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EX-10.2 - EX-10.2 - CH2M HILL COMPANIES LTDa2196564zex-10_2.htm
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EX-23.1 - EX-23.1 - CH2M HILL COMPANIES LTDa2196564zex-23_1.htm
EX-31.2 - EX-31.2 - CH2M HILL COMPANIES LTDa2196564zex-31_2.htm
EX-10.18 - EX-10.18 - CH2M HILL COMPANIES LTDa2196564zex-10_18.htm
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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549



Form 10-K

(MARK ONE)    
ý   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

OR

o

 

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

FOR THE TRANSITION PERIOD FROM                                  TO                                   

Commission File Number 000-27261



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

Oregon   93-0549963
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)


 

 
9191 South Jamaica Street,
Englewood, CO
  80112-5946
(Address of principal executive offices)   (Zip Code)

(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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 o    No ý

         Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o
(Do not check if a smaller
reporting company)
  Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price as of June 30, 2009 was approximately $389.1 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 12, 2010, there were 31,577,522 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the definitive Proxy Statement for the 2010 Annual Meeting of Shareholders are incorporated by reference in Part III of this Annual Report on Form 10-K where indicated.


Table of Contents


CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

 
   
  Page
PART I.    
Item 1.   Business   4
Item 1A.   Risk Factors   9
Item 1B.   Unresolved Staff Comments   20
Item 2.   Properties   20
Item 3.   Legal Proceedings   20
Item 4.   Submission of Matters to a Vote of Security Holders   20

PART II.

 

22
Item 5.   Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities   22
Item 6.   Selected Financial Data   28
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   29
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   40
Item 8.   Financial Statements and Supplementary Data   41
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   41
Item 9A.   Controls and Procedures   41
Item 9B.   Other Information   42

PART III.

 

43
Item 10.   Directors, Executive Officers and Corporate Governance   43
Item 11.   Executive Compensation   43
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters   43
Item 13.   Certain Relationships and Related Transactions, and Director Independence   43
Item 14.   Principal Accounting Fees and Services   43

PART IV.

 

44
Item 15.   Exhibits and Financial Statement Schedules   44

SIGNATURES

 

 

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Forward-Looking Statements

        The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on our behalf. We may from time-to-time make statements that are "forward-looking," including statements contained in this Annual Report on Form 10-K and other filings with the Securities and Exchange Commission (SEC) and in reports to our shareholders. Such statements may, for example, express expectations or projections about future actions that we may take or about developments beyond our control including changes in domestic or global economic conditions. These statements are made on the basis of our management's views and assumptions as of the time the statements are made and we undertake no obligation to update these statements. Our actual results may differ significantly from the results discussed in the forward-looking statements. General 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 successfully integrate future acquisitions

    Our ability to attract and retain professional personnel

    Changes in economic conditions

        For more information on these and other risk factors that may affect our business, refer to Item 1A. included in this Annual Report on Form 10-K.

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PART I

Item 1.    Business

Summary

        We are one of the largest professional engineering services firms worldwide and are employee-owned. Our business provides engineering, construction, operations, major project management and technical services to municipal, state, federal and private sector clients worldwide. Founded in 1946, we have 23,500 employees in offices worldwide.

        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 our capital strength. We believe that we are well positioned geographically, technically and financially to compete worldwide in the key markets we have elected to pursue and the clients we serve.

Our Operating Segments

        Effective May 2009, our chief operating decision maker (our Chief Executive Officer) began regularly reviewing operating results and making strategic and operating decisions with regards to assessing performance and allocating resources based on a revised reporting structure. Our segment presentation for 2009, 2008 and 2007 has been adjusted to reflect the new structure. For more information on our change in reporting segments refer to Note 16 of the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K.

        We provide services to our clients through three operating segments: Government, Environment and Nuclear (GEN), Facilities and Infrastructure, and Energy. The structure is intended to provide for better decision making on an enterprise-wide basis.

        Our GEN segment generally provides a comprehensive range of services to the U.S. Federal government as well as services to international governments and industry. Our Facilities and Infrastructure segment generally provides a comprehensive range of services to various industry segments, and state, local and provincial governments. Our Energy segment generally provides a comprehensive range of services to private sector clients. Financial information for each segment for each of the last three years, including 2009, is included in Note 16 of the Notes to Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K.

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Our Clients and Key Markets

        The following table summarizes our primary client types, revenues and key markets served by each of our operating segments.

Operating Segment
  Client Type   % of 2009
Revenues
  Key Markets

Government, Environment and Nuclear

  U.S. Federal Government     35 %  

•       

  Nuclear

  and Governmental          

•       

  Environmental Services

  Authorities          

•       

  Government Facilities and
Infrastructure

Facilities and Infrastructure

  State and Local Governments     36 %  

•       

  Water, Wastewater and Water
Resources

             

•       

  Transportation

             

•       

  Operations Management

             

•       

  Industrial and Advanced
Technology

Energy

  Private Sector     29 %  

•       

  Energy and Chemicals

             

•       

  Industrial Systems

             

•       

  Power

Clients

        We provide our services to a broad range of domestic and international clients, including federal governments, state, local and provincial governments and private sector businesses. We perform services as the prime contractor, as subcontractors, or through joint ventures or partnership agreements with other service providers. The demand for our services generally comes from budgeting and capital

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spending decisions made by our clients. The following table provides a summary of representative clients:

Public Sector Clients   Private Sector Clients
 

•       

  U.S. Department of Energy    

•       

  U.S. cities    

•       

  Major oil and gas companies,
      (DOE)    

•       

  Foreign cities         refiners and pipeline
 

•       

  U.S. Department of the    

•       

  U.S. airports and seaports         operators
      Interior    

•       

  U.S. and State Departments    

•       

  Power utilities
 

•       

  U.S. Air Force         of Transportation    

•       

  Chemicals, bioprocessing and
 

•       

  U.S. Navy    

•       

  Water and Wastewater         refining companies
 

•       

  U.S. Army Corps of         Municipalities    

•       

  Metals and mining
      Engineers    

•       

  Panama Canal Authority          
 

•       

  U.S. Agency for    

•       

  Microelectronics          
      International Development         manufacturers          
 

•       

  U.S. Environmental    

•       

  Pharmaceutical and          
      Protection Agency         biotechnology companies          
 

•       

  U.S. Federal Emergency    

•       

  Automotive, food and          
      Management Agency         beverage, metals and          
 

•       

  United Kingdom Atomic         consumer product          
      Energy Authority         manufacturers          
 

•       

  London 2012 Olympic                    
      Delivery Authority                    
 

•       

  Emirates Nuclear Energy                    
      Corporation                    
 

•       

  Republic of Korea Ministry                    
      of Defense                    

Key Markets

        The following is a description of each of our key markets and the services we provide.

        Nuclear.    We provide program management, integration, engineering, design, construction management and a broad array of technical services for the DOE, U.S. and international commercial nuclear utility customers and various nuclear research, development and demonstration facilities. We manage various aspects of the implementation of new nuclear power plants and related facilities, and the decommissioning (characterization, decontamination, dismantling and demolition), remediation and/or closure of weapons production facilities and research reactors, and are involved in the siting, permitting and design of nuclear waste treatment and handling facilities. Additionally, we provide services for special nuclear material processing and operations.

        Environmental Services.    We provide program management, compliance and environmental consulting for contaminated site assessment and remediation projects, ecological and natural resource and sediments damage assessments, strategic environmental management, sustainability planning, and permitting services. We also provide environmental liability management services, site investigations, remedial design, implementation and construction services, treatment systems for hazardous and toxic waste contaminated properties, ordnance and explosives management services and sustainable development planning and design and construction services.

        Government Facilities and Infrastructure.    We provide lifecycle services for facilities and infrastructure to the U.S. federal and other national governments. Services include planning, consulting, design, engineering, program management, design/build, contingency planning and logistics support, and operations and maintenance. Operations and maintenance activities include outsourcing of facilities

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maintenance and management, utilities operations and maintenance, environmental support, other base operating services and minor capital construction projects. Contracts are typically long-term. Contingency planning and logistics support services include technical support, material expediting, supply and value chain management, transportation and distribution, and deployment logistics. We also provide telecommunications design and program management services for public and private sector clients worldwide.

        Water, Wastewater and Water Resources.    We provide a complete range of services for the planning, design/build, construction, construction management and program management of water supply and delivery systems, and wastewater collection and treatment facilities. Services are provided for new and expanded water storage, transmission, treatment (including desalination plants and membrane technology) and disposal systems, wastewater distribution systems, and wastewater collection and conveyance systems. Additionally, we provide water resources management, environmental restoration and watershed management, ground water modeling and protection, wastewater reclamation and reuse, biosolids management and financial planning.

        Transportation.    We provide full transportation solutions for airports, highways, bridges, ports and maritime, railroads, and transit systems for both the public and private sector. For all of our clients, we provide design, value engineering, design-build, project/program management, construction management, feasibility studies, public involvement/community management, environmental, and sustainability planning. Airport services include airfield design, airfield infrastructure, airspace obstruction analysis, and noise analyses. For our highway and bridge clients, we provide corridor location studies, traffic engineering, intelligent transportation systems, bridge condition assessment and load ratings, and structural seismic analysis and retrofit design. Ports and maritime client services include architecture, commercial, and owner's representative. Transit and rail services include alternatives analysis, and security services for light rail, commuter rail, freight rail, bus rapid transit, and fleet maintenance facilities.

        Operations Management.    We provide long-term site based contract services, and short-term project based consulting and engineering services in the public and private sector markets. Long-term contract services include operation and maintenance of client critical infrastructure such as water, wastewater, facility management, HVAC, transportation infrastructure, equipment and process operations and maintenance, and building and site grounds management and maintenance. We also provide operational support services under long term contracts such as public works services, community development, accounting, human resources, procurement, revenue enhancement, and parks and recreation functions. Short-term project based services include small capital engineering, start-up and performance testing, system optimization, asset management, staff augmentation, staff training, capital improvement plan management, and business process optimization.

        Industrial and Advanced Technology.    We provide program management, consulting, planning, architectural and engineering design, construction services and products, and facility support/optimization to manufacturing clients in the high-technology research and manufacturing markets including circuit, wafer, foundry, nanotechnology, research laboratory, data center and flat panel display industries. Our clients typically require integrated design and construction services for complex manufacturing systems, including cleanrooms, ultrapure water and wastewater systems, chemical and gas systems and production tools.

        Energy and Chemicals.    We provide a broad array of life cycle services to the energy, mining, and chemicals markets. The energy markets include upstream oil and gas, oil sands, refining, biofuels, pipelines and terminals, and clean energy application projects such as gasification and carbon offset. Our services include major program management, consulting, front end engineering and design (FEED Services), engineering-procurement-construction (EPC) projects, fabrication and module assembly of client-owned facilities, construction services, operations and maintenance (O&M), integrated planning,

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permitting, and EPC delivery and sustaining services to reduce cycle times and to meet the energy needs of the future in a sustainable manner. We also provide consulting and project delivery services for a diverse portfolio of projects including greenhouse gas management and energy conservation (e.g., LEED certification). We also bring our clients specialized know-how in planning, logistics, modular design and construction, constructing and maintaining facilities in extreme climatic conditions throughout the Arctic region (including Alaska, Russia, and Canada), as well as South America and the Middle East.

        Industrial Systems.    We provide a broad array of life cycle services to industrial markets to improve the performance and operations of industrial facilities. These services typically include consulting, design, project, licensing, air quality management, environmental, health and safety auditing and performance, regulatory compliance, renewable energy and facility sustainability analysis, risk assessment and ecosystems management.

        Power.    We provide engineering and EPC services to regulated and nonregulated sectors of the power industry, including new generation capacity utilizing gas, coal, and alternative fuel technologies, industrial co-generation and environmental compliance-driven projects. These services include integrated EPC and startup competencies that employ enhanced engineering and management tools.

Competition

        The market for our design, consulting, engineering construction, operations and maintenance, and program management services is highly competitive. We compete with large multinational firms as well as smaller firms with less resources who offer lower prices for particular services. In addition, some of our clients, including government agencies, occasionally utilize their own internal resources to perform design, engineering and construction services where we might have been the service provider.

        Numerous mergers and acquisitions in the engineering services industry have resulted in a group of large 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 movement towards larger program and contract awards and longer-term contract periods for a full suite of services, (e.g., 5 to 20 year full-service contracts). While these larger, longer, more comprehensive contracts require us to have substantially greater financial and human capital than in the past, we compete effectively for these full service programs.

        To our knowledge, no single company or group of companies currently dominates any significant portion of the engineering services markets. Competition in the engineering services industry is based on quality of performance, reputation, expertise, price, technology, customer relationships, range of service offerings and domestic and international office networks. For additional information regarding competition, see "Risk Factors—Our industry is highly competitive" in Item 1A of this Annual Report on Form 10-K.

Backlog

        The following table provides backlog revenues by operating segment for the years ended December 31:

($ in millions)
  2009   2008  

Government, Environment and Nuclear

  $ 4,629.3   $ 4,351.3  

Facilities and Infrastructure

    2,237.4     2,245.8  

Energy

    772.3     1,611.9  
           

  $ 7,639.0   $ 8,209.0  
           

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        We define backlog as contracted task orders less previously recognized revenue on such task orders. Our backlog does not reflect any future activities related to unconsolidated joint ventures. Many of our contracts require us to provide services that span over a number of fiscal quarters and often over fiscal years. 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. For more information on backlog, see "Risk Factors—Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future performance" in Item 1A of this Annual Report on Form 10-K. The decrease in Energy segment backlog is due to cancellations and suspension of work by clients due to the global economic recession.

Available Information

        In addition, for 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, and Current Reports on Form 8-K 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.

Item 1A.    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.

Risks Related to Our Business

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 revenue to fluctuate or result in uncollectible accounts receivable.

        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. In particular, the recent global economic downturn resulted in a slowdown in demand for our services in certain markets, most notably oil and gas, manufacturing and industrial clients. In the public sector, declines in state and tax revenues resulted in, and may continue to impact state and local government spending on civil infrastructure projects.

        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. Adverse credit market conditions could negatively impact our customers' ability to fund their projects and therefore utilize our services. These credit disruptions could negatively impact our backlog and profits. Furthermore, any financial difficulties suffered by our subcontractors or suppliers could increase our costs or adversely impact project schedules.

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        The uncertainty of large-scale domestic and international projects makes it particularly difficult to predict whether and when we will receive a contract award. The uncertainty of contract award timing can present difficulties in matching our workforce size with our contract needs. If an expected contract award is delayed or not received, we could incur costs resulting from reductions in staff or redundancy of facilities that would have the effect of reducing our profits.

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. Significant government budget deficts may result in delays or cancelations for some of our projects.

        Political instability in key regions around the world coupled with the U.S. federal government's commitment to the war on terror put federal discretionary spending at risk, including spending on infrastructure projects that are of particular importance to our business. At the state and local levels, the need to compensate for reductions in the federal matching funds, as well as financing of federal unfunded mandates, creates tremendous pressures to cut back on infrastructure project expenditures as well. While we have won and are continuing to seek federal contracts related to changing U.S. federal government priorities, such as unforeseen disaster response, rebuilding Iraq and Afghanistan, and some other projects that reflect current government focus, there can be no assurances that potential reduction of federal infrastructure project funding would not adversely affect our business.

Environmental regulations and related compliance investigations are expensive, may adversely impact our project performance and could expose us to environmental liability.

        The assessment, analysis, remediation, handling, management and disposal of hazardous substances represent a significant portion of our business and involve significant risks. As a result, 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 and related record keeping requirements. 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 and, 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, which can be very large. Although we have not been subject to any material civil or criminal penalties for violations of these laws to date, we have had to expend funds and divert resources to respond to reviews that have had a negative impact on the profitability of some projects. While the costs of these reviews have not been material to our consolidated results of operations in the past, additional or expanded reviews or proceedings relating to these laws, or any substantial fines or penalties, could affect our profitability and our stock price in the future, or could adversely affect our ability to compete for new business. Moreover, these laws and regulations may become more stringent, or may be more stringently enforced in the future, which could increase our costs of operations and reduce our profitability.

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

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

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

    the potential disruption of our ongoing business;

    preserving important strategic and customer relationships;

    the diversion of management's attention and other resources;

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

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

    the potential impairment of employee morale;

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

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

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, 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 have a strong bonding capacity. The issuance of bonds under any bonding facilities, however, is at the sureties' sole discretion. 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 ineligibility to bid for construction, EPC and fixed price projects, which could have a material adverse effect on our growth and financial condition.

It can be difficult or expensive to obtain the insurance we need for our business operations.

        As part of our business operations, we maintain insurance both as a corporate risk management strategy and to satisfy the requirements of many of our contracts. Insurance products go through market fluctuations and can become expensive and sometimes very difficult to obtain. Although in the past we have generally been able to cover our insurance needs, there can be no assurances that we can

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secure all necessary or appropriate insurance in the future at an affordable price for the required limits. Our failure to obtain such insurance could lead to uninsured losses that could materially adversely affect our results of operations or financial condition.

