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.

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 related technical services to municipal, state, federal and private sector clients worldwide. Founded in 1946, we have approximately 17,000 employees 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

Our Federal segment generally provides a comprehensive range of services to the U.S. federal government and to international governments. Our Civil Infrastructure segment generally provides a comprehensive range of services to various state, local, and provincial governments. Our Industrial segment generally provides a comprehensive range of services to private sector companies. Financial information for each segment for each of the last three years, including 2006, is included in Note 16 of the Notes to Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K.

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	Primary Client Type	% of 2006 Revenues	Key Markets
Federal	U.S. Federal Government	35%	· Nuclear · Environmental · Government Facilities and Infrastructure
Civil Infrastructure	State and Local Governments	33%	· Water, Wastewater and Water Resources · Transportation · Water and Wastewater Operations and Maintenance · City Operations
Industrial	Private Sector	32%	· Enterprise Management Solutions · Energy, Chemicals and Industrial Systems · Manufacturing and Life Sciences · Electronics and Advanced Technology · Power

Clients

We provide our services to a broad range of domestic and international clients, including the U.S. federal government, state, local, 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 spending decisions made by our clients. The following table shows representative clients by each of our operating segments:

Federal

Civil Infrastructure

Industrial

·U.S. Department of Energy (DOE)

·U.S. Department of Defense

·U.S. Air Force

·U.S. Navy

·U.S. Army Corps of Engineers

·U.S. Agency for International Development

·U.S. Environmental Protection Agency

·U.S. Federal Emergency Management Agency

·United Kingdom (Atomic Energy Administration)

·Olympic Delivery Authority

· U.S. cities

· Foreign cities

· U.S. airports

· U.S. and State Departments of Transportation

· Port districts

· U.S. Water and Wastewater Municipalities

· Microelectronics manufacturers

· Power utilities

· Pharmaceutical and biotechnology companies

· Automotive, food and beverage, metals and consumer product manufacturers

· Chemicals, bioprocessing and refining companies

· Wireless network operators

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. commercial nuclear utility customers and various nuclear research, development and demonstration facilities. We manage 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.

Many of our contracts are executed through joint ventures. One of these joint ventures is with Washington Group International to cleanup a federal nuclear facility located in Idaho. This contract was awarded in the first quarter of 2005. In addition, we recently completed a remediation and closure contract at the Rocky Flats Nuclear Site in Colorado. This contract was also executed as a joint venture with Kaiser Group Holdings, Inc.

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

Government Facilities & 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 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.

Water, Wastewater and Water Resources. We provide a complete range of services for the planning, design/build, construction and construction 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 consulting and construction services for airports, highways, bridges, marine terminals, railroads and transit systems. These services include transportation planning, environmental planning, project siting, permitting, design, construction and program management, management consulting and design/build delivery.

Water and Wastewater Operations and Maintenance. We provide water, wastewater and public works operations and maintenance services, including startup and performance testing, consulting, asset management, facility operations, and on-going maintenance and management. The facility operations services include water and wastewater treatment, collection and distribution, equipment and process maintenance, and replacement and site grounds maintenance.

City Operations. We provide operational support services to cities. These services include business operations such as accounting, human resources, procurement, public works, community development, and parks and recreation functions. Services are provided for new city start-up and on-going support of operations typically for a five year contract period.

Enterprise Management Solutions. We provide program management, consulting, integration and managed services for specialized information technology, software and integrated security industries. We are focused on infrastructure and asset management along with spatial program management solutions for all customers within the government and industrial sectors. We are also focused on the new and emerging program management and deployment opportunities within the next generation of WiFi/WiMax information management systems.

Energy, Chemicals, and Industrial Systems. We provide a broad array of life cycle services to the energy and chemicals markets and provide an array of consulting and project delivery services for industrial, government, utility, and municipal clients. These services include major engineering, procurement, and construction (EPC) projects, maintenance and sustaining on-site services. We provide consulting and project delivery services for a diverse portfolio of projects including renewable energy, energy conservation, industrial water and wastewater, siting, licensing, permitting, air quality and other environmental, health and safety projects.

Manufacturing and Life Sciences. We provide a full range of EPC, project management, and program management services to the automotive, aerospace and aviation, food and beverage, metals, and consumer product sectors of the manufacturing industry. Additionally, we provide consulting and technology services for lean and agile manufacturing, supply chain and logistics management, manufacturing, packaging and

material handling technology and strategic initiatives for optimizing customer operations. We also provide 3D computer simulation and modeling, site search and economic development consulting, security assessment and systems implementation, process validation, design and installation. We provide EPC management and validation services to major pharmaceuticals and biotech companies focusing on active pharmaceutical ingredients, fill/finish, and integrated project delivery, including validation and commissioning.

Electronics & Advanced Technology. We provide program management, consulting, planning, architectural and engineering design, construction services and products 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. Our facilities services specialists provide sustained facility support services to a wide range of markets. In addition, our technologists and strategic business planning specialists also provide advanced planning and economic modeling expertise to help clients optimize the operating efficiency and return on investment for complex manufacturing facilities.

Power. We provide engineering, design, procurement and construction services to regulated and nonregulated sectors of the power industry, including new generation utilizing gas, coal, and alternative fuel technologies, industrial co-generation and clean air. These services include integrated EPC and startup services that employ enhanced engineering and management tools such as computer aided design modeling services, labor productivity and earned-value tracking tools, safety and comprehensive quality management services, project administration, cost and cash flow management services, and supply, schedule and change management services.

Competition

The market for our design, consulting, engineering and construction services is highly competitive. We compete with many firms, including large multinational firms having substantially greater financial, management and marketing resources. Some of our competitors are small firms with lower cost structures enabling them to offer lower prices for particular services. We also compete with government agencies, including our own clients that can utilize their internal resources to perform services that we might otherwise perform. To our knowledge, no individual company currently dominates any significant portion of our markets. Competition in our 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:

Operating Segment	2006		2005
	(in millions)
Federal	$	725.1	$	755.0
Civil Infrastructure	2,399.4		2,096.8
Industrial	812.0		751.1
	$	3,936.5	$	3,602.9

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. 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 the Federal segment backlog is due to the Hanford River Protection and Mound projects working toward completion during 2006. The increase in the Civil Infrastructure segment backlog is driven by new long-term city operations projects, while the Industrial segment backlog has increased due to power and manufacturing project awards.

Available Information

For additional information regarding CH2M HILL, including free copies of filings with the Securities and Exchange Commission (SEC), please visit our web site at www.ch2m.com. The SEC filings, which include our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, 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 revenues to fluctuate.

Demand for our engineering and other services is affected by the general level of economic activity in the markets in which we operate, both in the U.S. and internationally. Our customers, particularly our private sector customers, and the markets in which we compete to provide services, are likely to experience periods of economic decline from time-to-time. In particular, world markets are experiencing increasing commodity prices, including oil and raw materials prices, which could reduce or curtail projects by industrial customers. Similarly, the prolonged downturns in the telecommunications and semiconductor markets have subsided to a limited degree, but our customers in those markets have been slower than expected in starting new capital expenditure programs.

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.

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.

Political instability in key regions around the world coupled with the U.S. federal government’s commitment to the war on terror put at risk federal discretionary spending, 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 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;

· 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 relationships with employees;

· 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 in order 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 secure all necessary or appropriate insurance in the future. Our failure to obtain such insurance, could lead to uninsured losses that could materially adversely affect our results of operations or financial condition.

On December 22, 2005, the Terrorism Risk Act of 2002, which was set to expire on December 31, 2005, was extended for an additional two years. The extension, however, excluded surety and professional liability insurance from the Act’s coverage. Accordingly, surety and professional liability insurance covering acts of terrorism may be limited or expensive to obtain in the future. While we attempt to renew our insurance policies without losing terrorism coverage, we do not believe that the lack of such coverage would have a material impact on our business and also believe that the commercial insurance market may fill the void in the absence of the current federal program.

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 related to 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 joint venture.

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.

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 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 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. This may reduce the profit to be realized 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.

We derived approximately 14% of our revenues from operations outside of the U.S. in 2006 and 2005. 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.

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.

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

In 2006, we derived approximately 35% of our total revenues from contracts with the U.S. federal government and international 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. Audits have been completed on our federal contracts through December 31, 2004, 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.

· 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.

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, 2006 was $3.9 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 2006, we derived approximately 37% of our revenues from “fixed price” contracts and approximately 32% 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.

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

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;

· Collectibility 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 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.

Weather

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 resell 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 market value of our common stock, and not by actual market trading activity. Moreover, although we may enter the internal market as a buyer of common stock if there are more sell orders than buy orders, we have no obligation to engage in internal market transactions and will not guarantee market liquidity. Consequently, insufficient buyer demand could cause sell orders to be prorated, or could prevent the internal market from opening on any particular trade date. Insufficient buyer demand could cause shareholders to suffer a total loss of investment or substantial delay in their ability to sell their common stock. No assurance can be given that shareholders desiring to sell all or a portion of their shares of common stock will be able to do so. 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 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 market value and not by market trading activity.

The offering prices at each trade date will be established by our Board of Directors approximately four weeks before each trade date. In establishing the price, our Board of Directors will take into consideration the factors that are described in Item 5 of this Annual Report on Form 10-K. Our Board of Directors will, however, set the offering price in advance of each trade date, and all trades on our internal market will take place at the price established for each trade date. Therefore, market trading activity on any given trade date 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 market value. The valuation method for our common stock is subject to change at the discretion of our Board of Directors.

The limited market and transfer restrictions on our common stock will likely have anti-takeover effects.

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

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 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 2013. 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 also 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 outcome 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.

In January 2006, a subsidiary entered into a Deferred Prosecution Agreement (DPA) with the office of the United States Attorney for the District of Connecticut. The DPA relates to an investigation of a Clean Water Act (CWA) violation at two wastewater treatment facilities in Connecticut. Pursuant to the DPA, the subsidiary contributed $2.0 million to community projects and has taken other agreed upon steps to enhance their CWA compliance procedures at the two wastewater treatment facilities in Connecticut. Provided we comply with our obligations under the DPA after 30 months, the U.S. District Attorney for the District of Connecticut will recommend dismissal of all actions against the subsidiary in connection with this matter. The violation related to failure to comply with sampling and reporting requirements of the CWA and there is no evidence the violation resulted in harm to human health or the environment.

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

No items were submitted to a vote of security holders during the fourth quarter of 2006.

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, however, an internal market (Internal Market) is maintained through an independent broker, currently Neidiger, Tucker and Bruner, Inc. (NTB).

The Internal Market permits existing shareholders to offer 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 will be restricted to the following authorized buyers:

· Our employees, directors and eligible consultants

· Trustees of the benefit plans

· Administrator of the Payroll Deduction Stock Purchase Plan (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.

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

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

In order to determine the fair market value of the common stock in the absence of a public trading market, our Board of Directors felt it appropriate to develop a valuation methodology to use as a tool to

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

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

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

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

· The merger and acquisition market for companies comparable to us

· The prospects for our future performance

· General economic conditions

· General capital market conditions

· Other factors our Board of Directors deem appropriate

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

In its discretion, our Board of Directors may change, from time-to-time, the market factor used in the valuation process. Our Board of Directors could change the market factor, for example, following a change in general market conditions that either increased or decreased stock market equity values for companies comparable to us, if our Board of Directors felt that the market change was applicable to our common stock as well. Our Board of Directors will not make any other changes in the method of determining the price per share of common stock unless in the good faith exercise of its fiduciary duties and, if appropriate, after consultation with its professional advisors, our Board of Directors determines that the method for determining the price per share of common stock no longer results in a stock price that reasonably reflects our fair market value on a per share basis.

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

Since the inception of the program on January 1, 2000, the “M” factor has not deviated from 1.0. In deciding that the “M” factor should remain unchanged, our Board of Directors has considered our

performance, the performance of the engineering and construction industry as a whole, and our perception of our future prospects.

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 market value of our common stock. Similarly, such a change could fail to have an immediate impact on the value of our common stock, but still have an impact on the value of our common stock over time. As a result, our Board of Directors believes that in order to determine the fair market value of our common stock, it needs the ability to review unusual events that affect net income. In the past, our Board of Directors has excluded unusual items from the calculation of “P”, including nonrecurring revenue from the Rocky Flats project 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 market 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 recently 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 2005 and 2006, our Board of Directors excluded, and will continue to exclude, a non-cash reduction in shareholders’ equity for a minimum pension liability adjustment. This adjustment is required by accounting rules and essentially reflected the stock market performance of the investments held in our pension plans relative to their future benefit obligations. Because this adjustment is unusual and may reverse as investment markets rebound, and given that the market would not generally take such adjustments into account when valuing equity securities, our Board of Directors excluded it from the “SE” parameter for stock valuation purposes. 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, unrealized gains/losses on derivatives 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 shares of common stock as reflected in the diluted earnings per share calculation in our financial statements for the past three years.

Effective Date	CS		YTD Weighted- Average Number of Shares as reflected in Diluted EPS calculation
	(in thousands)		(in thousands)
February 13, 2004		33,239		32,004
May 6, 2004		33,623		32,066
August 6, 2004		33,474		32,119
November 5, 2004		33,355		32,003
February 11, 2005		33,348		31,944
May 12, 2005		33,428		32,208
August 12, 2005		33,546		32,430
November 11, 2005		33,696		32,496
February 10, 2006		33,904		32,482
May 11, 2006		34,153		33,030
August 11, 2006		34,351		33,179
November 10, 2006		34,497		33,135
February 9, 2007		34,570		33,047

Constant 7.8. In the course of developing this valuation methodology, it became apparent to our Board of Directors that a multiple would be required in order for the stock price derived by this methodology to approximate our historical, pre-Internal Market stock price. Another objective of our Board of Directors when developing the valuation methodology was to establish the fair market value 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, proxy information and solicitations are distributed for voting instructions from shareholders and participants in the employee benefit plans each year.

Current Price of Our Common Stock

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

Effective Date	M	P			SE			CS		Price Per Share			Percentage Price Increase (Decrease)
		(in thousands)			(in thousands)			(in thousands)
February 13, 2004	1.0		$	23,804		$	215,638		33,239		$	12.07		1.6	%
May 6, 2004	1.0		24,418			216,869			33,623		12.11			0.3	%
August 6, 2004	1.0		27,345			223,211			33,474		13.04			7.7	%
November 5, 2004	1.0		32,429			235,724			33,355		14.65			12.3	%
February 11, 2005	1.0		32,338			245,298			33,348		14.92			1.8	%
May 12, 2005	1.0		31,952			250,246			33,428		14.94			0.1	%
August 12, 2005	1.0		31,244			263,139			33,546		15.11			1.1	%
November 11, 2005	1.0		31,316			319,533			33,696		16.73			10.7	%
February 10, 2006	1.0		38,367			335,301			33,904		18.72			11.9	%
May 11, 2006	1.0		35,143			334,897			34,153		17.83			(4.8	)%
August 11, 2006	1.0		38,074			345,509			34,351		18.70			4.9	%
November 10, 2006	1.0		37,479			354,464			34,497		18.75			0.3	%
February 9, 2007	1.0		38,901			375,206			34,570		19.63			4.7	%

Holders of Our Common Stock

As of February 20, 2007, there were 6,454 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.

Issuer Purchases of Equity Securities

The following table covers the purchases of our securities by CH2M HILL during the quarter ended December 31, 2006:

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)		7,348		$	18.70		—		—
November		—		—			—		—
December(b)		182,828		$	18.75		—		—
Total		190,176		$	18.75		—		—

(a) Shares purchased by CH2M HILL for 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, 2006, 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, 2006 and 2005, and the results of their operation and their cash flows for each of the years in the three-year period ended December 31, 2006, 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. During the periods presented, we paid no cash dividends on our common stock.

