a new organizational model, to become effective on January 1, 2004. This model, recognizing and reflective of the distinct needs of our clients, will be centered on three Client Groups:

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Civil Infrastructure (state and local governments)



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Federal (U.S. and international governments)



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Industrial (private sector clients)

        This change was brought about by discussions among senior management and our Board of Directors, who recognized that our path to success was critically dependent on understanding and meeting the differing needs and requirements of our clients. The new structure is designed to allow better decision making on an enterprise-wide basis.

        The following chart shows the realignment into the three Client Groups and the revised businesses under each group:

        Since this Annual Report on Form 10-K reflects our financial reporting for 2003, we discuss the operating segments in place prior to the new organization.

Environmental, Energy and Infrastructure

        Our EE&I operating segment consists of two businesses: Energy, Environment & Systems (EE&S) and Transportation. EE&I's overall business strategy is to grow by increasing market share in each of its businesses, expanding its client base and obtaining full-service projects with the potential for higher profit margins. While maintaining its focus on its traditional services, EE&I has expanded its expertise to serve more industrial clients in a broader range of industries, and into related business concepts such as "sustainable development." Sustainable development is a design approach that addresses

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environmental issues throughout the life of a project, from design and construction to decommissioning and seeks to minimize total environmental impact.

        EE&S.    EE&S provides services to public and private sector clients in the areas of energy and power, environmental and waste management, telecommunications infrastructure, nuclear systems, outsourced engineering, construction, procurement and operations services for a variety of public and private clients worldwide.

        1.    Energy & Industrial Systems.    Our Energy & Industrial Systems group provides full life cycle services for the energy and power, air and industrial water and wastewater processes, and facilities and infrastructure services market segments for federal and municipal governments, utility and industrial clients. These services include the evaluation and analysis of cost effective integrated systems using advanced conventional and renewable energy technologies and distributed resources to meet premium and clean energy applications. Representative Energy & Industrial Systems project experience includes:

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Coal fired power plant permitting and licensing



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Design and construction management of new combined heat and power generation facilities



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Energy efficiency upgrades



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Feasibility studies, licensing and design of renewable energy, distributed generation and premium power projects



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Industrial water and wastewater facilities design and construction



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Security and vulnerability analysis and infrastructure upgrades of industrial treatment facilities



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Indoor air quality services



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High performance building design, commissioning, and energy efficiency analyses

        2.    Environmental Services.    Our Environmental Services group provides program management, compliance, and environmental consulting for remediation projects, ecological and natural resource damage assessments, strategic environmental management and permitting services, environmental liability management services, site investigations, remedial design, implementation and construction services, treatment systems for hazardous, toxic and radioactive waste contaminated properties, and sustainable development planning, design and construction services. Representative Environmental Services project experience for public and private sector clients includes:

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Program management, environmental compliance and remedial services for national and multinational oil and gas, chemical, petrochemical, manufacturing and other industrial companies



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Environmental consulting, engineering and related activities for the U.S. Department of Defense (DOD), U.S. Department of Energy (DOE), and other federal government agencies as well as for numerous private sector companies and state and municipal agencies



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Remediation of contaminated sites on U.S. Navy installations in 21 states and several foreign countries



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Ordnance and explosive/unexploded ordnance support for the DOD, the U.S. Environmental Protection Agency (EPA), and several European national governments

        3.    Nuclear Services.    Our Nuclear Services group provides program management, integration, engineering, design, construction, management, and a broad array of technical services for the DOE, U.S. commercial nuclear utility customers, and various nuclear research, development and demonstration facilities. We manage decommissioning (characterization, decontamination, dismantling,

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demolition) and closure of weapons production facilities and research reactors, and design nuclear waste treatment and handling facilities. Representative Nuclear Services project experience includes:

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Environmental restoration and remediation support associated with decommissioning of the Maine Yankee Atomic Power Company nuclear facility and termination of its Nuclear Regulatory Committee operating license



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Groundwater remediation support for the decommissioning of the Connecticut Yankee Haddam Neck Nuclear Power Plant



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Management and integration of decontamination, decommissioning and closure of the nuclear weapons production facility at Rocky Flats in Golden, Colorado, on behalf of the DOE



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Operation of the Hanford Tank Farm in Richland, Washington, and retrieval/disposition of the nuclear waste contained in its tanks on behalf of the DOE



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Engineering, design and technical services to support decontamination, decommissioning and remedial activities at the DOE Hanford Reservation in Richland, Washington



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Management and integration of decontamination, decommissioning and closure of the nuclear weapons production facility in Miamisburg, Ohio



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Design, construction and support of operation of engineered near-surface waste disposal facilities for low level and mixed level radioactive wastes at the Idaho Environmental Engineering Laboratory in Idaho Falls, Idaho, and Oak Ridge, Tennessee



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Decontamination and decommissioning of facilities to reduce environmental risk and cost of operations at the Savannah River Site on behalf of the DOE



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Decontamination and removal of equipment, and general support services for the Lawrence Livermore National Laboratory managed by the University of California for the DOE



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Characterization and remediation of the facilities at the Knolls Atomic Power Laboratory on behalf of the DOE



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Assistance with project management systems implementation, strategic planning and baseline creation for the clean-up of former nuclear weapons sites in the United Kingdom (U.K.) for the U.K. Atomic Energy Agency



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Assistance in project management systems implementation for the British Nuclear Fuels Company



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Decontamination and decommission planning and engineering for university research centers in Atlanta, Georgia; Charlottesville, Virginia and Ann Arbor, Michigan

        4.    Communications.    Our Communications group provides program management, planning, design and construction management of local and regional wireless, fiber optic and hybrid fiber/coaxial systems for voice, video and data communications. We also provide network security, operational support system consulting and systems integration, and managed services to the communications market. Representative Communications project experience includes:

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Program management, design and construction management of voice, video and data networks for a large telecommunications operator in Europe



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Project management, construction management and project controls for a 1,000 cell site build out for a wireless network operator in Asia



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Program management for the upgrade of a hybrid fiber/coaxial network for voice, video and high-speed data services in several U.S. cities

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Project management and integration of multiple legacy inventory management systems for a large network operator in Europe



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Health Insurance Portability and Accountability Act (HIPAA) compliance analysis and remediation consulting for a large State government



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Software systems and support systems consulting for a large network operator in Europe

        5.    Federal Outsourcing & Privatization.    This group provides operations and maintenance and privatization services to federal government customers. Services include outsourcing of facilities maintenance and management, utilities operations and maintenance, environmental support, other base operating services and minor capital construction projects. Representative Federal Outsourcing & Privatization project experience includes:

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Regional Base Operations Services for the U.S. Navy's facilities in Jacksonville, Florida



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Environmental support for four U.S. Air Force and Navy ranges in the Southwestern U.S.



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Base operations and environmental support for the Naval Air Station in Pensacola, Florida



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Operations, maintenance and design-build of capital improvement projects for the water and wastewater system at Ft. Campbell, Kentucky

        Transportation.    The Transportation group provides consulting and construction services for airports, highways, bridges, marine terminals, railroads, and transit systems. These services include transportation planning, environmental planning, project siting, permitting, design, construction/program management, management consulting, and design-build delivery. Representative Transportation project experience includes:

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Corridor planning, environmental planning, design and construction management of interstate highways across the country, such as the I-580 extension near Reno, Nevada and the Marquette Interchange reconstruction in Milwaukee, Wisconsin



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Master planning, design and program management services for international airports including new runways at Denver International, St. Louis and Dulles airports, program management for major expansion of the Seattle-Tacoma airport, and airspace analysis for U.S. Air Force facilities around the world



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Assessment, planning and programming of security systems for airports and seaports in the U.S., including Los Angeles airports and marine terminals throughout the Gulf Coast



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Environmental planning, design and program management for light rail transit systems in Seattle, Washington and Hampton Roads, Virginia



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Planning, design and project management services for cruise ship terminals in Florida, California, Texas and the Caribbean



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Design-build services for interstate highway bridge projects in Oregon and Florida, a new freeway interchange in Alaska, a light rail transit system in Salt Lake City, Utah, and a cruise ship terminal in Galveston, Texas



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Engineering and construction management for 18 miles of new freeway for Route 288, near Richmond, Virginia

Water

        Our Water operating segment consists of two businesses: Water & Wastewater and Operations & Maintenance. The business strategy of the Water operating segment is to grow through increasing market share in each of its businesses, both domestically and internationally, to diversify its client base,

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and to pursue large, longer term contracts. We seek to attract new clients by leveraging our reputation for providing quality services and by taking advantage of the current trends for outsourcing operations and maintenance activities to specialized service providers.

        Water & Wastewater.    Our Water & Wastewater business focuses on the planning, design, construction and implementation of water supply systems and wastewater treatment facilities. Representative Water & Wastewater projects include:

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Design, construction and commissioning of a water treatment plant in Seattle, Washington



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Design and construction of a membrane bioreactor in Traverse City, Michigan



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Design and construction of a wastewater treatment plant in the Republic of Singapore



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Design, construction and commissioning of a wastewater treatment facility in Manukau, New Zealand



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Program management for design and construction of a deep tunnel sewage project in the Republic of Singapore



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Design and construction of a network of water pumping stations in Sydney, Australia

        Operations & Maintenance.    Our Operations & Maintenance business provides water, wastewater and public works operations and maintenance services to water and wastewater facility operators, including startup and performance testing, consulting, facility operations, on-going maintenance and management. The facility management services include water and wastewater treatment, collection and distribution, equipment and process maintenance, and site grounds maintenance. Representative Operations & Maintenance projects include:

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Operations and maintenance (O&M) of a water reclamation center in Fairfield, California



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Operations of the wastewater facilities in Hoboken, New Jersey



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Operations of the wastewater plant plus full public works services in Hinesville, Georgia



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Major O&M contracts for larger cities, including Stockton, California; Oklahoma City, Oklahoma; Bridgeport, Connecticut; Arlington, Texas; and Pittsburgh, Pennsylvania



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Industrial O&M for strategic clients



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Federal services water, wastewater, and utilities O&M, including Ft. Stewart, Georgia; Oak Ridge, Tennessee; Miamisburg, Ohio; Paducah, Kentucky; Ft. Irwin, California

Industrial

        Our Industrial operating segment provides design, construction, specialized precision manufacturing support, products and sustained facility services support to a variety of clients involved in science and technology. These include "life technologies" companies involved in biosciences research and manufacturing, pharmaceuticals, food and beverage businesses, and fine chemical manufacturers.

        The business strategy of the Industrial operating segment is to continue diversification of its client base beyond the microelectronics industry, capitalizing on a strong professional reputation in project delivery of complex manufacturing facilities and leadership in the area of single-source design, engineering and construction of industrial manufacturing facilities.

        The Industrial operating segment built its reputation primarily in the microelectronics industry, where it offers a single source for a broad range of integrated design and construction services. The Industrial segment's clients typically require design and installation services for complex systems that comprise many of their facilities, including cleanrooms, ultrapure water and wastewater treatment

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systems, chemical and gas systems, and production tools. The Industrial segment delivers such complex systems, including entire cleanrooms, on a turnkey design-build basis. The Industrial segment also provides specialized consulting services to optimize the operating efficiency, and return on investment for science and technology enterprises. Representative Industrial projects include:

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Design and construction services for the development of multiple U.S. and foreign production facilities for major microelectronics manufacturers



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Design and construction services for a Mexican food processing manufacturer in the U.S.