        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 have taken 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.

The success of our joint ventures depends on the satisfactory performance by our joint venture partners of their joint venture obligations. The failure of our joint venture partners to perform their joint venture obligations could impose on us additional financial and performance obligations that could result in reduced profits or, in some cases, significant losses for us with respect to the projects that our joint ventures undertake.

        We enter into joint ventures as part of our business. The success of these joint ventures depends, in large part, on the satisfactory performance of our joint venture partners meeting their obligations. If our joint venture partners fail to satisfactorily perform their joint venture obligations as a result of financial or other difficulties, the joint venture may be unable to adequately perform or deliver its contracted services. Under these circumstances, we may be required to make additional investments and provide additional services to ensure the adequate performance and delivery of the contracted services. These additional obligations could result in reduced profits or, in some cases, significant losses for us with respect to the joint venture.

        Occasionally, we participate in joint ventures where we are not a controlling party. In such instances we may have limited control over joint venture decisions and actions, including internal controls and financial reporting, which may have an impact on our business.

We may be restricted in our ability to access the cash flows or assets from our subsidiaries and joint venture partners upon which we are substantially dependent.

        We are dependent on the cash flows generated by our subsidiaries and, consequently, on their ability to collect on their respective accounts receivables. Substantially all of our cash flows necessary to meet our operating expenditures are generated by our subsidiaries. The financial condition and operational requirements of our subsidiaries may limit our ability to obtain cash from them. In addition, we conduct some operations through foreign subsidiaries and joint ventures. We do not manage all of these entities. Even in those joint ventures that we manage, we are often required to consider the interests of our joint venture partners in connection with decisions concerning the operations of the joint ventures. Arrangements involving these foreign subsidiaries and joint ventures may restrict us from gaining access to the cash flows or assets of these entities. In addition, these foreign subsidiaries and joint ventures sometimes face governmentally imposed restrictions on their abilities to transfer funds to us.

Our dependence on subcontractors and equipment manufacturers could adversely affect us.

        We rely on third-party subcontractors as well as third-party equipment manufacturers to complete our projects. To the extent that we cannot engage subcontractors or acquire equipment or materials, our ability to complete a project in a timely fashion or at a profit may be impaired. If the amount we are required to pay for these goods and services exceeds the amount we have estimated in bidding for fixed-price contracts, we could experience losses in the performance of these contracts. In addition, if a subcontractor or a manufacturer is unable to deliver its services, equipment or materials according to

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the negotiated terms for any reason, including the deterioration of its financial condition, we may be required to purchase the services, equipment or materials from another source at a higher price. These risks are potentially more significant in the current economic downturn if financial difficulties in our supply chain cause our services or equipment suppliers not to be able to support the demands and schedules of our business. This may reduce the profit we expect to realize or result in a loss on a project for which the services, equipment or materials were needed.

We face risks associated with our international business.

        In 2009 and 2008, we derived approximately 18% of our revenues from operations outside of the U.S.. Conducting business internationally is subject to a variety of risks including:

    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 and our ability to repatriate cash.

    Inconsistent regulations and diverse licensing and legal requirements may 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.

    Challenges in managing risks inherent in international operations, such as unique labor rules and corrupt business environments may cause inadvertent violations of laws that we may not immediately detect or correct.

        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, or 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 U.S. 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.

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Government contracts present risks of termination for convenience, adjustment of payments received, restrictions on ability to compete for government work and funding constraints.

        In 2009, we derived approximately 35% of our total revenues from contracts with the U.S. federal government and foreign national governments. We own equity interests in joint ventures with revenues attributable primarily or entirely to contracts with U.S. federal government clients. The following risks are inherent in U.S. federal government contracts:

    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.

    U.S. 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, or withhold a portion of fees due to us because of unsatisfactory audit outcomes. Audits have been completed on our federal contracts through December 31, 2006, and are continuing for subsequent periods. None of the audits performed to date on our federal contracts has resulted in any significant adjustments to our financial statements. It is possible, however, that an audit in the future could have an adverse effect on our consolidated financial statements.

    U.S. 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.

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

    In years when the U.S. federal government does not complete its budget process before the end of its fiscal year on September 30, government operations are typically funded pursuant to a "continuing resolution" that authorizes agencies of the U.S. government to continue to operate, but does not authorize new spending initiatives, which can delay the award of new contracts. These delays could have an adverse effect on our operating results.

    Substantial budget deficits currently experienced by the U.S. federal government may result in changes in government service procurement priorities or delays on contract awards.

    Many U.S. federal government programs require contractors to have security clearances. Depending on the level of required clearances, security clearances can be difficult and time-consuming to obtain. If we or our employees are unable to obtain or retain necessary security clearances, we may not be able to win new business, and our existing customers could terminate their contracts with us or decide not to renew them. To the extent we cannot obtain or maintain the required security clearances for our employees working on a particular contract, we may not derive the revenue anticipated from the contract, which could adversely affect our business and results of operations.

        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.

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Many of our projects are funded under federal, state and local government contracts and if we are found to have violated the terms of the government contracts or applicable statutes and regulations, we are subject to the risk of suspension or debarment from government contracting activities, which could have a material adverse affect on our business and results of operations.

        If we fail to comply with the terms of one or more of our government contracts or governmental statutes and regulations, or if any of our companies or employees are indicted or convicted on criminal charges (including misdemeanors) relating to any of our government contracts, in addition to any civil or criminal penalties and costs we may incur, we could be suspended or debarred from government contracting activities for a period of time. Some federal and state statutes and regulations provide for automatic debarment in certain circumstances, such as upon a conviction for a violation. The suspension or debarment in any particular case may be limited to the facility, contract or subsidiary involved in the violation or could be applied to the whole CH2M HILL family of companies if the circumstances were deemed severe enough. Even a narrow suspension or debarment could result in negative publicity that could adversely affect our ability to renew contracts and to secure new contracts, both with governments and private customers, which could materially and adversely affect our business and results of operations.

Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future performance.

        Our backlog at December 31, 2009 was $7.6 billion. We cannot assure that the revenues projected in our backlog will be realized or, if realized, will result in profits. Projects may remain in our backlog for an extended period of time prior to project execution and, once project execution begins, it may occur unevenly over the current and multiple future periods. In addition, 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. Therefore, project terminations, suspensions or reductions in scope may occur from time-to-time with respect to contracts reflected in our backlog. Some backlog reductions would adversely affect the revenue and profit we actually receive from contracts reflected in our backlog. Future project cancellations and scope adjustments could further reduce the dollar amount of our backlog and the revenues and profits that we actually earn.

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 2009, we derived approximately 32% of our revenues from "fixed price" contracts and approximately 43% of our revenues from time-and-materials contracts, most 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.

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Rising inflation, interest rates and/or construction costs could reduce the demand for our services as well as decrease our profit on our existing contracts, in particular with respect to our fixed price contracts.

        Because a significant portion of our revenues is earned from time-and-materials type contracts, guaranteed maximum price contracts and fixed price contracts, as well as contracts that base significant financial incentives on our ability to keep costs down, we bear some or all of the risk of rising inflation with respect to those contracts. In addition, rising inflation, interest rates and/or construction costs could reduce the demand for our services. Furthermore, if we expand our business into markets and geographic areas where "fixed price" work is more prevalent, inflation may have a larger impact on our results of operations in the future. Therefore, increases in inflation, interest rates and/or construction costs could have a material adverse impact on our business and financial results.

Our industry is highly competitive.

        We are engaged in a highly competitive business in which 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 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, wastewater and water resources markets, 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.

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. The market for these professionals is competitive in the U.S. and internationally. As some of our key personnel approach retirement age, we are developing and implementing aggressive succession plans. If we cannot attract and retain qualified personnel and effectively implement appropriate succession plans, we could have a material adverse impact on our business, financial condition, and results of operations. 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.

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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.

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.

Actual results could differ from the estimates and assumptions used to prepare our financial statements.

        In order to prepare financial statements in conformity with generally accepted accounting principles 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;

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

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

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

    Income tax provisions and related valuation allowances;

    Accruals for other estimated liabilities; and

    Asset valuations.

Systems failures could disrupt our business and impair our ability to effectively provide our products and services to our customers, which could damage our reputation and adversely affect our operating results.

        As a global company, we are heavily reliant on computer, information and communications technology and related systems in order to properly operate. From time to time, we may be subject to systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, intruders or hackers, computer viruses, natural disasters, power shortages or terrorist

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attacks. Such failures could cause loss of data and interruptions or delays in our or our customers' businesses and could damage our reputation. In addition, the failure or disruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our actual results could differ materially from those anticipated.

Our businesses could be materially and adversely affected by severe weather.

        Repercussions of severe weather conditions may include:

    Evacuation of personnel and curtailment of services;

    Increased labor and materials costs in areas resulting from weather-related damage and subsequent increased demand for labor and materials for repairing and rebuilding;

    Weather-related damage to our jobsites or facilities;

    Inability to deliver materials to jobsites in accordance with contract schedules; and

    Loss of productivity.

We typically remain obligated to perform our services after a natural disaster unless the contract contains a force majeure clause relieving us of our contractual obligations in such an extraordinary event. If we are not able to react quickly to force majeure, our operations may be affected significantly, which would have a negative impact on our financial condition, results of operations or cash flows.

Risks Related to Our Internal Market

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 sell their shares on the internal market, or that a regular trading market will 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 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. 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. For a detailed discussion of the transfer

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restrictions on our common stock, see "Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities" in Item 5 of this Annual Report on Form 10-K.

Our stock prices are and will continue to be determined by our Board of Directors' judgment of fair 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 cannot 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 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.

Future returns on our common stock may be significantly lower than historical returns.

        We cannot assure you that our common stock will provide returns in the future comparable to those achieved historically or that the price will not decline.

Changes in our business may increase the volatility of the stock price.

        The stock price could be subject to significant fluctuations. The volatility is expected to result from the impact on our stock price of:

    the mix of our commercial and international business as a proportion of our overall business and the volatility associated with companies in those business areas

    the impact of acquisitions, investments, joint ventures and divestitures that we may undertake

        Finally, the market factor used in the formula may change from quarter to quarter, as appropriate, to reflect changing business, financial, investment and market conditions.

Restrictions in our restated articles of incorporation and bylaws may discourage takeover attempts that you might find attractive.

        Our restated articles of incorporation and bylaws may discourage or prevent attempts to acquire control of us that are not approved by our board of directors, including transactions in which stockholders might receive a premium for their shares above the stock price. Our stockholders may view such a takeover attempt favorably. In addition, the restrictions may make it more difficult for our stockholders to elect directors not endorsed by management.

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Item 1B.    Unresolved Staff Comments

        We do not currently have any unresolved written comments from the Staff of the SEC regarding our periodic or current reports under the Securities Exchange Act of 1934.

Item 2.    Properties

        Our operations are conducted at both owned and leased properties in several countries throughout the world. Our corporate headquarters are located in Englewood, Colorado, where we lease approximately 155,000 square feet of space. The lease on our corporate headquarters building expires in 2017, with an option to extend the term twice for either a ten or five year term. The office space that we lease is based upon commercially available terms. 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 a party to various contractual guarantees and legal actions arising in the normal course of our business. From time to time, agencies of the U.S. government investigate whether we conduct our operations in accordance with applicable regulatory requirements. Because a large portion of our business comes from federal, state, and municipal sources, our procurement practices at times are subject to review and occasional investigations by U.S. and state attorneys offices. Such state and 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. These 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. While the outcomes of pending proceedings are often difficult to predict, as of the date of this filing, our management believes that no ongoing litigation or investigation is likely to result in a material adverse impact on our consolidated financial statements.

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

        On December 7, 2009, CH2M HILL held a Special Meeting of Shareholders (special meeting). The following six matters were submitted to a vote of CH2M HILL shareholders:

1.
A proposal to amend the Articles to effect changes in Board size and composition. This proposal was approved at the special meeting.

2.
A proposal to amend the Articles to effect changes in the Board structure and duration of directors' term in office. This proposal was approved at the special meeting.

3.
A proposal to amend the Articles to clarify the process for filling vacancies on the Board that occur between regularly scheduled meetings. This proposal was approved at the special meeting.

4.
A proposal to amend the Articles to expressly include indemnification protections already applicable to CH2M HILL's officers and directors. This proposal was approved at the special meeting.

5.
A proposal to amend the Articles to change the effect of abstention votes on director elections. This proposal was approved at the special meeting.

6.
A proposal to amend the Articles to effect certain non-material conforming changes. This proposal was approved at the special meeting.

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        Below is a table setting forth the voting results with respect to each of these proposals:

Matter
  Votes For   Votes Against   Votes
Withheld
  Abstentions   Broker
Non-
Votes
 

Amend the Articles to effect changes in Board size and composition

    22,673,167     3,171,564         48,766      

Amend the Articles to effect changes in the Board structure and duration of directors' term in office

    23,977,508     1,878,203         37,787      

Amend the Articles to clarify the process for filling vacancies on the Board that occur between regularly scheduled meetings

    25,065,691     792,051         35,756      

Amend the Articles to expressly include indemnification protections already applicable to CH2M HILL's officers and directors

    24,182,736     1,546,504         164,258      

Amend the Articles to change the effect of abstention votes on director elections

    23,467,869     1,962,691         462,938      

Amend the Articles to effect certain non-material conforming changes

    24,562,087     869,598         461,813      

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PART II

Item 5.    Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

        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, 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 to sell or purchase 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 are 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 (PDSPP)

        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.

        Our Internal Market is managed through an independent broker, currently NTB, 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 existing unsecured revolving line of credit do not play a role in the decision as to whether to buy 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 an under-subscribed market.

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        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 existing unsecured revolving line of credit do not play a role in the decision as to whether to 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 an over-subscribed market.

        If the aggregate purchase orders exceed the number of shares available for sale and we choose not to issue additional shares, the following prospective purchasers will have priority to purchase shares, in the order listed:

    Administrator of the PDSPP

    Trustees of the 401(k) Plan

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

        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 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 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

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to determine a price that would be a valid approximation of the fair value. In determining the fair 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 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 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 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 enterprise appraisal range provided quarterly by EFCG.

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        This "M" component of our stock price valuation remained unchanged since the inception of the current ownership program in 2000 until the November 9, 2007 valuation, when it was changed by the Board of Directors from 1.0 to 1.2.

        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 nonrecurring or unusual transactions from the calculation. 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 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 value of our common stock, it needs the ability to review unusual events that affect net income. In the past, our Board of Directors has excluded unusual items from the calculation of "P", including nonrecurring revenue from Kaiser-Hill Company, LLC and a write off of an investment in an international telecommunications company. Because "P" is calculated on a four quarter basis, an exclusion impacts the calculation of fair value for four consecutive quarters. Our Board of Directors may determine to exclude other future unusual or non-recurring items from the calculation of "P".

        Total Shareholders' Equity ("SE").    "SE" is total shareholders' equity, which includes intangible items, as set forth on our most recent available quarterly or annual financial statements. Our Board of Directors, at its discretion, may exclude from the Shareholders' Equity parameter nonrecurring or unusual transactions that the market would not generally take into account in valuing an equity security. The exclusions from Shareholders' Equity will generally be those transactions that are non-cash and are reported as "accumulated other comprehensive income (loss)" on the face of our consolidated balance sheet. For example, during 2008 and 2009, our Board of Directors excluded, and will continue to exclude, a non-cash adjustment to shareholders' equity related to the accounting for our defined benefit pension and other postretirement plans. Because this adjustment is unusual and will fluctuate from period to period, our Board of Directors excluded it from the "SE" parameter for stock valuation purposes. Similarly, other items that are reported as components of "accumulated other comprehensive income (loss)" are excluded from "SE" and include items such as unrealized gains/losses on securities and foreign currency translation adjustments.

        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. 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

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shares of common stock as reflected in the diluted earnings per share calculation in our financial statements for the past three years.

(in thousands)
Effective Date
  CS   YTD Weighted-
Average Number
of Shares as reflected in
Diluted EPS calculation
 

February 9, 2007

    34,570     33,047  

May 10, 2007

    34,611     33,027  

August 10, 2007

    34,690     33,254  

November 9, 2007

    34,943     33,326  

February 8, 2008

    35,322     33,508  

May 8, 2008

    35,617     34,440  

August 15, 2008

    35,858     34,568  

November 7, 2008

    35,929     34,545  

February 13, 2009

    35,735     34,376  

May 7, 2009

    35,314     32,396  

August 7, 2009

    34,931     32,533  

November 6, 2009

    34,608     32,577  

February 12, 2010

    34,424     32,599  

        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 value 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 quarter.

        We will also distribute the most current prospectus for our 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 and proxy information. Solicitations are distributed for voting instructions from shareholders and participants in the employee benefit plans each year.