	Years Ended December 31,
($ in millions, except per share data)	2006		2005		2004		2003		2002

Selected Statement of Operations Data:
Revenues	$	4,006.9	$	3,152.2	$	2,715.4	$	2,154.3	$	1,955.0
Operating income	46.6		24.0		21.3		12.7		7.3
Net income	38.9		81.6		32.3		23.8		29.7
Net income per common share
Basic	$	1.20	$	2.56	$	1.03	$	0.77	$	0.97
Diluted	$	1.18	$	2.51	$	1.01	$	0.74	$	0.94
Selected Balance Sheet Data:
Total assets	$	1,279.5	$	1,103.9	$	829.9	$	746.0	$	616.1
Long-term debt, including current maturities	0.6		4.1		7.0		9.3		12.0
Total shareholders’ equity	366.0		320.0		229.9		200.2		180.3

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

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

· Factors affecting our business

· Our revenues and profits

· The source of our revenues and profits

· Why those revenues and profits were different from year to year

· Where our cash came from and how it was used

· How all of this affects our overall financial condition

The following discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those described here. 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 related technical services to municipal, state, federal and private sector clients worldwide. Founded in 1946, we have approximately 17,000 employees 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 provide services to our clients through three operating segments: Federal, Civil Infrastructure and Industrial. The structure is intended to provide for better decision making on an enterprise-wide basis. Our Federal segment generally provides a comprehensive range of services to the U.S. federal government and to international governments. Our Civil Infrastructure segment generally provides a comprehensive range of services to various state, local, and provincial governments. Our Industrial segment generally provides a comprehensive range of services to various private sector clients.

Summary of Operations

Revenue and pre-tax profit or loss for the years ended December 31, 2006, 2005 and 2004 by operating segment were as follows:

	2006							2005							2004
($ in millions)	Revenue				Pre-tax Profit (loss)			Revenue				Pre-tax Profit (loss)			Revenue				Pre-tax Profit (loss)

Federal	$	1,401.4	35.0	%	$	62.0		$	1,161.5	36.9	%	$	118.6		$	993.0	36.6	%	$	34.3
Civil Infrastructure	1,325.3		33.1	%	50.8			1,048.0		33.2	%	27.8			852.1		31.4	%	27.4
Industrial	1,280.2		31.9	%	(32.7		)	942.7		29.9	%	1.5			870.3		32.0	%	4.9
Corporate	—		—		(16.4		)	—		—		(13.7		)	—		—		(14.9		)
Total	$	4,006.9	100.0	%	$	63.7		$	3,152.2	100.0	%	$	134.2		$	2,715.4	100.0	%	$	51.7

Results of Operations for the Year Ended December 31, 2006 Compared to 2005

Federal

Revenue increased $239.9 million or 20.7% for the year ended December 31, 2006 compared to 2005. This increase in revenue was primarily due to work associated with the Hurricane Katrina relief and cleanup efforts. Partially offsetting these favorable results was a reduction in spending by the DOE during the year on our contract at the Hanford River Protection Project.

Pre-tax profit decreased for the year ended December 31, 2006 compared to 2005 by $56.6 million or 47.7%. The decrease in pre-tax profit is primarily associated with the completion of the Kaiser-Hill project which contributed $95.7 million in equity in earnings of joint ventures during 2005. This decrease is partially offset by pre-tax profit from the Hurricane Katrina relief and cleanup as well as performance based incentives earned on a contract at the DOE Savannah River complex.

Civil Infrastructure

Revenue increased by $277.3 million or 26.5% for the year ended December 31, 2006 compared to the same period in 2005. The largest increase was attributed to several new water projects in North America and international markets. The growth in North America is primarily due to a water treatment project in Southern California and the growth in our international markets is primarily due to projects located predominately in Australia, United Arab Emirates, Singapore and Iraq. We had continued growth due to successful pursuits in transportation design/build and consulting. These new projects included significant highway contracts in Colorado, Washington, Virginia and Vancouver, British Columbia and program management projects. We also had an improvement in revenue from operations and maintenance (O&M) contracts including a new municipal operations project in Georgia, an amendment to an existing project and new work in Las Vegas and Puerto Rico.

Pre-tax profit increased by $23.0 million or 82.7% for the year ended December 31, 2006 compared to the same period last year. The increase in pre-tax profit is primarily associated with our water projects which produced significant improvements due to an increase in North American consulting and international revenue as described above. We also experienced growth in pre-tax profit due to revenue growth from transportation, and O&M projects, as described above.

Industrial

Revenue increased for the year ended December 31, 2006 compared to the same period last year by $337.5 million or 35.8%. The increase in revenue was largely due to new projects in the power, manufacturing, energy and industrial systems and enterprise management solutions markets. Our

significant growth in power was driven primarily from two new contracts with major utility companies in North America. Our manufacturing business has experienced new business growth in 2006 as a result of business development pursuits. Our energy and industrial systems business revenue growth was associated with O&M support services at two petroleum facilities and increased consulting. Communications had signs of renewed spending by clients particularly in the wireless sector worldwide which has increased revenue. These increases were partially offset by a decline in our chemicals and plastics business due to low volume, the completion of several bio-pharma projects in Puerto Rico, and the continued delay in some customer awards of large projects.

Pre-tax loss for the year ended December 31, 2006 was $32.7 million compared to a pre-tax profit of $1.5 million for the year ended December 31, 2005. This decrease was primarily due to significant cost overruns on a project to construct a manufacturing facility. This project experienced increased costs due to project delivery issues and increased commodity prices. In addition, the clean up efforts required from Hurricane Katrina caused significant shortages in experienced craft laborers in the area and thus materially increased wage rates and reduced overall productivity. Partially offsetting these declines was the pre-tax profit improvement on manufacturing contracts due to strong market conditions, execution of projects at higher margins and monitoring of indirect costs.

Results of Operations for the Year Ended December 31, 2005 Compared to 2004

Federal

Revenue increased $168.5 million or 17% for the year ended December 31, 2005 compared to 2004. We had an increase in revenue in 2005 versus 2004, due to increased revenue on our contract with the DOE at the Mound Nuclear Closure Project in Miamisberg, Ohio which was partially offset by reduced spending by the DOE on our contract at the Hanford River Protection Project. A significant increase in revenue also resulted from Hurricane Katrina relief work. Partially offsetting these results was a decrease in revenue due to the completion of our Johnston Atoll project in 2004 and an overall decline in federal environmental work as some funds were shifted to homeland security projects.

Pre-tax profit increased for the year ended December 31, 2005 compared to 2004 by $84.3 million or 246%. Included in the twelve-month period results of 2005 was an increase in equity in earnings of joint ventures of $71.2 million from Kaiser-Hill for our share of additional fees related to the impact of favorable performance against the agreed upon target closure costs, the schedule to achieve site closure and its job site safety. Excluding the Kaiser-Hill performance fee, pre-tax profit was $13.1 million or 38.2% higher for the year ended December 31, 2005 compared to the same period in 2004. This increase was due in part to additional equity in earnings of joint ventures associated with the Idaho cleanup project. In addition, we experienced favorable operating results on our Mound contract. This was partially offset by decreased earnings on our Hanford contract.

Civil Infrastructure

Revenue increased by $195.9 million or 23.0% for the year ended December 31, 2005 compared to the same period in 2004. A majority of the increase was attributable to continued growth from successful pursuits in transportation design/build projects and a slight increase in transportation consulting. New projects in 2005 included significant highway design/build contracts in Colorado, Oregon, and Western Canada. Additionally, several water projects began the construction phase during 2005 compared to 2004. We also experienced an increase in our international operations, driven by our Changi project in Singapore, Sydney Pump Station project in Australia, Water Program Management project in Iraq and the USAID project in the West Bank. The international market remains strong due to population and economic growth in certain regions, aging infrastructure, capacity shortfalls and regulatory requirements. We also had a slight increase in revenue due to the successful development of additional O&M work

within existing projects as well as new core market service contracts throughout the United States and Canada.

Pre-tax profit increased by $0.4 million or 1.5%for the year ended December 31, 2005 compared to 2004. We saw improvement in O&M project cost control practices, risk management processes and controlled overhead spending. In addition, we were successful in exiting two significantly underperforming O&M contracts in the latter half of 2004 and improving the gross margins on existing projects. We had a revenue increase and favorable equity in earnings from the joint venture for the Marquette Interchange Project in Milwaukee, Wisconsin. These items were partially offset by unfavorable costs on two North American projects. While those costs negatively impacted the 2005 operating results, they resulted in securing a significant number of new contracts for 2006 which is reflected in backlog.

Industrial

Revenue increased for the year ended December 31, 2005 compared 2004 by $72.4 million or 8.3%. The increase in revenue was primarily due to significant new business in our chemicals, energy and industrial systems and information solutions businesses. Our chemicals sector has experienced strong performance as the overall economic market conditions have improved, driven by three significant chemical projects. We experienced significant growth in our energy and industrial systems business, primarily resulting from an increase in volume from our facilities work we are performing for the U.S. Air Force (primarily in the Pacific Rim). Lastly, our information solutions business showed revenue growth in 2005 as the telecommunications markets began showing signs of renewed spending levels particularly in the wireless sectors worldwide. These increases were partially offset from declines in our power, bio-pharma and electronics businesses. Delays in customer awards of large, full-service manufacturing and bio-pharma construction contracts and completion of certain large electronics and power projects in 2004 contributed to the decline in these businesses.

Pre-tax profit decreased for the year ended December 31, 2005 compared to 2004 by $3.4 million or 69.4%. The reduced pre-tax profit was primarily the result of lower revenue and associated gross margin in the power business, lower gross margin in the manufacturing business due to cost overruns on two North American projects and projects in Eastern Europe and cost overruns in the information solutions business. This decrease is partially offset by favorable performance in the chemicals, energy, industrial systems and information solutions businesses, which was driven by the above mentioned revenue increases. In addition, the electronics and bio-pharma businesses reported favorable results due to decreased overhead spending in 2005.

Joint Ventures

We routinely enter into joint ventures to service the needs of our clients. Such arrangements are customary in the engineering and construction industry and generally are project specific. Our largest joint venture at December 31, 2005 and 2004 was Kaiser-Hill, in which we own a 50% interest. This joint venture is included in our Federal operating segment. Kaiser-Hill’s contract with the DOE is substantially complete. The contract was a site closure contract under which Kaiser-Hill was compensated through a base fee affected, up or down, by its performance against the agreed upon site target closure timetable and costs. For every dollar that the DOE saved, Kaiser-Hill received a fee increase up to an agreed upon maximum. At the same time, for every dollar the cleanup was over budget, the fee was reduced down to an agreed upon minimum. On October 13, 2005, Kaiser-Hill declared physical completion of the activities at the site. These activities primarily related to the management of waste subcontracts and numerous administrative tasks. The DOE continues to review our submitted costs and perform normal cost audit activities associated with any government contract. We expect these activities to continue in 2007 and believe any findings will not have a material effect on our earnings. As site work is complete, Kaiser-Hill’s

remaining activities will primarily be related to the management of waste subcontractors and numerous administrative tasks for contract close-out.

The earnings from Kaiser-Hill are reported as equity in earnings of joint ventures and affiliated companies, along with other joint ventures that are individually insignificant. For the years ended December 31, 2006, 2005 and 2004, we reported total equity in earnings of $17.0 million, $110.1 million and $29.9 million, respectively. The earnings from the Kaiser-Hill joint venture for the years ended December 31, 2005 and 2004 were $95.7 million and $20.3 million, respectively. There were no significant earnings during 2006 from Kaiser-Hill. During the year ended December 31, 2005, we reported an incremental fee of $71.2 million, as Kaiser-Hill recognized revenue related to the impact of favorable performance against the agreed upon target closure costs, the schedule to achieve site closure, its job site safety and successful completion of the closure activity.

Kaiser-Hill’s ability to distribute cash was based on pre-negotiated payment terms in accordance with its contract with the DOE and was different from the earnings recognized for accounting purposes. During the years ended December 31, 2006, 2005 and 2004, we received distributed earnings from Kaiser-Hill of $85.0 million, $43.7 million and $17.5 million, respectively. Consequentially, our remaining investment in Kaiser-Hill as of December 31, 2006 was $2.3 million and $87.3 million at December 31, 2005.

In the first quarter of 2005, CH2M HILL and Washington Group International formed a joint venture, CH2M-WG Idaho, LLC (CH2M-WG Idaho) of which CH2M HILL owns a 50.5% interest. The contract is for the U.S. Department of Energy’s cleanup of a federal nuclear facility located in Idaho. For the years ended December 31, 2006 and 2005, CH2M HILL recognized earnings from CH2M-WG Idaho of $9.6 million and $6.0 million, respectively, and received $15.1 million and $12.6 million of distributions during 2006 and 2005, respectively. In both 2005 and 2006, CH2M HILL contributed cash of $12.6 million to the joint venture. CH2M HILL’s investment in CH2M-WG Idaho as of December 31, 2006 was $13.1 million compared to $6.0 as of December 31, 2005.

Corporate Expenses

Corporate expenses represent centralized management costs that are not allocable to individual operating segments and primarily include expenses associated with administrative compliance functions such as legal, treasury, accounting, tax and general business development efforts. Corporate expenses for the year ended December 31, 2006 were $16.4 million compared to $13.7 million in 2005, and $14.9 million in 2004. The increase of 19.7% in 2006 compared to the prior year is primarily due to increased strategic initiatives and corporate development.

Income Taxes

The income tax provision for the years ended December 31, 2006, 2005 and 2004 is as follows:

(in millions)	Income Tax Provision			Effective Tax Rate

2006		$	24.8		38.9	%
2005		52.6			39.2	%
2004		19.3			37.4	%

The decrease in the effective tax rate for the year ended December 31, 2006 compared to 2005 was primarily due to the impact of an increase in the blended state tax rate applied against the balance in net deferred tax assets. The increase in the effective tax rate for the year ended December 31, 2005 compared to 2004 was primarily due to a 2005 decrease in tax benefits realized under the Extraterritorial Income Exclusion (EIE) rules of the Internal Revenue Code, a 2004 decrease in a foreign loss valuation allowance

not occurring in 2005, and increases in the meals and entertainment disallowance and non-deductible royalty expense pursuant to a prior year acquisition.

Our effective tax rate continues to be higher than the U.S. statutory income tax rate of 35.0% due to the effect of state income taxes, non-deductible foreign net operating losses and disallowed portions of meals and entertainment expenses.

We have presented a claim to the Internal Revenue Service (IRS) relating to the research and experimentation tax credit for the years 1996-2005. Although we are seeking resolution with the IRS, we only recognize tax benefits related to these credits for financial statement purposes when it is probable that such benefit will be realized. The amount of the tax credit claimed is significant, however, the ultimate amount to be realized and the timing of the recognition of the tax credit will depend upon the final resolution with the IRS.

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, acquisitions, capital expenditures and purchases of stock presented on our internal market. Based on our total cash and credit capacity available at December 31, 2006 of $346.3 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, 2006 (in millions):

Cash on hand			$	105.2
Available for sale securities			30.9
Line of credit capacity	250.0
Issued letters of credit	(39.8	)
Net credit capacity available			210.2
Total available capacity			$	346.3

We are dependent, however, 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.

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, 2006, 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 our bills or the timeliness of their payments. Consequently, it may also impact our timing of cash receipts necessary to meet our operating needs.

We are a professional services organization and, therefore, we do not require significant outflows of cash for capital expenditures. Our capital expenditures are primarily for office equipment, office furniture and leasehold improvements. Capital expenditures during the years 2006, 2005 and 2004 were $13.1 million, $8.2 million and $7.2 million, respectively. We have a formal operating lease program under which most of our furniture, computers and related equipment is procured on an ongoing basis.

We used $37.1 million in cash for purchases of stock presented on our internal market in 2006 compared to $25.3 million in 2005 and $33.5 million in 2004. Additionally, during the year ended December 31, 2006, our average daily borrowing was $15.9 million under our credit facility and was used

for general corporate purposes. It is likely, but uncertain, that we will continue to utilize our credit facility periodically during 2007 depending on the timing of cash receipts and disbursements.