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Complete engineering and construction services for multi-national pharmaceutical manufacturers in Europe and the U.S.



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Continuous facility engineering, maintenance and operations support services under multi-year contracts for manufacturers of microelectronics, aviation, pharmaceutical, telecommunications, solar products, and food and consumer products



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The sale of advanced emissions abatement products to electronics manufacturers and mining operations



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Design and installation of complete cleanrooms in Asia, Europe and the U.S.

        On December 12, 2003, we completed the acquisition of Lockwood Greene Engineers, Inc. (Lockwood Greene), an engineering and construction firm focused on national and multi-national industrial clients throughout the U.S. and certain countries in Europe, Latin America and Asia. Lockwood Greene employs approximately 2,500 employees providing engineering, procurement and construction services to a broad range of industrial clients including chemical, pharmaceutical, food and beverage, advanced manufacturing and utility clients. Lockwood Greene's capabilities and client base should enhance our position as a market leader in the private industrial sector for design, construction and operation services, particularly in power and pharmaceuticals.

Kaiser-Hill

        Kaiser-Hill Company, LLC (Kaiser-Hill) is a joint venture with Kaiser Group Holdings, Inc. We hold a 50 percent interest in the joint venture. Kaiser-Hill has been performing services such as the oversight of plutonium stabilization and storage, environmental restoration, waste management, decontamination and decommissioning, site safety and security under successive contracts awarded by the DOE since 1995 related to the closure of the Rocky Flats site in Golden, Colorado. Rocky Flats is a former DOE nuclear weapons production facility.

        Kaiser-Hill's current contract with the DOE, which has been effective since 2000, is a site closure contract and does not have a defined term. We are targeting closure of the site in 2006. Under the contract, Kaiser-Hill is compensated through a base fee affected, up or down, by its performance against the agreed site target closure timetable and costs. Outside of a negotiated range, for every dollar that the DOE saves, Kaiser-Hill receives a 30-cent increase in fee. At the same time, for every dollar the cleanup is over budget, the fee is reduced by 30 cents down to an agreed minimum. The ultimate fee will also be impacted by the schedule to achieve site closure and the safety of our performance. Due to the timing of specific work scopes and the completion of activities, Kaiser-Hill's earnings may not be comparable from period to period.

Clients

        We serve a wide variety of clients across a broad spectrum of our industry, including clients in the U.S. federal government, state and local governments, and the industrial sector. Representative clients are shown in the preceding section, within each of our operating segments.

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        As stated above, a major thrust of our new organization (effective January 1, 2004) is to re-focus our attention on the needs and requirements of our clients in three Client Groups: Civil Infrastructure (state and local governments), Federal (both U.S. and international governments), and Industrial (private sector clients). A brief sampling of the range of clients in each of these areas is shown below:

Backlog

        At December 31, 2003, our backlog was approximately $3,660 million, compared to a backlog of approximately $3,803 million at December 31, 2002. We define backlog as contracted task orders less previously recognized revenue on such task orders. U.S. government agencies operate under annual fiscal appropriations by Congress and fund various federal contracts only on an incremental basis. The same is true of many state, local and foreign contracts. Our ability to earn revenues from our backlog depends on the availability of funding for various U.S. federal, state, local and foreign government agencies. Most of our domestic and international industrial clients have termination for convenience provisions in their contracts. Our ability to earn revenues from our backlog under such contracts depends on the clients' willingness to continue the contract to completion.

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Risk Factors

        You should carefully consider the following factors and other information contained in this Annual Report on Form 10-K before deciding to invest in our common stock.

Government Contracts Present Risks of Termination for Convenience, Adjustment of Payments Received, Restrictions on Ability to Compete for Government Work and Funding Constraints

        In 2003, we derived approximately 36% of our total revenues from contracts with federal government agencies. In addition, we own equity interests in joint ventures with revenues attributable primarily or entirely to contracts with federal governmental clients. The following risks are inherent in federal government contracts:

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Because federal laws permit government agencies to terminate a contract for convenience, our government clients may terminate or decide not to renew our contracts with little or no prior notice.



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Federal government clients may audit contract payments we receive for several years after these payments are made. Based on these audits, the clients may adjust or demand repayment of payments we previously received. Audits have been completed on our federal contracts through December 31, 2001, and are continuing for subsequent periods. None of the audits performed to date on our federal contracts have resulted in any significant adjustments to our financial statements. It is possible, however, that an audit in the future could result in a material adjustment to our financial statements.



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Federal government contract regulations provide that any company convicted of a crime or indicted on a violation of statutes related to federal contracting may lose its right to receive future contract awards or extensions.



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Our ability to earn revenues from our existing and future federal government projects will depend upon the availability of funding from federal government agencies. We cannot control whether those clients will fund or continue funding our outstanding projects.

        Our ability to secure new government contracts and our revenues from existing government contracts could be adversely affected by any one or a combination of the factors listed above.

Changes and Fluctuations in Government's Spending Priorities Could Adversely Affect Our Revenue Expectations

        Because a substantial part of our overall business is generated either directly or indirectly as a result of federal and local government regulatory and infrastructure priorities, shifts in these priorities due to changes in policy imperatives or economic conditions are often unpredictable and may affect our revenues in our core businesses.

        For example, in 1998 Congress enacted the Transportation Equity Act for the 21st Century (TEA-21), a sweeping transportation infrastructure initiative. This initiative was reasonably expected to generate federal government appropriations and respective contracting opportunities in hundreds of millions of dollars over many years. The economic downturn in 2000 and the September 11, 2001 terrorist attacks have redirected short- and long-term government priorities resulting in substantially lower than expected appropriations for TEA-21 initiatives. The reauthorization of TEA-21, which expired in 2003, has been tied up in Congress and the availability of the funding to support the initiative remains uncertain.

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We Could Sustain Losses on Contracts That Contain "Fixed Price" or "Not to Exceed" Pricing Provisions If Our Costs Exceed the Fixed or Maximum Prices

        In 2003, we derived approximately 21% of our revenues from "fixed price" contracts and approximately 10% of our revenues from time-and-materials contracts, some of which had "not to exceed" price limits. Under "fixed price" contracts, we agree to deliver projects for a definite, predetermined price regardless of our actual costs incurred over the life of the project. Under time-and-materials contracts with "not to exceed" provisions, we are compensated for the labor hours expended at agreed-upon hourly rates plus cost of materials used; however, there is a stated maximum compensation for the services to be provided under the contract. Many fixed price and "not to exceed" contracts involve large industrial facilities and public infrastructure projects and present the risk that our costs to complete a project may exceed the fixed price or "not to exceed" price agreed upon with the client. The fixed or maximum fees negotiated for such projects may not cover our actual costs and desired profit margins. If our actual costs for a fixed or "not to exceed" price project are higher than we expect, our profit margins on the project will be reduced or we could suffer a loss.

A Reduction in the Scope of Environmental Regulations or Changes in Government Environmental Policies Could Adversely Affect Our Revenues

        A substantial portion of our business is generated either directly or indirectly as a result of federal, state, local and foreign laws and regulations related to environmental matters. Changes in environmental regulations could affect our business more significantly than they would affect some other engineering firms. Accordingly, a reduction in the number or scope of these laws and regulations, or changes in government policies regarding the funding, implementation or enforcement of such laws and regulations, could significantly reduce the size of one of our most important markets and limit our opportunities for growth or reduce our revenues below their current levels. In addition, any significant effort by government agencies to reduce the role of private contractors in regulatory programs, including environmental compliance projects, could have the same adverse effects.

We May Not be Successful in Growing through Acquisitions or Integrating Effectively and Efficiently any Businesses and Operations We May Acquire

        Our success depends on our ability to continually enhance and broaden our service offerings in response to changing customer demands, technology, and competitive pressures. Numerous mergers and acquisitions in our industry have resulted in a group of larger firms that offer a full complement of single-source services including, studies, design, engineering, procurement, construction, operations, maintenance and, in some instances, facility ownership. To remain competitive, we may acquire new and complementary businesses to expand our portfolio of services, add value to the projects undertaken for clients or enhance our capital strength. We do not know if we will be able to complete any acquisitions or whether we will be able to successfully integrate any acquired businesses, operate them profitably, or retain their key employees.

        Even if we do identify suitable acquisition candidates, we anticipate significant competition when trying to acquire these candidates, and there can be no assurance that we will be able to acquire such candidates at reasonable prices or on favorable terms. Some of the competing buyers may be stronger financially than we are. As a result of this competition, we may not succeed in acquiring suitable candidates or may have to pay more than we would prefer to make an acquisition. If we cannot identify or successfully acquire suitable acquisition candidates, we may not be able to successfully expand our operations and increase our revenues. Further, there can be no assurance that we will be able to generate sufficient cash flow from an acquisition to service any indebtedness incurred to finance such acquisitions or realize any other anticipated benefits. Nor can there be any assurance that our

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profitability will be improved by any one or more acquisitions. Any acquisition may involve operating risks, such as:

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the difficulty of assimilating the acquired operations and personnel and integrating them into our current business;



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the potential disruption of our ongoing business;



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the diversion of management's attention and other resources;



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the possible inability of management to maintain uniform standards, controls, procedures and policies;



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the risks of entering markets in which we have little or no experience;



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the potential impairment of relationships with employees;



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the possibility that any liabilities we may incur or assume may prove to be more burdensome than anticipated; and



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the possibility that any acquired firms do not perform as expected.

Environmental Regulations and Related Compliance Investigations are Expensive and May Adversely Impact Our Project Performance

        We are subject to a variety of environmental laws and regulations governing, among other things, discharges of pollutants and hazardous substances to air and water, and the handling and disposal of hazardous waste including nuclear materials. These laws and regulations and related investigations into our compliance, as it pertains to facility operations and remediation of hazardous substances, can cause project delays, substantial management time commitment and may significantly add to our costs. Violations of these environmental laws and regulations could subject us to civil and criminal penalties and other liabilities. These laws and regulations may become more stringent, or be more stringently enforced in the future.

Our Environmental Remediation Work May Expose Us to Environmental Liability

        We could become subject to liabilities or fines as a result of our environmental remediation activities. The assessment, analysis, remediation, handling, management and disposal of hazardous substances represent a significant portion of our business and involve significant risks, including the possibility of property damages, personal injuries, fines and penalties and other regulatory sanctions. Civil and criminal liabilities and liabilities to clients and third parties for environmental violations and damages can be very large. The fines and penalties could reduce our net income, cause a loss, or could adversely affect our ability to compete for new business.

Percentage-of-Completion Accounting Used for Our Engineering and Construction Contracts Can Result in Overstated or Understated Profits or Losses

        The revenue for our engineering and construction contracts is accounted for on the percentage-of-completion method of accounting. This method of accounting requires us to calculate revenues and profit to be recognized in each reporting period for each project based on our predictions of future outcomes, including our estimates of the total cost to complete the project, project schedule and completion date, the percentage of the project that is completed and the amounts of any probable unapproved change orders. Our failure to accurately estimate these often subjective factors could result in reduced profits or losses for certain contracts.

