10-K 1 form10-k.htm FORM 10-K form10-k.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________

FORM 10-K
_________________________

 x
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended January 1, 2010
OR
 o
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____ to _____

Commission file number 1-7567
_________________________

Logo
URS CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
94-1381538
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
600 Montgomery Street, 26th Floor
   
San Francisco, California
 
94111-2728
(Address of principal executive offices)
 
(Zip Code)
(415) 774-2700
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class:
 
Name of each exchange on which registered:
     
Common Shares, par value $.01 per share
 
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:  None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes x No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.Yes o No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):  Large accelerated filer x Accelerated filer o Non-Accelerated filer o Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No x
 
The aggregate market value of the common stock of the registrant held by non-affiliates on February 22, 2010 and July 3, 2009 (the last business day of the registrant’s most recently completed second fiscal quarter) was $3,889.0 million and $3,898.3 million, respectively, based upon the closing sales price of the registrant’s common stock on such dates as reported in the consolidated transaction reporting system.  On February 22, 2010, and July 3, 2009, there were 84,006,425 shares and 84,301,467 shares of the registrant’s common stock outstanding, respectively.
 
Documents Incorporated by Reference
 
Part III incorporates information by reference from the registrant’s definitive proxy statement for its 2010 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission.
 



 
 
 

URS CORPORATION AND SUBSIDIARIES
 
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “potential,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and similar terms used in reference to our future revenues, services and other business trends; potential new project awards and other opportunities; future accounting policies and actuarial estimates; future backlog conversion; future income taxes; future stock-based compensation expenses; future bonus, pension and post-retirement expenses; future compliance with regulations; future legal proceedings and accruals; future bonding and insurance coverage; future interest and debt payments; future guarantees and contingencies; future capital expenditures and resources; our ability to create and maintain effective cost controls; future governmental approvals of our billing practices; future effectiveness of our disclosure and internal controls over financial reporting and future economic and industry conditions.  We believe that our expectations are reasonable and are based on reasonable assumptions; however, we caution against relying on any of our forward-looking statements as such forward-looking statements by their nature involve risks and uncertainties.  A variety of factors, including but not limited to the following, could cause our business and financial results, as well as the timing of events, to differ materially from those expressed or implied in our forward-looking statements: economic weakness and declines in client spending; changes in our book of business; our compliance with government contract procurement regulations; employee, agent or partner misconduct; our ability to procure government contracts; our reliance on government appropriations; unilateral termination provisions in government contracts; our ability to make accurate estimates and assumptions; our accounting policies; workforce utilization; our and our partners’ ability to bid on, win, perform and renew contracts and projects; our dependence on partners, subcontractors’ and suppliers; customer payment defaults; our ability to recover on claims; availability of bonding and insurance; impact of contract types on earnings; the inherent dangers at our projects sites; impairment of our goodwill; environmental liabilities; liabilities for pending and future litigation; the impact of changes in laws and regulations; indemnifications; a decline in defense or federal spending; industry competition; our ability to attract and retain key individuals; retirement plan obligations; integration of acquisitions; impact of recent liquidity constraints upon us or upon our clients; our leveraged position and the ability to service our debt; restrictive covenants in our credit agreement; risks associated with international operations; business activities in high security risk countries; third-party software risks; terrorist and natural disaster risks; our relationships with our labor unions; our ability to protect our intellectual property rights; anti-takeover risks and other factors discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 38, Risk Factors beginning on page 18, as well as in other reports subsequently filed from time to time with the United States Securities and Exchange Commission.  We assume no obligation to revise or update any forward-looking statements.
 
       
         
Business                                                                                                             
    3  
Risk Factors                                                                                                            
    18  
Unresolved Staff Comments                                                                                                         
    33  
Properties                                                                                                        
    34  
Legal Proceedings                                                                                                         
    34  
    34  
           
 
PART II
       
           
    34  
Selected Financial Data                                                                                                                
    36  
    38  
Quantitative and Qualitative Disclosures about Market Risk                                                                                                   
    76  
Consolidated Financial Statements and Supplementary Data                                                                                                             
    77  
 
1

 
       
 
January 1, 2010 and January 2, 2009                                                                                                            
    78  
         
      79  
         
      80  
         
      81  
         
      83  
 
Notes to Consolidated Financial Statements                                                                                                                
    85  
    144  
    144  
    145  
           
 
PART III
       
           
    145  
    145  
    145  
    146  
    146  
           
 
PART IV
       
           
Exhibits and Financial Statement Schedules                                                                                                                
    146  
 

ITEM 1.  BUSINESS
 
Summary
 
URS is a leading international provider of engineering, construction and technical services.  We offer a broad range of program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to public agencies and private sector clients around the world.  We also are a major United States (“U.S.”) federal government contractor in the areas of systems engineering and technical assistance, and operations and maintenance.  We have approximately 45,000 employees in a global network of offices and contract-specific job sites in more than 30 countries.
 
We operate through three businesses:  Infrastructure & Environment, Federal Services and Energy & Construction.  Our Infrastructure & Environment business provides a wide range of program management, planning, design, engineering, construction and construction management, and operations and maintenance services to a variety of U.S. and international government agencies and departments, as well as to private sector clients.  Our Federal Services business provides program management, planning, systems engineering and technical assistance, construction and construction management, operations and maintenance, and decommissioning and closure services to U.S. federal government agencies, primarily the Departments of Defense (“DOD”) and Homeland Security (“DHS”).  Our Energy & Construction business provides program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to U.S. and international government agencies and departments, as well as to private sector clients.
 