We entered into a credit agreement in September 2006 which replaced our prior credit facility. The new credit agreement provides for a $250.0 million revolving credit facility which expires on September 29, 2011. The credit agreement includes an option to increase the initial borrowing capacity by up to an additional $100.0 million. While the credit agreement may be used for general corporate purposes and permitted acquisitions, it also provides that up to $200.0 million is available for the issuance of letters of credit to support various trade 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 up to 0.25% based on our ratio of funded debt to earnings before interest, taxes, depreciation and amortization, as defined. 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, as defined. As of December 31, 2006, we had no outstanding borrowings on the credit agreement.

The credit agreement contains customary financial and other covenants, including minimum levels of net worth, a minimum coverage ratio of certain fixed charges, and a maximum leverage ratio of earnings before interest, taxes, depreciation and amortization to funded debt, as well as customary limitation 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, 2006, we were in compliance with the covenants required by the credit agreement.

At December 31, 2006, issued and outstanding letters of credit of $39.8 million were reserved against the borrowing base of the credit agreement. At December 31, 2005, issued and outstanding letters of credit of $25.7 million were reserved against the borrowing base of the prior credit agreement.

Acquisitions

In October 2005, we acquired the outstanding stock of BBS Corporation, an Ohio based firm specializing in planning, design, and construction management of water and wastewater treatment, distribution and collection systems. The total purchase price was $8.3 million. The BBS acquisition increased our presence in the Ohio and Mid-Atlantic regions and further enhances our technical knowledge in the water and wastewater treatment industry. The operating results of BBS are included in our Civil Infrastructure operating segment.

In October 2004, we acquired the assets and liabilities of MicroSource, Inc. (MicroSource) for a purchase price of $4.5 million. MicroSource provides network managed services focused on data networks for private sector and local government enterprises. We believe that this acquisition will provide a platform for our telecommunications business to obtain long-term network O&M contracts from private sector and local government enterprise clients. The operating results of MicroSource are included in our Industrial operating segment.

Off-Balance Sheet Arrangements

We are party to three lease agreements related to our corporate headquarters and three adjacent buildings. One of the lease agreements calls for monthly lease payments of approximately $0.4 million through March 3, 2013 and requires that we guarantee a residual value of the buildings for approximately $42.0 million. Upon completion of the lease term, we have the option to purchase the buildings for $53.0 million. The second lease agreement calls for monthly lease payments at a variable interest rate, estimated to be approximately $0.1 million per month, based on current interest rates. The lease agreement requires that we guarantee a residual value of this building of approximately $17.6 million.

Upon completion of the lease term, we have the option to purchase the building from the lessor for $20.8 million. The lease matures on September 28, 2008 and provides for five one-year renewal options. The third lease agreement calls for monthly lease payments of approximately $0.1 million through December 3, 2012 and requires that we guarantee a residual value of the building of approximately $18.5 million. Upon completion of the initial lease term, we have the option to purchase the building for $22.1 million, or extend the term of the lease for up to two successive periods of five years each.

We have interests in multiple joint ventures, some of which are considered variable interest entities under Financial Accounting Standards Board (FASB) Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN46 (R)). 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 O&M 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.

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 increased and is expected to continue to increase in the short term. Such cost increases are expected to range annually between 5.0% and 10.0% for various insurance policies and surety bonds. We do not believe that such increases will have a material impact on our business. 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.

On December 22, 2005, the Terrorism Risk Act of 2002, which was set to expire on December 31, 2005, was extended for an additional two years. The extension, however revised the definition of property and casualty insurance covered by the Act to exclude surety and professional liability insurance from the Act’s coverage. Accordingly, surety and professional liability insurance covering acts of terrorism may be limited or expensive to obtain in the future. While we attempt to renew our insurance policies without losing terrorism coverage, we do not believe that lack of such coverage would have a material impact on our business and also believe that the commercial insurance market may fill the void in the absence of the current federal program.

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.

Contractual Obligations

Contractual obligations outstanding as of December 31, 2006 are summarized below:

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

Letters of credit		$	14.2		$	9.9		$	15.7		$	—		$	39.8
Long-term debt, including current maturities		0.4			0.2			—			—			0.6
Operating lease obligations		76.2			115.5			64.9			48.7			305.3
Residual value guarantees		—			17.6			—			60.5			78.1
Surety and bid bonds		1,168.8			178.3			—			—			1,347.1
Total		$	1,259.6		$	321.5		$	80.6		$	109.2		$	1,770.9

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 United States 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 Note 1 of 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. In recognizing revenue, we evaluate each contractual arrangement to determine the appropriate authoritative literature to apply. We recognize revenue and profit for most of our contracts on the percentage-of-completion method where progress towards completion is measured by relating the actual cost of work performed to date to the current estimated total cost of the respective contracts. In making such estimates, judgments are required to evaluate potential variances in schedule, the cost of materials and labor, productivity, liability claims, contract disputes, or achievement of contract performance standards.

Change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to contract value and can be reliably estimated. Losses on 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.

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

Cost-Plus Contracts. Cost-plus contracts can generally be cost plus a fixed fee or rate, or cost plus an award fee. Under these types of contracts, we charge our clients for our costs, including both direct and indirect costs, plus a fixed negotiated fee or award fee. We generally recognize 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 generally include in the total contract value the portion of the fee that we are probable of receiving. Award fees are influenced by the achievement of contract milestones, cost savings and other factors.

Fixed Price Contracts. Under fixed price contracts, our clients pay us an agreed amount negotiated in advance for a specified scope of work. For engineering and construction contracts, we recognize 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.

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 collectibility 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 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, 2006 and 2005, we reported a valuation allowance of $6.9 million and $5.1 million, respectively.

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

Pension Benefits

We have two frozen and one active noncontributory defined benefit pension plans. Our earnings and shareholders’ equity may be impacted by these qualified defined benefit plans. The amounts we record are computed using actuarial valuations. These valuations include many assumptions, but the two most critical assumptions are the discount rate and the expected long-term rate of return on plan assets. We use judgment in selecting these assumptions each year because we have to consider not only current market conditions, but also make judgments about future market trends, changes in the interest rates and equity market performance. We also have to consider factors like the timing and amounts of expected contributions to the plans and benefit payments to plan participants.

Recently Adopted Accounting Standards

In December 2003, the FASB revised FASB Interpretation No. 46, Consolidation of Variable Interest Entities, with FIN 46(R) which conformed FIN 46 to previously issued FASB Staff Positions. We adopted the provisions of FIN 46(R) immediately for entities created after December 31, 2003. For entities created before December 31, 2003, we adopted FIN 46(R) on January 1, 2005.

On January 1, 2006, we adopted the provisions of, and account for stock-based compensation in accordance with Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004) (SFAS 123(R)), Share-Based Payment. We account for awards of company stock granted to our employees prior to 2006 under the intrinsic-value recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). SFAS 123(R) requires that compensation expense be measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. We elected the prospective method of adoption, under which prior periods are not revised for comparative purposes. Under the prospective method, the provisions of SFAS 123(R) apply to new grants after January 1, 2006. Accordingly, at the adoption date, SFAS 123(R) had no impact on our consolidated financial position, results of operations or cash flows. SFAS 123(R) was not applied to our Payroll Deduction Stock Purchase Plan (PDSPP) as the plan is available to all shareholders and incorporates no option features such as a look-back period. Accordingly, no compensation cost is recognized in the financial statements for the PDSPP.

registrants to quantify misstatements using both the income statement and balance sheet approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. We adopted SAB 108 for the fiscal year ended December 31, 2006. The adoption of SAB 108 did not have a material impact on our financial statements.

Recently Issued Accounting Standards

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155), which amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140). SFAS 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as one if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event effective January 1, 2007. We do not expect the adoption of SFAS 155 to have a material impact on our consolidated financial position, results of operations or cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109 (FIN 48), which is effective beginning on January 1, 2007. FIN 48 establishes a process to measure the impact of uncertainty associated with an income tax position. Under FIN 48, the effect of an income tax position on the income tax provision must be recognized at the amount that is more likely than not to be sustained upon examination by the relevant taxing authority. Under our previous policy, we recognized tax positions to the extent they were probable of being sustained. FIN 48 also requires additional disclosures about unrecognized tax benefits associated with uncertain income tax positions and a reconciliation of the change in the unrecognized benefit. We do not expect that the adoption of FIN 48 will have a significant impact on our financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes guidelines for measuring fair value and expands disclosure regarding fair value measurements. SFAS 157 does not require new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. We will adopt SFAS 157 on January 1, 2008. We do not expect the adoption of SFAS 157 to have a material impact on our financial results.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of SFAS No. 87, 88, 106 and 132(R) (SFAS 158), which requires employers to recognize the funded status of pension and other postretirement benefit plans on the balance sheet and to recognize changes in the funded status through comprehensive income in the year in which the changes occur. We will adopt SFAS 158 on December 31, 2007. SFAS 158 also requires plan assets and benefit obligations to be measured as of the balance-sheet date beginning December 31, 2008. We are evaluating the impact that the adoption of SFAS 158 will have on our financial statements.

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. We may engage in forward foreign exchange contracts to reduce our economic exposure to changes in exchange rates. A ten 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 building lease agreements that call for monthly lease payments at a variable interest rate. Historically, we have used short-term variable rate borrowings under the unsecured revolving credit agreement on a limited basis. There were no amounts outstanding under the unsecured revolving credit agreement at December 31, 2006. Our variable lease payments on the building lease agreements are estimated to be approximately $0.2 million per month, based on current interest rates. We have assessed the market risk exposure on these financial instruments and determined that any significant changes to the fair value of these instruments would not have a material impact on our consolidated results of operations, financial position or cash flows.

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

Not applicable.

Item 9A. Controls and Procedures

We carried out an evaluation as of the last day of the period covered by this Annual Report on Form 10-K, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (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, 2006 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management report on internal control over financial reporting is incorporated herein on page F-2 attached hereto.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following table shows our directors and executive officers as of December 31, 2006:

Name	Age	Title
Robert W. Bailey	51	Director
Robert G. Card	54	Director and Senior Vice President
Carolyn Chin	59	Director
William T. Dehn	60	Director and Vice President
Donald S. Evans	56	Director and Senior Vice President
James J. Ferris	63	Director
Jerry D. Geist	72	Director
Garry M. Higdem	53	Senior Vice President
Samuel H. Iapalucci	54	Executive Vice President, Secretary and Chief Financial Officer
Susan D. King	50	Director
Mark A. Lasswell	52	Director
Lee A. McIntire	57	President and Chief Operating Officer
Joan M. Miller	49	Director
Ralph R. Peterson	62	Chairman of the Board and Chief Executive Officer
David B. Price	61	Director
JoAnn Shea	42	Vice President and Chief Accounting Officer
Nancy R. Tuor	58	Vice Chair of the Board
Barry L. Williams	62	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

Item 14. Principal Accountant Fees and Services

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

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
Management’s Report on Internal Control Over Financial Reporting	F-2
Report on Internal Control Over Financial Reporting—KPMG LLP	F-3
Consolidated Balance Sheets at December 31, 2006 and 2005	F-5
Consolidated Statements of Income for the Years Ended December 31, 2006, 2005 and 2004	F-6
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended December 31, 2006, 2005 and 2004	F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004	F-8
Notes to Consolidated Financial Statements	F-9

2. Financial Statement Schedules and Other

The consolidated balance sheets of Kaiser-Hill Company, LLC as of December 31, 2006 and 2005, and the related consolidated statements of income, members’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006.

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 3.1 on Amendment No. 2 on Form S-1 to Registration Statement on Form S-3, on August 3, 2001 (File No. 333-60700)
3.2		Restated Bylaws of CH2M HILL Companies, Ltd. filed as Exhibit 3.2 on Amendment No. 2 on Form S-1 to Registration Statement on Form S-3, on August 3, 2001 (File No. 333-60700)

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. 1999 Stock Option Plan, as amended and restated on November 12, 1999 filed as Exhibit 10.3 on Form 10-K, on March 29, 2000
10.3		Deferred Compensation Retirement Program Arrangement effective December 1, 1995 filed as Exhibit 10.13 on Form 10-K, on March 29, 2000

10.4		Executive Deferred Compensation Program Arrangement effective January 1, 1997 filed as Exhibit 10.14 on Form 10-K, on March 29, 2000
10.5		CH2M HILL Companies, Ltd. Deferred Compensation Retirement Plan effective January 1, 2000 filed as Exhibit 10.21 on Form 10-K, on March 20, 2001
10.6		CH2M HILL Companies, Ltd. Executive Deferred Compensation Plan effective January 1, 2000 filed as Exhibit 10.22 on Form 10-K, on March 20, 2001
10.7		CH2M HILL Companies, Ltd. Deferred Compensation Plan effective January 1, 2001 filed as Exhibit 10.23 on Form 10-K, on March 20, 2001
10.8		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
10.9		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
10.10		CH2M HILL Companies, Ltd. Long Term Incentive (LTI) Plan effective January 1, 1999 filed as Exhibit 10.32 on Form 10-K, on March 29, 2002
10.11		CH2M HILL Companies, Ltd. Executive Officers Long Term Incentive Plan effective January 1, 2003 subject to shareholder approval at the 2003 Annual Shareholder meeting filed as Exhibit 10.37 on Form 10-K, on March 26, 2003
10.12		CH2M HILL Companies, Ltd. 2004 Stock Option Plan filed as Appendix A on Schedule 14A Definitive Proxy Statement, on March 26, 2004
10.13		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
*10.14		CH2M HILL Companies, Ltd. Amended and Restated Executive Officers Long Term Incentive Plan effective January 1, 2005 filed herein; amended to comply with IRS Code sec. 409A, no shareholders approval required
*10.15		CH2M HILL Companies, Ltd. Amended and Restated Long Term Incentive (LTI) Plan effective January 1, 2005 filed herein

Material Contracts—Other

Exhibit
Number		Description
10.16		Contract with Neidiger, Tucker, Bruner, Inc., filed as Exhibit 99.1 on Form 8-K, on June 24, 2002
10.17		Senior Unsecured Revolving Credit Agreement dated as of September 29, 2006, Wells Fargo Bank, National Association, as Agent and Arranger filed as exhibit 10.1 on Form 10-Q, on November 6, 2006

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

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

CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)

	December 31, 2006				December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents		$	105,205			$	66,494
Available-for-sale securities		30,898				6,258
Receivables, net—
Client accounts		449,790				398,642
Unbilled revenue		389,039				305,937
Other		6,171				5,556
Current deferred income taxes		38,968				—
Prepaid expenses and other current assets		28,248				23,138
Total current assets		1,048,319				806,025
Investments in unconsolidated affiliates		30,305				108,421
Property, plant and equipment, net		32,244				32,050
Goodwill		41,968				40,730
Intangible assets, net		21,429				26,168
Deferred income taxes		59,788				50,833
Other assets		45,488				39,712
Total assets		$	1,279,541			$	1,103,939
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	390			$	1,344
Accounts payable and accrued subcontractor costs		322,104				267,359
Billings in excess of revenue		147,755				121,604
Accrued incentive compensation		39,128				31,081
Accrued payroll and employee related liabilities		140,548				118,027
Current income tax payable		58,429				63,021
Current deferred income taxes		—				7,631
Other accrued liabilities		72,253				61,187
Total current liabilities		780,607				671,254
Long-term employee related liabilities and other		132,661				109,925
Long-term debt		236				2,780
Total liabilities		913,504				783,959
Commitments and contingencies (Note 18)
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; 32,109,200 and 31,892,048 issued and outstanding at December 31, 2006 and 2005, respectively		321				319
Additional paid-in capital		46,330				45,325
Retained earnings		328,559				289,658
Accumulated other comprehensive loss		(9,173		)		(15,322		)
Total shareholders’ equity		366,037				319,980
Total liabilities and shareholders’ equity		$	1,279,541			$	1,103,939

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

F-5

CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity and Comprehensive Income
(Dollars in thousands)