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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:

Effective Date
  M   P   SE   CS   Price Per
Share
  Percentage
Price
Increase
(Decrease)
 
 
   
  (in thousands)
  (in thousands)
  (in thousands)
   
   
 

February 9, 2007

    1.0     38,901     375,206     34,570     19.63     4.7 %

May 10, 2007

    1.0     43,804     381,932     34,611     20.91     6.5 %

August 10, 2007

    1.0     48,656     412,028     34,690     22.82     9.1 %

November 9, 2007

    1.2     56,782     444,803     34,943     27.94     22.4 %

February 8, 2008

    1.2     64,550     466,926     35,322     30.32     8.5 %

May 8, 2008

    1.2     69,624     463,434     35,617     31.31     3.3 %

August 15, 2008

    1.2     68,031     464,561     35,858     30.71     (1.9 )%

November 7, 2008

    1.2     66,816     480,313     35,929     30.77     0.2 %

February 13, 2009

    1.2     71,918     438,318     35,735     31.10     1.1 %

May 7, 2009

    1.2     74,295     453,760     35,314     32.54     4.6 %

August 7, 2009

    1.2     82,561     474,858     34,931     35.72     9.8 %

November 6, 2009

    1.2     93,047     544,759     34,608     40.91     14.5 %

February 12, 2010

    1.2     90,816     544,913     34,424     40.52     (1.0 )%

Holders of Our Common Stock

        As of February 12, 2010, there were 8,291 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.

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 revolving line of credit, payment of dividends would represent a violation of our covenants.

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Issuer Purchases of Equity Securities

        The following table covers the purchases of our securities by CH2M HILL during the quarter ended December 31, 2009:

Period
  Total
Number of
Shares
  Average
Price Paid
per Share
  Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
 

October(a)

    13,119   $ 31.53          

November

                 

December(a)(b)

    846,716   $ 40.91          
                     
 

Total

    859,835   $ 40.77          
                     

(a)
Shares purchased by CH2M HILL from terminated employees.

(b)
Shares purchased by CH2M HILL in the Internal Market.

Item 6.    Selected Financial Data

        The selected financial data presented below under the captions "Selected Statement of Operations Data" and "Selected Balance Sheet Data" as of and for each of the years in the five-year period ended December 31, 2009, are derived from the consolidated financial statements of CH2M HILL Companies, Ltd. and subsidiaries, which financial statements have been audited by KPMG LLP, an independent registered public accounting firm. The consolidated financial statements as of December 31, 2009 and 2008, and the results of operations and cash flows for each of the years in the three-year period ended December 31, 2009, and the report thereon, are included in Item 15 of this Annual Report on Form 10-K. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, and the consolidated financial statements and related notes thereto, included in this Annual Report on Form 10-K.

        The Consolidated Financial Statements and selected financial data below reflect the adoption of new accounting standards related to accounting for non-controlling interests in consolidated financial statements; employee benefit plan expenses; income taxes; and acquisitions which affect the

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comparability of information presented. Certain prior years' amounts have been reclassified to conform to the current year presentation.

 
  Years Ended December 31,  
($ in millions, except per share data)
  2009   2008   2007   2006   2005  

Selected Statement of Operations Data:

                               

Revenues

 
$

5,499.3
 
$

5,589.9

(a)

$

4,376.2
 
$

4,006.9
 
$

3,152.2
 

Operating income

    174.5 (d)   89.2     77.2     64.2     136.9 (b)

Net income attributable to CH2M HILL

    103.7     32.1     66.0     38.9     81.6 (b)

Net income per common share

                               
 

Basic

  $ 3.25   $ 0.96   $ 2.01   $ 1.20   $ 2.56 (b)
 

Diluted

  $ 3.18   $ 0.93   $ 1.97   $ 1.18   $ 2.51 (b)

Selected Balance Sheet Data:

                               

Total assets

  $ 1,948.0   $ 1,971.8   $ 1,909.9   $ 1,279.5   $ 1,103.9  

Long-term debt, including current maturities

    52.3     175.9     197.8 (c)   0.6     4.1  

Total shareholders' equity

    524.8     386.7     464.5     368.9     322.0  

(a)
The majority of the increase in revenues at December 31, 2008 relates to a full year of revenue recognized from the operations of VECO and Trigon.

(b)
The increase in operating income, net income attributable to CH2M HILL and basic and diluted net income per common share was primarily the result of equity in earnings from Kaiser-Hill Company, LLC recorded during the year of approximately $95.7 million.

(c)
The majority of the increase in long-term debt outstanding at December 31, 2007 relates to the debt incurred to fund the acquisition of VECO and Trigon and the debt assumed in those business combinations.

(d)
The increase in 2009 was primarily attributable to the gain on the sale of certain assets of our Enterprise Management Solutions (EMS) business. During 2009, the net repayments of debt were approximately $123.5 million.

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 sources 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 could differ materially from those described

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herein. You should read this section in conjunction with Item 1A "Risk Factors" and the consolidated financial statements and notes thereto contained in this Annual Report on Form 10-K.

Business Summary

        We are one of the largest engineering services firms worldwide and are employee-owned. Our business provides engineering, construction, operation, major project management and technical services to municipal, state, federal and private sector clients worldwide. Founded in 1946, we operate in more than 80 countries and have 23,500 employees in offices worldwide.

        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 that our diversified business portfolio allows us to provide our clients with innovative project delivery using cost-effective approaches and advanced technologies.

        We believe that we are well positioned geographically, technically and financially to compete worldwide in the key markets we have elected to pursue and the clients we serve. The combination of our expanding domestic and global reach and diverse service portfolio also positions us to capitalize on client-driven changes in the market. For example, projects in the engineering services market are increasingly global in scope, and clients around the world are increasingly focused on strategic global issues such as supply chain management, procurement, sustainability, and cross-sector innovation. These issues cut across our client and service portfolios. We believe that our strategic focus on full service project delivery, using cross functional business capabilities and finding innovative technological solutions for clients, position us to capitalize on these market forces.

        Effective May 2009, our chief operating decision maker began making strategic and operating decisions with regards to assessing performance and allocating resources using a new reporting structure. This caused us to change our reportable segments. The three reportable segments are: Government, Environment and Nuclear (GEN), Facilities and Infrastructure, and Energy.

        Our GEN segment generally provides a comprehensive range of services to the U.S. Federal government as well as services to international governments and industry. Our Facilities and Infrastructure segment generally provides a comprehensive range of services to various industry segments, and state, local and provincial governments. Our Energy segment generally provides a comprehensive range of services to private sector clients.

Acquisitions

        We continuously monitor acquisition and investment opportunities that will expand our portfolio of services, add value to the projects undertaken for clients, or enhance our capital strength. During 2007 and the first quarter of 2008, we completed several acquisitions that expanded our services into new markets and new geographical locations. One of the 2007 acquisitions expanded our presence in the water sector providing wastewater management services. Two of the acquisitions during 2007 are part of our strategic initiative to expand operations into the energy industry. These services include engineering, construction and field support services, as well as engineering services for pipeline and related facilities. The acquisition made during the first quarter of 2008 expanded our transportation consulting engineering services providing marine, coastal, and municipal engineering services.

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Sale of Operating Assets

        During the third quarter of 2009, we completed the sale of certain assets of our Enterprise Management Solutions (EMS) business. We recorded a pre-tax gain of approximately $58.2 million. The operating results of our EMS business are reflected in the GEN operating segment until the date of sale.

Summary of Operations

Results of Operations for the Year Ended December 31, 2009 Compared to 2008

 
  2009   2008   Change  
($ in millions)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
 

Government, Environment and Nuclear

  $ 1,939.1   $ 44.8   $ 136.0     1,668.9   $ 41.3   $ 80.6   $ 270.2   16.2 % $ 3.5   $ 55.4   68.7 %

Facilities and Infrastructure

    1,947.4     18.5     71.0     1,986.6     (12.1 )   31.9     (39.2 ) (2.0 )%   30.6     39.1   122.6 %

Energy

    1,612.8     2.2     14.5     1,934.4     5.0     50.9     (321.6 ) (16.6 )%   (2.8 )   (36.4 ) (71.5 )%

Other

            (47.0 )           (74.2 )               27.2   36.7 %
                                               

Total

  $ 5,499.3   $ 65.5   $ 174.5   $ 5,589.9   $ 34.2   $ 89.2   $ (90.6 )     $ 31.3   $ 85.3      
                                               

Government, Environment and Nuclear

        Revenue increased for the year ended December 31, 2009, compared to the same period in the prior year by $270.2 million or 16.2%. The increase in revenue is substantially due to higher volume of work in Texas supporting Hurricane Ike recovery. Also contributing to the increase in revenues is the award of a domestic nuclear contract and the award of a program management project in the United Arab Emirates, partially offset by delays in finalizing newly awarded governmental contracts in our continental U.S. design build markets. Additionally, the revenue increase was partially offset by decreased revenues in the enterprise management solutions business due to the sale of certain assets of the business during the second quarter 2009.

        Operating income increased during the year ended December 31, 2009, compared to last year, by $55.4 million or 68.7%. The increase is primarily due to the $58.2 million gain on the sale of certain operating assets in addition to the startup of a domestic and an international nuclear project associated with the revenues discussed above. This was partially offset by the substantial completion of two nuclear projects.

Facilities and Infrastructure

        Revenue decreased for the year ended December 31, 2009, compared to last year by $39.2 million. The decrease is largely attributable to significant decreases in both full service and traditional service revenue in the manufacturing and life sciences markets. Additionally, the operations and maintenance business experienced delays and scope reductions on several projects as a result of budget constraints at municipal clients. The decrease is partially offset by growth in our North American consulting and international markets. North American consulting growth is due in part to design and program management services for municipal clients in the northeast and southwest United States, while international growth was driven primarily by large program management projects located in the United Kingdom and United Arab Emirates.

        Operating income increased significantly during 2009 compared to the prior year. During the second quarter of 2008, a significant loss was recognized on a transportation project within one of its joint ventures that is now substantially complete. The increase is also attributable to the increased volume within our transportation business discussed above. The increase in operating income is

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partially offset by schedule and cost impacts on two projects in the Middle East within our transportation and water businesses.

Energy

        Revenue decreased for the year ended December 31, 2009, compared to last year by $321.6 million or 16.6%. The decrease in revenue is primarily attributable to a decrease in full service revenue due to a slow down in economic activity and depressed oil and gas prices. Also contributing to the decrease were delays and contract value reductions in certain businesses and the cancellation of a project in Canada. The decrease is partially offset by increased volume in Alaska and the related work on the North Slope within our energy and chemicals business as well as two engineering-procurement-construction (EPC) power projects awarded during 2007 that are now in the peak of their construction cycles.

        Operating income decreased for the year ended December 31, 2009 compared to 2008 by $36.4 million, or 71.5%. The decrease in operating income is primarily attributable to the delays, contract value reduction and the project cancellation as discussed above which was partially offset by income derived from the two engineering, procurement and construction (EPC) projects discussed above.

Results of Operations for the Year Ended December 31, 2008 Compared to 2007

 
  2008   2007   Change  
($ in millions)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
 

Government, Environment and Nuclear

    1,668.9   $ 41.3   $ 80.6   $ 1,394.3   $ 30.0   $ 60.2   $ 274.6   19.7 % $ 11.3   $ 20.4   33.9 %

Facilities and Infrastructure

    1,986.6     (12.1 )   31.9     2,071.5     13.1     50.2     (84.9 ) (4.1 )%   (25.2 )   (18.3 ) (36.5 )%

Energy

    1,934.4     5.0     50.9     910.4     1.1     8.9     1,024.0   na     3.9     42.0   na  

Corporate

            (74.2 )           (42.1 )               (32.1 ) 76.2 %
                                               

Total

  $ 5,589.9   $ 34.2   $ 89.2   $ 4,376.2   $ 44.2   $ 77.2   $ 1,213.7       $ (10.0 ) $ 12.0      
                                               

Government, Environment and Nuclear

        Revenue increased for the year ended December 31, 2008, compared to the same period in 2007 by $274.6 million or 19.7%. There was a significant increase in work performed by our environmental service business attributable to strong performance in our consulting and full-service business in the southern U.S. and Canadian markets. The revenues in our government facilities and infrastructure business increased due to increased volumes in logistical projects domestically and in Asia from various new full service projects with the Army and Air Force. The positive results were partially offset by a decrease in due to the completion of the building demolition and final waste shipment at the Mound project site in July 2008. However, in 2008 we completed transition activities related to a significant remediation contract at the DOE's Hanford facility and work increased on this project.

        Operating income increased during the year ended December 31, 2008, compared to same period in 2007, by $20.4 million or 33.9%. The increase is partially attributable to increased operating income associated with the increased revenues discussed above as well as equity in earnings generated as a result of our performance related to the London 2012 Olympic Delivery Authority project. Our CH2M HILL-WG Idaho, LLC joint venture project continues to perform well and had earnings in excess of the prior year. The volume of services relating to a logistical project in Asia generated margins in excess of prior years'. The increase was partially offset by an increase of costs related to strategic initiatives as well as an increase in project delivery costs at the nuclear storage facility project in Canada.

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Facilities and Infrastructure

        Revenue decreased for the year ended December 31, 2008, compared to 2007 by $84.9 million or 4.1%. The decrease is primarily attributable to volume decreases caused by economic uncertainties as well as recent delays/cancellations of infrastructure projects in the U.S. The decrease is also due to the completion of several large projects late in 2007 in the manufacturing and life science business. The decrease is partially offset by growth in our international markets including Australia and United Arab Emirates related to the start up of large design/build projects and major program management assignments in those locations. Revenues relating to operations and maintenance contracts increased due to strong growth in our municipal services projects in the southern U.S. and an increase in our industrial operations and maintenance business.

        Operating income decreased during 2008 compared to the prior year by $18.3 million or 36.5%. The decrease is attributable to various project delivery issues and cost escalation in our design/build projects. During the second half of 2008, we recognized a significant loss on a Canadian transportation project held within one of our joint ventures. In addition, we also experienced significant cost growth on a water project in Australia and two plants in the western U.S., all of which were held within joint ventures and recognized in our equity in earnings. This decline in operating profit was partially offset by increased earnings associated with the revenues discussed above related to our water business having favorable growth in the international markets and our operations and maintenance business expanding its city service operations.

Energy

        Revenue increased significantly for the year ended December 31, 2008, compared to the same period in 2007 by $1,024.0 million. The operations of VECO and Trigon which were acquired in September and October 2007, respectively, accounted for $1,032.8 million of revenues in 2008 compared to approximately $245.9 million in 2007. The increase is also attributable to significant EPC power contracts with major utility companies in the U.S. and Australia.

        Operating income increased for the year ended December 31, 2008 compared to 2007 by $42.0 million, a significant change over the year. This increase is primarily attributable to the first full year of VECO and Trigon operations post-acquisition. They experienced strong operating performance during 2008; however the operating results were negatively impacted by non-cash amortization charges related to these acquisitions of $36.4 million and $10.0 million in 2008 and 2007, respectively. The operating income will continue to be affected by these non-cash costs for another five years; however, the adverse affect on operating income will decrease each year as the amortization expense decreases. In addition, this increase in profit was partially offset by increased overhead and business development costs in our power business in addition to incurring higher than expected start-up costs on two power projects. The Energy client group reduced overhead costs in response to the lower volume levels being experienced.

Other

        Other primarily includes corporate expenses which represent centralized management costs that are not allocable to individual operating segments and primarily include expenses associated with administrative functions such as executive management, legal, treasury, tax, and general business development efforts. Corporate expenses for the year ended December 31, 2009 were $47.0 million compared to $74.2 million in 2008, and $32.1 million in 2007. The decrease of $27.2 million in 2009 compared to the prior year is primarily attributable to our cost reduction efforts that began in the fourth quarter of 2008.

        The increase in 2008 compared to 2007 is consistent with our growth during 2008 and is primarily due to expenditures for strategic initiatives and business development efforts undertaken during the

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year. The increase was partially offset by cost reduction efforts that began in the fourth quarter of 2008.

Income Taxes

        The income tax provisions for the years ended December 31, 2009, 2008 and 2007 are as follows:

($ in millions)
  Income Tax
Provision
  Effective
Tax Rate
 

2009

  $ 46.4     30.9 %

2008

  $ 27.5     46.2 %

2007

  $ 11.7     15.1 %

        The effective tax rate for the year ended December 31, 2009 was 30.9% compared to 46.2% for the same period in the prior year. The current year rate was favorably impacted by the recognition of benefits from statute expirations, taxing jurisdiction settlements and by improved foreign operating results. Our effective tax rate continues to be impacted by deferred compensation, unrealized foreign net operating losses in selected countries, the Section 199 domestic production deduction and disallowed portions of meals and entertainment expenses. The significant decrease in the effective tax rate for the years ended December 31, 2009 and 2007 compared to 2008 was primarily due to the recognition of the research and experimentation credit as well as the extraterritorial income exclusion resulting from the settlement with the Internal Revenue Service and the difference in foreign operating losses between years.

        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, 2009 and 2008, we reported a valuation allowance of $26.0 million and $22.7 million, respectively.