Prior to January 1, 2010, our Infrastructure & Environment, Federal Services and Energy & Construction businesses were referred to as the URS, EG&G and Washington Divisions, respectively.  However, effective January 1, 2010, we rebranded our Divisions under the URS name to present a single brand in the marketplace to our clients.  In conjunction with this rebranding initiative, we renamed these businesses, as outlined above, for both internal communications and segment reporting purposes.  The renaming of these businesses did not affect our internal organization or reporting segments.  The Infrastructure & Environment, Federal Services and Energy & Construction names are designed to reflect the predominant focus of these businesses; however, these names are not intended to represent the full scope of the work performed or an exclusive ability to perform a particular type of work.  For example, both our Infrastructure & Environment and Energy & Construction businesses continue to provide services to the federal market sector within their respective operations.  Similarly, our Energy & Construction business continues to support infrastructure and mining projects.  None of our operations were realigned as part of the renaming of these businesses.  As a result of this rebranding initiative, in the fourth quarter of the 2009 fiscal year, we recorded a non-cash charge of $32.8 million for the write-down of the “Washington” trade name intangible asset and the adoption of a single URS brand.  On a net, after-tax basis, this transaction resulted in decreases to net income and diluted earnings per share (“EPS”) of $19.6 million and $0.24, respectively, for the year ended January 1, 2010.  There was no intangible asset related to the “EG&G” trade name that was impaired as a result of the rebranding initiative.
 
For information on our business by segment and geographic region, please refer to Note 15, “Segment and Related Information” to our “Consolidated Financial Statements and Supplementary Data,” which is included under Item 8 of this report and incorporated into this Item by reference.  For information on risks related to our business, segments and geographic regions, including risks related to foreign operations, please refer to Item 1A, “Risk Factors” of this report.
 
Clients, Market Sectors and Services
 
Through our network of offices across North America, Europe, Asia-Pacific and the Middle East, we provide services to a broad range of domestic and international clients, including U.S. federal government agencies, national governments of other countries, state and local government agencies both in the U.S. and in other countries, and private sector clients representing a broad range of industries.  See Note 15, “Segment and Related Information,” to our “Consolidated Financial Statements and Supplementary Data” included under Item 8 for financial information regarding geographic areas.
 

Our expertise is focused in four market sectors:  power, infrastructure, federal, and industrial and commercial.  Within these markets, we offer a broad range of services, including program management; planning, design and engineering; systems engineering and technical assistance; construction and construction management; operations and maintenance; and decommissioning and closure.
 
The following chart and table illustrate the percentage of our revenues by market sector for the year ended January 1, 2010, and representative services we provide in each of these markets.
Piechart
Market Sector
% of Revenues
Representative Services
Power
15%
· Program Management
· Planning, Design and Engineering
· Construction and Construction Management
· Operations and Maintenance
· Decommissioning and Closure
 
Infrastructure
18%
· Program Management
· Planning, Design and Engineering
· Construction and Construction Management
· Operations and Maintenance
 
Federal
45%
· Program Management
· Planning, Design and Engineering
· Systems Engineering and Technical Assistance
· Construction and Construction Management
· Operations and Maintenance
· Decommissioning and Closure
 
Industrial & Commercial
22%
· Program Management
· Planning, Design and Engineering
· Construction and Construction Management
· Operations and Maintenance
· Decommissioning and Closure
 
 

Market Sectors
 
The following table summarizes the primary market sectors served by our three businesses for the year ended January 1, 2010.
 
Market Sector
Infrastructure &
Environment
Federal Services
Energy &
Construction
Power
ü
ü 
Infrastructure
ü
ü 
Federal
ü
  ü
ü 
Industrial & Commercial
ü
ü 

ü  
a primary market sector for the business.
 
not a primary market sector for the business.
 
Power
 
We plan, design, engineer, construct, retrofit and maintain a wide range of power-generating facilities, as well as the systems that transmit and distribute electricity.  Our services include planning, siting and licensing, permitting, engineering, procurement, construction and construction management, facility start-up, operations and maintenance, upgrades and modifications, and decommissioning and closure.  We provide these services to utilities, industrial co-generators, independent power producers, original equipment manufacturers and government utilities.  We also specialize in the development and installation of clean air technologies that reduce emissions at both new and existing fossil fuel power plants.  These technologies help power-generating facilities comply with air quality regulations.
 
Our project expertise in the power market sector encompasses services related to the following:
 
·  
Fossil fuel power generating facilities;
 
·  
Nuclear power generating facilities;
 
·  
Hydroelectric power generating facilities;
 
·  
Alternative and renewable energy sources, including biomass, geothermal, solar energy and wind systems;
 
·  
Transmission and distribution systems; and
 
·  
Emissions control systems.
 
Infrastructure
 
We provide a broad range of the services required to build, expand and modernize infrastructure, including surface, air and rail transportation networks; ports and harbors; water supply, treatment and conveyance systems; and many types of facilities.  We serve as the program manager, planner, architect, engineer, general contractor, constructor and/or construction manager for a wide variety of infrastructure projects, and we also provide operations and maintenance services when a project has been completed.
 