													Accumulated
							Additional						Other				Total
	Common Stock						Paid-In				Retained		Comprehensive				Shareholders’
	Shares		Amount				Capital				Earnings		Loss				Equity
Balance at December 31, 2003	31,023,886			$	310			$	40,976		$	175,681		$	(16,793	)		$	200,174
Net income											32,338			—				32,338
Other comprehensive income (loss):
Foreign currency translation adjustments											—			2,477				2,477
Minimum pension liability adjustment											—			(2,552		)		(2,552		)
Unrealized gain on equity investments											—			1,419				1,419
Comprehensive income																		33,682
Shares issued in connection with stock based compensation and employee benefit plans	2,668,121			26				27,942			—			—				27,968
Shares issued in conjunction with stock conversion for CH2M HILL Canada, LTD	149,518			2				2,189			—			—				2,191
Shares purchased and retired	(2,626,607	)		(26		)		(34,139		)	—			—				(34,165		)
Balance at December 31, 2004	31,214,918			312				36,968			208,019			(15,449		)		229,850
Net income											81,639			—				81,639
Other comprehensive income (loss):
Foreign currency translation adjustments											—			(2,398		)		(2,398		)
Minimum pension liability adjustment											—			472				472
Unrealized gain on equity investments											—			2,053				2,053
Comprehensive income																		81,766
Shares issued in connection with stock based compensation and employee benefit plans	2,337,087			23				34,867			—			—				34,890
Shares purchased and retired	(1,659,957	)		(16		)		(26,510		)	—			—				(26,526		)
Balance at December 31, 2005	31,892,048			319				45,325			289,658			(15,322		)		319,980
Net income											38,901			—				38,901
Other comprehensive income (loss):
Foreign currency translation adjustments											—			4,844				4,844
Minimum pension liability adjustment											—			2,439				2,439
Unrealized loss on equity investments											—			(1,134		)		(1,134		)
Comprehensive income																		45,050
Shares issued in connection with stock based compensation and employee benefit plans	1,667,543			17				28,936			—			—				28,953
Shares purchased and retired	(1,450,391	)		(15		)		(27,931		)	—			—				(27,946		)
Balance at December 31, 2006	32,109,200			$	321			$	46,330		$	328,559		$	(9,173	)		$	366,037

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

F-7

CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)

	For The Years Ended
	December 31, 2006				December 31, 2005				December 31, 2004
Cash flows from operating activities:
Net income		$	38,901			$	81,639			$	32,338
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization		13,823				15,910				15,849
Stock-based employee compensation expense		37,403				27,180				26,576
Realized gain on sale of investment		—				—				(1,528		)
Net (gain)/loss on disposal of property, plant and equipment		(1,845		)		484				374
Allowance for uncollectible accounts		3,523				3,241				951
Deferred income tax benefit		(56,524		)		(10,206		)		(13,942		)
Distributed/(undistributed) earnings of unconsolidated affiliates		91,263				(51,251		)		(1,127		)
Changes in current assets and liabilities, net of businesses acquired—
Receivables and unbilled revenue		(142,468		)		(160,945		)		(30,786		)
Prepaid expenses and other		(7,720		)		(12,504		)		(4,897		)
Accounts payable and accrued subcontractor costs		55,581				50,767				(21,562		)
Billings in excess of revenues		26,993				23,935				3,944
Employee related liabilities		31,078				6,668				7,768
Other accrued liabilities		9,685				39,724				29,533
Current taxes payable		(4,592		)		27,807				18,585
Long term employee related liabilities and other		22,863				14,550				12,933
Net cash provided by operating activities		117,964				56,999				75,009
Cash flows from investing activities:
Capital expenditures		(13,134		)		(8,176		)		(7,179		)
Cash increase upon adoption of FIN 46(R)		—				7,699				—
Acquisitions and earnout payments, net of cash acquired		(2,018		)		(7,470		)		(5,174		)
Investments in affiliates, net of cash received for distributions of capital		(11,673		)		(7,617		)		(2,052		)
Purchases of available-for-sale investments		(76,131		)		—				—
Proceeds from sale of available-for-sale investments		48,541				—				1,950
Proceeds on sale of property, plant and equipment		6,538				27				23
Net cash used in investing activities		(47,877		)		(15,537		)		(12,432		)
Cash flows from financing activities:
Borrowings on line of credit		456,900				236,300				483,100
Payments on line of credit and long-term debt		(460,525		)		(239,234		)		(485,407		)
Repurchases of stock		(37,145		)		(25,262		)		(33,498		)
Excess tax benefits from stock-based compensation		2,606				—				—
Net cash used in financing activities		(38,164		)		(28,196		)		(35,805		)
Effect of exchange rate changes on cash		6,788				(2,657		)		(1,772		)
Increase in cash and cash equivalents		38,711				10,609				25,000
Cash and cash equivalents, beginning of year		66,494				55,885				30,885
Cash and cash equivalents, end of year		$	105,205			$	66,494			$	55,885
Supplemental disclosures:
Cash paid for interest		$	2,848			$	1,264			$	1,030
Cash paid for income taxes		$	84,607			$	35,264			$	15,721

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

F-8

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 that was founded in 1946. CH2M HILL provides engineering, consulting, design, construction, procurement, operations and maintenance, and program and project 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 professional fees arises 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 are evaluated for consolidation in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46(R)). The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States 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 that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those 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.

Revenue Recognition

CH2M HILL earns its revenue from different types of contracts, including cost-plus, fixed-price and time-and-materials. In recognizing revenue, CH2M HILL evaluates each contractual arrangement to

F-9

determine the appropriate authoritative literature to apply. 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 collectibility 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, the status of and experience in settling change orders and claims, 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.

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 bases 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. Management may recognize a tax asset or adjust taxes payable for anticipated state or federal tax credits, such as those relating to the research and experimentation tax credit.

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

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short-term investments such as certificates of deposit, commercial paper and repurchase agreements. 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 were estimated based on market prices, where available, or dealer quotes.

CH2M HILL occasionally invests excess cash in auction rate and variable rate demand notes. Although the maturities on the securities purchased are long-term, CH2M HILL intends to hold the investment for less than one year. Therefore, these securities are considered short-term, available-for-sale securities and are recorded in the consolidated balance sheet at fair value of $27.6 million at December 31, 2006. Income in 2006 related to these securities was not significant.

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 income in the year of disposition.

Depreciation for owned property is based on the estimated useful lives of the assets using both straight-line and accelerated methods for financial statement purposes. Useful lives for buildings range from 15 to 30 years with an average life of 25 years. Furniture, fixtures and equipment are depreciated over their useful lives from 2 to 10 years with an average of approximately 5 years. Leasehold improvements are depreciated over the shorter of their estimated useful life or the remaining term of the associated lease.

Other Long-Lived Assets

CH2M HILL may acquire goodwill or other intangible assets in business combinations which are accounted for using the purchase method of accounting. Intangible assets are stated at fair value as of the date acquired in a business combination. CH2M HILL amortizes intangible assets with finite lives 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 intangible assets have an indefinite life and therefore they are not amortized.

Impairment of Long-Lived Assets

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.

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.

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Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of foreign currency translation adjustments, minimum pension liability adjustments, net of tax, and unrealized gains/losses on investments, net of tax. These components are included in the accompanying consolidated statements of shareholders’ equity and accumulated other comprehensive loss. 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.

CH2M HILL holds a common stock investment in a company which is publicly traded on a Korean stock exchange. This investment is included in available-for-sale securities on the accompanying consolidated balance sheet with any unrealized gain or loss included in shareholders’ equity as a component of accumulated other comprehensive loss. At December 31, 2006 and 2005, the fair value of the investment was $3.3 million and $6.3 million, respectively. For the year ended December 31, 2004, CH2M HILL recognized a gain of $1.5 million on the sale of a portion of the common stock, which is included in gain on investment in the accompanying consolidated statements of income.

The after-tax components included in accumulated other comprehensive loss for December 31 are as follows:

($ in thousands)	2006			2005

Foreign currency translation adjustment	$	3,594		$	(1,250	)
Minimum pension liability adjustment	(15,105		)	(17,544		)
Unrealized gain/loss on investment	2,338			3,472
	$	(9,173	)	$	(15,322	)

Concentrations of Credit Risk

Financial instruments which potentially subject CH2M HILL to concentrations of credit risk consist principally of cash, cash equivalents, short term investments and trade receivables. CH2M HILL’s cash, 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, 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.

Pensions and Other Postretirement Employee Benefits

CH2M HILL follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 87 Employers’ Accounting for Pensions, and SFAS No. 106 Employers’ Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 87 requires the use of assumptions and estimates in order to calculate periodic pension cost and the value of the plans’ assets and liabilities. These assumptions involve discount rates, investment returns and projected salary increases, among others. SFAS No. 106 also requires the use of assumptions and estimates in order to calculate periodic postretirement medical expense and the value of the plans’ liabilities. These assumptions involve discount rates, mortality and healthcare need assumptions. CH2M HILL relies on qualified actuaries to assist in valuing the financial position of the

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plans. Changes in the assumptions may have a material affect on the plans’ assets and liabilities, and the associated pension and postretirement medical expense.

Recently Adopted Accounting Standards

In December 2003, the FASB revised FASB Interpretation No. 46, Consolidation of Variable Interest Entities, with FIN46(R) which conformed FIN 46 to previously issued FASB Staff Positions. CH2M HILL adopted the provisions of FIN 46(R) immediately for entities created after December 31, 2003. For entities created before December 31, 2003, we adopted FIN 46(R) on January 1, 2005.

On January 1, 2006, CH2M HILL adopted the provisions of, and account for stock-based compensation in accordance with SFAS No. 123 (revised 2004) (SFAS 123(R)), Share-Based Payment. CH2M HILL accounts for awards of company stock granted to its employees prior to 2006 under the intrinsic-value recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). SFAS 123(R) requires that compensation expense be measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. CH2M HILL elected the prospective method of adoption, under which prior periods are not revised for comparative purposes. Under the prospective method, the provisions of SFAS 123(R) apply to new grants as of the effective date, January 1, 2006. Accordingly, at the adoption date, SFAS 123(R) had no impact on CH2M HILL’s consolidated financial position, results of operations or cash flows. SFAS 123(R) was not applied to CH2M HILL’s Payroll Deduction Stock Purchase Plan (PDSPP) as the plan is available to all shareholders and incorporates no option features such as a look-back period. Accordingly, no compensation cost is recognized in the financial statements for the PDSPP.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108), which provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both the income statement and balance sheet approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. CH2M HILL adopted SAB 108 for the fiscal year ended December 31, 2006. The adoption of SAB 108 did not have a material impact on its financial statements.

Recently Issued Accounting Standards

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155), which amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140). SFAS 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as one if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for CH2M HILL January 1, 2007. CH2M HILL does not expect the adoption of SFAS 155 to have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109 (FIN 48), which is effective beginning on January 1, 2007. FIN 48 establishes a process to measure the impact of uncertainty associated with an income tax position. Under FIN 48, the effect of an income tax position on the income tax provision must be recognized at the amount that is more likely than not to be sustained upon examination by the relevant taxing authority. Under CH2M HILL’s previous policy, we recognized tax positions to the extent they were probable of being sustained. FIN 48 also requires additional disclosures about unrecognized tax benefits

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associated with uncertain income tax positions and a reconciliation of the change in the unrecognized benefit. CH2M HILL does not expect that the adoption of FIN 48 will have a significant impact on their financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes guidelines for measuring fair value and expands disclosure regarding fair value measurements. SFAS 157 does not require new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. CH2M HILL will adopt SFAS 157 on January 1, 2008. CH2M HILL does not expect the adoption of SFAS 157 to have a material impact on its financial results.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of SFAS No. 87, 88, 106 and 132(R) (SFAS 158), which requires employers to recognize the funded status of pension and other postretirement benefit plans on the balance sheet and to recognize changes in the funded status through comprehensive income in the year in which the changes occur. CH2M HILL will adopt SFAS 158 on December 31, 2007. SFAS 158 also requires plan assets and benefit obligations to be measured as of the balance-sheet date beginning December 31, 2008. CH2M HILL is evaluating the impact that the adoption of SFAS 158 will have on its financial statements.

(2) Accounts receivable

The U.S. federal government accounted for 15% of CH2M HILL’s net receivables at December 31, 2006 and 24% at December 31, 2005. Receivables are stated at net realizable values. The changes in the allowance for uncollectible accounts consist of the following for the years ending December 31:

($ in thousands)	2006			2005			2004

Balance at beginning of year	$	5,992		$	3,917		$	12,220
Provision charged to expense	3,523			3,241			951
Accounts written off	(1,051		)	(759		)	(5,624		)
Accounts previously provided for, recovered in current year	(147		)	(407		)	(3,630		)
Balance at end of year	$	8,317		$	5,992		$	3,917

(3) Investments in unconsolidated 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 O&M 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 variable interest entities (VIE’s) under FIN 46(R). CH2M HILL has classified entities identified as VIE’s into two groups, the first of which includes those entities that CH2M HILL has consolidated under the guidance of FIN 46(R), as CH2M HILL is considered the primary beneficiary, and the second group which includes those entities which CH2M HILL was not required to consolidate. As of December 31, 2006, the assets and liabilities of the identified VIE’s that were not consolidated were $139.4 million and $131.4 million, respectively.

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For VIE’s where CH2M HILL is not the primary beneficiary and those entities which are not VIE’s, CH2M HILL accounts for its investments in affiliated unconsolidated companies using the equity method of accounting. As of December 31, 2006 and 2005, the investments in unconsolidated affiliates were $30.3 million and $108.4 million, respectively. CH2M HILL’s proportionate share of net income or loss is included as equity in earnings of joint ventures and affiliated companies on the accompanying consolidated statements of income. In general, the equity investment in our joint ventures is equal to those entities’ undistributed earnings. CH2M HILL provides certain services, including engineering, construction management and computer and telecommunication support, to these unconsolidated partnerships. For the years ended December 31, 2006, 2005 and 2004, CH2M HILL reported revenue from these services of $61.4 million, $46.4 million and $37.6 million, respectively. These services are billed to the joint ventures in accordance with the provisions of the joint venture agreements. 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	%
ATKINSON/CH2M HILL, Joint Venture		30.0	%
CH2M HILL /TILDON COIL Joint Venture		50.0	%
CH2M HILL /URS Team, Joint Venture		50.0	%
CH2M HILL/ VT Griffin, Joint Venture		49.0	%
CH2M—WG Idaho, LLC		50.5	%
Coastal Estuary Services		49.9	%
Connecting Idaho Partners		49.0	%
IAP-Hill, LLC		25.0	%
Kaiser-Hill Company, LLC		50.0	%
Kakivik Asset Management LLC		33.0	%
Milwaukee Transportation Partners, LLC		50.0	%
MW/CH2M HILL, Joint Venture		50.0	%
OMI Caribe LLC		50.0	%
OMI/Thames Water Stockton, Inc.		50.0	%
Parsons CH2M HILL Program Management Consultants, Joint Venture		45.0	%
Stockton D/B Joint Venture		50.0	%
Washington Closure, LLC		30.0	%
Washington Group-IDC		28.0	%
Foreign:
CH2M HILL BECA, Ltd.		50.0	%
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	%
Golden Crossing Constructors, Joint Venture		33.3	%
Maroochy Alliance Joint Venture		40.0	%
OMI BECA, Ltd.		50.0	%

CH2M HILL’s largest joint venture was Kaiser-Hill Company, LLC (Kaiser-Hill), in which CH2M HILL owns a 50% interest. Kaiser-Hill’s revenues are derived from the U.S. Department of Energy’s (DOE) Performance Based Integrating Management Contract for the Rocky Flats Closure Project in Golden, Colorado. Kaiser-Hill was compensated through a base fee affected by its performance

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against the agreed upon site target closure costs. On October 13, 2005, Kaiser-Hill declared physical completion of the activities at the site. The DOE continues to review our submitted costs and perform normal cost audit activities associated with any governmental contract. CH2M HILL expects these activities to continue through 2007 and believes any findings will not have a material effect on earnings. As site work is complete, Kaiser Hill’s remaining activity will primarily be related to the management of waste subcontracts and numerous administrative tasks for contract close-out.

The equity in earnings from the Kaiser-Hill joint venture for the years ended December 31, 2005 and 2004 were $95.7 million and $20.3 million, respectively. There were no significant earnings during the year ended 2006. In 2005, earnings from Kaiser-Hill included $71.2 million of incremental fees Kaiser-Hill recognized related to the favorable performance against the agreed upon target closure costs, the schedule to achieve site closure and site safety. These fees were recognized by Kaiser-Hill as a result of elimination of job site risks and other contract incentives.