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Unpredictable Economic Cycles, Uncertain Demand for Our Engineering Capabilities and Related Services And Failure By Our Major Customers to Pay Our Fees Could Cause Our Revenues to Fluctuate

        Demand for our engineering and other services is affected by the general level of economic activity in the markets in which we operate, both in the U.S. and internationally. Our customers, particularly our private sector customers, and the markets in which we compete to provide services, are likely to experience periods of economic decline from time-to-time. Adverse economic conditions may decrease our customers' willingness to make capital expenditures or otherwise reduce their spending to purchase our services, which could result in diminished revenues and margins for our business. In addition, adverse economic conditions could alter the overall mix of services that our customers seek to purchase, and increased competition during a period of economic decline could force us to accept contract terms that are less favorable to us than we might be able to negotiate under other circumstances. Changes in our mix of services or a less favorable contracting environment may cause our revenues and margins to decline. Moreover, our customers may experience difficult business climates from time-to-time and could delay or fail to pay our fees as a result. If a customer failed to pay a significant outstanding fee, our financial results could be adversely affected and our stock price could be reduced.

Our Projects May Result in Liability for Faulty Engineering Services

        Because our projects are often large and can affect many people, our failure to make judgments and recommendations in accordance with applicable professional standards could result in large damages and, perhaps, punitive damages. Our engineering practice involves professional judgments regarding the planning, design, development, construction, operations and management of industrial facilities and public infrastructure projects. Although we have adopted a range of insurance, risk management and risk avoidance programs designed to reduce potential liabilities, there can be no assurance that such programs will protect us fully from all risks and liabilities.

Our Inability to Attract and Retain Professional Personnel Could Adversely Affect Our Business

        Our ability to attract, retain and expand our staff of qualified engineers and technical professionals will be an important factor in determining our future success and growth. A shortage of qualified technical professionals currently exists in the engineering and design industry. The market for these professionals is competitive in the U.S. and internationally. We cannot assure you that we will continue to be successful in attracting and retaining such professionals. Since we derive a significant part of our revenues from services performed by our professional staff, our failure to retain and attract professional staff could adversely affect our business by impacting our ability to complete our projects and secure new contracts.

Inability to Secure Adequate Bonding Would Impact Our Ability to Win Projects

        As is customary in our industry, we are often required to provide performance and surety bonds to customers in connection with our construction, engineering-procurement-construction (EPC) and fixed price projects. These bonds indemnify the customer if we fail to perform our obligations under the contract. Failure to provide a bond on terms and conditions desired by a customer may result in an inability to compete for or win a project. Historically we have had and continue to have good relationships with our sureties and a strong bonding capacity. The issuance of bonds under any bonding facilities, however, is at the sureties sole discretion. The recent difficult insurance market combined with large losses experienced by sureties in the aftermath of Enron and other financial scandals, as well as a result of the September 11, 2001 terrorist attacks have made bond markets, in general, unpredictable and chaotic. Bonds may be more difficult to obtain in the future or they may only be available at significant additional cost. There can be no assurance that bonds will continue to be available to us on reasonable terms. Our inability to obtain adequate bonding may result in our

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ineligibility to bid for construction, EPC, and fixed price projects, which could have a material adverse effect on our growth and financial condition.

We Face Risks Associated with Our International Business

        In 2003, we derived approximately 9% of our revenues from operations outside of the U.S. Such operations are subject to a variety of risks associated with conducting business internationally. These risks include:

•

Currency exchange rate fluctuations, either independently or together with the impact of international tax laws, and restrictions on currency movements could adversely affect our results of operations if we are forced to maintain assets in currencies other than the U.S. dollar because our results are reported in U.S. dollars.



•

Political and economic instability and unexpected changes in regulatory requirements in foreign countries could adversely affect our projects overseas.



•

Inconsistent regulations and diverse licensing and legal requirements increase our costs because our operations must comply with a variety of laws that differ from one country to another.



•

Terrorist attacks and civil unrest in some of the countries where we do business may delay project schedules, threaten the health and safety of our employees and increase our cost of operations.

        We do not know the impact that such regulatory, geopolitical and other factors may have on our business in the future.

Special Risks Associated with Doing Business in Highly Corrupt Environments

        Our international business operations include projects in developing countries and countries torn by war and conflict. Many of these countries are rated poorly by Transparency International, the independent watchdog organization for government and institutional corruption around the world. To the extent we operate outside of the U.S., we are subject to the Foreign Corrupt Practices Act (FCPA), which generally prohibits U.S. companies and their intermediaries from paying or offering anything of value to foreign government officials for the purpose of obtaining or keeping business, and otherwise receiving discretionary favorable treatment of any kind. In particular, we may be held liable for actions taken by our local partners, subcontractors and agents even though such parties are not always subject to our control. Any determination that we have violated the FCPA (whether directly or through acts of others, intentionally or through inadvertence) could result in sanctions that could have a material adverse effect on our business and on our ability to secure federal government contracts. While our staff is trained on the FCPA issues and we have procedures and controls in place to monitor compliance, situations outside of our control may arise that could potentially put us in violation of the FCPA inadvertently and thus negatively impact our business.

Our Industry is Highly Competitive

        The market for design, consulting, engineering and construction services is highly competitive. We compete with many firms, including large multinational firms having substantially greater financial, management and marketing resources. Some of our competitors are small firms with lower cost structures enabling them to offer lower prices for particular services. We also compete with government agencies, including our own clients that can utilize their internal resources to perform services that we might otherwise perform.

        Most of our contracts with public sector clients are awarded through a competitive bidding process that places no limit on the number or type of potential service providers. The process usually begins

14

with a government agency request for proposal that delineates the size and scope of the proposed contract. The government agency evaluates the proposals on the basis of technical merit and cost. In the Water operating segment, some contracts are awarded through qualification selection processes that vary among projects.

        In both the private and public sectors, acting either as a prime contractor or as a subcontractor, we may join with other firms that we otherwise compete with to form a team to compete for a single contract. Because a team can often offer stronger combined qualifications than any firm standing alone, these teaming arrangements can be very important to the success of a particular contract competition or proposal. Consequently, we maintain a network of relationships with other companies to form teams that compete for particular contracts and projects. Failure to maintain technical and price competitiveness, as well as failure to maintain access to strong teaming partners may impact our ability to win work and will adversely impact our revenues.

Actual Results Could Differ from the Estimates and Assumptions Used to Prepare Our Financial Statements

        In order to prepare financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions as of the date of the financial statements which affect the reported values of our assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Areas requiring significant estimates by us include:

•

Recognition of contract revenues, costs, profit or losses in applying the percentage-of-completion method of accounting;



•

Recognition of recoveries under contract change orders or claims;



•

Collectibility of billed and work-in-process unbilled accounts receivables and the need for and the amount of allowances for problematic accounts;



•

Determination of potential liabilities under pension and other post-retirement benefit programs;



•

Income tax provisions and related valuation allowances;



•

Estimated amounts for anticipated project losses, warranty costs and contract close-out costs; and



•

Accruals for other estimated liabilities.

Absence of a Public Market May Prevent You from Selling Your Stock and Cause You to Lose All or Part of Your Investment

        There is no public market for our common stock. While we intend the internal market to provide liquidity to shareholders, there can be no assurance that there will be enough orders to purchase shares to permit shareholders to resell their shares on the internal market, or that a regular trading market will develop or be sustained in the future. The price in effect on any trade date may not be attractive enough to both buyers and sellers to result in a balanced market because the price will be fixed in advance by our Board of Directors, using their judgment of the fair market value of our common stock, and not by actual market trading activity. Moreover, although we may enter the internal market as a buyer of common stock if there are more sell orders than buy orders, we have no obligation to engage in internal market transactions and will not guarantee market liquidity. Consequently, insufficient buyer demand could cause sell orders to be prorated, or could prevent the internal market from opening on any particular trade date. Insufficient buyer demand could cause shareholders to suffer a total loss of investment or substantial delay in their ability to sell their common stock. No assurance can be given that shareholders desiring to sell all or a portion of their shares of common stock will be able to do so.

15

Accordingly, the investment in our common stock is suitable for you only if you have limited need for liquidity in your investment.

Transfer Restrictions on Our Common Stock Could Prevent You from Selling Your Common Stock and Cause You to Lose All or Part of Your Investment

        Since all of the shares of our common stock are subject to transfer restrictions, you will generally only be able to sell your common stock through our internal market on the four trade dates in each year. Unlike shares that are actively traded in the public markets, you may not be able to sell at a particular time even though you would like to do so. Our common stock price could decline between the time you want to sell and the time you become able to sell.

Our Stock Prices are and will Continue to be Determined by Our Board of Directors' Judgment of Fair Market Value and not by Market Trading Activity

        The offering prices at each trade date will be established by our Board of Directors approximately four weeks before each trade date. In establishing the price, our Board of Directors will take into consideration the factors that are described in Item 5 of this Annual Report on Form 10-K. Our Board of Directors will, however, set the offering price in advance of each trade date, and all trades on our internal market will take place at the price established for each trade date. Therefore, market trading activity on any given trade date can not affect the price on that trade date. This is a risk to you because our common stock price will not change to reflect supply of and demand for shares on a given trade date as it would in a public market. You may not be able to sell shares or you may have to sell your shares at a price that is lower than the price that would prevail if the internal market price could change on a given trade date to reflect supply and demand. Our Board of Directors intends to use the common stock valuation methods that result in offering prices that represent fair market value. The valuation method for our common stock is subject to change at the discretion of our Board of Directors.

The Limited Market and Transfer Restrictions on Our Common Stock Will Likely Have Anti-Takeover Effects

        Only our employees, directors, eligible consultants and employee benefit plans may own our common stock and participate in our internal market. In addition, we have imposed significant restrictions on the transfer of our common stock other than through sales on our internal market. These limitations make it extremely difficult for a potential acquirer who does not have the prior consent of our Board of Directors to acquire control of our company, regardless of the price per share an acquirer might be willing to pay and whether or not our shareholders would be willing to sell at that price.

Actual Results May Differ From Results Discussed in Forward-Looking Statements

        This Annual Report on Form 10-K and the documents incorporated by reference herein contain forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to the foregoing risk factors and other factors that we cannot currently foresee. In addition, economic conditions and events generally affecting business, both on a local and a worldwide basis, can adversely affect our business and operations. If our actual results differ significantly and adversely from the results discussed in forward-looking statements, our results of operations could be adversely affected and our share price could decline.

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Item 2.    Properties

        Our corporate headquarters facilities are located in Englewood, Colorado, where we lease approximately 155,000 square feet of space. In addition, we lease approximately 107,000 square feet in two facilities adjacent to our corporate headquarters. The leases on the corporate headquarters and adjacent facilities expire between 2008 and 2013. Additionally, we lease space in approximately 120 domestic office locations and approximately 80 foreign office locations. We believe that our existing facilities are adequate for the present needs of our business and that suitable additional or substitute space will be available as needed to accommodate any expansion of operations.

Item 3.    Legal Proceedings

        We are party to certain contractual guarantees and various legal actions arising in the normal course of our business. From time-to-time, agencies of the U.S. Government investigate whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. Government investigations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties, or could lead to suspension or debarment from future U.S. Government contracting. U.S. Government investigations often take years to complete and many result in no adverse action. Damages assessed in connection with and the cost of defending any such actions could be substantial.