Our clients in the infrastructure market sector include local municipalities, community planning boards, state and municipal departments of transportation and public works, transit authorities, water and wastewater authorities, environmental protection agencies, school boards and authorities, colleges and universities, judiciary agencies, hospitals, ports and harbors authorities and owners, airport authorities and owners, and airline carriers.
 

Our project expertise in the infrastructure market sector encompasses services related to the following:
 
·  
Highways, interchanges, bridges, tunnels and toll road facilities;
 
·  
Intelligent transportation systems, such as traffic management centers;
 
·  
Airport terminals, hangars, cargo facilities and people movers;
 
·  
Air traffic control towers, runways, taxiways and aircraft fueling systems;
 
·  
Baggage handling, baggage screening and other airport security systems;
 
·  
Light rail, subways, bus rapid transit systems, commuter/intercity railroads, heavy rail and high-speed rail systems;
 
·  
Rail transportation structures, including terminals, stations, multimodal facilities, parking facilities, bridges and tunnels;
 
·  
Piers, wharves, seawalls, recreational marinas and small craft harbors;
 
·  
Container terminals, liquid and dry bulk terminals and storage facilities;
 
·  
Water supply, storage, distribution and treatment systems;
 
·  
Municipal wastewater treatment and sewer systems;
 
·  
Levees, watershed and stormwater management, flood control systems and coastal restoration;
 
·  
Education, judicial, correctional, healthcare, retail, sports and recreational facilities; and
 
·  
Industrial, manufacturing, research and office facilities.
 
Federal
 
As a major contractor to the U.S. federal government and national governments of other countries, we serve a wide variety of government departments and agencies, including the DOD, DHS, Department of Energy (“DOE”), as well as the General Services Administration, the Environmental Protection Agency, the National Aeronautics and Space Administration and other federal agencies.  We also serve departments and agencies of other national governments, such as the United Kingdom (“U.K.”) Nuclear Decommissioning Authority.  Our services range from program management; planning, design and engineering; and systems engineering and technical assistance to construction and construction management; operations and maintenance; and decommissioning and closure.
 
We modernize weapons systems, refurbish military vehicles and aircraft, train pilots and manage military and other government installations.  We provide logistics support for military operations and help decommission former military bases for redevelopment.  In the area of global threat reduction, we support programs to eliminate nuclear, chemical and biological weapons, and we assist the DOE and other nuclear regulatory agencies outside the U.S. in the management of complex programs and facilities.
 
Our project expertise in the federal market sector encompasses the following:
 
·  
Operation and maintenance of complex government installations, including military bases and test ranges;
 
·  
Logistics support for government supply and distribution networks, including warehousing, packaging, delivery and traffic management;
 
·  
Weapons system design, maintenance and modernization, including acquisition support for new defense systems, and engineering and technical assistance for the modernization of existing systems;
 
·  
Maintenance planning to extend the service life of weapons systems and other military equipment;
 
·  
Maintenance, modification and overhaul of military aircraft and ground vehicles;
 
 
·  
Undergraduate and graduate-level training for military pilots of fixed-wing and rotary-wing aircraft;
 
·  
Management and operations and maintenance services for complex DOE programs and facilities;
 
·  
Deactivation, decommissioning and disposal of nuclear weapons stockpiles and other nuclear waste;
 
·  
Safety analyses for high-hazard facilities and licensing for DOE sites;
 
·  
Threat assessments of public facilities and the development of force protection and security systems;
 
·  
Planning and conducting emergency preparedness exercises;
 
·  
First responder training for the military and other government agencies;
 
·  
Management and operations and maintenance of chemical agent and chemical weapon disposal facilities;
 
·  
Installation of monitoring technology to detect the movement of nuclear and radiological materials across national borders;
 
·  
Planning, design and construction of aircraft hangars, barracks, military hospitals and other government buildings; and
 
·  
Environmental remediation and restoration for the redevelopment of military bases and other government installations.
 
Industrial & Commercial
 
We provide a wide range of engineering, procurement and construction services for new industrial and commercial infrastructure and process facilities and the expansion, modification and upgrade of existing facilities.  These services include front-end studies, engineering and process design, procurement, construction and construction management, facility management, and operations and maintenance.  Our expertise also includes due diligence, permitting, compliance, environmental management, pollution control, health and safety, waste management and hazardous waste remediation.  For facilities that are no longer in use, we provide site decommissioning and closure services.
 
Our industrial and commercial clients represent a broad range of industries, including automotive, chemical, consumer products, pharmaceutical, manufacturing, mining, power, oil and gas, and pipelines.  Over the past several years, many of these companies have reduced the number of service providers they use, selecting larger, global multi-service contractors, like URS, in order to control overhead costs.
 
Our project expertise in the industrial and commercial market sector encompasses services related to the following:
 
·  
Oil and gas refineries, processing and storage facilities, and pipelines;
 
·  
Biotechnology and pharmaceutical research laboratories, pilot plants and production facilities;
 
·  
Petrochemical, specialty chemical and polymer facilities;
 
·  
Consumer products and food and beverage production facilities;
 
·  
Automotive and other manufacturing facilities;
 
·  
Pulp and paper production facilities; and
 
·  
Mines and mining facilities for base and precious metals, industrial minerals and energy fuels.
 