Liquidity and Capital Resources

        Our primary sources of liquidity are cash flows from operations and borrowings under our unsecured revolving line of credit. Our primary uses of cash are to fund our working capital, capital expenditures and purchases of stock presented on our internal market. Based on our total cash and credit capacity available at December 31, 2009 of $593.3 million, we believe that we have sufficient resources to fund our operations, any future acquisition and capital expenditure requirements, as well as purchases of stock presented on our internal market, should we choose to do so, for the next 12 months and beyond.

        The following table reflects our available capacity as of December 31, 2009 (in millions):

Cash on hand

        $ 169.7  

Available for sale securities

          2.0  

Line of credit capacity

  $ 500.0        

Outstanding borrowings

           

Issued letters of credit

    (78.4 )      
             
 

Net credit capacity available

          421.6  
             
 

Total available capacity

        $ 593.3  
             

        Billings and collections on accounts receivable can impact our operating cash flows. We continuously monitor collection efforts and assess the allowance for doubtful accounts. Based on this assessment at December 31, 2009, we have deemed the allowance for doubtful accounts to be adequate; however, future economic conditions may adversely impact some of our clients' ability to pay

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our bills or the timeliness of their payments. Consequently, it may also impact our timing of cash receipts necessary to meet our operating needs.

        Cash generated in investing activities was $16.2 million in the twelve months ended December 31, 2009 compared to $96.8 million used in investing activities for the same period in 2008. The major uses of cash in investing activities relate to payments made for the purchase of property, plant, and equipment and investments in our joint ventures. We spent $37.7 million and $50.6 million on capital expenditures in 2009 and 2008, respectively. The net cash flows related to our investments in affiliates was consistent from period to period. In addition, during 2009, we received proceeds of $70.1 million for the sale of certain operating assets from our EMS business in the GEN segment.

        In connection with the acquisition of VECO, the purchase agreement established a holdback contingency of $70.0 million for the potential future payment of known and unknown contingencies that may arise within three years after the date of acquisition. Any amounts not paid for contigencies are payable to the sellers of VECO in various installments through September 2010. Since the date of acquisition, we have made certain distributions to the sellers of VECO and paid expenses on their behalf which were deemed distributions of the holdback contingency. At December 31, 2009 and 2008, the outstanding balance payable under the holdback contingency was $49.1 million and $51.3 million, respectively.

        We finance our operations, acquisitions and capital expenditures using a variety of capital vehicles. Depending on the applicable terms and conditions on new debt or equity offerings compared to the opportunity cost of using our internally generated cash we may either choose to finance new opportunities using leverage in the form of our revolving line of credit facility (RLOC), or other debt. In some instances we may use a combination of one or more of these financing mechanisms. As of December 31, 2009, our total outstanding debt obligations were approximately $52.3 million. There was not an outstanding balance on the RLOC. The majority of these obligations relate to the issuance of notes payable and mortgages related to property, plant and equipment.

        The RLOC provides for $500.0 million of available capacity that expires on August 31, 2012. The credit agreement includes an option to increase the initial borrowing capacity by up to an additional $250.0 million. The RLOC is used for general corporate purposes and permitted acquisitions. It also provides that up to $250.0 million is available for the issuance of letters of credit to support various operating activities. At our option, the credit agreement bears interest at a rate equal to either the London InterBank Offered Rate (LIBOR) plus 0.75% to 1.50%, or the lender's applicable base rate less a discount rate up to 0.25% based on our ratio of funded debt to earnings before interest, taxes, depreciation and amortization. A commitment fee of approximately 0.10% to 0.25% per year on the unused portion of the line of credit is payable based on our ratio of funded debt to earnings before interest, taxes, depreciation and amortization.

        During 2008, we entered into derivative financial transactions to reduce the effects of interest rate changes on cash flows due to changes in interest rates on our outstanding debt. As of December 31, 2009, we have two interest rate swaps with a total notional amount of $50.0 million. As of December 31, 2009, we had not designated these derivative instruments as effective hedges. Therefore, interest expense related to periodic settlements on these interest rate swaps and the change in fair market value of these interest rate swaps are recognized in earnings in the current period. These interest rate swaps expire in March 2010. The fair value of these derivatives is not significant.

        As of December 31, 2009, we had issued and outstanding letters of credit of $78.4 million reserved against the RLOC's borrowing base.

        For the twelve months ended December 31, 2009, repurchases of stock were $91.3 million compared to $109.4 million for the same period in the prior year. Additionally, the net repayments of

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debt were approximately $123.5 million during 2009 compared to approximately $29.7 million during 2008.

Depreciation and Amortization

        Depreciation and amortization expense for the year ended December 31, 2009 of $80.9 million was $11.1 million less than the same period in 2008. We recognized $53.5 million and $55.2 million of depreciation expense related to fixed assets during 2009 and 2008, respectively. We recognized $27.4 million and $36.8 million in amortization expense related to intangible assets during 2009 and 2008, respectively. A significant amount of the depreciation and amortization expense is attributable to fixed assets and intangible assets held in our Energy segment.

Off-Balance Sheet Arrangements

        We have interests in multiple joint ventures, some of which are considered variable interest entities. These entities facilitate the completion of 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. Our risk of loss on joint ventures is similar to what the risk of loss would be if the project was self-performed, other than the fact that the risk is shared with our partners.

        There were no substantial changes to other off-balance sheet arrangements or contractual commitments during the twelve months ended December 31, 2009.

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 post surety and bid bonds, which are contractual agreements issued by a surety, for the purpose of guaranteeing our performance on contracts and to protect owners and are subject to full or partial forfeiture for failure to perform obligations arising from a successful bid. We also carry substantial premium paid, traditional insurance for our business risks including professional liability and general casualty insurance and other coverage which is customary in our industry.

        We believe that we will be able to continue to have access to professional liability and general casualty insurance, as well as bonds, with sufficient coverage limits, and on acceptable financial terms necessary to support our business. The cost of such coverage has remained stable during 2009 and is expected to continue to be stable in the foreseeable future. See "Risk Factors—It can be difficult or expensive to obtain the insurance we need for our business operations" in Item 1A of this Annual Report on Form 10-K for additional information.

        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.

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Contractual Obligations

        Contractual obligations outstanding as of December 31, 2009 are summarized below:

 
  Amount of Commitment Expiration Per Period  
($ in millions)
Contractual Obligations
  Less than
1 Year
  1-3 Years   4-5 Years   Over 5 Years   Total
Amount
Committed
 

Letters of credit

  $ 58.3   $ 20.1   $   $   $ 78.4  

Total debt

    14.4     24.6     4.7     8.7     52.4  

Interest payments

    2.7     2.8     1.2     1.4     8.1  

Operating lease obligations

    155.6     242.1     178.3     317.1     893.1  

Surety and bid bonds

    1,071.8     367.2             1,439.0  
                       
 

Total

  $ 1,302.8   $ 656.8   $ 184.2   $ 327.2   $ 2,471.0  
                       

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 generally accepted accounting principles in the U.S. of America (U.S. 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 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 the Notes to Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K, 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, fixed-price and time-and-materials. We evaluate contractual arrangements to determine how to recognize revenue. 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 construction and engineering 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, actual total contract revenue and completion costs can vary from estimates.

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        Below is a description of the three basic types of contracts from which we may earn revenues using the percentage-of-completion method.

        Cost-Plus Contracts.    Cost-plus contracts can 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 revenue 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 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 revenue on fixed price contracts using the percentage-of-completion method. For operations and maintenance contracts, we recognize revenue 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 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, revenue under these contracts are recognized under the percentage-of-completion method. Revenue 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.

        Operations and Maintenance Contracts.    A portion of our contracts are operations and maintenance type contracts. Typically, these contracts may include fixed and variable components along with incentive fees. Revenue is recognized on operations and maintenance contracts on a straight-line basis over the life of the contract once we have an arrangement, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.

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 revenue 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

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increase our tax provision by recording a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable.

        In addition, the calculation of our income tax provision involves uncertainties in the application of complex tax regulations. For income tax benefits to be recognized, a tax position must be more likely than not to be sustained upon ultimate settlement.

Pension and Postretirement Employee Benefits

        We have two frozen and one active noncontributory defined benefit pension plans, a medical benefit plan for retired employees and other benefit plans. The determination of pension plan expense and the requirements for funding our pension plans are based on a number of actuarial assumptions. 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. For our medical benefit plan, which provides certain health care benefits to qualified retired employees, critical assumptions in determining the employee benefit expense are the discount rate applied to benefit obligations and the assumed health care cost trend rates used in the calculation of benefit obligations. 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.

        The funded status of a benefit plan is measured as the difference between plan assets at fair value and the benefit obligation. We record an asset for overfunded plans and a liability for underfunded plans, with a corresponding entry recorded to accumulated other comprehensive loss, net of tax.

Recently Adopted Accounting Standards

        In June 2009, the FASB issued authoritative guidance on the FASB Accounting Standards Codification (ASC) and the hierarchy of generally accepted accounting principles, codified in ASC 105, Generally Accepted Accounting Standards. ASC 105 will become the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF), and related accounting literature. This standard reorganizes the U.S. GAAP pronouncements into accounting topics and displays them using a consistent structure. This guidance impacts our financial statements and related disclosures as all references to authoritative accounting literature reflect the newly adopted codification. We adopted ASC 105 on September 30, 2009.

        In December 2007, the FASB issued authoritative guidance on business combinations, which was codified in ASC 805, Business Combinations. This standard establishes principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired in its financial statements. ASC 805 also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. We adopted ASC 805 on January 1, 2009. The adoption of this accounting principle did not impact our historical financial statements.

        On January 1, 2009, we adopted ASC 810 Consolidations, relating to accounting for noncontrolling interests in consolidated financial statements. Noncontrolling interests are defined as the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. We have several joint ventures with noncontrolling interests. ASC 810 establishes accounting and reporting standards for noncontrolling interests, the amount of consolidated net income attributable to the parent and to the noncontrolling interests, changes in a parent's ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. ASC 810 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the

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interests of the noncontrolling owners. We adopted the accounting provisions of ASC 810 on a prospective basis as of the beginning of our 2009 fiscal year. The presentation and disclosure requirements of ASC 810 were adopted on a retrospective basis, and resulted in a reclassification of minority interests to noncontrolling interests of $2.5 million at December 31, 2008.

        In May 2009, the FASB issued authoritative guidance on subsequent events, which was codified in ASC 855, Subsequent Events. ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. We adopted ASC 855 on June 30, 2009. Adoption did not have a material impact on consolidated financial statements but requires us to disclose the date to which we evaluate subsequent events.

        On December 30, 2008, the FASB issued authoritative guidance on disclosure requirements related to an employees' postretirement benefit plan assets, which was codified in ASC 715, Compensation-Retirement Benefit. The statement provides guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. ASC 715 requires employers of entities to disclose more information about how investment allocation decisions are made, major categories of plan assets, and the fair value techniques and inputs used to measure plan assets. We adopted ASC 715 on December 31, 2009 and those disclosures are included in the notes to the consolidated financial statements.

Recently Issued Accounting Standards

        In June 2009, the FASB issued authoritative guidance revising the existing guidance on the consolidation and disclosures of variable interest entities which was codified in ASC 810. Specifically, it changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar) rights should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity's purpose and design and the reporting entity's ability to direct the activities of the other entity that most significantly impact the other entity's economic performance. This guidance will require us to provide additional disclosures about its involvement with variable interest entities and continually assess any significant changes in risk exposure due to that involvement. ASC 810 is effective for us beginning January 1, 2010. We are in the process of evaluating the impacts of this statement.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        In the ordinary course of our operations we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates. This risk is monitored to limit the effect of foreign currency exchange rate and interest rate fluctuations on earnings and cash flows.

        Foreign currency exchange rates.    We are exposed to foreign currency 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. From time to time we engage in forward foreign exchange contracts to selectively manage these exposures through the use of derivative instruments to mitigate our market risk from these exposures. The objective of our risk management is to protect our cash flows related to sales of services from market fluctuations in current rates. A five percent change in foreign currency rates would not have a significant impact on our financial position, results of operations or cash flows.

        Interest rates.    Our interest rate exposure is generally limited to our unsecured revolving credit agreement, purchase of interest bearing short-term investments and the holdback contingency balance outstanding related to our acquisition of VECO. As of December 31, 2009 there was not a balance on the unsecured revolving credit agreement, but there was approximately $49.1 million outstanding on the holdback contingency. We have assessed the market risk exposure on these financial instruments and

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determined that any significant changes to the fair value of these instruments would not have a material impact on our consolidated results of operations, financial position or cash flows. Based upon the amount outstanding under the holdback contingency, a one percentage point change in the assumed interest rate would change our annual interest expense by approximately $0.5 million.

Item 8.    Financial Statements and Supplementary Data

        Reference is made to the information set forth beginning on page F-1.

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

        None.

Item 9A.    Controls and Procedures

Disclosure 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 Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act). 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, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's Annual Report on Internal Control Over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

        Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

        The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein on page F-2.

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Item 9B.    Other Information

        Not applicable.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance

        The following table shows our directors and executive officers as of December 31, 2009:

Name
  Age   Title

Robert W. Bailey

    54   Director

Robert G. Card

    57   Director and Senior Vice President

William T. Dehn

    63   Director and Vice President

Jerry D. Geist

    75   Director

Garry M. Higdem

    56   Director and Senior Vice President

Chad O. Holliday

    61   Director

John A. Madia

    55   Vice President and Chief Human Resources Officer

Lee A. McIntire

    60   Director and Chief Executive Officer

Margaret B. McLean

    47   Vice President and Chief Legal Officer

Michael C. McKelvy

    50   Senior Vice President

David B. Price

    64   Director

Jacqueline C. Rast

    48   Director and Senior Vice President

M. Catherine Santee

    48   Director and Chief Financial Officer

JoAnn Shea

    45   Chief Accounting Officer

Michael A. Szomjassy

    58   Director

Nancy R. Tuor

    61   Director and Vice President

Barry L. Williams

    65   Director

        The information required under this Item is contained in the Proxy Statement under the captions "Proposal 1—Election of Directors" and "Corporate Governance" and is incorporated herein by reference.

Item 11.    Executive Compensation

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

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

        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, and Director Independence

        The information required under this Item is contained in the Proxy Statement under the captions "Proposal 1—Election of Directors" and "Corporate Governance" and is incorporated herein by reference.

Item 14.    Principal Accounting Fees and Services

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

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PART IV

Item 15.    Exhibits and Financial Statement Schedules

        Documents Filed as Part of this Report

1.
Financial Statements

Report of Independent Registered Public Accounting Firm—KPMG LLP

  F-1

Report on Internal Control Over Financial Reporting—KPMG LLP

  F-2

Consolidated Balance Sheets at December 31, 2009 and 2008

  F-3

Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 and 2007

  F-4

Consolidated Statements of Shareholders' Equity and Comprehensive Income for the Years Ended December 31, 2009, 2008 and 2007

  F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007

  F-6

Notes to Consolidated Financial Statements

  F-7
2.
Financial Statement Schedules and Other

        In accordance with Regulation S-X Rule 3.09, we furnish separate financial statements of significant subsidiaries not consolidated and 50% or less owned persons. We are required to include the balance sheets of Golden Crossing Constructors Joint Venture and CLM Delivery Partner, Limited as of December 31, 2009 and 2008, and the related statements of income, partners' equity, and cash flows for each of the years in the three-year period ended December 31, 2009. In accordance with Regulation S-X Rule 3.09, as the unconsolidated subsidiaries are foreign filers and are private entities, the financial statements of these entities will be filed as an amendment to this periodic report within six months of filing.