Item 4.    Submission of Matters to a Vote of Security Holders

        No items were submitted to a vote of security holders during the fourth quarter of 2003.

PART II

Item 5.    Market for Registrant's Common Equity and Related Shareholder Matters

        We are employee owned. As a result, our stock is only available to certain employees, directors, eligible consultants and benefit plans. There is no market for our stock with the general public. In order to provide liquidity for our shareholders, however, an internal market (Internal Market) is maintained through an independent broker, currently Neidiger, Tucker and Bruner, Inc. (NTB).

        The Internal Market permits existing shareholders to offer for sale shares of our common stock on predetermined days (each, a Trade Date). Generally, there are four Trade Dates each year which typically occur approximately four weeks after the quarterly meetings of our Board of Directors. Currently our Board of Directors meetings are scheduled for February, May, August and November. All sales of our common stock are made at the price determined by our Board of Directors pursuant to the valuation methodology described below.

        All sales of common stock on the Internal Market will be restricted to the following authorized buyers:

•

Our employees, directors and eligible consultants



•

Trustees of the benefit plans



•

Administrator of the Payroll Deduction Stock Purchase Plan

        We may impose limitations on the number of shares that an individual may purchase when there are more buy orders than sell orders for a particular Trade Date. After our Board of Directors determines the stock price for use on the next Trade Date, which is approximately four weeks prior to such Trade Date, all shareholders, employees, directors and eligible consultants will be advised as to the new stock price and the next Trade Date.

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        Our Internal Market is managed through an independent broker which acts upon instructions from the buyers and sellers to effect trades at the stock price set by our Board of Directors and in accordance with the Internal Market rules. NTB does not play a role in determining the price of our common stock and is not affiliated with us. Individual stock ownership account records are currently maintained by our in-house transfer agent.

        We may purchase shares if the Internal Market is under-subscribed. We may, but are not obligated to, purchase shares of common stock on the Internal Market on any Trade Date at the price in effect on that Trade Date, but only to the extent that the number of shares offered for sale by shareholders exceeds the number of shares sought to be purchased by authorized buyers. The decision as to whether or not we will purchase shares in the Internal Market, if the Internal Market is under-subscribed, is solely within our discretion and we will not notify investors as to whether or not we will participate prior to the Trade Date. Investors should understand that there can be no assurance that they will be able to sell their CH2M HILL stock without substantial delay or that their stock will be able to be sold at all on the Internal Market. We will consider a variety of factors including our cash position, financial performance and number of shares outstanding in making the determination as to whether to participate in an under-subscribed market. The terms of our revolving line of credit do not play a role in the decision as to whether to buy or sell shares in the Internal Market. To date, no other factors have been considered by us in our decisions as to whether or not to participate in the under-subscribed market.

        If the aggregate number of shares offered for sale on the Internal Market on any Trade Date is greater than the number of shares sought to be purchased, shareholder offers to sell will be accepted as follows:

•

If enough orders to buy are received to purchase all the shares offered by each seller selling fewer than 500 shares and at least 500 shares from each other seller, then all sell orders will be accepted up to the first 500 shares and the portion of any sell orders exceeding 500 shares will be accepted on a pro-rata basis



•

If not enough orders to buy are received to purchase all the shares offered by each seller selling fewer than 500 shares and at least 500 shares from each other seller, then the purchase orders will be allocated equally to each seller

        We may sell shares if the Internal Market is over-subscribed. To the extent that the aggregate number of shares sought to be purchased exceeds the aggregate number of shares offered for sale, we may, but are not obligated to, sell authorized but unissued shares of common stock on the Internal Market at the price in effect on that Trade Date to satisfy purchase demands. The decision as to whether or not we will sell shares in the Internal Market, if the Internal Market is over-subscribed, is solely within our discretion and we will not notify investors as to whether or not we will participate prior to the Trade Date. Investors should understand that there can be no assurance that they will be able to buy as many shares as they would like on a given Trade Date. We will consider a variety of factors including our cash position, financial performance and number of shares outstanding in making the determination as to whether to participate in an over-subscribed market. The terms of our revolving line of credit do not play a role in the decision as to whether to buy or sell shares in the Internal Market. To date, no other factors have been considered by us in our decisions as to whether or not to participate in the over-subscribed market.

        If the aggregate purchase orders exceed the number of shares available for sale, the following prospective purchasers will have priority to purchase shares, in the order listed:

•

Administrator of the Payroll Deduction Stock Purchase Plan



•

Trustees of the 401(k) Plan



•

Individual employees, directors and eligible consultants on a pro-rata basis

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        All sellers on the Internal Market, other than us and the trustees of the 401(k) Plan, will pay NTB a commission equal to two percent of the proceeds from such sales. Employees who sell their common stock upon retirement from CH2M HILL will have the option to sell the common stock they own on the Internal Market and pay a commission on the sale or to sell to us without paying a commission. In the latter case, the employee will sell their common stock to us at the price in effect on the date of their termination in exchange for a four-year note at a market interest rate determined biannually. No commission is paid by buyers on the Internal Market.

Price of our Common Stock

        Our Board of Directors will determine the price, which is intended to be the fair market value, of the shares of our common stock to be used for buys and sells on each Trade Date pursuant to the valuation methodology described below. The price per share of our common stock generally is set as follows:

Share Price = [(7.8 × M × P) + (SE)] / CS

        In order to determine the fair market value of the common stock in the absence of a public trading market, our Board of Directors felt it appropriate to develop a valuation methodology to use as a tool to determine a price that would be a valid approximation of the fair market value. In determining the fair market value stock price, our Board of Directors believes that the use of a going concern component (i.e., net income, which we call profit after tax, as adjusted by the market factor) and a book value component (i.e., total shareholders' equity) is important. Our Board of Directors believes that the process we have developed reflects modern equity valuation techniques and is based on those factors that are generally used in the valuation of equity securities.

        The existence of an over-subscribed or under-subscribed market on any given Trade Date will not affect the stock price on that Trade Date. However, our Board of Directors, when determining the stock price for a future Trade Date, may take into account the fact that there have been under-subscribed or over-subscribed markets on prior Trade Dates.

        Market Factor ("M").    "M" is the market factor, which is subjectively determined in the sole discretion of our Board of Directors. In determining the market factor, our Board of Directors will take into account factors the directors considered to be relevant in determining the fair market value of our common stock, including:

•

The market for publicly traded equity securities of companies comparable to us



•

The merger and acquisition market for companies comparable to us



•

The prospects for our future performance



•

General economic conditions



•

General capital market conditions



•

Other factors our Board of Directors deem appropriate

        Our Board of Directors has not assigned predetermined weights to the various factors it may consider in determining the market factor. A market factor greater than one would increase the price per share and a market factor less than one would decrease the price per share.

        In its discretion, our Board of Directors may change, from time-to-time, the market factor used in the valuation process. Our Board of Directors could change the market factor, for example, following a change in general market conditions that either increased or decreased stock market equity values for companies comparable to us, if our Board of Directors felt that the market change was applicable to our common stock as well. Our Board of Directors will not make any other changes in the method of determining the price per share of common stock unless in the good faith exercise of its fiduciary

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duties and, if appropriate, after consultation with its professional advisors, our Board of Directors determines that the method for determining the price per share of common stock no longer results in a stock price that reasonably reflects our fair market value on a per share basis.

        As part of the total mix of information that our Board of Directors considers in determining the "M" factor, our Board of Directors also may take into account company appraisal information prepared by The Environmental Financial Consulting Group, Inc. (EFCG), an independent appraiser engaged by the trustees of our benefit plans. In setting the stock price, our Board of Directors compares the total of the going concern and book value components used in the valuation methodology to the enterprise value of the company in the appraisal provided by EFCG. If, after such comparison, our Board of Directors concludes that its initial determination of the "M" factor should be re-examined, our Board of Directors may review, and if appropriate adjust, the "M" factor. Since the inception of the program on January 1, 2000, the total of the going concern and book value components used by our Board of Directors in setting the price for our stock has always been within the company appraisal range provided quarterly by EFCG.

        Since the inception of the program on January 1, 2000, the "M" factor has not deviated from 1.0. In deciding that the "M" factor should remain unchanged, our Board of Directors has considered our performance, the performance of the engineering and construction industry as a whole, and our perception of our future prospects. Our Board of Directors believes that our industry, on the average, has out-performed the market. We believe that one reason for the favorable performance of this industry segment is that the revenues and earnings of the engineering and construction industry have faired better in the recent economic slowdown than those of many other industries. There can be no assurance that this industry or we will continue to have such relatively favorable results in the future.

        Profit After Tax ("P").    "P" is profit after tax, otherwise referred to as net income, for the four fiscal quarters immediately preceding the Trade Date. Our Board of Directors at its discretion may exclude from the calculation nonrecurring or unusual transactions. Nonrecurring or unusual transactions are developments that the market would not generally take into account in valuing an equity security. A change in accounting rules, for example, could increase or decrease net income without changing the fair market value of our common stock. Similarly, such a change could fail to have an immediate impact on the value of our common stock, but still have an impact on the value of our common stock over time. As a result, our Board of Directors believes that in order to determine the fair market value of our common stock, it needs the ability to review unusual events that affect net income.

        For example, on February 14, 2003, our Board of Directors excluded from the "P" parameter $6.7 million of profit, net of incentive accruals and related tax expenses. During the fourth quarter of 2002, we recorded $17.0 million of additional earnings from our joint venture, Kaiser-Hill as a result of favorable performance on the Rocky Flats project for the DOE. Our Board of Directors determined that these additional earnings from the Rocky Flats project was an unusual transaction because it represents nonrecurring earnings that the market would not take into account in valuing comparable equity securities. Therefore, for stock valuation purposes, the impact on our profit after tax of $6.7 million was excluded from the "P" parameter in the four following Trade Dates. The exclusion for the Rocky Flats project will not be reflected in the "P" parameter past the December 5, 2003 Trade Date, because the "P" parameter reflects profit after tax for the four fiscal quarters immediately preceding the Trade Date. However, the exclusion remains in the "SE" (total shareholders' equity) parameter because it is part of our cumulative earnings history, i.e. it is an increase to our retained earnings.

        Total Shareholders' Equity ("SE").    "SE" is total shareholders' equity, which includes intangible items, as set forth on our most recently available quarterly or annual financial statements. Nonrecurring or unusual transactions could be excluded from the calculation at the discretion of our Board of Directors. For example, on February 14, 2003, our Board of Directors excluded $14.7 million, net of

20

tax, from the SE parameter as a result of a fourth quarter 2002 non-cash reduction in shareholders' equity for a minimum pension liability adjustment. This adjustment was required by accounting rules and essentially reflected the recent poor stock market performance of the investments held in our pension plans relative to their future benefit obligations. Because this adjustment is unusual and may reverse as investment markets rebound, and given that the market would not generally take such adjustments into account when valuing equity securities, our Board of Directors excluded it from the SE parameter for stock valuation purposes. Because of the volatility of the investment markets, similar accounting adjustments, up or down, may be required from time-to-time in the future. Going forward, it is the intent of our Board of Directors to generally exclude the minimum pension liability adjustments for stock valuation purposes.