Representative Services
 
We provide program management; planning, design and engineering; systems engineering and technical assistance; construction and construction management; operations and maintenance; and decommissioning and closure services to U.S. federal government agencies, national governments of other countries, state and local government agencies both in the U.S. and overseas, and private sector clients representing a broad range of industries.  Although we are typically the prime contractor, in some cases, we provide services as a subcontractor or through joint ventures or partnership agreements with other service providers.
 
The following table summarizes the services provided by our Infrastructure & Environment, Federal Services, and Energy & Construction businesses for the year ended January 1, 2010.
 
Services
Infrastructure & Environment
Federal Services
Energy &
Construction
Program Management
  ü
  ü
   ü
Planning, Design and Engineering
  ü
  ü
   ü
Systems Engineering and Technical Assistance
  ü
Construction and Construction Management
  ü
  ü
   ü
Operations and Maintenance
  ü
  ü
   ü
Decommissioning and Closure
  ü
  ü
   ü
 
ü
the business provides the listed service.      
the business does not provide the listed service.   
 
Program Management.  We provide the technical and administrative services required to manage, coordinate and integrate the multiple and concurrent assignments that comprise a large program from conception through completion.  For large military programs, which typically involve naval, ground, vessel and airborne platforms, our program management services include logistics planning, acquisition management, risk management of weapons systems, safety management and subcontractor management.  We also provide program management services for large capital improvement programs, which typically involve the oversight of a wide variety of activities ranging from planning, coordination, scheduling and cost control to design, construction and commissioning.
 
Planning, Design and Engineering.  The planning process is typically used to develop a blueprint or overall scheme for a project.  Based on the project requirements identified during the planning process, detailed engineering drawings and calculations are developed, which may include material specifications, construction cost estimates and schedules.  Our planning, design and engineering services include the following:
 
·  
Master planning;
 
·  
Land-use planning;
 
·  
Transportation planning;
 
·  
Technical and economic feasibility studies;
 
·  
Environmental impact assessments;
 
·  
Project development/design;
 
·  
Permitting;
 
·  
Quality assurance and validation;
 
·  
Integrated safety management and analysis;
 
·  
Alternative design analysis;
 
·  
Conceptual and final design documents;
 

·  
Technical specifications; and
 
·  
Process engineering and design.
 
We provide planning, design and engineering services for the construction of new transportation projects and for the renovation and expansion of existing transportation infrastructure, including bridges, highways, roads, airports, mass transit systems and railroads, and ports and harbors.  We also plan and design many types of facilities, such as schools, courthouses and hospitals; power generation, industrial and commercial facilities; waste treatment and disposal facilities; water supply and conveyance systems and wastewater treatment plants; and corporate offices and retail outlets.  Our planning, design and engineering capabilities also support homeland security and global threat reduction programs; hazardous and radioactive waste clean-up activities at government sites and facilities; and environmental assessment, due diligence and permitting at government, commercial and industrial facilities.  We also provide planning, design and engineering support to U.S. federal government clients for major research and development projects, as well as for technology development and deployment.
 
Systems Engineering and Technical Assistance.  We provide a broad range of systems engineering and technical assistance to all branches of the U.S. military for the design and development of new weapons systems and the modernization of aging weapons systems.  We have the expertise to support a wide range of platforms including aircraft and helicopters, tracked and wheeled vehicles, ships and submarines, shelters and ground support equipment.  Representative systems engineering and technical assistance services include the following:
 
·  
Defining operational requirements and developing specifications for new weapons systems;
 
·  
Reviewing hardware and software design data; and
 
·  
Developing engineering documentation for these systems.
 
We support a number of activities including technology insertion, system modification, installation of new systems/equipment, design of critical data packages, and configuration management.
 
Construction and Construction Management Services.  We provide construction contracting and construction management services for projects involving transportation, environmental and waste management, power generation and transmission, industrial and manufacturing facilities, water resources and wastewater treatment, government buildings and facilities, and mining projects.  As a contractor, we are responsible for the construction and completion of a project in accordance with its specifications and contracting terms.  In this capacity, we often manage the procurement of materials, equipment and supplies; directly supervise craft labor; and manage and coordinate subcontractors.  Our services typically include the following:
 
·  
Procuring specified  materials and equipment;
 
·  
Managing project logistics;
 
·  
Supervising and completing physical construction;
 
·  
Managing project milestone and completion schedules;
 
·  
Managing project cost controls and accounting;
 
·  
Negotiating and expediting change orders;
 
·  
Administering job site safety, security and quality control programs; and
 
·  
Preparing and delivering as-built drawings.
 

As a construction manager, we serve as the client’s representative to ensure compliance with design specifications and contract terms.  In performing these services, we may purchase equipment and materials on behalf of the client; monitor the progress, cost and quality of construction projects in process and oversee and coordinate the activities of construction contractors.  Our services typically include the following: 
 
·  
Contract administration;
 
·  
Change order management;
 
·  
Cost and schedule management;
 
·  
Safety program and performance monitoring;
 
·  
Inspection;
 
·  
Quality control and quality assurance;
 
·  
Document control; and
 
·  
Claims and dispute resolution. 
 