Kaiser-Hill’s ability to distribute cash is based on pre-negotiated payment terms in accordance with its contract with the DOE and can be different from the earnings recognized for accounting purposes. During the years ended December 31, 2006, 2005 and 2004, CH2M HILL received distributed earnings from Kaiser-Hill of $85.0 million, $43.7 million and $17.5 million, respectively. Consequentially, the remaining investment in Kaiser-Hill as of December 31, 2006 was $2.3 million, compared to $87.3 million at December 31, 2005.

In the first quarter of 2005, CH2M HILL and Washington Group International formed a joint venture, CH2M-WG Idaho, LLC (CH2M-WG Idaho) of which CH2M HILL owns a 50.5% interest. The contract is for the U.S. Department of Energy’s cleanup of a federal nuclear facility located in Idaho. For the years ended December 31, 2006 and 2005, CH2M HILL recognized earnings from CH2M-WG Idaho of $9.6 million and $6.0 million, and received $15.1 million and $12.6 million of distributions, respectively. In both 2005 and 2006, CH2M HILL contributed cash of $12.6 million to the joint venture. CH2M HILL’s investment in CH2M-WG Idaho as of December 31, 2006 was $13.1 million compared to $6.0 as of December 31, 2005.

Summarized unaudited financial information for CH2M HILL’s unconsolidated affiliates as of and for the years ended December 31, is as follows:

($ in thousands)	2006		2005

FINANCIAL POSITION:
Current assets	$	322,579	$	510,827
Noncurrent assets	32,649		4,652
	$	355,228	$	515,479
Current liabilities	$	289,143	$	294,989
Noncurrent liabilities	2,417		5,165
Owners’ equity	63,668		215,325
	$	355,228	$	515,479

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($ in thousands)	2006		2005		2004

RESULTS OF OPERATIONS:
Revenue	$	1,308,959	$	1,373,842	$	922,251
Direct costs	1,258,642		1,135,938		835,478
Gross margin	50,317		237,904		86,773
General and administrative expenses	9,224		13,714		26,142
Operating income	41,093		224,190		60,631
Other income (expense), net	4,403		358		(737		)
Net income	$	45,496	$	224,548	$	59,894

(4) Property, plant and equipment

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

($ in thousands)	2006			2005

Land	$	—		$	1,375
Building	—			4,113
Furniture, fixtures and equipment	56,669			51,255
Leasehold improvements	24,834			20,070
	81,503			76,813
Less: Accumulated depreciation	(49,259		)	(44,763		)
Net property, plant and equipment	$	32,244		$	32,050

The depreciation expense reflected in the income statement totaled $9.1 million in 2006, $8.0 million in 2005 and $7.2 million in 2004.

(5) Other assets

Other assets consist of the following as of December 31:

($ in thousands)	2006		2005

Employee benefit plan assets	$	43,493	$	33,462
Other	1,995		6,250
Total other assets	$	45,488	$	39,712

(6) Acquisitions

During 2005, CH2M HILL acquired the outstanding stock of BBS Corporation, an Ohio-based firm specializing in planning, design, and construction management of water and wastewater treatment, distribution and collection systems. The total purchase price of BBS was $8.3 million, of which $7.5 million was paid in 2005 and the remainder was paid in 2006. The goodwill recorded with the transaction was $5.9 million as a premium was paid over the fair market value of the assets acquired, including the identifiable intangible assets of $0.9 million. Goodwill related to the BBS acquisition was allocated to the Civil Infrastructure operating segment.

During 2004, CH2M HILL acquired certain assets and liabilities of the following entities for a total cost of $5.2 million, which was paid for in cash:

· MicroSource, Inc. (MicroSource), a managed network service provider

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· Frontline Telecom, Ltd, a telecom network implementation and servicing company located in the United Kingdom

The goodwill associated with these transactions was $1.9 million, all of which was allocated to the Industrial operating segment. Other finite-lived intangible assets recognized as part of these transactions amounted to $2.2 million.

(7) Goodwill and intangible assets

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

($ in thousands)	2006		2005

Goodwill	$	41,968	$	40,730
Tradename	20,326		20,326
	$	62,294	$	61,056

Goodwill and the tradename were reviewed for impairment during the year ended December 31, 2006. Management’s review of the recoverability of goodwill and the tradename indicated that there was no impairment. During the first quarter of 2006, CH2M HILL recorded additional goodwill as a result of earn-out targets being achieved on an acquisition.

Intangible assets with finite lives for the years ended December 31, consist of the following:

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

December 31, 2006
Contracts-in-place	$	26,594		$	(26,173	)		$	421
Patents and trademarks	5,219			(5,219		)		—
Contracted backlog	2,230			(2,088		)		142
Non-compete agreements and other	807			(267		)		540
Total finite-lived intangible assets	$34,850			$	(33,747	)		$	1,103
December 31, 2005
Contracts-in-place	$	26,594		$	(22,884	)		$	3,710
Patents and trademarks	5,219			(5,206		)		13
Contracted backlog	2,230			(734		)		1,496
Non-compete agreements and other	807			(184		)		623
Total finite-lived intangible assets	$	34,850		$	(29,008	)		$	5,842

The contracts-in-place are being amortized on a straight-line basis over the total life of the contracts up to seven years. The other intangible assets are being amortized over their expected useful lives up to six years. The amortization expense reflected in the income statement totaled $4.7 million in 2006, $8.0 million in 2005 and $8.6 million in 2004. These intangible assets are expected to be fully amortized in 2009. The estimated amortization expense related to these intangible assets is $0.7 million in 2007, $0.3 million in 2008 and $0.1 million in 2009.

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(8) Fair value of financial instruments

Cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable and billings in excess of earnings are carried at cost, which approximates fair value due to their short maturities. Fair values of equity investments and short-term investments, where a readily determinable market value exists, have been estimated using market prices or dealer quotes. The fair value of long-term debt, including the current portion, is estimated based on quoted market prices for the same or similar issues or on the current rates offered to CH2M HILL for debt of similar maturities. The fair value of notes payable to former shareholders is based on a discount rate equal to the prime rate at the end of the year.

The estimated fair value of CH2M HILL’s financial instruments as of December 31, are as follows:

	2006				2005
($ in thousands)	Carrying Amount		Fair Value		Carrying Amount			Fair Value

Assets:
Equity investments	$	3,308	$	3,308		$	6,258	$	6,258
Short-term investments	$	27,590	$	27,590		—		—
Liabilities:
Long-term debt, including current portion	$	626	$	592		$	4,124	$	4,329

(9) Line of credit

CH2M HILL entered into a credit agreement in September 2006 which replaced their prior credit facility. The new credit agreement provides for a $250.0 million revolving credit facility which expires on September 29, 2011. The credit agreement includes an option to increase the initial borrowing capacity by up to an additional $100.0 million. While the credit agreement may be used for general corporate purposes and permitted acquisitions, it also provides that up to $200.0 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 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, as defined. 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, as defined. As of December 31, 2006, CH2M HILL had no outstanding borrowings on the credit agreement.

The credit agreement contains customary financial and other covenants, including minimum levels of net worth, a minimum coverage ratio of certain fixed charges, and a maximum leverage ratio of earnings before interest, taxes, depreciation and amortization to funded debt, as well as customary limitation 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, 2006, CH2M HILL was in compliance with the covenants required by the credit agreement.

(10) Long-term debt

CH2M HILL may repurchase shares from shareholders upon termination of employment or affiliation by issuing interest bearing notes. The total amount outstanding for notes payable to former shareholders at December 31, 2006 and 2005 was $0.6 million and $1.2 million, respectively. The interest

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rate on the notes is adjusted annually (on the anniversary dates of the notes) to ¾ of the U.S. Federal Reserve Discount Rate on the first business day of each calendar year. For 2006, the interest rate on the notes was 3.94%. The notes are unsecured and payable in varying annual installments through 2009.

CH2M HILL issued a $1.0 million note payable in connection with a prior acquisition, which was paid in January 2005.

At December 31, 2006, future principal payments on notes payable are as follows (in thousands):

Year Ending
2007	$	390
2008	154
2009	61
2010	21
2011	—
	$	626

(11) Operating lease obligations

CH2M HILL has entered into certain noncancellable leases, which are being accounted for as operating leases. At December 31, 2006, future minimum operating lease payments are as follows (in thousands):

Year Ending
2007	$	76,213
2008	64,333
2009	51,153
2010	38,280
2011	26,628
Thereafter	48,705
	$	305,312

CH2M HILL is party to three lease agreements related to our corporate headquarters and three adjacent buildings. One of the lease agreements calls for monthly lease payments of approximately $0.4 million through March 3, 2013 and requires that CH2M HILL guarantees a residual value of the buildings for approximately $42.0 million. Upon completion of the lease term, CH2M HILL has the option to purchase the buildings for $53.0 million. The second lease agreement calls for monthly lease payments at a variable interest rate, estimated to be approximately $0.1 million per month, based on current interest rates. The lease agreement requires that CH2M HILL guarantees a residual value of this building of approximately $17.6 million. Upon completion of the lease term, CH2M HILL has the option to purchase the building from the lessor for $20.8 million. The lease matures on September 28, 2008 and provides for five one-year renewal options. The third lease agreement calls for monthly lease payments of approximately $0.1 million through December 3, 2012 and requires that CH2M HILL guarantees a residual value of the building of approximately $18.5 million. Upon completion of the initial lease term, CH2M HILL has the option to purchase the building for $22.1 million, or extend the term of the lease for up to two successive periods of five years each.

Rental expense charged to operations was $97.1 million, $82.6 million and $69.7 million during 2006, 2005 and 2004, respectively. Certain of CH2M HILL’s operating leases contain provisions for a specific rent-free period. In 2005, CH2M HILL received various rental concessions for leasehold improvements at a leased facility in Portland, Oregon, amounting to $5.6 million. CH2M HILL accrues rental expense

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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 from continuing operations before income taxes for the years ended December 31 includes the following:

($ in thousands)	2006			2005			2004

U.S. income	$	84,628		$	160,524		$	65,357
Foreign loss	(20,947		)	(26,296		)	(13,700		)
Income before taxes	$	63,681		$	134,228		$	51,657

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

($ in thousands)	2006			2005			2004

Current income tax expense:
Federal	$	58,458		$	51,869		$	23,749
Foreign	10,423			1,725			5,299
State and local	12,423			9,201			4,213
Total current taxes	81,304			62,795			33,261
Deferred tax expense (benefit):
Federal	(44,048		)	(9,879		)	(11,850		)
Foreign	(3,115		)	1,425			—
State	(9,361		)	(1,752		)	(2,092		)
Total deferred tax benefit	(56,524		)	(10,206		)	(13,942		)
Total tax expense	$	24,780		$	52,589		$	19,319

The reconciliation 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 were as follows:

($ in thousands)	2006			2005			2004

Pretax income	$	63,681		$	134,228		$	51,657
Federal statutory rate	35		%	35		%	35		%
Expected tax expense	22,288			46,980			18,080
Reconciling items:
State income taxes, net of federal benefit	1,636			5,704			1,372
Permanent expenses, exclusions and credits	1,966			(132		)	1,061
Foreign operating losses	3,418			1,223			(1,355		)
Other	(4,528		)	(1,186		)	161
Provision for income taxes	$	24,780		$	52,589		$	19,319

F-21

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

($ in thousands)	2006			2005

Deferred tax assets:
Foreign net operating loss carryforwards	$	7,110		$	5,387
Investments in affiliates	—			2,941
Accrued employee benefits	122,233			76,863
Total deferred tax assets	129,343			85,191
Valuation allowance	(6,940		)	(5,141		)
Net deferred tax assets	122,403			80,050
Deferred tax liabilities:
Deferred recognition of income until collection occurs	10,359			25,230
Investments in affiliates	1,790			—
Depreciation and amortization	11,498			11,618
Total deferred tax liabilities	23,647			36,848
Net deferred tax asset	$	98,756		$	43,202

A valuation allowance is required to be established for those deferred tax assets that it is more likely than not that they will not be realized. The above valuation allowances relate primarily to foreign net operating losses of $27.8 million and $20.7 million for the years ended December 31, 2006 and 2005, 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.

Undistributed earnings of CH2M HILL’s foreign subsidiaries amounted to approximately $34.1 million at December 31, 2006. Those earnings are considered to be indefinitely reinvested and 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, 2006, 2005 and 2004 was $2.6 million, $2.2 million and $2.0 million, respectively. These amounts are reflected as additions to additional paid-in capital in the statements of shareholders’ equity and comprehensive income and are reported as financing activities in the 2006 consolidated statement of cash flows and in operating activities in the 2005 and 2004 consolidated statements of cash flows.

(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 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.

F-22

A reconciliation of basic and diluted EPS for the years ended December 31 follows (in thousands, except per share amounts):

	2006		2005		2004
Numerator:
Net income	$	38,901	$	81,639	$	32,338
Denominator:
Basic weighted-average shares outstanding	32,420		31,930		31,468
Dilutive effect of common stock equivalents	627		552		475
Diluted adjusted weighted-average shares outstanding, assuming conversion of common stock equivalents	33,047		32,482		31,943
Basic net income per share	$	1.20	$	2.56	$	1.03
Diluted net income per share	$	1.18	$	2.51	$	1.01

(14) Employee benefit plans

Deferred Compensation Plans

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 another plan, a participant, whose 401(k) Plan contributions are limited by the Employee Retirement Income Security Act (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.

Compensation expense related to the plans was $4.1 million, $2.9 million, and $2.6 million for the years ended December 31, 2006, 2005, and 2004, respectively. The total of participant deferrals, which is reflected in other long-term liabilities, was $37.6 million and $28.4 million at December 31, 2006 and 2005, respectively.

Stock Option Plans

CH2M HILL’s 2004 and 1999 stock option plans were approved by the Board of Directors and shareholders to reserve 5,000,000 and 8,000,000 shares, respectively, of CH2M HILL common stock for issuance upon exercise of stock options granted under this plan. 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.

F-23

The following table summarizes the activity relating to the 2004 and 1999 stock option plans:

	Outstanding Options
	Number of Shares		Weighted Average Exercise Price
Outstanding at December 31, 2005	4,004,661			$	12.34
Granted	1,037,388			$	17.98
Exercised	(938,107	)		$	10.85
Forfeited and expired	(179,560	)		$	14.04
Outstanding at December 31, 2006	3,924,382			$	14.10
Exercisable at December 31, 2006	1,844,739			$	12.18
Available for future grants	4,356,839

The weighted-average remaining contractual term for all options outstanding at December 31, 2006 was 2.6 years and the aggregate intrinsic value was $18.2 million. The weighted-average remaining contractual term for options vested and exercisable at December 31, 2006 was 1.4 years and the aggregate intrinsic value was $12.1 million. CH2M HILL received $3.3 million, $2.7 million and $2.1 million from options exercised during the years ended December 31, 2006, 2005 and 2004, respectively. The intrinsic value associated with these exercises was $6.7 million, $5.7 million and $8.3 million during the years ended December 31, 2006, 2005 and 2004, respectively.

CH2M HILL adopted SFAS 123(R) on January 1, 2006, using the prospective method, under which prior periods are not revised for comparative purposes. The provisions of SFAS 123(R) apply to new grants on or after January 1, 2006. 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 twelve months ended December 31, 2006 was $3.62. The following weighted-average assumptions were used in determining the fair value of options granted during 2006:

Risk-free interest rate	5.03	%
Expected dividend yield	0.00	%
Expected option life	4.36 Years
Expected stock price volatility	8.4	%

CH2M HILL estimates the expected term of options granted by taking the average of the vesting term and the contractual term of the option. CH2M HILL estimates the volatility of its common stock by using a weighted-average of historical volatility over the same period as the term of the option. CH2M HILL uses the U.S. Treasury zero-coupon issues for the risk-free interest rate in the option valuation model with remaining terms similar to the expected term on 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 record 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, which are generally the vesting periods.