        Common Stock Outstanding ("CS").    "CS" is the weighted-average number of shares of our common stock outstanding during the four fiscal quarters immediately preceding the Trade Date, calculated on a fully-diluted basis. By "fully-diluted" we mean that the calculations are made as if all outstanding options to purchase our common stock had been exercised and other "dilutive" securities were converted into shares of our common stock. In addition, an estimate of the weighted-average number of shares that we reasonably anticipate will be issued under our stock-based compensation programs and employee benefit plans is included in this calculation.

        The "CS" calculation is done on a fully-diluted basis since we believe that taking into account the issuance of all securities that will affect the per share value is a better representation of the share value over time. We have more than a 30-year history in making annual grants of stock-based compensation. Therefore, we believe that we have sufficient information to reasonably estimate the number of such "to be issued" shares and accrue for them during the year. This approach avoids an artificial variance in share value during the first calendar quarter of each year when the bulk of shares of our common stock are issued by us pursuant to our employee benefit plans and stock-based compensation programs.

        The following table shows a comparison of the "CS" value actually used by our Board of Directors to calculate stock prices on the dates indicated versus the year-to-date weighted-average number of shares of common stock as reflected in the diluted earnings-per-share calculation in our financial statements for the past three years.

        Constant 7.8.    In the course of developing this valuation methodology, it became apparent to our Board of Directors that a multiple would be required in order for the stock price derived by this methodology to approximate our historical, pre-Internal Market stock price. Another objective of our Board of Directors when developing the valuation methodology was to establish the fair market value

21

of our common stock using a market factor of 1.0. We believe that it was important to begin the Internal Market program with an "M" factor equal to 1.0 in order to make it easier for shareholders to understand future changes, if any, to the market factor.

        Therefore, the constant 7.8 was introduced into the formula. The constant 7.8 is the multiple that our Board of Directors determined necessary (i) for the new stock price to approximate our historical stock price derived using the pre-Internal Market formula as well as (ii) to allow the use of the market factor of 1.0 at the beginning of the Internal Market program.

        We intend to announce the new stock price and the Trade Date approximately four weeks prior to each Trade Date. The information will be delivered by the broker to all employees, eligible consultants and eligible participants in the internal market. In addition, we will file a Current Report on Form 8-K disclosing the new stock price and all components used by our Board of Directors in determining such price in accordance with the valuation methodology described above. Trade Dates are expected to occur approximately 75 days after the end of each fiscal quarter.

        We will also distribute the most current prospectus for common stock and our audited annual financial statements to all shareholders, as well as other employees and eligible consultants, and to participants in the Internal Market through the employee benefit plans. Such information will be distributed at the same time as our annual reports, proxy information and solicitations are distributed for voting instructions from shareholders and participants in the employee benefit plans each year.

Current Price of Our Common Stock

        Starting in 2000, with the introduction of the Internal Market and its quarterly trades, our Board of Directors reviews the common stock price quarterly using the valuation methodology described above to set the price for the common stock. The prices of our common stock for the past three years, along with the various factors and values used by our Board of Directors to determine such stock prices on each date, are as follows:

Holders of Our Common Stock

        As of February 13, 2004, there were 4,109 holders of record of our common stock. As of such date, all of our common stock of record was owned by our current employees, directors, eligible consultants, and by our various employee benefit plans.

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Dividend Policy

        We have never declared or paid any cash dividends on our capital stock and no cash dividends are contemplated in the foreseeable future. We intend to retain any future earnings to finance the growth and development of our business. Under our existing unsecured credit facility, which expires in July 2006, payment of dividends would represent a violation of our covenants.

Item 6.    Selected Financial Data

        The following data has been derived from our consolidated financial statements. In 2003 and 2002, the financial statements from which this data was derived were reported on by KPMG LLP, independent public accountants. Previously, the financial statements from which this data was derived were reported on by other independent auditors who have ceased operations. During the periods presented, we paid no cash dividends on our common stock. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto, included elsewhere in this Annual Report on Form 10-K.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis explains our general financial condition, changes in financial condition and results of operations as a whole and each of our operating segments including:

•

Factors affecting our business



•

Our revenues and profits



•

The source of our revenues and profits



•

Why those revenues and profits were different from year to year



•

Where our cash came from and how it was used



•

How all of this affects our overall financial condition

        The following discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. As you read this section, you should also refer to our consolidated financial statements and the accompanying notes. These consolidated financial statements provide

23

additional information regarding our financial activities and condition. This analysis may be important to you in making decisions about your investment in CH2M HILL Companies, Ltd. (CH2M HILL).

Introduction

        The engineering and construction industry continues to undergo substantial change as public and private clients privatize and outsource many of the services that were formerly provided internally. Numerous mergers and acquisitions in the industry have resulted in a group of larger firms that offer a full complement of single-source services including studies, designs, construction, operations, maintenance and in some instances, facility ownership. Included in the current trend is the movement towards longer-term contracts for the expanded array of services, e.g., 5 to 20 year contracts. These larger, longer, more full-service contracts require us to have substantially greater financial capital than has historically been necessary to remain competitive.

        We believe we provide our clients with innovative project delivery using cost-effective approaches and advanced technologies. We continuously monitor acquisition and investment opportunities that will expand our portfolio of services, add value to the projects undertaken for clients, or enhance capital strength. We believe that we are well positioned geographically, technically and financially to compete worldwide in the markets we have elected to pursue and clients we serve.

Acquisition of Lockwood Greene

        On December 12, 2003 we acquired substantially all of the assets and assumed certain liabilities of Lockwood Greene Engineers, Inc., (Lockwood Greene). We completed the acquisition for total consideration of approximately $100.2 million, comprised of a purchase price of $95.5 million, working capital adjustments of $2.0 million and direct acquisition costs of $2.7 million, subject to adjustment within 90 days after the closing. Goodwill in the amount of $26.7 million was recorded as part of the transaction because we paid a premium over the fair market value of the net assets we acquired, including identifiable intangible assets. This acquisition expands our existing portfolio of clients in the private industrial sector, particularly in power, pharmaceuticals and biotechnology. It is consistent with our strategic objective to offer a full complement of single-source services by increasing our engineering, procurement and construction capabilities.

        The purchase price, net of cash acquired, was financed through our working capital and borrowings under our existing credit facility. The purchase price was determined on an arms' length basis through a competitive auction pursuant to auction and bid procedures approved by the Bankruptcy Court. The acquisition is accounted for under the purchase method of accounting. Accordingly, our consolidated results of operations for the year ended December 31, 2003 include those of Lockwood Greene from the date of acquisition.

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Summary of Operations

        Revenues and pre-tax profit or loss for the years ended December 31, 2003, 2002 and 2001 by operating segment were as follows:

Results of Operations for the Year Ended December 31, 2003 Compared to 2002

        Revenues for the year ended December 31, 2003 were $2,154.3 million compared to $1,954.9 million for the year ended December 31, 2002, an increase of $199.4 million, or 10.2%. Our Environmental, Energy and Infrastructure (EE&I) segment reported increased revenues of $122.5 million, or 11.0% and our Water segment reported increased revenues of $80.6 million, or 13.2%. For the same period, our Industrial segment reported decreased revenues of $3.7 million, or 1.6%.

        Pre-tax profit for the year ended December 31, 2003 was $40.6 million compared to $52.3 million for the year ended December 31, 2002. The decrease of $11.7 million was comprised primarily of a decrease in our Industrial segment of $11.3 million and a decrease in our EE&I segment of $0.9 million offset by an increase in our water segment of $1.8 million. Corporate expenses increased by $1.3 million for the year ended December 31, 2003 compared to December 31, 2002.

Environmental, Energy and Infrastructure

        Revenues in the EE&I segment for the year ended December 31, 2003 were $1,239.0 million compared to $1,116.5 million for the same period in 2002, an increase of $122.5 million, or 11.0%. The increase in revenues was due to improvements in all of the EE&I segment businesses, as described below:

•

Our environmental and energy businesses reported increased revenues of $61.7 million compared to the year ended December 31, 2002. These improvements are due primarily to increases in U.S. federal government contracts and delivery orders. Further, our transportation business has seen some increases in business due to solid federal funding that remains intact, although state and local funding is down.



•

Our nuclear business reported increased revenues of $49.2 million compared to the year ended December 31, 2002. Effective January 2003, we were awarded a new performance-based contract by the U.S. Department of Energy (DOE) to accelerate the safe closure of the nuclear facilities at the former Mound Closure Plant in Miamisburg, Ohio, and to transition the site to industrial use. This new Mound Closure Project reported $103.8 million in revenues for the year ended December 31, 2003. This increase was offset by decreases in revenue at the DOE's Hanford River Protection Project due to the timing of certain delivery efforts.

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•

Our telecommunications business reported increased revenues of $3.3 million for the year ended December 31, 2003 compared to the same period last year. The increase was a result of slight improvements in the domestic wireless markets. While the telecommunications industry is still slow to recover on the capital expenditure side, we continue to invest in this business in order to be positioned to compete for work in other sectors of the telecommunications industry.

        For the year ended December 31, 2003, pre-tax profit was $32.5 million compared to $33.4 million for the same period in 2002, a decrease of $0.9 million. Pre-tax profit as a percentage of revenues was 2.6% for 2003 compared to 3.0% for the same period in 2002. The decrease in pre-tax profit for the year ended December 31, 2003 compared to the same period in 2002 resulted from a decline in earnings from Kaiser-Hill Company, LLC (Kaiser-Hill). The EE&I operating segment recorded $17.0 million of additional earnings in 2002 ($6.7 million net of incentive accruals and related tax expense) from Kaiser-Hill as a result of favorable performance on the Rocky Flats project for the DOE. Kaiser-Hill's performance to date has increased the likelihood of receiving a larger performance fee upon completion, and therefore the financial results in 2002 reflected this positive performance. This pre-tax profit decrease was offset primarily by profit increases in the environmental, energy, nuclear and telecommunications businesses. Additionally, pre-tax profit for the year ended December 31, 2002 was negatively impacted by the write-off of a $10.0 million equity investment (which is estimated to be $3.6 million, net of incentive compensation accrual reductions and tax benefits).

Water

        Our Water segment reported revenues of $693.3 million for the year ended December 31, 2003 compared to revenues of $612.7 million in the same period of 2002. The increase of $80.6 million, or 13.2%, was primarily attributable to significant growth in our water and wastewater business, as well as operations and maintenance business. These increases were achieved primarily from the strong performance of both our traditional and design-build North American operations. Market conditions continue to improve domestically as utilities invest in water related facilities. These investments domestically and abroad are driven by population and economic growth in certain regions, and capacity shortfalls and regulatory requirements in other regions.

        Our Water segment reported $26.6 million of pre-tax profit for the year ended December 31, 2003 compared to $24.8 million of pre-tax profit for the same period of 2002. Pre-tax profit as a percentage of revenues for 2003 was 3.8% compared to 4.0% for 2002. The increase of $1.8 million in pre-tax profit is attributable to revenue improvements, service delivery improvements on design-build projects, additional efficiencies in business development and a reduction of overhead costs. Offsetting this improvement in pre-tax profit were project delivery challenges in our operations and maintenance business on certain projects.