Operations and Maintenance.  We provide operations and maintenance services in support of large military installations and operations, and hazardous facilities, as well as for transportation systems, industrial and manufacturing facilities, and mining operations.  Our services include the following:
 
·  
Management of military base logistics including overseeing the operation of government warehousing and distribution centers, as well as government property and asset management;
 
·  
Maintenance, modification, overhaul and life service extension services for military vehicles, vessels and aircraft;
 
·  
Management, maintenance and operation of chemical agent and chemical weapons disposal systems;
 
·  
Comprehensive military flight training services;
 
·  
Development and maintenance of high security systems;
 
·  
Management of high-risk, technically complex chemical and nuclear processing facilities;
 
·  
Integrated facilities and logistics management for industrial and manufacturing facilities;
 
·  
Toll road, light rail and airport operations;
 
·  
Operating mine and metal and mineral processing facilities; and
 
·  
Other miscellaneous services such as staffing, repair, renovation, predictive and preventive maintenance, and health and safety services.
 
Decommissioning and Closure.  We provide decommissioning and closure services for nuclear power plants, nuclear research and test facilities, production sites and laboratories.  Many of these facilities have been highly contaminated and contain significant inventories of chemical and nuclear materials.  We also provide decommissioning and closure services for the DOD at chemical weapons depots and for military installations under the DOD’s Base Realignment and Closure (“BRAC”) program, as well as for industrial facilities and mining operations.  Our services include the following:
 
·  
Planning, scoping surveys and cost estimating;
 
·  
Due diligence and permitting;
 
·  
Environmental remediation;
 
·  
Hazardous chemical and nuclear waste stabilization treatment and disposition;
 
·  
Construction/demolition management; and
 
·  
Redevelopment and reuse.


Major Customers
 
Our largest clients are from our federal market sector.  Within this sector, we have multiple contracts with the U.S. Army, our largest customer, which contributed 18% of our revenue for the year ended January 1, 2010.  The loss of the federal government or the U.S. Army, as clients, would have a material adverse effect on our business; however, we are not dependent on any single contract on an ongoing basis, and we believe that the loss of any single contract would not have a material adverse effect on our business.
 
For the purpose of analyzing revenues from major customers, we do not consider the combination of all federal departments and agencies as one customer although, in the aggregate, the federal market sector contributed 45% of our revenue for the year ended January 1, 2010.  The different federal agencies manage separate budgets.  As such, reductions in spending by one federal agency do not affect the revenues we could earn from another federal agency.  In addition, the procurement processes for federal agencies are not centralized and the procurement decisions are made separately by each federal agency.
 
Our revenues from the U.S. Army for the years ended January 1, 2010, January 2, 2009 and December 28, 2007 are presented below:
 
   
Year Ended
 
(In millions)
 
January 1,
2010
   
January 2,
2009
   
December 28,
2007 (1)
 
The U.S. Army (2)
                 
Infrastructure & Environment
  $ 145.0     $ 110.1     $ 111.5  
Federal Services
    1,403.1       1,407.1       835.8  
Energy & Construction
    117.3       121.8       15.3  
Total U.S. Army
  $ 1,665.4     $ 1,639.0     $ 962.6  

(1)  
For the year ended December 28, 2007, we included the results of operations for Energy & Construction for the six-week period beginning on November 16, 2007 through December 28, 2007 that immediately followed our acquisition of Washington Group International, Inc. (“WGI”).  Prior to the acquisition of WGI on November 15, 2007, the Energy & Construction reporting segment did not exist as part of our operations.  As such, the amounts for the year ended December 28, 2007 are not comparable to the results for the years ended January 2, 2009 and January 1, 2010.
 
 
(2)  
The U.S. Army includes U.S. Army Corps of Engineers.
 
 
Competition
 
Our industry is highly fragmented and intensely competitive.  Our competitors are numerous, ranging from small private firms to multi-billion dollar companies.  The technical and professional aspects of our services generally do not require large upfront capital expenditures and, therefore, provide limited barriers against new competitors.  Some of our competitors have achieved greater market penetration in some of the markets in which we compete and have substantially more financial resources and/or financial flexibility than we do.  To our knowledge, no individual company currently dominates any significant portion of our markets.
 
We believe that we are well positioned to compete in our markets because of our reputation, our cost effectiveness, our long-term client relationships, our extensive network of offices, our employee expertise, and our broad range of services.  In addition, as a result of our national and international network of offices and contract-specific job sites in more than 30 countries, we can offer our government and private sector clients localized knowledge and expertise that is backed by the support of our worldwide professional staff.
 


Our Infrastructure & Environment, Federal Services, and Energy & Construction businesses operate in similar competitive environments.  All three businesses compete based on performance, reputation, expertise, price, technology, customer relationships and range of service offerings.  In addition, our Infrastructure & Environment and Energy & Construction businesses compete through domestic and international office networks.  The competitors for each of our businesses are numerous, ranging from small private firms to multi-billion dollar companies.  The primary competitors of our Infrastructure & Environment business include AECOM Technology Corporation, CH2M HILL Companies, Ltd., Fluor Corporation, Jacobs Engineering Group Inc., Tetra Tech, Inc., and The Shaw Group Inc.  The primary competitors of our Federal Services business include Bechtel Corporation, Computer Sciences Corporation, DynCorp International LLC, ITT Corporation, KBR, Inc., L-3 Communications Corporation, Northrop Grumman Corporation, Parsons and Science Applications International Corporation.  The primary competitors of our Energy & Construction business include AMEC, Bechtel Corporation, Black & Veatch Corporation, CH2M HILL Companies, Ltd., EnergySolutions, Inc., Foster-Wheeler Corporation, Fluor Corporation, Granite Construction Company, Jacobs Engineering Group Inc., KBR, Inc., Kiewit Corporation, Skanska, The Babcock & Wilcox Company, The Shaw Group Inc and Worley Parsons, Ltd.
 