The total compensation cost recognized under SFAS 123(R) for stock options granted in 2006 was $0.5 million. No stock option expense was required prior to the adoption of SFAS 123(R) on January 1, 2006.

F-24

Payroll Deduction Stock Purchase Plan

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. CH2M HILL has reserved 13,000,000 shares of common stock to be issued under the PDSPP. 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 under SFAS 123(R) since the plan is available to all shareholders and incorporates no option features such as a look-back period. Accordingly, no compensation cost is recognized in the financial statements for the PDSPP. During the years ended December 31, 2006, 2005 and 2004, a total of 712,919 shares, 766,692 shares and 817,358 shares, respectively, were issued under the PDSPP, for total proceeds of $11.9 million, $10.3 million and $9.5 million, respectively.

Phantom Stock Plan

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 United States. 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 fair 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.

During the years ended December 31, 2006, 2005 and 2004, a total of 2,120, 4,645 and 36,069 phantom stock units, respectively, were granted under the Phantom Stock Plan. At December 31, 2006, there were 107,381 outstanding units.

The weighted-average fair values of the units granted under the Phantom Stock Plan during 2006, 2005 and 2004 were $18.72, $14.92 and $12.07, respectively.

Compensation expense related to the Phantom Stock Plan during 2006, 2005 and 2004 was $0.4 million, $0.5 million, and $0.7 million, respectively.

Stock Appreciation Rights Plan

In February 1999, CH2M HILL established the Stock Appreciation Rights (SARs) Plan. Eligible individuals are generally individuals who are not residents of the United States. SARs are granted at an exercise price equal to the fair 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 fair market value of CH2M HILL’s common stock.

During the years ended December 31, 2006, 2005 and 2004, a total of 25,020 SARs, 29,050 SARs and 114,625 SARs, respectively, were granted. At December 31, 2006, there were 189,801 SARs that remained outstanding.

The weighted-average fair values of SARs granted during 2006, 2005 and 2004 were $17.87, $14.94 and $12.53, respectively.

F-25

Compensation expense related to the SARs Plan amounted to $0.5 million, $0.6 million and $0.2 million in 2006, 2005 and 2004, respectively.

Short Term Incentive Plan

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, 2006, 2005 and 2004, a total of 599,471 shares, 898,899 shares and 869,109 shares, respectively, were issued under the STIP.

The fair values of the shares issued under the STIP during 2006, 2005 and 2004 were $18.72, $14.92 and $12.07, respectively.

Compensation expense related to common stock awards under the STIP amounted to $12.6 million, $11.7 million and $12.1 million in 2006, 2005 and 2004, respectively.

Long Term Incentive Plan

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, 2006, 2005 and 2004, a total of 181,351 shares, 164,598 shares and 208,667 shares, respectively, were issued under the LTIP at a fair value of $18.72, $14.92 and $12.07 per share, respectively.

Compensation expense related to common stock awards under the LTIP amounted to $9.4 million, $5.9 million and $4.7 million in 2006, 2005 and 2004, respectively.

Restricted Stock Plan

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, 2006, 2005 and 2004, a total of 357,783 shares, 55,419 shares and 186,161 shares, respectively, were issued under the Restricted Stock Plan.

F-26

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 $2.6 million for the year ended December 31, 2006 and $1.0 million for each of the years ended December 31, 2005 and 2004. In determining the amount of compensation expense, CH2M HILL has estimated that forfeitures of restricted stock shares will be approximately 3% of total restricted stock shares outstanding based upon prior experience. As of December 31, 2006, there was $4.8 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 3.25 years.

	Non-vested Shares			Weighted Average Grant Date Fair Value
Balance at December 31, 2005		199,132			$	12.54
Granted		357,783			$	18.08
Vested		(52,381	)		$	15.14
Forfeited		(19,322	)		$	14.46
Balance at December 31, 2006		485,212			$	16.92

The weighted-average fair values of the shares issued under the Restricted Stock Plan during 2006, 2005 and 2004 were $18.08, $15.62 and $12.22, respectively.

(15) Employee retirement plans

Retirement and Tax-Deferred Savings Plan

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 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 both matching cash and stock contributions. 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. The amount of the employer’s contribution, if any, is determined by the Board of Directors of CH2M HILL.

Participants of the 401(k) Plan are, at all times, 100% vested in the employee contribution account. Amounts allocated to a participant’s defined contribution account and matching contribution account generally vest over six years of completed service.

Expenses related to matching contributions made in cash for the 401(k) Plan for 2006, 2005 and 2004 were $18.7 million, $13.9 million and $13.4 million, respectively. Expenses related to defined contributions made in common stock for the 401(k) Plan for 2006, 2005 and 2004 were $10.9 million, $8.2 million and $11.3 million, respectively.

CH2M HILL also has a supplemental executive retirement plan that will provide an additional retirement benefit to certain senior executives if they remain employed and retire from CH2M HILL on or after age 65. The amount of the annual benefit, which may change from time-to-time based on the decision of the Board of Directors of CH2M HILL, currently is equal to 50% of the participant’s projected base salary for fiscal year 2007. The benefit is reduced by the value of the offsetting retirement benefits paid by CH2M HILL under other plans. For the years ended December 31, 2006, 2005 and 2004, CH2M HILL expensed $1.2 million, $1.1 million, and $0.7 million, respectively, for the anticipated benefit obligations.

F-27

Pension and Other Postretirement Benefits

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. Funding for these plans is provided through contributions based on recommendations from the plans’ independent actuaries.

The investment philosophy for the pension plans is based on a balanced asset approach allocated primarily between equity securities and debt securities. The equity security holdings are distributed in large and small cap index funds and an international fund. The debt securities consist of two fixed income funds.

CH2M HILL sponsors a medical benefit plan for retired employees of certain subsidiaries. The plan is contributory, with retiree premiums 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.

The following table sets forth the defined benefit pension plans and other plans funding status and amounts recognized in the consolidated balance sheets.

	Pension Benefits						Other Postretirement Benefits
($ in thousands)	2006			2005			2006			2005

Benefit obligations in excess of plan assets:
Benefit obligation at December 31	$	(152,510	)	$	(145,356	)	$	(25,731	)	$	(25,173	)
Fair value of plan assets at December 31	124,799			113,860			—			—
Unfunded status	$	(27,711	)	$	(31,496	)	$	(25,731	)	$	(25,173	)
Amounts recognized in the balance sheet at December 31:
Accrued benefit cost	$	(17,646	)	$	(21,038	)	$	(20,717	)	$	(18,451	)
Intangible asset	—			734			—			—
Deferred income taxes	9,860			11,122			—			—
Accumulated other comprehensive loss	15,105			17,544			—			—
Net amount recognized	$	7,319		$	8,362		$	(20,717	)	$	(18,451	)
Weighted-average assumptions at December 31:
Discount rate	5.80		%	5.75		%	5.80		%	5.75		%
Expected return on plan assets	8.00		%	8.00		%	—			—
Rate of compensation increase	4.00		%	4.00		%	—			—
Measurement date	October 31, 2006			October 31, 2005			October 31, 2006			October 31, 2005

F-28

The percentage of the fair value of total plan assets held is as follows:

	Pension Benefits
	2006			2005
Equity securities		71.0	%		69.0	%
Debt securities		24.0			25.0
Other		5.0			6.0

For measurement purposes, a 6.65% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2006. The rate was assumed to decrease gradually to 4.05% for 2011 and to remain at that level thereafter.

	Pension Benefits						Other Postretirement Benefits
($ in thousands)	2006			2005			2006			2005

Net periodic benefit cost	$	5,601		$	6,537		$	3,088		$	2,696
Accumulated benefit obligation	142,019			134,899			25,731			25,173
Employer contributions	4,558			4,829			—			—
Participant contributions	—			—			1,243			316
Benefit payments	(5,031		)	(4,842		)	(2,064		)	(743		)

At December 31, 2006, the estimated future benefit payments to be paid out in the next ten years for the noncontributory defined benefit pension plans are as follows (in thousands):

2007	$	5,327
2008	5,780
2009	6,218
2010	6,693
2011	7,227
Next five years thereafter	48,300
	$	79,545

At December 31, 2006, the estimated future benefit payments to be paid out in the next ten years for the retiree medical benefit plan are as follows (in thousands):

2007	$	880
2008	989
2009	1,103
2010	1,293
2011	1,487
Next five years thereafter	12,069
	$	17,821

The expected contributions to the noncontributory defined benefit pension plans for 2007 is $4.5 million.

During the years ended December 31, 2006 and 2005, CH2M HILL decreased the minimum pension liability by $3.7 million ($2.3 million net of tax) and $0.8 million ($0.5 million net of tax), respectively, and increased the minimum pension liability by $4.2 million ($2.6 million net of tax) in 2004. The adjustments are reflected in accumulated other comprehensive loss and are required when the accumulated benefit obligation exceeds the fair value of the underlying pension plan assets. The non-cash charges to

F-29

shareholders’ equity are reviewed annually in connection with the actuarial valuation of the pension plans and are subject to adjustment at that time.

(16) Segment information

CH2M HILL provides services to clients through three operating segments: Federal, Civil Infrastructure and Industrial. The structure is intended to provide for better decision making on an enterprise-wide basis. The Federal segment generally provides a comprehensive range of services to the U.S. federal government, and to international governments. The Civil Infrastructure segment generally provides a comprehensive range of services to various state and local governments including foreign cities. The Industrial segment generally provides a comprehensive range of services to various private sector clients.

CH2M HILL evaluates performance based on several factors, of which the primary financial measure is profit before tax. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Inter-segment sales are accounted for at fair value as if the sales were to third parties. Other includes the elimination of inter-segment sales and unallocated corporate expenses.

Certain financial information for each segment is provided below (in thousands):

2006	Federal		Civil Infrastructure			Industrial			Other			Financial Statement Balances
Revenue from external customers	$	1,401,391		$	1,325,352	$	1,280,201		$	—		$	4,006,944
Inter-segment sales	11,718			18,920		27,690			(58,328		)	—
Equity in earnings of joint ventures and affiliated companies	12,894			3,614		492			—			17,000
Depreciation and amortization	4,126			4,316		5,381			—			13,823
Interest income	505			1,386		659			—			2,550
Interest expense	754			768		984			—			2,506
Segment profit (loss)	61,950			50,815		(32,677		)	(16,407		)	63,681
Segment assets	306,650			341,185		631,706			—			1,279,541

2005	Federal		Civil Infrastructure			Industrial		Other			Financial Statement Balances
Revenue from external customers	$	1,161,540		$	1,047,958	$	942,723	$	—		$	3,152,221
Inter-segment sales	8,776			20,798		18,352		(47,926		)	—
Equity in earnings of joint ventures and affiliated companies	104,086			5,664		386		—			110,136
Depreciation and amortization	5,803			5,350		4,757		—			15,910
Interest income	—			603		1,354		—			1,957
Interest expense	631			534		653		—			1,818
Segment profit (loss)	118,588			27,852		1,484		(13,696		)	134,228
Segment assets	339,809			329,816		434,314		—			1,103,939

F-30

2004	Federal		Civil Infrastructure			Industrial		Other			Financial Statement Balances
Revenue from external customers	$	992,972		$	852,161	$	870,293	$	—		$	2,715,426
Inter-segment sales	13,810			21,367		7,062		(42,239		)	—
Equity in earnings of joint ventures and affiliated companies	23,241			6,503		145		—			29,889
Depreciation and amortization	7,036			6,386		2,427		—			15,849
Interest income	374			317		282		—			973
Interest expense	691			1,039		323		—			2,053
Segment profit (loss)	34,280			27,402		4,912		(14,937		)	51,657
Segment assets	248,011			262,691		319,228		—			829,930

During the year ended 2006, the Industrial segment recognized a loss related to a manufacturing facility project. This project experienced increased costs due to project delivery issues and increased commodity prices. In addition, the clean up efforts required from Hurricane Katrina caused significant shortages in experienced craft laborers in the area and thus materially increased wage rates and reduced overall productivity.

CH2M HILL derived approximately 35%, 37% and 37% of its total revenues from contracts with the U.S. federal government and international governments in 2006, 2005 and 2004, respectively.

Revenue is attributed to the country in which the services are performed. Although CH2M HILL provides services in numerous countries, no single country outside of the U.S. accounted for a significant portion of the total consolidated revenue. Total U.S. and international revenue for the years ended December 31 were as follows:

($ in thousands)	2006		2005		2004

U.S.	$	3,435,651	$	2,701,288	$	2,413,171
International	571,293		450,933		302,255
Total	$	4,006,944	$	3,152,221	$	2,715,426

(17) Commitments and contingencies

CH2M HILL maintains a variety of commercial commitments that are generally made available to provide support for various provisions in its 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. CH2M HILL also posts surety bonds, which are contractual agreements issued by a surety, for the purpose of guaranteeing our performance on contracts. Bid bonds are also issued by a surety to protect owners and are subject to full or partial forfeiture for failure to perform obligations arising from a successful bid.

Commercial commitments outstanding as of December 31, 2006 are summarized below:

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

Letters of credit	$	14,178	$	9,921	$	15,698	—		$	39,797
Residual value guarantees	—		17,600		—		60,500		78,100
Surety and bid bonds	1,168,834		178,310		—		—		1,347,144
Total	$	1,183,012	$	205,831	$	15,698	$	60,500	$	1,465,041

F-31

CH2M HILL is party to various contractual guarantees and legal actions arising in the normal course of business. Because a large portion of CH2M HILL’s business comes from federal, state and municipal sources, CH2M HILL’s procurement practices at times are also 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 or could lead to suspension or debarment from future U.S. government contracting. 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 outcome of pending proceedings are often difficult to predict, CH2M HILL’s management believes that the levels of insurance coverage (after retentions and deductibles) are generally adequate to cover CH2M HILL’s liabilities, if any, with regard to such claims. Any amounts that are probable of payment by CH2M HILL are accrued when such amounts are estimable.

In January 2006, a subsidiary entered into a Deferred Prosecution Agreement (DPA) with the office of the United States Attorney for the District of Connecticut. The DPA relates to an investigation of a Clean Water Act (CWA) violation at two wastewater treatment facilities in Connecticut. Pursuant to the DPA, the subsidiary contributed $2.0 million to community projects and has taken other agreed upon steps to enhance their CWA compliance procedures at the two wastewater treatment facilities in Connecticut. Provided CH2M HILL complies with its obligations under the DPA after 30 months, the U.S. District Attorney for the District of Connecticut will recommend dismissal of all actions against the subsidiary in connection with this matter. The violation related to failure to comply with sampling and reporting requirements of the CWA and there is no evidence the violation resulted in harm to human health or the environment.

CH2M HILL has presented a claim to the Internal Revenue Service (IRS) relating to the research and experimentation tax credit for the years 1996-2005. Although CH2M HILL is seeking resolution with the IRS, CH2M HILL only recognizes tax benefits related to these credits for financial statement purposes when it is probable that such benefits will be realized. The amount of the tax credit claimed is significant; however, the ultimate amount to be realized and the timing of the recognition of the tax credit will depend upon the final resolution with the IRS.

(18) Quarterly financial information (unaudited)

CH2M HILL’s quarterly financial information for the years ended December 31, 2006 and 2005 is as follows:

(In thousands except per share amounts)	First Quarter			Second Quarter		Third Quarter		Fourth Quarter		For the Year Ended

2006
Revenue	$	984,456		$	1,021,099	$	996,785	$	1,004,604	$	4,006,944
Operating income (loss)	(259		)	10,967		13,306		22,623		46,637
Net income	3,106			11,139		10,362		14,294		38,901
Net income per common share
Basic	$	0.10		$	0.34	$	0.32	$	0.44	$	1.20
Diluted	$	0.09		$	0.33	$	0.31	$	0.43	$	1.18
2005
Revenue	$	677,615		$	788,462	$	801,105	$	885,039	$	3,152,221
Operating income	1,895			5,724		6,224		10,110		23,953
Net income	6,330			8,208		54,229		12,872		81,639
Net income per common share
Basic	$	0.20		$	0.26	$	1.69	$	0.41	$	2.56
Diluted	$	0.20		$	0.25	$	1.66	$	0.40	$	2.51

F-32

KAISER-HILL COMPANY, LLC
AND SUBSIDIARY

Notes to Consolidated Financial Statements
December 31, 2006 and 2005

(1) Organization

Kaiser-Hill Company, LLC and subsidiary (the Company) was formed on October 24, 1994. The principal business of the Company is to procure, execute, deliver, and perform under a contract with the Department of Energy (DOE) to manage the programs and facilities at Rocky Flats Environmental Technology Site (RFETS) in Golden, Colorado. The mission of the RFETS is directed toward cleanup, deactivation, and preparation for decontamination and disposition of these DOE facilities.