        All financial statement schedules 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:

Articles of Incorporation and Bylaws

Exhibit
Number
  Description
  3.1   Restated Articles of Incorporation of CH2M HILL Companies, Ltd. filed as Exhibit A to the Registrant's Definitive Proxy Statement on schedule 14A on November 13, 2009 (File No. 333-60700)

 

3.2

 

Restated Bylaws of CH2M HILL Companies, Ltd. filed as Exhibit 3.1 on Current Report on Form 8-K, on November 12, 2009

Material Contracts—Management Agreements, Compensatory Plans or Arrangements

Exhibit
Number
  Description
  10.1   CH2M HILL Retirement and Tax-Deferred Savings Plan, as amended and restated effective June 1, 2000 filed as Exhibit 10.1 on Form 10-K, on March 29, 2000

 

*10.2

 

CH2M HILL Companies, Ltd. Supplemental Executive Retirement and Retention Plan effective January 1, 2009

 

10.3

 

CH2M HILL Companies, Ltd. Deferred Compensation Plan effective January 1, 2001 filed as Exhibit 10.23 on Form 10-K, on March 20, 2001

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Exhibit
Number
  Description
  10.4   CH2M HILL Companies, Ltd. Restricted Stock Policy and Administration Plan effective January 1, 2000 filed as Exhibit 10.25 on Form 10-K, on March 20, 2001

 

10.5

 

CH2M HILL Companies, Ltd. Short Term Incentive Plan effective January 1, 2000 filed as Exhibit 10.26 on Form 10-K, on March 20, 2001

 

10.6

 

CH2M HILL Companies, Ltd. 2004 Stock Option Plan filed as Appendix A on Schedule 14A Definitive Proxy Statement, on March 26, 2004

 

10.7

 

CH2M HILL Companies, Ltd. Payroll Deduction Stock Purchase Plan as amended and restated effective January 1, 2004 filed as Appendix B on Schedule 14A Definitive Proxy Statement, on March 26, 2004

 

10.8

 

CH2M HILL Companies, Ltd. Amended and Restated Executive Officers Long Term Incentive Plan effective January 1, 2005, as amended and restated on May 8, 2008 filed as Exhibit 10.1 on Form 10-Q on May 8, 2008

 

10.9

 

CH2M HILL Companies, Ltd. Amended and Restated Long Term Incentive (LTI) Plan effective January 1, 2005 filed as Exhibit 10.15 on form 10-K on February 23, 2007

 

10.10

 

Change of Control Agreement between CH2M HILL Companies, Ltd. and Robert G. Card filed as Exhibit 10.2 on Form 10-Q, on November 4, 2008

 

10.11

 

Change of Control Agreement between CH2M HILL Companies, Ltd. and Lee A. McIntire filed as Exhibit 10.3 on Form 10-Q, on November 4, 2008

 

10.12

 

Change of Control Agreement between CH2M HILL Companies, Ltd. and M. Catherine Santee filed as Exhibit 10.4 on Form 10-Q, on November 4, 2008

 

10.13

 

Change of Control Agreement between CH2M HILL Companies, Ltd. and Jacqueline C. Rast filed as Exhibit 10.5 on Form 10-Q, on November 4, 2008

 

10.14

 

Change of Control Agreement between CH2M HILL Companies, Ltd. and Michael E. McKelvy filed as Exhibit 10.6 on Form 10-Q, on November 4, 2008

 

10.15

 

Change of Control Agreement between CH2M HILL Companies, Ltd. and Garry M. Higdem filed as Exhibit 10.9 on Form 10-Q, on November 4, 2008

 

10.16

 

Change of Control Agreement between CH2M HILL Companies, Ltd. and JoAnn Shea filed as Exhibit 10.10 on Form 10-Q, on November 4, 2008

 

10.17

 

Change of Control Agreement between CH2M HILL Companies, Ltd. and Michael A. Szomjassy filed as Exhibit 10.12 on Form 10-Q, on November 4, 2008

 

*10.18

 

Change of Control Agreement between CH2M HILL Companies, Ltd. and Nancy R. Tuor

 

10.19

 

CH2M HILL Companies, Ltd. 2009 Stock Option Plan, effective January 1, 2009 filed as Exhibit 10.24 on Form 10-K, on February 24, 2009

45


Table of Contents

Material Contracts—Other

Exhibit
Number
  Description
  10.20   Contract with Neidiger, Tucker, Bruner, Inc., filed as Exhibit 99.1 on Form 8-K, on June 24, 2002

 

10.21

 

Amended and Restated Credit Facility closed on September 6, 2007, by and among CH2M HILL Companies, Ltd. and certain of its wholly owned subsidiaries. Wells Fargo Bank, National Association, as agent and sole arranger, and other lenders as party thereto (certain portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 24b-2 as promulgated under the Securities Exchange Act of 1934) filed as exhibit 10.1 to CH2M HILL's Current Report on Form 8-K (Commission File No. 000-27261) on September 13, 2007

 

10.22

 

Agreement of Purchase and Sale executed on September 26, 2007 (dated September 11, 2007) by and between CH2M HILL, Inc. and WELLS REIT II—South Jamaica Street, LLC filed as exhibit 10.44 to CH2M HILL's Current Report on Form 8-K (Commission File No. 000-27261) on September 27, 2007

 

10.23

 

Lease Agreement dated as of September 26, 2007, by and between CH2M HILL, Inc. and WELLS REIT II—South Jamaica Street, LLC filed as exhibit 10.43 to CH2M HILL's Current Report on Form 8-K (Commission File No. 000-27261) on September 27, 2007 and incorporated herein

Code of Ethics

Exhibit
Number
  Description
  *14.1   CH2M HILL Companies, Ltd. Ethics Code for Executive and Financial Officers

Subsidiaries of the Registrant

Exhibit
Number
  Description
  *21.1   Subsidiaries of CH2M HILL Companies, Ltd.

Consent of Experts and Counsel

Exhibit
Number
  Description
  *23.1   Consent of KPMG LLP

Power of Attorney

Exhibit
Number
  Description
  *24.1   Power of Attorney authorizing signature

46


Table of Contents

Rule 13a-14(a)/15d-14(a) Certifications

Exhibit
Number
  Description
  *31.1   Written Statement of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

*31.2

 

Written Statement of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Section 1250 Certifications

Exhibit
Number
  Description
  *32.1   Written Statement of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

 

*32.2

 

Written Statement of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

Additional Exhibits

Exhibit
Number
  Description
  99.1   Internal Market Rules, filed as Exhibit 99 to Registration Statement on Form S-1 on March 15, 1999 (File No. 333-74427)

*
Filed herewith

47


Table of Contents


Report of Independent Registered Public Accounting Firm

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

        We have audited the accompanying consolidated balance sheets of CH2M HILL Companies, Ltd. and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009. 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.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 provide a reasonable basis for our opinion.

        In our opinion, the consolidated 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, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

        As discussed in note 1 to the accompanying consolidated financial statements the Company adopted new accounting standards relating to noncontrolling interests in consolidated financial statements on January 1, 2009; employers' accounting for defined benefit pension and other postretirement plans on December 31, 2007; and accounting for uncertainty in income taxes on January 1, 2007.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CH2M HILL Companies, Ltd. and subsidiaries' internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2010 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

    KPMG LLP
Denver, Colorado
February 25, 2010
   

F-1


Table of Contents


Report of Independent Registered Public Accounting Firm

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

        We have audited CH2M HILL Companies, Ltd. and subsidiaries (the Company) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, CH2M HILL Companies Ltd. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by COSO.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CH2M HILL Companies, Ltd. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated February 25, 2010 expressed an unqualified opinion on those consolidated financial statements.

    KPMG LLP
Denver, Colorado
February 25, 2010
   

F-2


Table of Contents


CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands)

 
  December 31, 2009   December 31, 2008  

ASSETS

             

Current assets:

             
 

Cash and cash equivalents

  $ 169,717   $ 114,282  
 

Available-for-sale securities

    1,966     327  
 

Receivables, net—

             
   

Client accounts

    611,634     670,243  
   

Unbilled revenue

    416,927     446,763  
   

Other

    20,882     13,280  
 

Deferred income taxes

    47,964     50,246  
 

Prepaid expenses and other current assets

    64,510     82,395  
           
     

Total current assets

    1,333,600     1,377,536  

Investments in unconsolidated affiliates

    78,053     37,322  

Property, plant and equipment, net

    197,152     214,037  

Goodwill

    130,354     134,840  

Intangible assets, net

    61,275     88,819  

Deferred income taxes

    109,438     82,326  

Employee benefit plan assets and other

    38,150     36,961  
           
     

Total assets

  $ 1,948,022   $ 1,971,841  
           

LIABILITIES AND SHAREHOLDERS' EQUITY

             

Current liabilities:

             
 

Current portion of long-term debt

  $ 14,396   $ 24,652  
 

Accounts payable and accrued subcontractor costs

    407,222     447,747  
 

Billings in excess of revenue

    292,280     289,230  
 

Accrued payroll and employee related liabilities

    259,798     278,684  
 

Other accrued liabilities

    134,763     93,309  
           
     

Total current liabilities

    1,108,459     1,133,622  

Long-term employee related liabilities and other

    276,811     300,247  

Long-term debt

    37,943     151,223  
           
     

Total liabilities

    1,423,213     1,585,092  

Commitments and contingencies (Note 17)

             

Shareholders' equity:

             
 

Preferred stock, Class A $0.02 par value, 50,000,000 shares authorized; none issued

         
 

Common stock, $0.01 par value, 100,000,000 shares authorized; 31,373,955 and 31,604,336 issued and outstanding at December 31, 2009 and 2008, respectively

    314     316  
 

Additional paid-in capital

    12,803     9,947  
 

Retained earnings

    531,796     428,054  
 

Accumulated other comprehensive loss

    (32,743 )   (54,086 )
           
     

Total CH2M HILL common shareholders' equity

    512,170     384,231  
 

Noncontrolling interests

    12,639     2,518  
           
     

Total equity

    524,809     386,749  
       

Total liabilities and shareholders' equity

  $ 1,948,022   $ 1,971,841  
           

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

F-3


Table of Contents


CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Consolidated Statements of Income

(Dollars in thousands except per share amounts)

 
  For The Years Ended  
 
  December 31, 2009   December 31, 2008   December 31, 2007  

Gross revenue

  $ 5,499,318   $ 5,589,906   $ 4,376,238  

Equity in earnings of joint ventures and affiliated companies

    65,539     34,232     44,184  

Operating expenses:

                   
 

Direct cost of services and overhead

    (4,478,884 )   (4,507,738 )   (3,507,770 )
 

General and administrative

    (969,677 )   (1,027,225 )   (835,431 )
 

Gain on sale of operating assets

    58,235          
               

Operating income

    174,531     89,175     77,221  

Other income (expense):

                   
 

Interest income

    1,474     2,405     4,331  
 

Interest expense

    (7,487 )   (15,833 )   (5,728 )
               

Income before provision for income taxes

    168,518     75,747     75,824  

Provision for income taxes

    (46,420 )   (27,497 )   (11,722 )
               

Net income

    122,098     48,250     64,102  

Less: (Income) loss attributable to noncontrolling interests

    (18,356 )   (16,194 )   1,897  
               

Net income attributable to CH2M HILL

  $ 103,742   $ 32,056   $ 65,999  
               

Net income per common share:

                   
   

Basic

  $ 3.25   $ 0.96   $ 2.01  
   

Diluted

  $ 3.18   $ 0.93   $ 1.97  

Weighted average number of common shares:

                   
   

Basic

    31,907,861     33,486,512     32,864,202  
   

Diluted

    32,598,509     34,376,259     33,507,802  

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

F-4


Table of Contents


CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity and Comprehensive Income

(Dollars in thousands)

 
  Common Stock    
   
  Accumulated
Other
Comprehensive
Loss
   
   
 
 
  Additional
Paid-In
Capital
  Retained
Earnings
  Noncontrolling
Interest
  Total
Shareholders'
Equity
 
 
  Shares   Amount  

Balance at December 31, 2006

    32,109,200   $ 321   $ 46,330   $ 328,559   $ (9,173 ) $ 2,832   $ 368,869  
 

Net income

                  65,999         (1,897 )   64,102  
 

Other comprehensive income (loss):

                                           
   

Foreign currency translation adjustments

                      6,867     6     6,873  
   

Benefit plan adjustments

                      8,641         8,641  
   

Unrealized loss on equity investments

                      (1,284 )       (1,284 )
                                           
     

Comprehensive income

                                        78,332  
 

Investment in affiliates, net

                          23     23  
 

Impact of adoption of SFAS 158

                      (8,444 )       (8,444 )
 

Cumulative effect of change in accounting principle

                  1,440             1,440  
 

Shares issued in connection with stock based compensation and employee benefit plans

    2,091,252     21     45,180                 45,201  
 

Shares purchased and retired

    (1,042,384 )   (10 )   (20,914 )               (20,924 )
                               

Balance at December 31, 2007

    33,158,068     332     70,596     395,998     (3,393 )   964     464,497  
 

Net income

                  32,056         16,194     48,250  
 

Other comprehensive income (loss):

                                           
   

Foreign currency translation adjustments

                      (17,269 )   (923 )   (18,192 )
   

Benefit plan adjustments

                      (32,125 )       (32,125 )
   

Unrealized loss on equity investments

                      (1,299 )       (1,299 )
                                           
     

Comprehensive loss

                                        (3,366 )
 

Distributions to affiliates, net

                          (13,717 )   (13,717 )
 

Shares issued in connection with stock based compensation and employee benefit plans

    1,512,164     15     31,520                 31,535  
 

Shares purchased and retired

    (3,065,896 )   (31 )   (92,169 )               (92,200 )
                               

Balance at December 31, 2008

    31,604,336     316     9,947     428,054     (54,086 )   2,518     386,749  
 

Net income

                  103,742         18,356     122,098  
 

Other comprehensive income:

                                           
   

Foreign currency translation adjustments

                      16,426     1,145     17,571  
   

Benefit plan adjustments

                      3,925         3,925  
   

Unrealized gain on equity investments

                      992         992  
                                           
     

Comprehensive income

                                        144,586  
 

Distributions to affiliates, net

                          (9,380 )   (9,380 )
 

Shares issued in connection with stock based compensation and employee benefit plans

    1,973,413     20     81,564                 81,584  
 

Shares purchased and retired

    (2,203,794 )   (22 )   (78,708 )               (78,730 )
                               

Balance at December 31, 2009

    31,373,955   $ 314   $ 12,803   $ 531,796   $ (32,743 ) $ 12,639   $ 524,809  
                               

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

F-5


Table of Contents


CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Dollars in thousands)

 
  For The Years Ended  
 
  December 31,
2009
  December 31,
2008
  December 31,
2007
 

Cash flows from operating activities:

                   
 

Net income

  $ 122,098   $ 48,250   $ 64,102  
 

Adjustments to reconcile net income to net cash provided by operating activities:

                   
   

Depreciation and amortization

    80,889     92,022     35,119  
   

Gain on sale of operating assets

    (58,235 )        
   

Stock-based employee compensation

    67,738     43,654     51,266  
   

Loss on disposal of property, plant and equipment

    3,570     249     1,013  
   

Allowance for uncollectible accounts

    11,115     2,172     1,952  
   

Deferred income taxes

    (29,289 )   (24,789 )   (55,339 )
   

Undistributed earnings from unconsolidated affiliates

    (65,539 )   (34,232 )   (44,185 )
   

Distributions of income from unconsolidated affiliates

    52,808     55,407     38,114  
   

Changes in current assets and liabilities, net of businesses acquired:

                   
     

Receivables and unbilled revenue

    40,748     18,783     (53,869 )
     

Prepaid expenses and other

    13,510     22,376     (21,413 )
     

Accounts payable and accrued subcontractor costs

    (29,470 )   3,670     45,351  
     

Billings in excess of revenues

    9,331     24,613     104,264  
     

Employee related liabilities

    3,631     4,447     32,855  
     

Other accrued liabilities

    8,089     (4,860 )   (3,798 )
     

Current taxes payable

    (10,268 )   (83 )   (107,042 )
     

Long-term employee related liabilities and other

    19,755     7,817     (14,850 )
               
       

Net cash provided by operating activities

    240,481     259,496     73,540  

Cash flows from investing activities:

                   
 

Capital expenditures

    (37,663 )   (50,622 )   (20,679 )
 

Acquisitions and earnout payments, net of cash acquired

    (1,186 )   (24,570 )   (176,116 )
 

Investments in unconsolidated affiliates

    (68,366 )   (78,632 )   (13,343 )
 

Distributions of capital from unconsolidated affiliates

    41,597     54,858     19,342  
 

Proceeds from sale of operating assets

    70,971          
 

Purchases of investments

        (6,975 )   (224,440 )
 

Proceeds from sale of investments

    10,741     8,032     252,050  
 

Proceeds from sale-leaseback of buildings, net and other

    65     1,124     41,267  
               
       

Net cash provided by (used in) investing activities

    16,159     (96,785 )   (121,919 )

Cash flows from financing activities:

                   
 

Borrowings on long-term debt

    747,349     1,072,318     441,402  
 

Payments on long-term debt

    (870,885 )   (1,101,998 )   (350,736 )
 

Repurchases and retirements of stock

    (91,253 )   (109,395 )   (36,931 )
 

Excess tax benefits from stock-based compensation

    6,431     6,881     3,425  
 

Net contributions from noncontrolling interests

    (9,379 )   (13,717 )   23  
               
       

Net cash (used in) provided by financing activities

    (217,737 )   (145,911 )   57,183  

Effect of exchange rate changes on cash

    16,532     (26,623 )   10,096  
               

Increase (decrease) in cash and cash equivalents

    55,435     (9,823 )   18,900  

Cash and cash equivalents, beginning of year

    114,282     124,105     105,205  
               

Cash and cash equivalents, end of year

  $ 169,717   $ 114,282   $ 124,105  
               

Supplemental disclosures:

                   
 

Cash paid for interest

  $ 7,793   $ 14,860   $ 4,453  
 

Cash paid for income taxes

  $ 50,910   $ 48,295   $ 170,296  

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

F-6


Table of Contents


CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Summary of business and significant accounting policies

    Summary of Business

        CH2M HILL Companies, Ltd. and subsidiaries (CH2M HILL) is a project delivery firm founded in 1946. CH2M HILL provides engineering, consulting, design, construction, procurement, operations and maintenance, and program management services to federal, state, municipal and local government entities and U.S. federal government agencies, as well as private industry, in the U.S. and internationally. CH2M HILL is an employee-owned Oregon corporation. A substantial portion of CH2M HILL's professional fees are derived from projects that are funded directly or indirectly by government entities.