Book of Business
 
For the purpose of calculating our book of business, we determine the amounts of all contract awards that may potentially be recognized as revenues or equity in income of unconsolidated joint ventures over the life of the contracts.  We categorize our book of business into backlog, option years and indefinite delivery contracts (“IDCs”), based on the nature of the award and its current status.  Starting in the first quarter of 2009, we ceased reporting designations as part of our book of business.  Designations represented the monetary value of projects for which we have received a notice of award from our clients, but for which we do not yet have signed contracts or, where applicable, a notice to proceed.  As we have grown and our business mix has changed, designations have become a less useful tool for analyzing our overall business prospects.  For comparability purposes, we also adjusted our book of business as of January 2, 2009 to exclude designations.
 
As of January 1, 2010, our total book of business was $29.4 billion, a net increase of $0.3 billion, compared to $29.1 billion as of January 2, 2009.  The largest single addition to our book of business was a new performance-based, cost-plus award-fee contract awarded to us by the DOE in the first quarter of 2009.  This contract to provide liquid waste management services has a potential maximum contract value of approximately $3.3 billion over a six-year base performance period and includes an additional two-year extension option.  We included approximately $2.5 billion and $0.8 billion of the potential value of this contract in our backlog and option years, respectively, during the first quarter of 2009.  In addition to revenues and equity in income of unconsolidated joint ventures recognized in the ordinary course of business during the year ended January 1, 2010, the three largest individual reductions in our book of business were in backlog and consisted of $0.5 billion, which resulted from the sale of our equity investment in an incorporated mining venture in Germany – MIBRAG mbH (“MIBRAG”), and $0.5 billion, which resulted from the termination of two mining contracts.
 
Backlog.  Our contract backlog represents the monetary value of signed contracts, including task orders that have been issued and funded under IDCs and, where applicable, a notice to proceed has been received from the client that is expected to be recognized as revenues or equity in income of unconsolidated joint ventures when future services are performed.
 
The performance periods of our contracts vary widely from a few months to many years.  In addition, contract durations differ significantly among our segments, although some overlap exists.  As a result, the amount of revenues that will be realized beyond one year also varies from segment to segment.  As of January 1, 2010, we estimated that approximately 67% of our total backlog would not be realized within one year based upon the timing of awards and the long-term nature of many of our contracts; however, no assurance can be given that backlog will be realized at this rate.
 
Option Years.  Our option years represent the monetary value of option periods under existing contracts in backlog, which are exercisable at the option of our clients without requiring us to go through an additional competitive bidding process and would be canceled only if a client decides to end the project (a termination for convenience) or through a termination for default.  Options years are in addition to the “base periods” of these contracts.  The base periods of these contracts can vary from one to five years.
 


Indefinite Delivery Contracts.  Indefinite delivery contracts represent the expected monetary value to us of signed contracts under which we perform work only when the client awards specific task orders or projects to us.  When agreements for such task orders or projects are signed and funded, we transfer their value into backlog.  Generally, the terms of these contracts exceed one year and often include a maximum term and potential value.  IDCs generally range from one to twenty years in length.
 
While the value of our book of business is a predictor of future revenues and equity in income of unconsolidated joint ventures, we have no assurance, nor can we provide assurance, that we will ultimately realize the maximum potential values for backlog, option years or IDCs.  Based on our historical experience, our backlog has the highest likelihood of being converted into revenues or equity in income of unconsolidated joint ventures because it is based upon signed and executable contracts with our clients.  Option years are not as certain as backlog because our clients may decide not to exercise one or more option years.  Because we do not perform work under IDCs until specific task orders are issued, the value of our IDCs are not as likely to convert into revenues or equity in income of unconsolidated joint ventures as other categories of our book of business.
 
The following tables summarize our book of business:
 
   
As of
 
(In billions)
 
January 1,
2010
   
January 2,
2009
 
Backlog by market sector:
           
Power
  $ 1.3     $ 1.8  
Infrastructure
    2.6       2.3  
Industrial and commercial
    1.3       2.9  
Federal
    12.1       10.2  
Total backlog
  $ 17.3     $ 17.2  

(In billions)
 
Infrastructure
&
Environment
   
Federal
Services
   
Energy
&
Construction
   
Total
 
As of January 1, 2010
                       
Backlog
  $ 2.7     $ 7.2     $ 7.4     $ 17.3  
Option years
    0.4       2.1       2.5       5.0  
Indefinite delivery contracts
    4.3       1.6       1.2       7.1  
Total book of business
  $ 7.4     $ 10.9     $ 11.1     $ 29.4  
                                 
As of January 2, 2009
                               
Backlog
  $ 2.8     $ 7.7     $ 6.7     $ 17.2  
Option years
    0.5       2.2       1.6       4.3  
Indefinite delivery contracts
    4.0       2.1       1.5       7.6  
Total book of business (1)
  $ 7.3     $ 12.0     $ 9.8     $ 29.1  

 
(1)
We adjusted our book of business as of January 2, 2009 to exclude designations as we ceased reporting them within our book of business starting in the first quarter of 2009.
 