Industrial

        Our Industrial segment reported revenues of $222.0 million for the year ended December 31, 2003, of which $73.7 million was generated from the microelectronics industry. The revenues for 2002 were $225.7 million, of which $103.6 million was generated from the microelectronics industry. The decrease of $3.7 million was comprised of a $29.9 million decrease in revenues from the microelectronics industry, offset by an increase in revenues of $26.2 million. The $26.2 million was comprised of $11.5 million of revenues from Lockwood Greene and increased revenues of $14.7 million from other industries, including food, pharmaceutical and facility services. The primary contributor to this overall decline in revenue was attributable to the depressed facility capital spending levels resulting from the recession in the semiconductor industry. The semiconductor industry showed initial signs of recovery at the end of 2003 resulting in slightly increased workload and bid opportunities.

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        Our Industrial segment reported $8.9 million of pre-tax loss for the year ended December 31, 2003, of which $0.5 million was related to Lockwood Greene, compared to $2.4 million of pre-tax profit for the year ended December 31, 2002. The decline in pre-tax profit was due to a decline in the volume of services sold during 2003 as compared to 2002. In addition to low workload volumes, the competitive market environment forced reductions in project margins. Indirect labor costs, which consist of salaries and benefits of all administrative personnel, plus salaries and benefits of technical personnel for hours not spent working on billable client services, decreased as a percent of total labor costs. This decrease in non-billable labor was primarily due to labor reductions related to the decline in the microelectronics industry. General and administrative costs in 2003 have decreased slightly over 2002 primarily due to cost containment efforts and staffing reductions.

Results of Operations for the Year Ended December 31, 2002 Compared to 2001

        Revenues for the year ended December 31, 2002 were $1,954.9 million compared to $1,923.4 million for the same period in 2001, an increase of $31.5 million, or 1.6%. Our EE&I segment reported increased revenues of $48.6 million, or 4.6%, and our Water segment reported increased revenues of $35.3 million, or 6.1%. For the same period, our Industrial segment reported decreased revenues of $52.4 million, or 18.8%.

        Pre-tax profit for the year ended December 31, 2002 was $52.3 million compared to $50.6 million in the same period of 2001. The increase of $1.7 million was comprised of increases in our EE&I segment of $2.8 million, our Water segment of $5.2 million and a decrease in our Industrial segment of $9.4 million. Corporate expenses decreased by $3.1 million for the year ended December 31, 2002 compared to December 31, 2001.

Environmental, Energy and Infrastructure

        Revenues in our EE&I segment for the year ended December 31, 2002 were $1,116.5 million compared to $1,067.9 million for the same period in 2001. This $48.6 million increase was due primarily to improvements in our environmental, nuclear and transportation businesses, offset by declines in our energy and telecommunications businesses, as described below:

•

Our environmental business reported increased revenues of $35.9 million compared to 2001. This increase was due to work scope expansion on certain large federal programs and strong performance in the private sector.



•

Our nuclear business reported increased revenues of $30.3 million compared to 2001. This increase occurred primarily due to the timing of certain delivery efforts at the DOE's Hanford River Protection Project.



•

Our transportation business reported an increase in revenues of $17.7 million in 2002 compared to 2001 due primarily to the January 2002 acquisition of Gee & Jensen Engineers-Architects-Planners, Inc., an engineering and consulting firm in the seaports industry.



•

These revenue increases were offset by the completion or termination of several large projects in the energy and telecommunications businesses, both of which experienced significant downturns during 2002. The telecommunications industry showed no sign of recovery on the capital expenditure side during 2002, where much of our historical work has been.

        For the year ended December 31, 2002, pre-tax profit was $33.4 million compared to $30.6 million in the same period of 2001, an increase of $2.8 million or 9.2%. Pre-tax profit as a percentage of revenues was 3.0% for 2002 compared to 2.8% for the same period of 2001.

        The increase in our pre-tax profit for the year ended December 31, 2002 compared to the same period in 2001 was primarily due to revenue increases in our environmental, nuclear, and

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transportation businesses and increased earnings from Kaiser-Hill as a result of favorable performance on the Rocky Flats project for the DOE. These increases were offset in part by severe downturn and project terminations in our Telecommunications business and increased business development outlays in the international and design-build markets related to all businesses in our EE&I segment.

        In addition, pre-tax profit for the year-ended December 31,2002 was negatively impacted by the write-off of a $10.0 million equity investment (which is estimated to be $3.6 million, net of incentive compensation accrual reductions and tax benefits) for a minority interest in an international telecommunications investment company, CAI Investments, LLC (CAI). We concluded that the fair market value of the investment had declined materially and that this decline was not temporary due to deteriorating market conditions in the telecommunications industry and CAI's inability to secure timely financing for projects.

Water

        Our Water segment reported revenues of $612.7 million for the year ended December 31, 2002 compared to revenues of $577.4 million in the same period of 2001. The increase of $35.3 million, or 6.1%, was attributable to significant growth in the water and wastewater business as well as the operations and maintenance business. The increases were achieved primarily from the strong performance of both our traditional and design-build North America operations. Market conditions domestically and abroad continued to improve as utilities invested in water related facilities. These investments are driven by population and economic growth in certain regions, and capacity shortfalls and regulatory requirements in other regions.

        Our Water segment reported $24.8 million of pre-tax profit for the year ended December 31, 2002 compared to $19.6 million of pre-tax profit for the same period of 2001. Pre-tax profit as a percent of revenues for 2002 was 4.0% compared to 3.4% for 2001. The improvement of $5.2 million in pre-tax profit is attributable to increased revenues and service delivery improvements, combined with additional efficiencies in business development and leveraged overhead costs.

Industrial

        Our Industrial segment reported revenues of $225.7 million for the year ended December 31, 2002, of which $103.6 million was generated from the microelectronics industry. The revenues for 2001 were $278.1 million, of which $181.1 million was generated from the microelectronics industry. The decrease of $52.4 million was comprised of a $77.5 million decrease in revenues from the microelectronics industry, offset by an increase in revenues of $25.1 million from other industries, including food, pharmaceutical and facility services. The primary contributor to this overall decline in revenue was due to the economic decline in the microelectronics industry.

        Our Industrial segment reported $2.4 million of pre-tax profit for the year ended December 31, 2002 compared to $11.8 million for the year ended December 31, 2001. Pre-tax profit as a percent of revenues for 2002 was 1.1% and 4.2% for the same period in 2001. The decrease in pre-tax profit was due to a decline in the volume of services sold during 2002 as compared to 2001. Direct project costs, as a percentage of revenues, was comparable in the periods ended 2002 compared to 2001. Indirect labor costs, which consist of salaries and benefits of all administrative personnel, plus salaries and benefits of technical personnel for hours not spent working on billable client services, increased as a percent of the services portion of revenues. This increase is directly related to the lower demand for services in the microelectronics industry. General and administrative costs also increased due to maintaining certain staffing levels in order to be positioned for a recovery in the microelectronics industry.

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Newly Aligned Operating Segments

        During the course of 2003, we reevaluated how our business was organized and announced a new organizational model, to become effective on January 1, 2004. This model, recognizing and reflective of the distinct needs of our clients, will be centered on three Client Groups:

•

Civil Infrastructure (state and local governments)



•

Federal (U.S. and international governments)



•

Industrial (private sector clients)

        This change was brought about by discussions among senior management and our Board of Directors, who recognized that our path to success was critically dependent on understanding and meeting the differing needs and requirements of our clients. The new structure will allow better decision making on an enterprise-wide basis.

        The following chart shows the realignment into the three Client Groups and the revised businesses under each group:

Joint Ventures

        We routinely enter into joint ventures to service the needs of our clients. Such arrangements are customary in the engineering and construction industry and generally are project specific. Our largest joint venture is Kaiser-Hill, in which we own a 50% interest. This joint venture is in our EE&I operating segment. Kaiser-Hill's current contract with the DOE, which has been effective since 2000, is a site closure contract and does not have a defined term. We are targeting closure of the site in 2006. Under the contract, Kaiser-Hill is compensated through a base fee affected, up or down, by its performance against the agreed site target closure timetable and costs. Outside of a negotiated range, for every dollar that the DOE saves, Kaiser-Hill receives a 30-cent increase in fee. At the same time, for every dollar the cleanup is over budget, the fee is reduced by 30 cents down to an agreed minimum. The ultimate fee will also be impacted by the schedule to achieve site closure and the safety of our performance. Due to the timing of specific work scopes and the completion of activities, Kaiser-Hill's earnings may not be comparable from period to period.

        The earnings from Kaiser-Hill are reported as equity in earnings of joint ventures and affiliated companies, along with other joint ventures that are individually insignificant. For the years ended December 31, 2003, 2002, and 2001 we reported total equity in earnings of joint ventures and affiliated

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companies of $26.9 million, $44.0 million and $17.1 million, respectively. The earnings from the Kaiser-Hill joint venture for the years ended December 31, 2003, 2002, and 2001 were $20.0 million, $36.8 million, and $15.1 million, respectively. The increase in earnings for 2002 is primarily attributable to the portion of the fee that is impacted by cost estimate reductions as a result of favorable performance on the Rocky Flats project for the DOE. Effectively, Kaiser-Hill's performance to date has increased the likelihood of receiving a larger performance fee upon completion. Therefore, the 2002 financial results were adjusted to reflect this positive performance and we recorded $17.0 million of additional earnings ($6.7 million of profit after tax) from Kaiser-Hill. The additional increases in equity in earnings of joint ventures and affiliated companies for the year ended December 31, 2002 compared to the same period in 2001 was due to new joint ventures in both our Water and EE&I operating segments and improved profitability of continuing joint ventures.

        During the years ended December 31, 2003, 2002, and 2001, we recognized undistributed earnings from Kaiser-Hill of $3.6 million, $21.1 million and $7.2 million, respectively. Kaiser-Hill's ability to distribute cash is based on pre-negotiated payment terms in accordance with its contract with the DOE and can be different from the earnings recognized for accounting purposes. As the cleanup of the site progresses toward the targeted closure date of 2006, undistributed earnings could continue to increase if Kaiser-Hill continues to perform at better than cost and schedule targets. This could result in an increase in our investment in Kaiser-Hill, which was $32.4 million and $28.8 million as of December 31, 2003 and 2002, respectively.

Corporate Expenses

        Corporate expenses represent centralized management costs that are not allocable to individual operating segments and primarily include expenses associated with administrative compliance functions such as legal, treasury, accounting, tax and general business development efforts. Corporate expenses for the year ended December 31, 2003 were $9.6 million compared to $8.3 million in 2002 and $11.4 million in 2001. The increase of $1.3 million from 2002 to 2003 related primarily to expenses associated with the implementation efforts to comply with provisions of the Sarbanes-Oxley Act of 2002. The decrease of $3.1 million from 2001 to 2002 relates primarily to overhead spending controls put in place during 2002.

Income Taxes

        The decrease in the effective tax rate for the year ended December 31, 2003 compared to the same period in 2002 was primarily due to tax benefits realized under the Extraterritorial Income Exclusion (EIE) rules. Under the EIE rules, taxpayers may elect to exclude from taxable income certain foreign-related income. Our effective tax rate continues to be higher than the U.S. statutory income tax rate of 35.0% due to the effect of state income taxes and disallowed portions of meals and entertainment expenses and other permanent differences.