    Principles of Consolidation and Basis of Presentation

        The consolidated financial statements include the accounts of CH2M HILL and all of its wholly owned subsidiaries after elimination of all intercompany accounts and transactions. Partially owned affiliates and joint ventures are evaluated for consolidation. The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. of America (U.S. GAAP). Certain amounts in prior years' consolidated financial statements have been reclassified to conform to the current year presentation.

    Use of Estimates

        The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments, and assumptions. CH2M HILL believes that the estimates, judgments and assumptions made when accounting for items and matters such as, but not limited to, revenue recognition, self insurance accruals, employee benefits, legal and tax reserves, allowance for doubtful accounts, depreciation, amortization, asset valuations and contingencies are reasonable, based on information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. See Note 17—Commitments and Contingencies. Actual results could differ from our estimates.

    Capital Structure

        CH2M HILL has authorized 100,000,000 shares of common stock, par value $0.01 per share, and 50,000,000 shares of Class A preferred stock, par value $0.02 per share. CH2M HILL's Restated Bylaws and Articles of Incorporation provide for the imposition of certain restrictions on the stock including, but not limited to, the right but not the obligation to repurchase shares upon termination of employment or affiliation, the right of first refusal and ownership limits.

    Foreign Currency Translation

        All assets and liabilities of CH2M HILL's foreign subsidiaries are translated into U.S. dollars as of each balance sheet date. Revenues and expenses are translated at the average exchange rate for the period. Translation gains and losses are reflected in shareholders' equity as part of accumulated other comprehensive loss. Transaction gains and losses are recognized as incurred in the consolidated statements of income.

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of business and significant accounting policies (Continued)

    Subsequent Events

        CH2M HILL has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through February 25, 2010, the day the financial statements were issued.

    Revenue Recognition

        CH2M HILL earns its revenue from different types of contracts, including cost-plus, fixed-price and time-and-materials. CH2M HILL evaluates contractual arrangements to determine how to recognize revenue. CH2M HILL primarily performs engineering and construction related services and recognizes revenue for these 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 estimated. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the customer's written approval of such changes or separate documentation of change order costs that are identifiable. Losses on construction and engineering contracts in process are recognized in their entirety when the loss becomes evident and the amount of loss can be reasonably estimated.

        CH2M HILL also performs operations and maintenance services. Revenue is recognized on operations and maintenance contracts on a straight-line basis over the life of the contract once CH2M HILL has an arrangement, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.

    Unbilled Revenue and Billings in Excess of Revenue

        Unbilled revenue represents the excess of contract revenue recognized over billings to date on contracts in process. These amounts become billable according to the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project.

        Billings in excess of revenue represent the excess of billings to date, per the contract terms, over revenue recognized on contracts in process.

    Allowance for Uncollectible Accounts Receivable

        CH2M HILL reduces accounts receivable by estimating an allowance for amounts that may become uncollectible in the future. Management determines the estimated allowance for uncollectible amounts based on their judgments in evaluating the aging of the receivables and the financial condition of CH2M HILL's clients, which may be dependent on the type of client and the client's current economic conditions.

    Fair Value Measurements

        Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. CH2M HILL uses a three-tier valuation hierarchy based upon observable and non-observable inputs. The three levels are as follows:

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of business and significant accounting policies (Continued)

Level 1, unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date; Level 2, significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly; and Level 3, significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment.

    Income Taxes

        CH2M HILL accounts for income taxes utilizing an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax effects of events that have been recognized in the financial statements or tax returns. In estimating future tax consequences, CH2M HILL generally considers all expected future events other than enactment of changes in the tax laws or rates. Deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which differences are expected to reverse. Annually, CH2M HILL determines the amount of undistributed foreign earnings invested indefinitely in its foreign operations. Deferred taxes are not provided on those earnings. In addition, the calculation of tax assets and liabilities involves uncertainties in the application of complex tax regulations. For income tax benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

    Cash and Cash Equivalents

        CH2M HILL maintains a cash management system which provides for cash in the bank sufficient to pay checks as they are submitted for payment and invests cash in excess of this amount in interest bearing short-term investments such as certificates of deposit and commercial paper. These investments have original short-term maturities of less than three months and are considered cash equivalents in the consolidated balance sheets and statements of cash flows.

    Available-for-Sale Securities

        Available-for-sale securities are carried at fair value, with unrecognized gains and losses reported in accumulated other comprehensive loss, net of taxes. Losses on available-for-sale securities are recognized when a loss is determined to be other than temporary or when realized. Fair values are estimated based on market prices, where available, or dealer quotes.

    Property, Plant and Equipment

        All additions, including betterments to existing facilities, are recorded at cost. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of the assets and the related accumulated depreciation are removed from the accounts. Any gain or loss on retirements is reflected in operating income in the year of disposition.

        Depreciation for owned property is based on the estimated useful lives of the assets using the straight-line method for financial statement purposes. Useful lives for buildings range from 12 to 20 years. Furniture, fixtures and equipment are depreciated over their useful lives from 2 to 10 years. Leasehold improvements are depreciated over the shorter of their estimated useful life or the remaining term of the associated lease.

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of business and significant accounting policies (Continued)

    Other Long-Lived Assets

        CH2M HILL may acquire goodwill or other intangible assets in business combinations. Intangible assets are stated at fair value as of the date acquired in a business combination. CH2M HILL amortizes intangible assets with finite lives on a straight-line basis over their expected useful lives, currently up to seven years. Where there are no legal, regulatory, contractual or other factors that would reasonably limit the useful life of the intangible asset, such as goodwill or tradenames, management has determined that those intangible assets have an indefinite life and therefore are not amortized.

    Impairment of Long-Lived Assets

        CH2M HILL reviews its finite-lived intangibles and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Assets which are held and used in operations are considered impaired if the undiscounted future cash flows from the asset do not exceed the net book value. If impaired, the assets are written down to their estimated fair value. CH2M HILL generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows from the asset group using an appropriate discount rate.

        Goodwill and intangible assets with indefinite lives are tested for impairment on an annual basis, or on an interim basis if events or circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment charge is recognized for any amount by which the carrying amount of goodwill or intangible assets with indefinite lives exceeds their fair value.

    Accumulated Other Comprehensive Loss

        Accumulated other comprehensive loss consists of foreign currency translation adjustments, benefit plan adjustments, net of tax of $17.0 million, and unrealized gains/losses on equity investments, net of tax of $0.3 million. These components are included in the consolidated statements of shareholders' equity and comprehensive income. Taxes are not provided on the foreign currency translation gains and losses as deferred taxes are not provided on the unremitted earnings of the foreign subsidiaries to which they relate.

        The after-tax composition of accumulated other comprehensive loss consists of the following at December 31:

($ in thousands)
  2009   2008  

Foreign currency translation adjustments

  $ 9,618   $ (6,808 )

Benefit plan adjustments, net of tax

    (43,108 )   (47,033 )

Unrealized gain (loss) on equity investments, net of tax

    747     (245 )
           

  $ (32,743 ) $ (54,086 )
           

    Concentrations of Credit Risk

        Financial instruments which potentially subject CH2M HILL to concentrations of credit risk consist principally of cash and cash equivalents, short term investments and trade receivables. CH2M HILL's cash and cash equivalents and short term investments are maintained in accounts held primarily in the U.S. with some accounts held by major banks and financial institutions located in Europe,

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of business and significant accounting policies (Continued)

Canada and Asia. Concentrations of credit risk relative to trade receivables are limited due to our diverse client base, which includes the U.S. federal government, various states and municipalities and a variety of U.S. and foreign corporations operating in a broad range of industries and geographic areas.

        Contracts with the U.S. federal government and its prime contractors usually contain standard provisions for permitting the government to modify, curtail or terminate the contract for convenience of the government or such prime contractors if program requirements or budgetary constraints change. Upon such a termination, CH2M HILL is generally entitled to recover costs incurred, settlement expenses and profit on work completed prior to termination.

    Recently Adopted Accounting Standards

        In June 2009, the FASB issued authoritative guidance on the FASB Accounting Standards Codification (ASC) and the hierarchy of generally accepted accounting principles, codified in ASC 105, Generally Accepted Accounting Standards. ASC 105 will become the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF), and related accounting literature. This standard reorganizes the U.S. GAAP pronouncements into accounting topics and displays them using a consistent structure. This guidance impacts our financial statements and related disclosures as all references to authoritative accounting literature reflect the newly adopted codification. CH2M HILL adopted ASC 105 on September 30, 2009.

        In December 2007, the FASB issued authoritative guidance on business combinations, which was codified in ASC 805, Business Combinations. This standard establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. ASC 805 also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. CH2M HILL adopted ASC 805 on January 1, 2009 and will impact how prospective business combinations are recorded.

        On January 1, 2009, CH2M HILL adopted ASC 810, Consolidations related to accounting for noncontrolling interests in consolidated financial statements. Noncontrolling interests are defined as the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. ASC 810 establishes accounting and reporting standards for noncontrolling interests, the amount of consolidated net income attributable to the parent and to the noncontrolling interests, changes in a parent's ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. ASC 810 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. CH2M HILL adopted the accounting provisions of ASC 810 on a prospective basis as of the beginning of our 2009 fiscal year. The presentation and disclosure requirements of ASC 810 were adopted on a retrospective basis, and resulted in a reclassification of $2.5 million of minority interests to noncontrolling interests at December 31, 2008.

        In May 2009, the FASB issued authoritative guidance on subsequent events, which was codified in ASC 855, Subsequent Events. ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. CH2M HILL adopted ASC 855 on June 30, 2009.

        On December 30, 2008, the FASB issued authoritative guidance on disclosure requirements related to employees' postretirement benefit plan assets, which was codified in ASC 715, Compensation-

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of business and significant accounting policies (Continued)


Retirement Benefit. The statement provides guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. ASC 715 requires employers to disclose more information about how investment allocation decisions are made, major categories of plan assets, and the fair value techniques and inputs used to measure plan assets.

    Recently Issued Accounting Standards

        In June 2009, the FASB issued authoritative guidance revising the existing guidance on the consolidation and disclosures of variable interest entities which was codified in ASC 810. Specifically, it changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting rights (or similar) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity's purpose and design and the reporting entity's ability to direct the activities of the other entity that most significantly impact the other entity's economic performance. The guidance requires additional disclosures about CH2M HILL's involvement with variable interest entities (VIEs) and continually assess any significant changes in risk exposure due to that involvement. ASC 810 is effective for CH2M HILL beginning January 1, 2010, and is in the process of evaluating the impacts of this statement.

(2) Accounts receivable, net

        Receivables are stated at net realizable values and consist of receivables billed to clients as well as receivables for which revenue has been earned but has not yet been billed. The U.S. federal government accounted for approximately 13% of CH2M HILL's net receivables at December 31, 2009 and 2008. No other customers exceeded 10% of total receivables at December 31, 2009 or 2008.

        The change in the allowance for uncollectible accounts consists of the following for the years ended December 31:

($ in thousands)
  2009   2008   2007  

Balance at beginning of year

  $ 4,183   $ 6,963   $ 8,317  
 

Provision charged to expense

    11,115     2,172     1,952  
 

Accounts written off

    (2,049 )   (4,344 )   (3,436 )
 

Other

    (59 )   (608 )   130  
               

Balance at end of year

  $ 13,190   $ 4,183   $ 6,963  
               

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(3) Investments in affiliates

        CH2M HILL routinely enters into joint ventures to service the needs of its clients. Such arrangements are customary in the engineering and construction industry and generally are project specific and facilitate the completion of contracts that are jointly owned with CH2M HILL's 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. CH2M HILL's risk of loss on joint ventures is similar to what the risk of loss would be if the project was self-performed, other than the fact that the risk is shared with CH2M HILL's partner.

        CH2M HILL's interests in certain joint ventures are considered VIE's. A VIE is an entity with one or more of the following characteristics, (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support; (b) as a group, the holders of the equity investment at risk lack the ability to make certain decisions, or (c) the equity investors have voting rights that are not proportional to their economic interests. A VIE is required to be consolidated in the financial statements of the entity that is determined to be the primary beneficiary of the VIE. For VIE's where CH2M HILL is not the primary beneficiary and those entities which are unconsolidated voting interest entities, CH2M HILL accounts for its investments in affiliated unconsolidated companies primarily using the equity method of accounting.

        CH2M HILL has classified entities identified as VIE's into two groups, the first of which includes those entities that CH2M HILL has consolidated as CH2M HILL is considered the primary beneficiary, and the second group which includes those entities which CH2M HILL does not consolidate. As of December 31, 2009, the assets and liabilities of VIE's that were consolidated were $131.6 million and $90.2 million, respectively. As of December 31, 2009, the assets and liabilities of the identified VIE's that were not consolidated were $410.7 million and $289.1 million, respectively.

        As of December 31, 2009 and 2008, the investments in unconsolidated affiliates were $78.1 million and $37.3 million, respectively. CH2M HILL's proportionate share of net income or loss is included as equity in earnings of joint ventures and affiliated companies in the consolidated statements of income. In general, the equity investment in our joint ventures is equal to our current equity investment plus those entities' undistributed earnings. CH2M HILL provides certain services, including engineering, construction management and computer and telecommunications support, to these unconsolidated entities. Summarized financial information for CH2M HILL's unconsolidated affiliates as of and for the years ended December 31 is as follows:

($ in thousands)
  2009   2008  

FINANCIAL POSITION:

             
 

Current assets

  $ 665,068   $ 485,684  
 

Noncurrent assets

    82,408     85,056  
           

  $ 747,476   $ 570,740  
           
 

Current liabilities

 
$

480,668
 
$

413,177
 
 

Noncurrent liabilities

    31,711     50,255  
 

Owners' equity

    235,097     107,308  
           

  $ 747,476   $ 570,740  
           

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(3) Investments in affiliates (Continued)

 

($ in thousands)
  2009   2008   2007  

RESULTS OF OPERATIONS:

                   
 

Revenue

  $ 2,426,505   $ 2,370,361   $ 2,357,988  
 

Direct costs

    2,250,752     2,273,332     2,209,273  
               
 

Gross margin

    175,753     97,029     148,715  
 

General and administrative expenses

    3,228     5,901     5,403  
               
 

Operating income

    172,525     91,128     143,312  
 

Other income, net

    479     2,790     2,654  
               
 

Net income

  $ 173,004   $ 93,918   $ 145,966  
               

 

        CH2M HILL has the following significant investments in affiliated unconsolidated companies accounted for under the equity method of accounting:

 
  %Ownership  

Domestic:

       
 

AGVIQ—CH2M HILL Joint Venture I

    49.0 %
 

AGVIQ—CH2M HILL Joint Venture II

    49.0 %
 

AGVIQ—CH2M HILL Joint Venture III

    49.0 %
 

ATCS/CH2M HILL Joint Venture

    50.0 %
 

ATKINSON/CH2M HILL, Joint Venture

    30.0 %
 

CH2M HILL/URS Team, Joint Venture

    50.0 %
 

CH2M HILL/Western Summit Constructors Joint Venture

    50.0 %
 

CH2M—WG Idaho, LLC

    50.5 %
 

Clark-Nexsen/CH2M HILL—Norfolk

    50.0 %
 

Coastal Estuary Services

    49.9 %
 

Connecting Idaho Partners

    49.0 %
 

HEBL, Inc. 

    100.0 %
 

IAP-Hill, LLC

    25.0 %
 

Kaiser-Hill Company, LLC

    50.0 %
 

Milwaukee Transportation Partners, LLC

    50.0 %
 

MW/CH2M HILL, Joint Venture

    50.0 %
 

Nana/VECO Joint Venture

    50.0 %
 

National Security Technologies, LLC

    10.0 %
 

OMI/Thames Water Stockton, Inc. 

    50.0 %
 

Parsons CH2M HILL Program Management Consultants, Joint Venture

    47.5 %
 

Savannah River Remediation LLC

    15.0 %
 

Stockton D/B Joint Venture

    50.0 %
 

TIC/CH2M Culbertson Unit #1 Joint Venture

    25.0 %
 

TIC/LG Groton II Joint Venture

    25.0 %
 

Washington Closure, LLC

    30.0 %

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(3) Investments in affiliates (Continued)

 
  %Ownership  

Foreign:

       
 

CH2M HILL BECA, Ltd. 

    50.0 %
 

CH2M HILL—Kunwon PMC

    54.0 %
 

CH2M HILL/Parsons, Joint Venture

    50.0 %
 

CH2M PB JV, Pte, Ltd. 