The Company is a limited liability company owned equally by Kaiser KH Holdings, Inc., a wholly owned subsidiary of Kaiser Group Holdings, Inc. (formerly known as Kaiser Group International, Inc.) (Kaiser), and CH2M HILL Constructors, Inc., a wholly owned subsidiary of CH2M HILL Companies, Ltd. (CH2M HILL) (collectively the Members). Net profits and/or losses and distributions thereof are allocated equally to the Members.

On January 24, 2000, the Company and the DOE entered into a new contract (the Contract) effective February 1, 2000 for the Rocky Flats Closure Project including, disposal of nuclear material, demolition of facilities, environmental remediation, disposal of waste, and completion of infrastructure and other general site operations.

On October 13, 2005, the Company completed the required work under the contract and issued its formal “declaration of Physical Completion” to the DOE. On December 8, 2005, the DOE issued its formal “acceptance” of the physical work at the project and authorized the Company to invoice all remaining performance fees less a retained amount equaling $5 million. On January 11, 2006, the Company received payment for all fees except for the retained amount. In April 2006, the Company invoiced and collected $4.9 million of the $5 million previously retained. $100,000 will be retained until satisfactory resolution of all Defense Contractor Auditing Agency audits.

The Company now operates under the closeout phase of its contract with the DOE, primarily resolving open administrative issues and providing support to the DOE to achieve regulatory closure of the site. The work performed under the closeout phase is performed and invoiced at cost with no markup or fee associated with the costs incurred.

Effective December 31, 2005, the Company terminated its remaining employees. Staff necessary to complete closeout activities will be subcontracted or provided by affiliates of its parent companies.

(2) Significant Accounting Policies

(a) Principles of Consolidation

The consolidated financial statements include the Company and its wholly owned subsidiary, Kaiser-Hill Funding Company, LLC. All intercompany accounts and transactions have been eliminated in the consolidated financial statements. Certain prior year balances have been reclassified to conform to the current year presentation.

(b) Revenue Recognition

Under the Contract, revenue is recognized using the percentage-of-completion method whereby revenue is accrued in an amount equal to cost plus management’s best estimate of incentive fees. During 2005, resulting from completion of the project, the Company recognized all remaining performance fees under the contract and has established reserves for certain risks and uncertainties associated with the Contract. In 2006, revenue was recognized as costs were incurred. No markup or fee was recognized or associated with the costs incurred.

(c) Statements of Cash Flows

For purposes of the consolidated statements of cash flows, the Company considers cash and short-term investments with original maturities of three months or less to be cash and cash equivalents.

The Company maintains its cash accounts primarily with banks located in Colorado, New York, and Washington, D.C. Cash balances are insured by the FDIC up to $100,000 per bank, and cash equivalents are not insured by the FDIC. As of December 31, 2006, the majority of the balance was comprised of cash equivalents.

(d) Income Taxes

No provision for the payment of income taxes has been made in the accompanying consolidated financial statements related to the activities of the Company since the Members each report their share of the Company’s taxable income in their respective income tax return.

(e) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

(3) Related-Party Transactions

In 2006 and 2005, the Members were subcontracted by the Company to perform certain tasks under the Contract. The Payable to Members in the accompanying consolidated balance sheets as of December 31, 2006 and 2005 consists of $0 and $87,500, respectively, to Kaiser and $92,200 and $288,600, respectively, to CH2M HILL for these subcontracted tasks. These payables are noninterest bearing.

As of December 31, 2006, the Company had a receivable due from CH2M HILL for $659,000 primarily relating to final transition of the Rocky Flats Benefits Programs to CH2M HILL Hanford Group and work performed for CH2M HILL—Washington Group Idaho, LLC.

During 2003, CH2M HILL began providing information technology services and general support services to the Company at negotiated rates. Costs incurred related to work performed by CH2M HILL, the majority of which are reimbursable and billed under the Contract and relate to information technology services provided, were approximately $8,500,000 in 2006, $9,751,000 in 2005, and $10,869,000 in 2004.

In addition, the Company performed approximately $30,000 and $3,597,000 of services on behalf of CH2M HILL during 2006 and 2005, respectively.

(4) Contract Receivables

Contract receivables as of December 31, 2006 represent both billed and unbilled receivables due under the Contract. As of December 31, 2006 and 2005, the Company has $0.3 million and $250.2 million, respectively, of billed receivables due from the DOE. In addition, the Company has current unbilled receivables of approximately $10 million and $41 million as of December 31, 2006 and 2005, respectively.

Unbilled receivables result from revenue and estimated fees that have been earned by the Company but not billed to the DOE as of the end of the period. Unbilled receivables can be invoiced at contractually defined intervals and milestones. Unbilled receivables primarily represent allowable costs incurred by subcontractors that primarily relate to waste disposal activities that have not been submitted to the DOE for payment. These costs cannot be invoiced to the DOE until payment has been made by the Company to the subcontractor. The subcontractor will not invoice the Company until the waste is appropriately disposed of which could take up to one year.

The Company’s Contract receivables result primarily from its long-term Contract with the DOE. As a consequence, management believes that credit risk is minimal.

(5) Employee Incentive Plan

In connection with the closure Contract with the DOE, the Company implemented a salaried employee incentive plan. There are two components to the plan. The first component represents a cash bonus, which is earned and paid annually. The second component represents the issuance of performance units. These units are allocated to employees on an annual basis. The value of these units ultimately depended on the actual cost incurred under the Contract. Employees remained eligible for these units as long as they are employed by the Company or left in good standing, as defined. Payments made for performance units will be paid in cash at the end of the Contract.

During 2006, the Company paid its remaining obligation under the employee incentive plan due to the DOE’s acceptance of physical completion of the Contract. No amounts remain accrued for this liability as of December 31, 2006.

Additionally, in 2005 the Company had accrued $3.7 million for an enhanced schedule incentive payable to the hourly employees represented by United Steel Workers of America under the collective bargaining agreement. This was paid in 2006.

(6) Business Loan and Security Agreement

The Company had a Business Loan and Security Agreement (the Agreement) with a bank that expired on December 31, 2006. The Company, Kaiser, and CH2M HILL granted a first lien security interest to the bank in all of the ownership and equity interest of the Company. As of December 31, 2006, the Company had no amounts outstanding under the Agreement. As of December 31, 2005, the Company had $3,000,000 outstanding under the Agreement.

(7) Contingencies

The Company’s reimbursable costs are subject to audit in the ordinary course of business by various U.S. government agencies. Management is not presently aware of any significant costs, which have been, or may be, disallowed by any of these agencies.

The Company is party to a legal action arising in the normal course of business as a result of performance under the Contract. While the outcome of this action is difficult to predict, the

Company’s management believes any amounts ultimately asserted against the Company for this outstanding claim would be fully reimbursable by the DOE under the Contract.

(8) Employee Benefit Plans

In accordance with the Contract, the Company participated in several multiple employer benefit plans covering substantially all employees who meet length of service requirements. These plans include two defined benefit pension plan and three defined contribution plans, the latter of which provide for Company matching contributions. The Company did not make any contributions to the defined contribution plans in 2006 and made $450,000 in contributions during 2005. During 2006 and 2005, the Company made combined contributions to the defined benefit pension plans of $59,409,000 and $36,034,000, respectively.

The Company administered these benefit plans with benefits equivalent to the RFETS contractor benefit plans maintained by the contractor that preceded the Company at RFETS. Under the Contract, the Company recognized the cost of benefit plans when paid, and such costs were reimbursed by the DOE. Any excess pension plan assets or unfunded pension plan liability that may currently exist or is remaining at the end of the DOE Contract accrues to or is the responsibility of the DOE. During 2006, at the request of the DOE, the Company transferred sponsorship and administration of these plans to CH2M HILL Hanford Group, an affiliate of CH2M HILL.

Exhibit 10.15

CH2M Hill Companies, Ltd.

Amended and Restated

Long Term Incentive (LTI) Plan

Effective January 1, 2005

CH2M Hill Companies, Ltd.
Long Term Incentive (LTI) Plan

ARTICLE I

INTRODUCTION

1.1 Establishment. CH2M HILL Companies, Ltd., an Oregon corporation hereby amends and restates the CH2M HILL Companies, Ltd. Long Term Incentive (LTI) Plan to award incentive compensation to eligible Participants.

1.2 Purposes. The purposes of the Plan are to:

· Reward a limited group of senior executives, project managers, and technologists for the creation of value in the organization through sustained increases in CH2M HILL’s Available Funds, and through the achievement of agreed-on strategic goals, and

· Provide financial incentives to Plan Participants to incentivize their contribution to the annual and long-term financial performance of CH2M HILL, thereby increasing shareholder value.

ARTICLE II

DEFINITIONS

2.1 Affiliate means any corporation or other entity that is affiliated with CH2M HILL through stock or other equity ownership or otherwise which is designated by either the Committee or the Board as an entity whose eligible employees, directors, officers, and consultants may be selected to participate in the Plan. The Committee may select an entity to be designated as an Affiliate if LTD owns directly or indirectly at least 50% of the entity. The Board, in its sole discretion, may select an entity to be designated as an Affiliate if LTD owns directly or indirectly at least 10% of the entity.

2.2 Available Funds means those LTD level consolidated funds remaining from gross revenue after all normally accrued operating expenses are deducted (including LTD expenses and any Profit Center operating costs for units in a startup or investing mode), but prior to accruals for incentive compensation programs, retained earnings and income taxes.

2.3 AF Modifier means the modifier used in calculating the LTI Award payout amount as described in section 4.4(b) of the Plan.

2.4 Award means a grant of Stock Instruments (as defined below) and/or cash under the Plan.

2.5 Board means CH2M HILL Board of Directors.

2.6 CEO means Chief Executive Officer of CH2M HILL Companies, Ltd.

2.7 Change of Control means the date on which any one of the following events occurs:

a. Any one person, or more than one person acting as a group, acquires ownership of stock of LTD that, together with stock held by such person or group, constitutes more than 50% of the total Fair Market value of the LTD stock. However, if any one person or more than one person acting as a group, owns more than 50% of the total Fair Market Value of the LTD stock, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of LTD (or to cause a change in the effective control of LTD.)

b. There is a change in the effective control of LTD. A change in the effective control of LTD occurs on the date that either:

(i) Any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of LTD that represents 35% or more of the total voting power of the all LTD stock; or

(ii) A majority of members of LTD’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of LTD’s board of directors prior to the date of the appointment or election.

c. Any one person, or more than one person acting as a group, acquires ownership of assets of LTD that have a gross fair market value equal to or more than [40%] of the total gross fair market value of all of the assets of LTD immediately prior to such acquisitions. For this purpose, gross fair market value means the value of the assets of LTD, or the value of the assets being disposed of, determined without regard to any liabilities associates with the assets.

For purposes of the definition in this Section.2.7 Persons Acting as a Group shall have the following meaning. Persons will not be considered to be acting as a group solely because they purchase the stock of LTD at the same time, or as a result of the same public offering. However, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the corporation. If a person, including an entity owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation.

For the avoidance of doubt, this Section shall be interpreted in accordance with Treasury guidance for the definition of Change in control under Code § 409A.

2.8 Code means the Internal Revenue Code of 1986, as amended.

2.9 Committee means the Ownership and Incentive Compensation Committee of the Board empowered to take actions with respect to the administration of the Plan as described in Article V of this document.

2.10 Competitor means any corporation, or any other entity, that is engaged in any business in which CH2M HILL is actively engaged, as described in the CH2M HILL’s most recent (at the relevant time) Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission; and/or any business the entry into which is contemplated by CH2M HILL at the time the Participant separates from service.

2.11 “Disabled” or Disability” shall mean that a participant either

a. Is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or

b. Is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the participant’s employer.

2.12 CH2M HILL means CH2M HILL family of companies, which includes CH2M Hill Companies, Ltd., and, when appropriate, the Affiliates.

2.13 Effective Date means the effective date of the Plan, which is January 1, 2005.

2.14 LTD means CH2M Hill Companies, Ltd.

2.15 Participant means an employee designated to be eligible to receive an Award under the Plan as provided in Section 3.1.

2.16 Plan or LTI Plan means the CH2M HILL Companies, Ltd. Long Term Incentive (LTI) Plan.

2.17 Profit Center means any applicable operating unit of CH2M HILL, including but not limited to the holding company of CH2M HILL family of companies, LTD, and any of its subsidiary business units as designated from time to time by the Committee.

2.18 Program means each three-year LTI Plan cycle.

2.19 Program Period means a period beginning on January 1st of the Program year and completing 36 months thereafter (ex. January 1, 1999 through December 31, 2001).

2.20 Stock Instruments means instruments granted under the Plan, which include subject to the discretion of the Committee:

a. Stock for Domestic Engineering Services Employees,

b. SVEUs for Domestic Ineligible Company Employees; or

c. Phantom Stock or international SVEUs for International Employees; or

d. Other instruments approved from time to time by the Board to use for incentive and compensation purposes.

For purposes of these definitions:

· Stock means one share of CH2M HILL common Stock.

· SVEU means one unit held in trust under the CH2M Hill Companies, Ltd. Pre-Tax Deferred Compensation Plan or under the CH2M Hill Companies, Ltd. International Deferred Compensation Plan.

· Phantom Stock means a hypothetical interest in the value of one share, denominated in United States dollars, which is granted pursuant to the CH2M Hill Companies, Ltd. Phantom Stock Plan.

· Domestic Engineering Services Employees means those employees (including, without limitation, officers, directors and designated consultants) who work for CH2M HILL in the United States that provide consulting, engineering, and engineering-related services determined as of the time of the Award payout.

· Domestic Ineligible Company Employees means those employees (including, without limitation, officers, directors, and designated consultants) who work for CH2M HILL in the United States and do not provide consulting, engineering or engineering-related services, determined as of the time of the Award payout.

· International Employees means those employee (including, without limitation director, officer and designated consultant) who work for CH2M HILL and are not resident in the United States and whose regular workplace is outside of the United States, determined as of the time of the Award payout, except that International Employees shall exclude an individual who is a United States citizen employed by an Affiliate organized in the United States, regardless of where the individual performs services.

2.21 Strategic Goal Modifier means one of the modifiers used in calculating the LTI Award payout amount as described in section 4.4(c) of the Plan.

2.22 Target Bonus means the bonus amount established under the Plan for Participants. For a given Participant, the Target Bonus will be between 20% to 80% of their base salary, as of the beginning of the Program Period.

ARTICLE III

ELIGIBILITY

3.1 Eligibility for Plan Participation. The Committee, on recommendation of the CEO in its sole discretion, shall determine which employees shall be eligible to participate in the Plan for any Program year.

3.2 No Entitlement. Eligibility to participate in the Plan in any one Program Period does not create any entitlement to participate in any other Program Period.

ARTICLE IV

LTI AWARDS

4.1 Award Grants. Annually, at the time determined by the Committee in its sole discretion, Participants will be notified of their LTI Awards for the Program. The Award notification will include.

a. Participant’s Target Bonus for the Program;

b. Targeted three-year total Available Funds to be achieved during the Program Period;

c. Company-wide strategic goals to be achieved during the Program Period; and

d. Individual strategic goals to be achieved during the Program Period, if applicable.

The LTI Award shall not vest until the end of the Program Period. The actual payout value of the Award will be the Target Bonus, adjusted up or down, based on CH2M HILL’s performance during the Program Period with respect to the three-year total Available Funds target, company-wide strategic goals targets, and any applicable individual strategic goals as further described below.