        We have presented a claim to the Internal Revenue Service (IRS) relating to the research and experimentation tax credit for the years 1996 through 1999. Although we are seeking resolution with the IRS, we only recognize tax benefits related to these credits for financial statement purposes when it is probable that such benefits will be realized. The amount of the tax credit claimed is significant, however, the ultimate amount to be realized and the timing of the recognition of the tax credit will depend upon the final resolution with the IRS.

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Liquidity and Capital Resources

        For the year ended December 31, 2003, we generated $39.3 million of cash from operations. With the $39.3 million of cash generated from operations and the $106.4 million of cash on hand at December 31, 2002, we used $7.0 million for capital expenditures, $79.9 million for the acquisition of Lockwood Greene, net of cash acquired, and $27.7 million to purchase stock presented on the internal market. The positive operating cash flow was primarily due to net income generated by our subsidiaries as we actually experienced a decline in our working capital accounts. This change was primarily due to an increase in accounts receivable and unbilled revenue as a result of increases in construction contract billings which tend to be collected slower than billings from engineering services contracts. Because of the significant impact that collections of accounts receivable have on our operating cash flows, we continuously monitor collection efforts and assess the allowance for accounts receivables. Based on this assessment, we have deemed the allowance for doubtful accounts at December 31, 2003 to be adequate.

        We are a professional services organization and, therefore, we do not require significant outflows of cash for capital expenditures. Our capital expenditures are generally for purchases of office equipment and leasehold improvements. We spent $7.0 million in 2003, $5.9 million in 2002 and $7.7 million in 2001 on such expenditures. We have a formal operating lease program under which most of our computing and related equipment is procured on an ongoing basis.

        Our most significant source of cash is from operations. If cash flows from operations are insufficient to cover our working capital needs, we currently have access to our unsecured revolving line of credit. At December 31, 2003, our total cash and credit capacity available for general corporate purposes, acquisitions and letters of credit is as follows (in millions):

        Over the last several years, we have not used our credit facility except to support the issuance of letters of credit. However, in late December 2003, we borrowed $47.0 million under our credit facility to ensure sufficient liquidity to close the Lockwood Greene acquisition. This borrowing was repaid within approximately 20 days from cash on hand and cash flows from operations. Because we used our cash for the acquisition, it is likely, but uncertain, that we will utilize our credit facility periodically during 2004 depending on the timing of cash receipts and disbursements. Since our cash inflows and outflows are primarily a function of our operations, we cannot predict with any certainty the timing of such cash receipts and disbursements.

        Our contractual obligations at December 31, 2003 are shown below. Based upon our cash flow from operations and our credit capacity discussed above, we believe that we have or have access to adequate financial resources to fund these contractual obligations and fund our operations in 2004 and beyond, including working capital requirements, capital expenditures and potential future acquisitions or strategic investments.

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        During December 2003 we amended our unsecured revolving line of credit to increase the maximum borrowing capacity from $125.0 million to $160.0 million. The credit facility may be used for general corporate purposes, permitted acquisitions and to support letters of credit. The credit facility, as amended, expires in July 2006, however, with the lender's consent, can be extended for an additional year on the first and second anniversary date, through 2007 and 2008, respectively. At our option, the credit facility bears interest at a rate equal to either the London InterBank Offered Rate plus 1.25% to 2.0%, or the lender's applicable base rate plus margin of 0.0% to 0.5% based on our ratio of funded debt to earnings before interest, taxes, depreciation and amortization, as defined. A commitment fee of approximately 0.2% per year is payable based on our ratio of funded debt to earnings before interest, taxes, depreciation and amortization, as defined.

        The agreement requires us to, among other things, maintain minimum levels of net worth, a minimum coverage ratio of certain fixed charges, and a minimum leverage ratio of earnings before interest, taxes, depreciation and amortization to funded debt (all as defined in the agreement). As of and for the year ended December 31, 2003 we were in compliance with the covenants required by the agreement.

        There were no amounts outstanding under the line of credit at December 31, 2003 or 2002. However, the agreement allows us to issue letters of credit to support various trade activities. Issued letters of credit are reserved against the borrowing base of the line of credit. At December 31, 2003 and 2002, there were $40.7 million and $13.6 million issued and outstanding letters of credit, respectively.

Off-Balance Sheet Arrangements

        During 2001, CH2M HILL and Meridian 26 Trust (Trust) entered into an agreement whereby the Trust acquired land in Englewood, Colorado for the purpose of constructing and owning our new corporate headquarters and another building. The construction of these two buildings was completed in October 2002. The Trust was formed to fund the construction, own the land and the two buildings and subsequently lease the facilities to us. The Trust was funded by equity and debt investments from independent third parties. The lease agreement was effective upon completion of construction. The lease agreement calls for monthly lease payments of approximately $0.4 million through March 3, 2013 and requires that we guarantee a residual value of the facilities for approximately $42.0 million. Upon completion of the lease term, subject to certain limitations, we have the option to purchase the facilities from the Trust at fair market value, which is currently estimated to be $53.0 million.

        We are party to another lease agreement that calls for monthly lease payments at a variable interest rate, estimated to be approximately $0.1 million per month, based on current interest rates. The lease agreement requires that we guarantee a residual value of the additional building of approximately $17.6 million. Upon completion of the lease term, subject to certain limitations, we have the option to purchase the additional building from the lessor at fair market value, which is currently estimated to be $20.8 million. The lease matures on September 28, 2008 and provides for five one year renewal options.

Aggregate Commercial Commitments

        We maintain a variety of commercial commitments that are generally made available to provide support for various provisions in engineering and construction contracts. Letters of credit are provided to clients in the ordinary course of the contracting business in lieu of retention or for performance and completion guarantees on engineering and construction contracts. We also post surety bonds, which are contractual agreements issued by a surety, for the purpose of guaranteeing our performance on contracts. Bid bonds are also issued by a surety to protect owners and are subject to full or partial forfeiture for failure to perform obligations arising from a successful bid.

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        Commercial commitments outstanding as of December 31, 2003 are summarized below:

Insurance

        We carry professional liability and general casualty insurance, including general liability, property, automobile, fiduciary, workman's compensation, directors' and officers', contractor's pollution liability and other coverage which are customary in the industry. We also have surety bond commitments. The tragic events of September 11, 2001 and the recent economic downturn have had an impact on the financial status of a number of insurance and surety providers. This has caused an increase in the cost and a decrease in the availability of insurance and surety coverage. We believe that we will be able to continue to have access to professional liability and general casualty insurance, as well as surety bonds, with sufficient coverage limits and on acceptable financial terms necessary to support our business. The cost of such coverage has increased and is expected to continue to increase in the short term. Such cost increases are expected to range annually between 5.0% and 20.0% for various insurance policies and surety bonds. We do not believe that such increases will have a material impact on our business.

        Our current insurance policies include coverage for terrorist acts, except for acts of war. In the future, terrorist act coverage may be limited or expensive to obtain. While we will attempt to renew our insurance policies without losing the terrorism coverage, we do not believe that lack of such coverage would have a material impact on our business. We also believe that we will be able to supplement our current insurance program with terrorism coverage on an as needed basis to support specific business requirements through required terrorism insurance offerings under the Terrorism Risk Insurance Act of 2002.

        Our risk management personnel continuously monitor the developments in the insurance market. The financial stability of the insurance and surety providers is one of the major factors that we take into account when buying our insurance coverage. Currently our insurance and bonds are purchased from several of the world's leading and financially stable providers often in layered insurance or co-surety arrangements. The built-in redundancy of such arrangements usually enables us to call upon existing insurance and surety suppliers to fill gaps that may arise if other such suppliers become financially unstable.

Critical Accounting Policies

        Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect both the results of operations as well as the carrying values of our assets and liabilities. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We base estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities as of the date of the financial

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statements that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        Although our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements, below is a summary of our most critical accounting policies.

Revenue Recognition

        We earn our revenues from different types of services under a variety of different types of contracts, including cost-plus, firm fixed-price and time-and-materials. In recognizing revenue, we evaluate each contractual arrangement to determine the appropriate authoritative literature to apply. We recognize revenue and profit for most of our contracts on the percentage-of-completion method where progress towards completion is measured by relating the actual cost of work performed to date to the current estimated total cost of the respective contracts. In making such estimates, judgments are required to evaluate potential variances in schedule, the cost of materials and labor, productivity, liability claims, contract disputes, or achievement of contract performance standards.

        Change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to contract value and can be reliably estimated. Losses on contracts in process are recognized in their entirety when the loss becomes evident and the amount of loss can be reasonably estimated.

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

        Below is a description of the three basic types of contracts from which we may earn revenues.

        Cost-Plus Contracts.    Cost-plus contracts can generally be cost plus a fixed fee or rate, or cost plus an award fee. Under these types of contracts, we charge our clients for our costs, including both direct and indirect costs, plus a fixed negotiated fee or award fee. We generally recognize revenues based on the actual labor costs and non-labor costs we incur, plus the portion of the fixed fee or award fee we have earned to date. If the actual labor hours and other costs we expend are lower than the total number of hours and other costs we have estimated, our revenues related to cost recoveries from the project will be lower than originally estimated. If the actual labor hours and other costs we expend exceed the original estimate, we must obtain a change order, contract modification, or successfully prevail in a claim in order to receive payment for the additional costs.

        In the case of a cost-plus award fee, we generally include in the total contract value the portion of the fee that we are probable of receiving. Award fees are influenced by the achievement of contract milestones, cost savings and other factors.

        Fixed Price Contracts.    Under fixed price contracts, our clients pay us an agreed amount negotiated in advance for a specified scope of work. For engineering and construction contracts, we recognize revenues on fixed price contracts using the percentage-of-completion method. For operations and maintenance contracts, we recognize revenues on fixed price contracts using the straight-line method over the life of the contract. Prior to completion, our recognized profit margins on any fixed price contract depend on the accuracy of our estimates and will increase to the extent that our actual costs are below the original estimated amounts. Conversely, if our costs exceed these estimates, our profit margins will decrease and we may realize a loss on a project. If our actual costs exceed the original estimate, we attempt to obtain a change order or contract modification.

        Time-and-Materials Contracts.    Under our time-and-materials contracts, we negotiate hourly billing rates and charge our clients based on the actual time that we expend on a project. In addition, clients

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reimburse us for our actual out-of-pocket costs of materials and other direct expenditures that we incur in connection with our performance under the contract. Our profit margins on time-and-materials contracts fluctuate based on actual labor and overhead costs that we directly charge or allocate to contracts compared with the negotiated billing rate and markup on other direct costs. Some of our time-and-materials contracts are subject to maximum contract values, and accordingly, revenues under these contracts are recognized under the percentage-of-completion method. Revenues on contracts that are not subject to maximum contract values are recognized based on the actual number of hours we spend on the projects plus any actual out-of-pocket costs of materials and other direct expenditures that we incur on the projects. Our time-and-materials contracts generally include annual billing rate escalation provisions.

Income Taxes

        In determining net income for financial statement purposes, we must make estimates and judgments in the calculation of tax assets and liabilities and in the determination of the recoverability of the deferred tax assets. The tax assets and liabilities arise from temporary differences between the tax return and the financial statement recognition of revenues and expenses.