    50.0 %
 

CHDE Water

    50.0 %
 

CHBM Water Joint Venture

    50.0 %
 

CLM Delivery Partner, Limited

    37.5 %
 

Coniisa

    33.3 %
 

CPG Consultants—CH2M HILL NIP Joint Venture

    50.0 %
 

ECC-VECO, LLC

    50.0 %
 

First Canadian Water Infrastructure

    49.0 %
 

Golden Crossing Constructors Joint Venture

    33.3 %
 

HWC Treatment Program Alliance Joint Venture

    50.0 %
 

JJ/CH2M HILL, a Joint Venture

    40.0 %
 

Luggage Point Alliance

    50.0 %
 

Maroochy Alliance Joint Venture

    40.0 %
 

OMI BECA, Ltd. 

    50.0 %
 

SMNM/VECO Joint Venture. 

    50.0 %
 

Transcend Partners, Ltd

    40.0 %
 

Water Purification Scheme Alliance Joint Venture

    50.0 %

(4) Property, plant and equipment

        Property, plant and equipment consists of the following as of December 31:

($ in thousands)
  2009   2008  

Land

  $ 23,980   $ 25,409  

Building and land improvements

    74,816     66,775  

Furniture, fixtures and equipment

    196,511     189,210  

Leasehold improvements

    65,023     44,387  
           

    360,330     325,781  

Less: Accumulated depreciation

    (163,178 )   (111,744 )
           
 

Net property, plant and equipment

  $ 197,152   $ 214,037  
           

        The depreciation expense reflected in the consolidated statements of income totaled $53.5 million in 2009, $55.2 million in 2008 and $24.2 million in 2007.

(5) Employee benefit plan assets

        CH2M HILL has investments that support deferred compensation arrangements and other employee benefit plans. These assets are recorded at fair market value using Level 2 inputs. As of

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Notes to Consolidated Financial Statements (Continued)

(5) Employee benefit plan assets (Continued)


December 31, 2009 and 2008, the fair market value of these assets was $36.2 million and $34.4 million, respectively.

(6) Acquisitions

        On September 7, 2007, CH2M HILL purchased all of the outstanding stock of VECO and substantially all of VECO's operating businesses as part of a strategic initiative to expand operations into the energy industry. The results of VECO have been included in the consolidated financial statements since that date and are included in the Energy operating segment. VECO's employees provide engineering, construction and field support services to the energy, resource and process industries in the U.S., Canada, Russia and the Middle East.

        In connection with the acquisition of VECO, the purchase agreement established a holdback contingency of $70.0 million for the potential future payment of known and unknown contingencies that may arise within three years after the date of acquisition. Any amounts not paid for contingencies are payable to the sellers of VECO in various installments through September 2010. Since the date of acquisition, CH2M HILL has made certain distributions to the sellers of VECO and paid expenses on their behalf which were deemed distributions of the holdback contingency. At December 31, 2009 and 2008, the outstanding balance payable under the holdback contingency was $49.1 million and $51.3 million, respectively.

        On February 29, 2008, CH2M HILL acquired Goldston Inc., a consulting engineering company providing marine, coastal, and municipal and transportation engineering services. The results of operations for this acquisition are reported in the Facilities and Infrastructure operating segment. The cost of the acquisition was $3.2 million.

(7) Sale of Operating Assets

        During the third quarter, CH2M HILL completed the sale of certain assets and liabilities of its Enterprise Management Solutions (EMS) business. The selling price was $86.6 million, net of amounts due for estimated working capital adjustments of $13.5 million. CH2M HILL recorded a pre-tax gain of $58.2 million during the three months ended September 30, 2009. As part of the EMS transaction, CH2M HILL and the purchasers entered into a preferred provider agreement whereby CH2M HILL guaranteed a certain volume of services to the purchasers over a five year period. To the extent CH2M HILL does not reach these volumes of services, it must compensate the purchasers. The results of operations for EMS prior to disposition were recorded in the Facilities and Infrastructure operating segment.

(8) Goodwill and intangible assets

        Goodwill and the tradename as of December 31 consist of the following:

($ in thousands)
  2009   2008  

Goodwill

  $ 130,354   $ 134,840  

Tradename

    20,326     20,326  
           

  $ 150,680   $ 155,166  
           

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Notes to Consolidated Financial Statements (Continued)

(8) Goodwill and intangible assets (Continued)

        Goodwill and the tradename were reviewed for impairment during the year ended December 31, 2009. Management's review of the recoverability of goodwill and the tradename indicated that there was no impairment during the year. Goodwill in the amount of $4.5 million was attributed to the assets of EMS which was sold during 2009.

        Intangible assets with finite lives consist of the following:

($ in thousands)
  Cost   Accumulated
Amortization
  Net finite-lived
intangible assets
 

December 31, 2009

                   

Contracted backlog

  $ 58,871   $ (56,946 ) $ 1,925  

Customer relationships

    57,922     (18,926 )   38,996  

Non-compete agreements and other

    902     (874 )   28  
               
 

Total finite-lived intangible assets

  $ 117,695   $ (76,746 ) $ 40,949  
               

December 31, 2008

                   

Contracted backlog

    58,871     (38,038 )   20,833  

Customer relationships

    57,922     (10,651 )   47,271  

Non-compete agreements and other

    1,100     (711 )   389  
               
 

Total finite-lived intangible assets

  $ 117,893   $ (49,400 ) $ 68,493  
               

        All intangible assets are being amortized over their expected lives up to seven years. The amortization expense reflected in the consolidated statements of income totaled $27.4 million, $36.8 million and $11.0 million in the years ended December 31, 2009, 2008 and 2007, respectively. These intangible assets are expected to be fully amortized in 2014. At December 31, 2009, the future estimated amortization expense related to these intangible assets is (in thousands):

Year Ending:
   
 

2010

  $ 10,227  

2011

    8,275  

2012

    8,275  

2013

    8,275  

2014

    5,897  
       

  $ 40,949  
       

(9) Fair value of financial instruments

        Cash and cash equivalents, receivables, unbilled revenue, accounts payable and billings in excess of revenue are carried at cost, which approximates fair value due to their short maturities. Fair values of equity investments and short-term investments (available-for-sale securities), where a readily determinable market value exists, have been estimated using Level 1 inputs and are equal to the carrying value. The fair value of long-term debt, including the current portion, is estimated based on Level 2 inputs.

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Notes to Consolidated Financial Statements (Continued)

(9) Fair value of financial instruments (Continued)

        The estimated fair values of CH2M HILL's financial instruments where carrying values do not approximate fair value as of December 31 are as follows:

 
  2009   2008  
 
  Carrying Amount   Fair Value   Carrying Amount   Fair Value  
($ in thousands)
   
   
   
   
 
 

Mortgage notes payable

  $ 16,672   $ 13,627   $ 28,651   $ 29,900  
 

Equipment financing

    35,572     33,951     47,103     47,103  
 

Shareholder notes payable

    95     61     121     84  

(10) Line of credit and long-term debt

        CH2M HILL is party to a credit agreement which provides for a $500.0 million revolving credit facility (RLOC) which expires on August 31, 2012. The credit agreement includes an option to increase the initial borrowing capacity by up to an additional $250.0 million. While the credit agreement may be used for general corporate purposes and permitted acquisitions, it also provides that up to $250.0 million is available for the issuance of letters of credit to support various trade activities. At CH2M HILL's option, the credit agreement bears interest at a rate equal to either LIBOR plus 0.75% to 1.50%, or the lender's applicable base rate less a discount rate up to 0.25% based on CH2M HILL's ratio of funded debt to earnings before interest, taxes, depreciation and amortization. A commitment fee of approximately 0.10% to 0.25% per year on the unused portion of the line of credit is payable based on CH2M HILL's ratio of funded debt to earnings before interest, taxes, depreciation and amortization. As of December 31, 2009, CH2M HILL did not have any borrowings outstanding on the RLOC. At December 31, 2009, issued and outstanding letters of credit of $78.4 million were reserved against the borrowing base of the credit agreement, compared to $51.3 million at December 31, 2008.

        In the first quarter of 2008, CH2M HILL entered into two derivative financial transactions to reduce the effects of interest rate changes on cash flows due to changes in interest rates on its outstanding debt. These instruments were entered into to fix interest rate exposure on $50.0 million of the RLOC. CH2M HILL has not designated these derivative instruments as effective hedges, and therefore, interest expense related to periodic settlements on these interest rate swaps and the change in fair value of these swap agreements is recognized in interest income and other in the current period. These interest rate swaps mature in March 2010. The fair value of these derivative liabilities are approximately $0.3 million at December 31, 2009.

        The RLOC agreement contains financial and other covenants, as well as limitations on other indebtedness, liens, acquisitions, mergers and dispositions. The credit agreement also contains customary events of default, including a default of covenant, a material inaccuracy of representations or warranties, bankruptcy events, and a change in control. As of December 31, 2009, CH2M HILL was in compliance with the covenants required by the credit agreement.

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Notes to Consolidated Financial Statements (Continued)

(10) Line of credit and long-term debt (Continued)

        CH2M HILL's nonrecourse and other long-term debt, as of December 31 consist of the following:

($ in thousands)
  2009   2008  

Nonrecourse:

             
 

Mortgage payable in monthly installments to July 2020, secured by real estate, rents and leases. The note bears interest at 5.35%

  $ 13,379   $ 14,277  
 

Mortgage payable in monthly installments to December 2015, secured by real estate. The note bears interest at 6.59%

    3,293     3,734  
 

Mortgage payable in monthly installments to April 2009, secured by investment securities. The note bears interest at 8.06%

        10,640  
           

    16,672     28,651  

Other:

             
 

Revolving credit facility

        100,000  
 

Equipment financing, due in monthly installments to December 2014, secured by equipment. These notes bear interest ranging from 6.00% to 8.00%

    35,572     47,103  
 

Shareholder notes payable

    95     121  
           

Total debt

    52,339     175,875  

Less current portion of debt

    14,396     24,652  
           

Total long-term portion of debt

  $ 37,943   $ 151,223  
           

        At December 31, 2009, future principal payments on long-term debt are as follows (in thousands):

Year Ending:
   
 

2010

  $ 14,396  

2011

    14,129  

2012

    10,488  

2013

    2,649  

2014

    2,048  

Thereafter

    8,629  
       

  $ 52,339  
       

        In connection with the acquisition of VECO, CH2M HILL previously held U.S. Treasury securities as a contractual requirement for an outstanding nonrecourse mortgage. Because CH2M HILL had scheduled the maturity of these investments to meet debt service requirements of certain nonrecourse debt and had the ability and intent to hold these investments until maturity, these investments were classified as held-to-maturity and were included in prepaid and other assets. These investments matured in 2009 and the proceeds were utilized to repay the associated mortgage note.

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Notes to Consolidated Financial Statements (Continued)

(11) Operating lease obligations

        CH2M HILL has entered into certain noncancellable leases, which are being accounted for as operating leases. At December 31, 2009, future minimum lease payments are as follows (in thousands):

Year Ending:
   
 

2010

  $ 155,598  

2011

    128,698  

2012

    113,480  

2013

    97,295  

2014

    80,982  

Thereafter

    317,075  
       

  $ 893,128  
       

        Rental expense charged to operations was $138.9 million, $121.2 million and $119.4 million during the years ended December 31, 2009, 2008 and 2007, respectively, including amortization of a deferred gain of $4.3 million in the years ended December 31, 2009 and 2008, and $1.4 million in the year ended December 31, 2007 related to the sale-leaseback of our corporate offices. Certain of CH2M HILL's operating leases contain provisions for a specific rent-free period. CH2M HILL accrues rental expense during the rent-free period based on total expected rent payments to be made over the life of the related lease.

(12) Income taxes

        Income before provision for income taxes for the years ended December 31 consists of the following:

($ in thousands)
  2009   2008   2007  

U.S. income

  $143,190   $ 55,891   $ 72,463  

Foreign income

  6,972     3,662     5,258  
               

Income before taxes

  $150,162   $ 59,553   $ 77,721  
               

        The provision for income taxes for the years ended December 31 consists of the following:

($ in thousands)
  2009   2008   2007  

Current income tax expense:

                   
 

Federal

  $ 49,035   $ 38,715   $ 29,967  
 

Foreign

    14,138     (1,154 )   12,983  
 

State and local

    12,653     14,725     12,438  
               
   

Total current income tax expense

    75,826     52,286     55,388  

Deferred income tax benefit:

                   
 

Federal

    (23,291 )   (22,507 )   (36,819 )
 

Foreign

    (2,646 )   2,462     3,797  
 

State

    (3,469 )   (4,744 )   (10,644 )
               
   

Total deferred income tax benefit

    (29,406 )   (24,789 )   (43,666 )
               
     

Total income tax expense

  $ 46,420   $ 27,497   $ 11,722  
               

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Notes to Consolidated Financial Statements (Continued)

(12) Income taxes (Continued)

        The reconciliations of income tax computed at the U.S. federal statutory tax rate to CH2M HILL's effective income tax rate for the years ended December 31 are as follows:

($ in thousands)
  2009   2008   2007  

Pretax income

  $ 150,162   $ 59,553   $ 77,721  

Federal statutory rate

    35 %   35 %   35 %
               

Expected tax expense

    52,556     20,844     27,202  

Reconciling items:

                   
 

State income taxes, net of federal benefit

    7,763     5,620     2,064  
 

Nondeductible meals and entertainment

    3,035     3,563     2,277  
 

Section 199—Domestic manufacturer deduction

    (4,515 )   (2,737 )   (2,374 )
 

Compensation

    (6,114 )   1,483     (773 )
 

Subsidiary earnings

    (7,520 )   (6,610 )   (2,849 )
 

Permanent expenses, exclusions and credits

    (6,660 )   (2,743 )   4,551  
 

Foreign permanent expenses, taxes, credits and other

    8,442     7,136     (1,164 )
 

Tax settlements

            (15,259 )
 

Other

    (567 )   941     (1,953 )
               

Provision for income taxes

    46,420   $ 27,497   $ 11,722  
               

        The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31 are as follows:

($ in thousands)
  2009   2008  

Deferred tax assets:

             
 

Net operating loss carryforwards

  $ 23,143   $ 14,962  
 

Investments in affiliates

        1,471  
 

Deferred gain, insurance and other

    18,397     15,734  
 

Accrued employee benefits

    176,586     165,253  
           
 

Total deferred tax assets

    218,126     197,420  
 

Valuation allowance

    (26,019 )   (22,700 )
           
 

Net deferred tax assets

    192,107     174,720  

Deferred tax liabilities:

             
 

Investments in affiliates

    6,192      
 

Depreciation and amortization

    28,513     42,148  
           
 

Net deferred tax liabilities

    34,705     42,148  
           
   

Net deferred tax assets

  $ 157,402   $ 132,572  
           

        A valuation allowance is required to be established for those deferred tax assets where it is more likely than not that they will not be realized. The above valuation allowances relate primarily to operating loss carryforwards from foreign net operating losses of $77.4 million and $46.2 million for the years ended December 31, 2009 and 2008, respectively. Taxable income within the applicable foreign subsidiary must be reported in order for the deferred tax asset to be realized. The foreign net operating losses can be carried forward for varying terms depending on the foreign jurisdiction.

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Notes to Consolidated Financial Statements (Continued)

(12) Income taxes (Continued)

        Undistributed earnings of CH2M HILL's foreign subsidiaries amounted to approximately $57.7 million at December 31, 2009. These earnings are considered to be permanently reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been made. Upon distribution of those earnings, CH2M HILL would be subject to U.S. income taxes (subject to a reduction for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable; however, the potential foreign tax credit associated with the deferred income would be available to reduce the resulting U.S. tax liabilities.

        The tax benefit from share-based compensation awards for the years ended December 31, 2009 and 2008 was $6.4 million and $6.9 million, respectively. These amounts are reflected as additional paid-in capital in the consolidated statements of shareholders' equity and comprehensive income and are reported as financing activities in the 2009 and 2008 consolidated statements of cash flows.

        As of December 31, 2009 and 2008, CH2M HILL had $28.2 million and $25.4 million, respectively, recorded as a liability for uncertain tax positions. CH2M HILL recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2009 and 2008, CH2M HILL has approximately $4.5 million and $3.8 million, respectively, of accrued interest and penalties related to uncertain tax positions. A reconciliation of the remaining beginning and ending amount of uncertain tax positions as of December 31, 2009 is as follows (in thousands):

Balance at December 31, 2008

  $ 21,641  

Additions for current year tax positions

    6,900  

Additions for prior year tax positions

    1,026  

Reductions for prior year tax positions

    (236 )

Settlement with taxing authorities

    (198 )

Reductions as a result of lapse of applicable statue of expirations

    (5,381 )
       

Balance at December 31, 2009

  $ 23,752  
       

        Included in the balance at December 31, 2009, are $23.3 million in uncertain tax positions that if recognized would affect the effective tax rate. It is also possible that the reserve could change within twelve months of the reporting date related to federal and state research and experimentation tax credits as a result of tax authority settlement and statute expiration. The estimated range of unrecognized change is zero to $1.5 million as of December 31, 2009. While our 2009 effective tax rate was favorably impacted by the recognition of additional research and experimentation tax credits for prior years, an additional liability for the uncertainty related to current year research and experimentation credits was also established.