History
 
We were originally incorporated in California on May 1, 1957 under the former name of Broadview Research Corporation.  On May 18, 1976, we re-incorporated in Delaware under the name URS Corporation.  After several additional name changes, we re-adopted the name “URS Corporation” on February 21, 1990.
 


Regulations
 
We provide services for projects that are subject to government oversight, including environmental laws and regulations, general government procurement laws and regulations, and other government regulations and requirements.  Below is a summary of some of the regulations that impact our business.  For more information on risks associated with our government regulations, please refer to Item 1A, “Risk Factors,” of this report.
 
Environmental Regulations.  A portion of our business involves the planning, design, construction management and operation and maintenance of pollution control facilities, as well as the assessment, design and management of remediation activities at hazardous waste or Superfund sites and military bases.  In addition, we have contracts with U.S. federal governmental entities to destroy hazardous and radioactive materials, including chemical agents and weapons stockpiles.  These activities may require us to manage, handle, remove, treat, transport and dispose of toxic or hazardous substances.
 
Some environmental laws including the Resource Conservation and Recovery Act of 1976, as amended, and the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, (“CERCLA”), as well as other governmental laws can impose liability for the entire cost of the clean-up of contaminated facilities or sites upon present and former owners and operators as well as generators, transporters and persons arranging for the treatment or disposal of such substances.  While we strive to handle hazardous and toxic substances with care and in accordance with safe methods, the possibility of accidents, leaks, spills and the events of force majeure always exist.  Humans exposed to these materials, including employees or subcontractors engaged in the transportation and disposal of hazardous materials, and persons in affected areas may be injured or become ill, resulting in lawsuits that expose us to liability and may result in substantial damage awards against us.  Liabilities for contamination or human exposure to hazardous or toxic materials or a failure to comply with applicable regulations could result in substantial costs to us, including clean-up costs, fines and civil or criminal sanctions, third-party claims for property damage or personal injury, or cessation of remediation activities.
 
Some of our business operations are covered by Public Law 85-804, which provides for indemnification by the U.S federal government against claims and damages arising out of unusually hazardous or nuclear activities performed at the request of the U.S. federal government.  Should public policies and laws be changed, however, U.S. federal government indemnification may not be available in the case of any future claims or liabilities relating to hazardous activities that we undertake to perform.
 
Government Procurement.  The services we provide to the U.S. federal government are subject to the Federal Acquisition Regulation (“FAR”), the Truth in Negotiations Act, the Cost Accounting Standards (“CAS”), the American Recovery and Reinvestment Act (“ARRA”), the Service Contract Act, DOD security regulations and other rules and regulations applicable to government contracts, each as amended.  These laws and regulations affect how we transact business with our government clients and in some instances, impose added costs to our business operations.  A violation of specific laws and regulations could lead to fines, contract termination or suspension of future contracts.  Our government clients can also terminate, renegotiate, or modify any of their contracts with us at their convenience, and many of our government contracts are subject to renewal or extension annually.
 
Other regulations and requirements.  We provide services to the DOD and other defense-related entities that often require specialized professional qualifications and security clearances.  Our international business is also subject to the Foreign Corrupt Practices Act, as well as various export control, anti-boycott, and embargo laws.  In addition, as engineering design services professionals, we are subject to a variety of local, state, federal and foreign licensing and permit requirements and ethics rules.
 


Sales and Marketing
 
Our Infrastructure & Environment business performs business development, sales and marketing activities primarily through our network of local offices around the world.  For large, market-specific projects requiring diverse technical capabilities, we utilize the company-wide resources of specific disciplines.  This often involves coordinating marketing efforts on a regional, national or global level.  Our Federal Services business performs business development, sales and marketing activities primarily through its management groups, which address specific markets, such as homeland security and defense systems.  In addition, our Federal Services business coordinates national marketing efforts on large projects, which often involve a multi-segment or multi-market scope.  Our Energy & Construction business conducts business development, sales and marketing activities at a market sector level.  For large complex projects, markets or clients that require broad-based capabilities, business development efforts are coordinated across our businesses.  Over the past year, our businesses have been successful in marketing their combined capabilities to win new work with clients in the various markets we serve.
 
Seasonality
 
We experience seasonal trends in our business in connection with federal holidays, such as Memorial Day, Independence Day, Thanksgiving, Christmas and New Year’s Day.  Our revenues are typically lower during these times of the year because many of our clients’ employees, as well as our own employees, do not work during these holidays, resulting in fewer billable hours worked on projects and thus lesser revenues recognized.  In addition to holidays, our business also is affected by seasonal bad weather conditions, such as hurricanes, floods, snowstorms or other inclement weather, which may cause some of our offices and projects to temporarily reduce activities.
 
Raw Materials
 
We purchase most of the raw materials and components necessary to operate our business from numerous sources.  However, the price and availability of raw materials and components may vary from year to year due to customer demand, production capacity, market conditions and material shortages.  While we do not currently foresee the lack of availability of any particular raw materials in the near term, prolonged unavailability of raw materials necessary to our projects and services or significant price increases for those raw materials could have a material adverse effect on our business in the near term.
 
Government Contracts
 
Generally, our government contracts are subject to renegotiation or termination of contracts or subcontracts at the discretion of the U.S. federal, state or local governments, and national governments of other countries.
 