        We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our tax provision by recording a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable. As of December 31, 2003 and 2002, we reported a valuation allowance of $3.2 million and $3.6 million, respectively.

        In addition, the calculation of our tax assets and liabilities involves dealing with uncertainties in the application of complex tax regulations. We may recognize a tax asset or adjust taxes payable for anticipated state or federal tax credits, such as those relating to the research and experimentation tax credit.

Pension Benefits

        We have two frozen and one active noncontributory defined benefit pension plans. Our earnings and shareholders' equity may be impacted by these qualified defined benefit plans because Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 87, "Employers' Accounting for Pensions," requires that the amounts we record be computed using actuarial valuations. These valuations include many assumptions, but the two most critical assumptions are the discount rate and the expected long-term rate of return on plan assets. We use judgment in selecting these assumptions each year because we have to consider not only current market conditions, but also make judgments about future market trends, changes in the interest rates and equity market performance. We also have to consider factors like the timing and amounts of expected contributions to the plans and benefit payments to plan participants.

        An actual example of how changes in these assumptions can affect our financial statements occurred in 2002. Based on our review of market trends and other factors, we lowered the discount rate assumption to 6.95% for 2002, from 7.25% for 2001. This change, together with other factors such as the effects of the actual return on plan assets, resulted in an adjustment in the shareholders' equity section of our balance sheet to reflect a minimum pension liability adjustment. This adjustment is determined by comparing the accumulated benefit obligation (ABO) to the fair value of plan assets. The amount by which the ABO exceeds the fair value of plan assets, after adjusting for previously recorded accrued or prepaid pension cost for the plan, must be recorded as a minimum pension liability adjustment, with a corresponding increase in an intangible asset, if appropriate, and a reduction to shareholders' equity. The non-cash after-tax adjustment related to our recording of a minimum pension liability adjustment in 2002 did not impact earnings, but reduced our shareholders' equity by $14.7 million, net of tax.

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        In 2003 we lowered the discount rate assumption to 6.25%. The non-cash after-tax adjustment in 2003 was $0.8 million and is reflected in accumulated other comprehensive loss in the consolidated statements of shareholders' equity and comprehensive income. This adjustment is computed at each year-end and may reverse in the future if financial markets improve and interest rates increase, or may increase if financial market performance is less than expected and/or interest rates continue to decline.

New Accounting Standards

        In January 2003, the FASB issued Interpretation (FIN) 46, "Consolidation of Variable Interest Entities," which provides guidance on when to consolidate variable interest entities. In December 2003, the FASB revised FIN 46 with FIN 46R. In addition to conforming to previously issued FASB Staff Positions, FIN 46R deferred the implementation date for certain variable interest entities. We will adopt the provisions of FIN 46R immediately for entities created after December 31, 2003. For entities created before December 31, 2003, we will adopt FIN 46R in the first quarter of 2005, as required by FIN 46R.

        We have interests in multiple pass through joint ventures, with little or no initial equity, which are considered variable interest entities under FIN 46R. These entities facilitate the completion of service contracts that are jointly owned with our joint venture partners. These joint ventures are formed to leverage the skills of the respective partners, and include consulting, construction, design, project management and operations and maintenance contracts. Typically, our losses on these contracts are limited to our portion of the total contract value, but occasionally, our exposure can be up to three times the total contract value.

        We have an interest in CH2M HILL Canada, Ltd. (Canada), which may be a variable interest entity. Canada represents all of our Canadian operations, which consist of consulting in environmental engineering and scientific services. Our losses are limited to our investment in the entity of approximately $8.2 million. We have a lease with the Trust, which may also be a variable interest entity. The Trust is owned by third parties and was formed to fund the construction and own our corporate headquarters and another building. The aggregate fair value of the assets held by the Trust is approximately $53.0 million, for which our losses are limited to our guaranteed residual value of approximately $42.0 million.

        In December 2003, the FASB issued SFAS No. 132 (Revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132(R) increases the existing disclosure requirements by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. Companies will be required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and other informational disclosures. The new disclosure requirements required by SFAS No. 132(R) are effective for us for the year ending after June 15, 2004. We will adopt the new SFAS No. 132(R) disclosure requirements for the year ending December 31, 2004.

        In December 2003, the FASB issued FASB Staff Position (FSP) No. FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" (the Act). This FSP permits a sponsor of a postretirement health care plan that provides a prescription drug benefit, to make a one-time election to defer accounting for the Act. The election to defer accounting for the Act must be made before net periodic postretirement benefit costs for the period that includes that Act's enactment are first included in reported financial information. The decision to defer the accounting for the Act is effective for us for the quarter ending March 31, 2004. The adoption of FSP No. FAS 106-1 is not expected to have a material effect on our consolidated operating results, financial position, or cash flows.

36

Special Note Regarding Forward-Looking Statements

        This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward looking statements involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to:

•

The continuance of and funding for certain governmental regulation and enforcement programs which create demand for our services



•

Our ability to attract, finance and perform large, longer-term projects



•

Our ability to insure against or otherwise cover the liability risks inherent in our business, including environmental liabilities and professional engineering liabilities



•

Our ability to manage the risks inherent in the government contracting business



•

Our ability to manage the costs associated with our fixed-price contracts



•

Our ability to manage the risks inherent in international operations, including operations in war and conflict zones



•

Our ability to attract and retain professional personnel



•

General economic conditions

        These factors and other factors that could cause our results to differ from the results discussed in the forward-looking statements are described in detail in our most recent Prospectus filed with the SEC.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        We are exposed to market risk from changes in interest rates and foreign exchange rates. This risk is monitored to limit the effect of interest rate and foreign exchange rate fluctuations on earnings and cash flows. Our interest rate exposure is generally limited to our unsecured revolving credit agreement and to our notes payable to former shareholders. Historically, we have used short-term variable rate borrowings under the revolving credit agreement on a limited basis. During 2003, we borrowed and repaid $47.0 million under our revolving credit agreement. At December 31, 2003 and 2002, there were no amounts outstanding under the credit facility. The interest rate on the notes payable to former shareholders is variable and fluctuates annually based on the U.S. Federal Reserve Discount Rate. These notes have varying maturities through 2009. We have two notes payable related to an acquisition in 2002, which have fixed interest rates of 9.4% and 5.0% and maturity dates in 2010 and 2005, respectively. Collectively, the amounts outstanding under these notes were $8.7 million and $11.5 million as of December 31, 2003 and 2002, respectively. We are also exposed to interest rate risk related to lease payments on a building, as our monthly lease payment is based on a variable interest rate. We have assessed the market risk exposure on these financial instruments and determined that any significant changes to the fair value of these instruments would not have a material impact on our financial position or results of operations.

        We are exposed to foreign exchange risks in the normal course of our international business operations. Our investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, we do not hedge the foreign exchange risks related to these net investments. We do not consider the foreign exchange risk to be significant. However, we may engage in forward foreign exchange contracts on a limited basis to reduce our economic exposure to changes in exchange rates. Generally, any forward contracts are entered into to

37

hedge specific commitments and anticipated transactions but not for speculative or trading purposes. We do not currently have any derivative financial instruments outstanding.

Item 8.    Financial Statements and Supplementary Data

        Reference is made to the information set forth on pages F-1 through F-29.

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

        Not applicable.

Item 9A.    Controls and Procedures

        We carried out an evaluation as of the last day of the period covered by this Annual Report on Form 10-K, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

        There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2003 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

38

PART III

Item 10.    Directors and Executive Officers of the Registrant

Directors

        See the information set forth in the section of the Proxy Statement entitled "Election of Directors," which is incorporated herein by reference.

Executive Officers

        See the information set forth in the sections of the Proxy Statement entitled "Continuing Directors" and "Other Executive Officers" which is incorporated herein by reference.

Item 11.    Executive Compensation

        See the information set forth in the section of the Proxy Statement entitled "Executive Compensation," which is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

        See the information set forth under "Security Ownership of Certain Shareholders and Management" in the Proxy Statement which is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions

        None.

Item 14.    Principal Accountant Fees and Services

        See the information set forth under "Audit Subcommittee" in the Proxy Statement which is incorporated herein by reference.

39

PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

Documents Filed as Part of this Report



1.

Financial Statements

2.

Financial Statement Schedules

        Financial Statements of Kaiser-Hill Company, LLC as of December 31, 2003 and 2002 and for the three years ended December 31, 2003, 2002 and 2001.

        All financial statement schedules except the one listed above have been omitted because the required information is included in the consolidated financial statements or notes thereto, or because such schedules are not applicable.

3.

Exhibits

        The following exhibits are filed as part of this annual report:

40

41

*

Filed herewith

†

Management agreements, compensatory plans or arrangements.

(b)

Reports on Form 8-K:

1.

On November 7, 2003, we filed a Current Report on Form 8-K under Item 5. Other Events to communicate to our shareholders a new price for our common stock and the trade date on which this stock price would be effective. This stock price was established by the Board of Directors at its November 7, 2003 meeting.

2.

On December 29, 2003, we filed a Current Report on Form 8-K under Item 2 and Item 7 reporting the completion of the acquisition of Lockwood Greene Engineers, Inc., an engineering and construction firm focused on national and multinational industrial and power clients worldwide.

42

INDEPENDENT AUDITORS' REPORT

The Board of Directors of CH2M HILL Companies, Ltd.:

        We have audited the accompanying consolidated balance sheets of CH2M HILL Companies, Ltd. (an Oregon corporation) and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The accompanying consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for the year ended December 31, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated February 15, 2002.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the 2003 and 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

KPMG LLP

Denver, Colorado
February 13, 2004

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To CH2M HILL Companies, Ltd.:

        We have audited the accompanying consolidated balance sheets of CH2M HILL Companies, Ltd. (an Oregon corporation) and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of CH2M HILL's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of CH2M HILL Industrial Design Corporation (currently known as CH2M HILL Industrial Design and Construction, Inc.) for the year ended December 31, 1999, which statements reflect total assets and total revenues of 21 percent and 21 percent in 1999, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for this entity, is based solely on the report of the other auditors.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

        In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of CH2M HILL Companies, Ltd. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Denver, Colorado,
February 15, 2002.

The report of Arthur Andersen LLP (Andersen) is a copy of the report previously issued by Andersen on February 15, 2002. We have not been able to obtain a re-issued report from Andersen. Andersen has not consented to the inclusion of its report in this Annual Report on Form 10-K. The report of Andersen refers to the consolidated balance sheets as of December 31, 2001 and 2000 and statements of income, shareholders' equity and cash flows for the years ended December 31, 2000 and 1999 not included herein. Because Andersen has not consented to the inclusion of its report in this Annual Report, it may be more difficult for you to seek remedies against Andersen and your ability to seek relief against Andersen may be impaired.

F-2

CH2M HILL COMPANIES, LTD.

Consolidated Balance Sheets
(Dollars in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

F-3

CH2M HILL COMPANIES, LTD.

Consolidated Statements of Income
(Dollars in thousands except per share)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

CH2M HILL COMPANIES, LTD.

Consolidated Statements of Shareholders' Equity and Comprehensive Income
(Dollars in thousands)