        CH2M HILL files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, CH2M HILL is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S. and Canada. With few exceptions, CH2M HILL is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities in major tax jurisdictions for years before 2002.

(13) Earnings per share

        Basic earnings per share (EPS) excludes the dilutive effect of common stock equivalents and is computed by dividing net income by the weighted-average number of shares outstanding during the

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Notes to Consolidated Financial Statements (Continued)

(13) Earnings per share (Continued)


period. Diluted EPS includes the dilutive effect of common stock equivalents, which consists of stock options, and is computed using the weighted-average number of shares and common stock equivalents outstanding during the period.

        Reconciliations of basic and diluted EPS for the years ended December 31 are as follows:

($ in thousands)
  2009   2008   2007  

Numerator:

                   
 

Net income

  $ 103,742   $ 32,056   $ 65,999  
               

Denominator:

                   
 

Basic weighted-average shares outstanding

    31,908     33,487     32,864  
 

Dilutive effect of common stock equivalents

    691     889     644  
               
 

Diluted adjusted weighted-average shares outstanding, assuming conversion of common stock equivalents

    32,599     34,376     33,508  
               

Basic net income per share

  $ 3.25   $ 0.96   $ 2.01  
               

Diluted net income per share

  $ 3.18   $ 0.93   $ 1.97  
               

(14) Employee benefit plans

        Effective January 1, 2009, CH2M HILL amended and restated the CH2M HILL Companies, Ltd. Deferred Compensation Retirement Plan (DCRP) to form the CH2M HILL Supplemental Executive Retirement and Retention Plan (SERP). The Plan is intended to be unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Title I of the Employee Retirement Income Security Act (ERISA). Under this plan, each participant's account consists of various contributions made to the account by CH2M HILL on behalf of the participant. CH2M HILL selects the investment vehicles available under the plan. Compensation expense was $0.1 million for the year ended December 31, 2009. For the years ended December 31, 2008 and 2007, compensation expense for the DCRP was $0.1 million.

        In addition to the SERP, CH2M HILL has two nonqualified deferred compensation plans that provide benefits payable to officers and certain highly compensated employees at specified future dates, upon retirement, or death. Under one plan, a participant could elect to defer base compensation and incentive compensation, in cash or common stock. Under the other plan, a participant, whose 401(k) Plan contributions are limited by the ERISA, could elect to defer additional base compensation to which CH2M HILL may make a matching contribution. It is also used by CH2M HILL to provide additional retirement benefits for certain of its senior executives at levels to be determined from time-to-time by the Board of Directors.

        These deferred compensation plans are unfunded; therefore, benefits are paid from the general assets of CH2M HILL. The participant's cash deferrals earn a return based on the participant's investment in several hypothetical investment options. Each hypothetical investment option is based on an investment fund that is similar to the 401(k) Plan. All deferrals of common stock must remain invested in common stock and are distributed in common stock.

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Notes to Consolidated Financial Statements (Continued)

(14) Employee benefit plans (Continued)

        Compensation expense for the two nonqualified plans was $8.4 million for the year ended December 31, 2009. During 2008, the return on the plan assets exceeded the liability due to plan participants by $14.3 million and thus compensation expense was decreased by this amount. Compensation expense was $4.3 million for the years ended December 31, 2007.

Stock Option Plans

        Effective January 1, 2009, the Board of Directors and shareholders approved the CH2M HILL Companies, Ltd. 2009 Stock Option Plan (2009 Stock Option Plan). The 2009 Stock Option plan reserves 3,000,000 shares of CH2M HILL common stock for issuance upon exercise of stock options granted under the plan. All options outstanding under the previous plans (1999 and 2004 Stock Option Plans) to the extent cancelled, expire or for any other reason cease to be exercisable, shall roll into the 2009 Stock Option Plan and can become available in addition to the 3,000,000 options reserved.

        Stock options are granted at an exercise price equal to the fair market value of CH2M HILL's common stock at the date of grant. Stock options granted generally become exercisable 25%, 25% and 50% after one, two and three years, respectively, and have a term of five years from date of grant. The following table summarizes the activity relating to the 2009 Stock Option Plan and the 1999 and 2004 Stock Option Plans during 2009:

Stock Options:
  Number of Shares   Weighted Average Exercise Price  

Outstanding at December 31, 2008

    3,939,294   $ 21.21  

Granted

    661,091   $ 34.90  

Exercised

    (913,893 ) $ 15.84  

Forfeited

    (155,524 ) $ 25.45  

Expired

    (52,203 ) $ 16.25  
             

Outstanding at December 31, 2009

    3,478,765   $ 25.09  
             

Exercisable at December 31, 2009

    1,614,879   $ 19.91  

Available for future grants

    2,502,827        

        The weighted-average remaining contractual term for all options outstanding at December 31, 2009 and 2008 was 2.7 years, and the aggregate intrinsic value was $55.0 million and $38.1 million, respectively. The weighted-average remaining contractual term for options vested and exercisable at December 31, 2009 and 2008 was 1.7 years, and the aggregate intrinsic value was $33.9 million and $23.7 million, respectively. The remaining unrecognized compensation expense related to nonvested awards as of December 31, 2009 is $6.0 million. CH2M HILL expects to recognize this compensation expense over the weighted average remaining recognition period of 1.5 years, subject to forfeitures that may occur during that period.

        CH2M HILL received $3.9 million, $3.5 million and $2.9 million from options exercised during the years ended December 31, 2009, 2008 and 2007, respectively. CH2M HILL's stock option plans also allow participants to satisfy the exercise price by tendering shares of company stock that have been owned by the participants for at least six months. The intrinsic value associated with exercises was $11.8 million, $13.1 million and $8.7 million during the years ended December 31, 2009, 2008 and 2007, respectively.

        CH2M HILL measures the fair value of each stock option grant at the date of grant using a Black-Scholes option pricing model. The weighted-average grant date fair value of options granted during the

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Notes to Consolidated Financial Statements (Continued)

(14) Employee benefit plans (Continued)


years ended December 31, 2009 and 2008 was $5.58 and $5.90, respectively. The following assumptions were used in determining the fair value of options granted during 2009 and 2008:

 
  2009   2008  

Risk-free interest rate

    1.86%     2.97%  

Expected dividend yield

    0.00%     0.00%  

Expected option life

    4.23 Years     4.25 Years  

Expected stock price volatility

    15.11%     15.82%  

        CH2M HILL estimates the expected term of options granted based on historical experience of employee exercise behavior. CH2M HILL estimates the volatility of its common stock by using the weighted-average of historical volatility over the same period as option term. CH2M HILL uses the Treasury Yield Curve rates for the risk-free interest rate in the option valuation model with maturities similar to the expected term of the options. CH2M HILL does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. CH2M HILL is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. CH2M HILL uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards.

        The total compensation expense recognized for stock options granted for the years ended December 31, 2009, 2008 and 2007 was $4.7 million, $4.1 million and $2.2 million, respectively.

        In November 1999, CH2M HILL established the Payroll Deduction Stock Purchase Plan (PDSPP) which provides for the purchase of common stock at 90% of the market value as of the date of purchase through payroll deductions by participating employees. Eligible employees may purchase common stock totaling up to 15% of an employee's compensation through payroll deductions. An employee cannot purchase more than $25,000 of common stock under the PDSPP in any calendar year. The PDSPP is intended to qualify under Section 423 of the Internal Revenue Code (IRC). The PDSPP is not intended to qualify under Section 401(a) of the IRC and is not subject to ERISA. Our PDSPP is non-compensatory since the plan is available to all shareholders and incorporates no option features such as a look-back period. Accordingly, no compensation expense is recognized in the financial statements for the PDSPP. During the years ended December 31, 2009, 2008 and 2007, a total of 688,776 shares, 784,125 shares and 667,407 shares, respectively, were issued under the PDSPP, for total proceeds of $21.5 million, $21.7 million and $13.5 million, respectively.

        In January 2000, CH2M HILL established the Phantom Stock Plan, which provides eligible individuals with added incentives to continue in the long-term service of CH2M HILL. Eligible individuals are generally individuals who are not residents of the U.S. Phantom stock grants are 100% vested on the grant date and may be redeemed after six months from the grant date. The value of phantom stock is equal to the market value of CH2M HILL's common stock. All amounts granted under the Phantom Stock Plan are payable in cash only and are generally granted in connection with the short and long term incentive plans. Compensation expense under this plan is based on the value of the units on the date of grant.

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Notes to Consolidated Financial Statements (Continued)

(14) Employee benefit plans (Continued)

        During the years ended December 31, 2009, 2008 and 2007, a total of 1,504, 2,050 and 3,619 phantom stock units, respectively, were granted under the Phantom Stock Plan. The fair values of the units granted under the Phantom Stock Plan during 2009, 2008 and 2007 were $31.10, $30.32 and $19.63, respectively. Compensation expense related to the Phantom Stock Plan during 2009, 2008 and 2007 was $0.4 million, $0.3 million, and $0.8 million, respectively.

        The following table summarizes the activity relating to the Phantom Stock Plan during 2009:

 
  Number
of Units
 

Balance at December 31, 2008

    60,969  

Granted

    1,504  

Exercised

    (29,558 )

Cancelled

    (406 )
       

Balance at December 31, 2009

    32,509  
       

        In February 1999, CH2M HILL established the Stock Appreciation Rights (SARs) Plan. Eligible individuals are generally individuals who are not residents of the U.S. SARs are granted at an exercise price equal to the market value of CH2M HILL's common stock and generally become exercisable 25%, 25% and 50% after one, two and three years, respectively, and have a term of five years from the date of the grant. All amounts granted under the SARs Plan are payable in cash only. Compensation expense under this plan is based on the vesting provisions and the market value of CH2M HILL's common stock.

        Compensation expense related to the SARs Plan amounted to $0.4 million, $0.4 million and $1.3 million for the years ended December 31, 2009, 2008 and 2007, respectively.

        The following table summarizes the activity relating to the SARs Plan during 2009:

 
  Number
of Rights
  Weighted Average
Exercise Price
 

Balance at December 31, 2008

    80,353   $ 17.25  

Granted

    4,880   $ 35.72  

Exercised

    (42,448 ) $ 13.78  

Cancelled

    (3,455 ) $ 23.56  
             

Balance at December 31, 2009

    39,330   $ 22.71  
             

        In January 2000, CH2M HILL established the Short Term Incentive Plan (STIP) to aid in the motivation, recruitment, retention and reward of employees. Management determines which employees, directors, and eligible consultants participate in the STIP. During the years ended December 31, 2009, 2008 and 2007, a total of 432,093 shares, 604,333 shares and 634,680 shares, respectively, were issued under the STIP. The fair values of the shares issued under the STIP was $31.10, $30.32 and $19.63, for the years ended December 31, 2009, 2008, and 2007, respectively. Compensation expense related to

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Notes to Consolidated Financial Statements (Continued)

(14) Employee benefit plans (Continued)

common stock awards under the STIP amounted to $14.4 million, $11.2 million and $18.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.

        In January 1999, CH2M HILL established the Long Term Incentive Plan (LTIP) to reward certain executives, project managers, and technologists for the creation of value in the organization through the achievement of specific long-term (3 year) goals of earnings growth and strategic initiatives. The Board of Directors of CH2M HILL determines which employees are eligible to participate in the LTIP in any program year and a new plan is established each year. During the years ended December 31, 2009, 2008 and 2007, a total of 323,474 shares, 262,837 shares and 364,825 shares, respectively, were issued under the LTIP at a fair value of $31.10, $30.32 and $19.63 per share, respectively. Compensation expense related to common stock awards under the LTIP amounted to $13.3 million, $11.8 million and $11.1 million for the years ended December 31, 2009, 2008 and 2007, respectively.

        In January 2000, CH2M HILL established the Restricted Stock Plan which provides eligible individuals with added incentives to continue in the long-term service of CH2M HILL. The awards are made for no consideration and vest over various periods, but are considered outstanding at the time of grant. During the years ended December 31, 2009, 2008 and 2007, a total of 111,246 shares, 70,405 shares and 263,942 shares, respectively, were granted under the Restricted Stock Plan.

        CH2M HILL recognizes compensation costs, net of estimated forfeitures, over the vesting term based on the fair value of the restricted stock at the date of grant. The amount of compensation expense recognized under the Restricted Stock Plan was $2.9 million, $3.8 million and $3.0 million for the years ended December 31, 2009, 2008 and 2007, respectively. In determining the amount of compensation expense, CH2M HILL has estimated that forfeitures of restricted stock shares will be less than 10% of total restricted stock shares outstanding based upon prior experience. As of December 31, 2009, there was $4.2 million of unrecognized compensation costs related to non-vested restricted stock grants. The cost is expected to be recognized over a weighted average period of 2.86 years.

        The following table summarizes the activity relating to the Restricted Stock Plan during 2009:

 
  Non-vested
Shares
  Weighted Average
Grant Date
Fair Value
 

Balance at December 31, 2008

    537,781   $ 21.16  

Granted

    111,246   $ 33.76  

Vested

    (133,275 ) $ 20.98  

Cancelled and expired

    (55,547 ) $ 20.85  
             

Balance at December 31, 2009

    460,205   $ 24.29  
             

        The weighted-average fair values of the shares granted under the Restricted Stock Plan during 2009, 2008 and 2007 were $33.76, $30.71 and $22.72, respectively.

(15) Employee retirement plans

        The Retirement and Tax-Deferred Savings Plan (401(k) Plan) is a profit sharing plan that includes a cash or deferred arrangement that is intended to qualify under Sections 401(a) and 401(k) of the

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Notes to Consolidated Financial Statements (Continued)

(15) Employee retirement plans (Continued)

Internal Revenue Code. Employees are eligible to participate in the 401(k) Plan on the first date of hire with respect to employee contributions and matching contributions. Each eligible employee begins to participate in the 401(k) Plan with respect to defined contributions as of the first day of the first month that begins on or after the eligible employee completes a twelve-month period of service during which the employee is credited with at least 1,000 hours of service.

        The 401(k) Plan allows for matching contributions to be made in both cash and stock. Matching contributions may be made in an amount that is based on a percentage of the employee's contributions for the calendar quarter up to 4% of the employee's base compensation. Participants of the 401(k) Plan are, at all times, 100% vested in the employee contribution account. Employer contributions allocated to a participant's account generally vest over six years of completed service. Expenses related to matching contributions for the 401(k) Plan for 2009, 2008 and 2007 were $25.4 million, $25.9 million and $22.6 million, respectively. In addition, expenses related to defined contributions made in common stock for the 401(k) Plan for 2009, 2008 and 2007 were $12.7 million, $14.9 million and $12.1 million, respectively.

        CH2M HILL has three noncontributory defined benefit pension plans. Plan benefits in two of the plans were frozen while one plan remains active. Benefits are based on years of service and compensation during the span of employment.

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Notes to Consolidated Financial Statements (Continued)

(15) Employee retirement plans (Continued)

        CH2M HILL sponsors a medical benefit plan for retired employees of certain subsidiaries. The plan is contributory, and retiree premiums are based on years of service at retirement. The benefits contain limitations and a cap on future cost increases. CH2M HILL funds postretirement medical benefits on a pay-as-you-go basis. Effective December 31, 2009, the plan was modified impacting the eligibility criteria, the cost, and the events of termination regarding the retiree medical coverage.

        CH2M HILL is required to (i) recognize the funded status of the defined benefit pension and other postretirement plans on the consolidated balance sheet, (ii) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost and (iii) measure defined benefit plan assets and obligations as of the date of the statement of financial position. In 2008, CH2M HILL changed its measurement date from October 31 to December 31. The impact of the change in the measurement date was not significant and proportionately allocated to current period benefit cost and accumulated other comprehensive loss.

        CH2M HILL expects to make contributions of $8.1 million to the pension plans in 2010. The pension, non-qualified pension and post-retirement healthcare benefit payments, including expected future services, are expected to be paid from plan assets and operating cash flow as follows:

($ in thousands)
  Pension Plans   Non-Qualified
Pension Plans
  Post-Retirement
Benefit Plans
 

2010

  $ 6,988   $ 90   $ 1,235  

2011

    7,497     86     1,391  

2012

    8,393     81     1,594  

2013

    9,197     76     1,786  

2014

    10,049     71     2,003  

2015-2019

    64,272     283     13,323  
               

  $ 106,396   $ 687   $ 21,332  
               

        The measurement dates used to determine pension, non-qualified pension and other post-retirement benefits for the plans are December 31, 2009 and 2008, and October 31 for 2007. The actuarial assumptions used to compute the net pension benefit expense, non-qualified pension benefit

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Notes to Consolidated Financial Statements (Continued)

(15) Employee retirement plans (Continued)

expense and post-retirement benefit expense are based upon information available as of the beginning of the year, as presented in the following table.