4.2 Targeted Three-Year Total Available Funds. The Committee, on recommendation of the CEO, and in its sole discretion, shall establish the three-year total Available Funds target for each LTI Program. That target shall be the Available Funds target for all Participants in a given Program.

4.3 Strategic Goals. The Committee, on recommendation of the CEO, and in its sole discretion, shall establish company-wide strategic goals for each LTI Program. These company-wide goals may be identical for all Participants in a given Program. Further,

the CEO, on recommendation of his management team, may establish individual strategic goals for each Participant for a given Program. These individual strategic goals may vary among Participants, but more than one Participant may share a given individual goal.

4.4 Award Payout Valuation Methodology. As soon as practicable after the end of each Program Period, but no later than December 31st of the calendar year following the end of the Program Period, the Committee shall compare the actual CH2M HILL three-year total Available Funds performance and the actual company-wide and individual strategic goal performances achieved during the Program Period. All determinations by the Committee related to attainment of Available Funds and strategic goal targets, as well as weighting determinations for Target Bonus modifiers (as described below) shall be made in the sole discretion of the Committee, and shall be final and binding on all Participants.

a. Threshold Available Funds Requirement. Irrespective of CH2M HILL’s performance against any of the strategic goal targets during the Program Period, Participants shall not be entitled to any payout of LTI Awards for a given Program unless CH2M HILL achieves at least 70% of the total three-year Available Funds target during the Program Period. Assuming this Available Funds threshold requirement is satisfied, other modifiers are applied to the Target Bonus to determine the actual Award payout amount as further described below.

b. Available Funds (AF) Modifier. Subject to the threshold requirement in section 4.4(a) and the maximum payout limitation of section 4.4(e), the Committee shall adjust the Target Bonus amount due to Participants between 0% and 200% based on the actual three-year total Available Funds performance of CH2M HILL during the Program Period against the Program’s Available Funds target.

c. Strategic Goal (SG) Modifiers. The actual Program Period performance against each strategic goal (company-wide and individual) will stand on its own as a modifier of the Target Bonus amount due to a Participant. On the recommendation of the CEO, the Committee, in its sole discretion, will assign a weighting to each strategic goal, with the total weighting equal to a 50% modification (ex. 12.5% for each company-wide goal and 25% for the individual goal). Subject to the threshold requirement of section 4.4(a) and the maximum payout limitation of section 4.4(e), the Committee shall adjust the Target Bonus amount due to each Participant plus or minus up to 50% based on the sum total of all SG Modifiers.

d. 1999 and 2000 Program Exceptions. Because the Plan is structured to provide no Award payouts during 1999 and 2000 calendar years, the Target Bonus amounts used in calculating payouts for 1999 and 2000 Programs will be increased by 50% (multiplier by 1.5) prior to any adjustments being made to Target Bonuses by AF and SG Modifiers.

e. Maximum Award Payout. Maximum Award payout for each Participant for any LTI Program, taking into account performance with respect to all target and goal associated modifier adjustments, shall not exceed 200% (2 times) of

Target Bonus, excepting the 1999 and 2000 Programs, as described in section 4.4 (d.).

4.5 Payouts of LTI Awards. The payout of Awards will be made as soon as practicable after the end of the Program Period when Award payout amounts have been determined, but no later than two and a half months following the end of the Program Period. Except as provided in Article VII, a Participant must be employed by CH2M HILL or an Affiliate as of the Award payout date to be eligible for the payout. Unless otherwise determined by the Committee in its sole discretion, all LTI Awards will be paid 40% in cash and 60% in Stock Instruments based on Participant’s eligibility to hold individual Stock Instruments. To the extent an Award payout results in a Participant exceeding CH2M HILL ownership limitations pursuant to CH2M HILL’s Articles of Incorporation and Bylaws, the Award shall be paid out in cash.

4.6 Non-Transferability of Awards. No Award shall be assignable or transferable.

4.7 Restrictions on Transfers of Instruments. All Stock Instruments transferred to a Participant in accordance with the Plan will be subject to the terms, conditions, and restrictions on CH2M HILL Stock set forth in CH2M HILL’s Articles of Incorporation and Bylaws, as amended from time to time, including: (i) restrictions that grant CH2M HILL the right to repurchase shares upon termination of the shareholder’s affiliation with CH2M HILL; (ii) restrictions that grant CH2M HILL a right of first refusal if the shareholder wishes to sell shares other than in the Internal Market; and (iii) restrictions that require the approval of CH2M HILL for any other sale of shares.

4.8 Withholding Requirement. All Awards are subject to withholding of all taxes, government mandated social benefit contributions, or other payments required to be withheld which are applicable to the Participants.

ARTICLE V

PLAN ADMINISTRATION

5.1 Committee. The Plan shall be administered by the Ownership & Incentive Compensation (O&IC) Committee serving at the pleasure of the Board. The Committee shall at all times consist of at least two Directors and shall include other members (which may be either directors or non-directors) as the Board may determine. The Board may from time to time remove members from or add members to the Committee, and vacancies on the Committee shall be filled by the Board. Members of the Committee may resign at any time upon written notice to the Board.

5.2 Committee Meetings and Actions. The Committee shall hold meetings at such times and places as it may determine. A majority of the members of the Committee shall constitute a quorum, and the acts of the majority of the members present at a meeting or a consent in writing signed by all members of the Committee shall be the acts of the Committee and shall be final, binding and conclusive upon all persons, including CH2M

HILL, its shareholders, and all persons having any interest in Awards which may be or have been granted pursuant to the Plan. The Chairman of the Committee, in his or her sole discretion, may delegate any or all of the responsibilities of the Committee to one or more Committee members, whose actions shall be deemed to be the acts of all of the members.

5.3 Powers of Committee. The Committee shall, in its sole discretion and on recommendation of the CEO, determine the time at which LTI Awards are to be made and paid-out, actual performance against targets for purposes of Award payout calculations, specific weighing of individual components of Award payout calculations, and establish such other terms under the Plan as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall have the full and exclusive right to grant and determine terms and conditions of all Awards granted under the Plan. The Committee shall determine the form or forms of agreements with Participants that shall evidence the particular provisions, terms, and conditions, which need not be identical except as may be provided in the Plan. The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan, as it may deem proper and in the best interests of CH2M HILL.

5.4 Interpretation of Plan. The determination of the Committee as to any disputed question arising under the Plan, including questions of construction and interpretation, shall be final, binding and conclusive upon all persons, including CH2M HILL, its shareholders, and all persons having any interest in Stock Instruments which may be or have been granted pursuant to the Plan.

5.5 Limitation of Liability and Indemnification.

a. No member of the Committee shall be liable for any action or determination made in good faith.

b. Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by CH2M HILL Companies, Ltd. against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid in settlement thereof, with CH2M HILL’s approval, or paid in satisfaction of a judgment in any such action, suit or proceeding against him, provided such person shall give CH2M HILL an opportunity, at its own expense, to handle and defend the same before undertaking to handle and defend it on such person’s own behalf.

ARTICLE VI

CHANGE IN CONTROL

Notwithstanding any vesting requirements contained in this Plan or notice of Award grant, all outstanding LTI Awards shall become immediately payable in full and in cash upon the occurrence of a Change in Control event.

ARTICLE VII

TERMINATION OF AFFILIATION

7.1 Retirement. If a Participant separates from service, within the meaning of Code § 409A, (retires) after attainment of age 55 while holding Plan Awards, and provided the Participant does not, subsequent to such separation from service, affiliate with a Competitor (directly or indirectly as an employee, consultant, director, officer, or shareholder of more than 5% of equity), the Participant shall be entitled to the payouts of all outstanding Awards. Notwithstanding the foregoing, the payouts will be prorated to the period that the Participant actually worked for CH2M HILL in the year when the Award was made, if the Participant did not work for that entire year. The payout(s) will be made at the time each outstanding Award payout is due for each Program. It will be made 100% in cash and will be calculated prorata for the time that the Participant actually participated in each Program, based on the actual CH2M HILL three-year total Available Funds and company-wide strategic goal performances as of the end of each relevant Program Period.

7.2 Death. If a Participant dies while employed by CH2M HILL, payouts of all his/her outstanding Awards will be made prorate to the actual period worked for CH2M HILL during the first year of each outstanding Award Program to the personal representative of the Participant’s estate or the designated beneficiary or other person or persons who shall have acquired entitlement to earned benefits under the Plan by bequest or inheritance (hereafter, “Beneficiary”) as provided in Section 4.5 of the Plan. Such payout will be made 100% in cash and will be calculated prorata for the time that the Participant actually participated in each Program, based on hypothetical Available Funds and strategic goal performance levels for the not yet completed Program Periods, derived by assuming that Available Funds, company-wide and individual strategic goals performance through the end of each Program Period for each outstanding LTI Award, would be proportionate to the performance as of the time of death, including consideration of projected performance in out-years where appropriate. The Committee’s determination with respect to payout amounts based on the above criteria shall be final and binding on the Beneficiary.

7.3 Disability. Upon the Participant’s separation from service, within the meaning of Code § 409A, with CH2M HILL by reason of Disability, payouts of the Participant’s prorata share of all his/her outstanding Awards (based on the actual period worked for CH2M HILL during the first year of each outstanding

Award Program) shall be made to the Participant as provided in Section 4.5 of this Plan. Such payout will be made 100% in cash, based on hypothetical Available Funds and strategic goal performance levels for the not yet completed Program Periods, derived by assuming that Available Funds, company-wide and individual strategic goals performance through the end of each Program Period for each outstanding LTI Award, would be proportionate to the performance as of the time of termination, including consideration of projected performance in out-years where appropriate. The Committee’s determination with respect to payout amounts based on the above criteria shall be final and binding on the Beneficiary.

7.4 Other Termination. Upon the Participant’s voluntary or involuntary separation from service, within the meaning of Code § 409A, with CH2M HILL (except as otherwise provided in Article VI or in sections 7.1, 7.2 and 7.3), all rights a Participant has under any outstanding and not yet paid Awards shall terminate.

ARTICLE VIII

REQUIREMENTS OF LAW

8.1 Requirements of Law. All Awards pursuant to the Plan shall be subject to all applicable laws, rules and regulations.

8.2 Governing Law. The Plan and all agreements under the Plan shall be construed in accordance with and governed by the laws of the State of Colorado, United States of America.

8.3 Governing Currency. The Plan and all agreements under the Plan shall be denominated in the currency of the United States of America.

ARTICLE IX

AMENDMENT, MODIFICATION AND TERMINATION

The Board may amend or modify any provision of the Plan at any time. The Board may suspend the granting of Awards under the Plan or terminate the Plan at any time.

The Board may determine that any Awards granted under the Plan shall be subject to additional and/or modified terms and conditions, and the terms of the Award shall be adjusted accordingly, as may be necessary to comply with or take account of any securities, exchange control, or taxation laws, regulations or practice of any territory which may have application to the relevant Participant.

ARTICLE X

MISCELLANEOUS

10.1 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

10.2 No Right to Continued Employment. Nothing contained in the Plan or in any Award granted under the Plan shall confer upon any Participant any right with respect to the continuation of the Participant’s employment by, or consulting relationship with, CH2M HILL and/or Affiliates, or interfere in any way with the right of CH2M HILL or Affiliates, subject to the terms of any separate employment agreement or other contract to the contrary, at any time to terminate such services or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an award. Any Participant who leaves the employment of CH2M HILL shall not be entitled to any compensation for any loss of any right or any benefit or prospective right or benefit under this Plan which the Participant might otherwise have enjoyed whether such compensation is claimed by way of damages for wrongful dismissal or other breach of contract or by way of compensation for loss of office or otherwise.

CH2M HILL hereby agrees to the provisions of the Plan and in witness of its agreement, by its duly authorized officer has executed the Plan on the date written below.

CH2M HILL COMPANIES, LTD.

Plan Sponsor

By:

Title:

Date:

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)

Amended and Restated

2.7 Change of Control means the date on which any one of the following events occurs:

a. Available Funds target to be achieved during the Program Period. The Committee, in its sole discretion, shall establish the Available Funds target for each Award. The Available Funds target may be identical for all Participants in a given Program Period.

b. Full Service Revenue target to be achieved during the Program Period. The Committee, in its sole discretion, shall establish the Full Service Revenue target for each Award. The Full Service Revenue target may be identical for all Participants in a given Program Period.

c. Global Revenue target to be achieved during the Program Period. The Committee, in its sole discretion, shall establish the Global Revenue target for each Award. The Global Revenue target may be identical for all Participants in a given Program Period.

d. Stock Price Appreciation target to be achieved during the Program Period. The Committee, in its sole discretion, shall establish the Stock Price Appreciation target for

each Award. The Stock Price Appreciation target may be identical for all Participants in a given Program Period.

e. Return On Equity target to be achieved during the Program Period. The Committee, in its sole discretion, shall establish the Return on Equity target for each Award. The Return on Equity target may be identical for all Participants in a given Program Period.

5.5 Limitation of Liability and Indemnification.

ARTICLE VI

CHANGE IN CONTROL

ARTICLE VII

TERMINATION OF AFFILIATION

7.2 Death. If a Participant dies while employed by CH2M HILL, payouts of all

8.1 Requirements of Law. All Awards pursuant to the Plan shall be subject to all applicable laws, rules and regulations.

8.2 Governing Law. The Plan and all agreements under the Plan shall be construed in accordance with and governed by the laws of the State of Colorado, United States of America.

8.3 Governing Currency. The Plan and all agreements under the Plan shall be denominated in the currency of the United States of America.

10.1 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

ARTICLE IV

ARTICLE V

ARTICLE VII

TERMINATION OF AFFILIATION

		Page
PART I.
Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	36
Item 9A.	Controls and Procedures	36
Item 9B.	Other Information	36
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	37
Item 11.	Executive Compensation	37
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	37
Item 13.	Certain Relationships and Related Transactions, and Director Independence	37
Item 14.	Principal Accountant Fees and Services	37
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	38
SIGNATURES

By:	/s/ SAMUEL H. IAPALUCCI	By:	/s/ JOANN SHEA
	Samuel H. Iapalucci		JoAnn Shea
	Chief Financial Officer		Chief Accounting Officer

	Signature		Title		Date
/s/ RALPH R. PETERSON		Chairman of the Board and Chief Executive		February 23, 2007
Ralph R. Peterson		Officer (Principal Executive Officer)
/s/ SAMUEL H. IAPALUCCI		Chief Financial Officer (Principal		February 23, 2007
Samuel H. Iapalucci		Financial Officer)
/s/ JOANN SHEA		Chief Accounting Officer (Principal		February 23, 2007
JoAnn Shea		Accounting Officer)
*		Director		February 23, 2007
Robert W. Bailey
*		Director		February 23, 2007
Robert G. Card
*		Director		February 23, 2007
Carolyn Chin
*		Director		February 23, 2007
William T. Dehn
*		Director		February 23, 2007
Donald S. Evans
*		Director		February 23, 2007
James J. Ferris
*		Director		February 23, 2007
Jerry D. Geist

By:	*/s/ SAMUEL H. IAPALUCCI
	Samuel H. Iapalucci, as attorney-in-fact

	Kaiser KH Holdings, Inc.				CH2M HILL Constructors, Inc.				Total
Members’ equity, December 31, 2003		$	32,416			$	32,416		$	64,832
Net income		20,330				20,330			40,660
Distributions		(17,500		)		(17,500		)	(35,000		)
Members’ equity, December 31, 2004		35,246				35,246			70,492
Net income		95,714				95,714			191,428
Distributions		(43,650		)		(43,650		)	(87,300		)
Members’ equity, December 31, 2005		87,310				87,310			174,620
Net loss		(33		)		(33		)	(66		)
Distributions		(85,000		)		(85,000		)	(170,000		)
Members’ equity, December 31, 2006		$	2,277			$	2,277		$	4,554

/s/ RALPH R. PETERSON
Ralph R. Peterson
Chief Executive Officer

/s/ SAMUEL H. IAPALUCCI
Samuel H. Iapalucci
Chief Financial Officer