Trade Secrets and Other Intellectual Property
 
We rely principally on trade secrets, confidentiality policies and other contractual arrangements to protect much of our intellectual property where we do not believe that patent or copyright protection is appropriate or obtainable.
 
Research and Development
 
We have not incurred any material costs for company-sponsored research and development activities.
 


Insurance
 
Generally, our insurance program includes limits totaling $540.0 million per loss and in the aggregate for general liability; $220.0 million per loss and in the aggregate for professional errors and omissions liability; $140.0 million per loss for property; $100.0 million per loss for marine property and liability; and $100.0 million per loss and in the aggregate for contractor’s pollution liability (in addition to other policies for specific projects).  The general liability, professional errors and omissions liability, property, and contractor’s pollution liability limits are in excess of a self-insured retention of $10.0 million for each covered claim.  In addition, our insurance policies contain certain exclusions and sublimits that insurance providers may use to deny or restrict coverage.
 
Excess liability insurance policies provide for coverages on a “claims-made” basis, covering only claims actually made and reported during the policy period currently in effect.  Thus, if we do not continue to maintain these policies, we will have no coverage for claims made after the termination date even for claims based on events that occurred during the term of coverage.  While we intend to maintain these policies, we may be unable to maintain existing coverage levels.  We have maintained insurance without lapse for many years with limits in excess of losses sustained.
 
Employees
 
The number of our employees varies with the volume, type and scope of our operations at any given time.  As of January 29, 2010, we had approximately 45,000 employees, including temporary or part-time workers.  The Infrastructure & Environment, Federal Services, and Energy & Construction businesses employed approximately 17,000, 13,000, and 15,000 persons (including temporary and part-time workers), respectively.  At various times, we have employed up to several thousand workers on a temporary or part-time basis to meet our contractual obligations.  Approximately 14% of our employees are covered by collective bargaining agreements, which are subject to amendment on various dates ranging from March 2010 to October 2014, or by specific labor agreements, which expire upon completion of the relevant project.
 


Executive Officers of the Registrant

Name
Position Held
 
Age
 
         
Martin M. Koffel                                                
Chief Executive Officer (“CEO”), President and Director since May 1989; Chairman of the Board since June 1989.
    70  
Thomas W. Bishop                                                
Vice President, Strategy since July 2003; Senior Vice President, Construction Services since March 2002; Director of Operations for the Construction Services Division from 1999 to 2002.
    63  
Reed N. Brimhall                                                
Chief Accounting Officer since May 2005; Vice President and Corporate Controller since May 2003; Senior Vice President and Controller of Washington Group International, Inc. from 1999 to 2003.
    56  
H. Thomas Hicks                                                
Vice President and Chief Financial Officer (“CFO”) since March 2006; Vice President, Finance from September 2005 to March 2006; Managing Director of Investment Banking, Merrill Lynch from September 1997 to September 2005.
    59  
Gary V. Jandegian                                                
President of the Infrastructure & Environment business and Vice President since July 2003; Senior Vice President of URS Greiner Woodward-Clyde, Inc. from 1998 to July 2003.
    57  
Susan B. Kilgannon                                                
Vice President, Communications since October 1999.
    51  
Joseph Masters                                                
Secretary since March 2006; General Counsel since July 1997; and Vice President since July 1994.
    53  
Randall A. Wotring                                                
President of the Federal Services business and Vice President since November 2004; Vice President and General Manager of Engineering and Technology Services of the Federal Services business from August 2002 to November 2004.
    53  
Thomas H. Zarges                                                
Vice President since March 2008; President of the Energy & Construction business since January 2008; Senior Executive Vice President Operations of the Energy & Construction business from November 2007 through January 2008; Senior Executive Vice President – Operations of Washington Group International, Inc. from October 2002 through November 2007.
    61  

Available Information
 
Our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our web site at www.urscorp.com.  These reports, and any amendments to these reports, are made available on our web site as soon as reasonably practicable after we electronically file or furnish the reports with the Securities and Exchange Commission (“SEC”).  In addition, our Corporate Governance Guidelines, the charters for our Audit, Board Affairs and Compensation Committees, and our Code of Business Conduct and Ethics are available on our web site at www.urscorp.com under the “Corporate Governance” section.  Any waivers or amendments to our Code of Business Conduct and Ethics will be posted on our web site.  A printed copy of this information is also available without charge by sending a written request to: Corporate Secretary, URS Corporation, 600 Montgomery Street, 26th Floor, San Francisco, CA 94111-2728.
 

 
 
In addition to the other information included or incorporated by reference in this Annual Report on Form 10-K, the following factors also could affect our financial condition and results of operations:
 
Demand for our services is cyclical and vulnerable to economic downturns and reductions in government and private sector spending.  If the economy remains weak or uncertain, or client spending declines further, then our revenues, profits and our financial condition could deteriorate.
 
Demand for our services is cyclical and vulnerable to economic downturns and reductions in government and private sector spending, which may result in clients delaying, curtailing or canceling proposed and existing projects.  In fiscal year 2009, our clients were affected by the weak economic conditions caused by the declines in the overall economy and constraints in the credit market.  As a result, some clients have delayed, curtailed or cancelled proposed and existing projects and may continue to do so, thus decreasing the overall demand for our services and adversely affecting our results of operations.  We experienced and expect to continue to experience delays or deferrals of existing and proposed projects.  For example, for the year ended January 1, 2010, we experienced a decline in our revenues compared to fiscal year 2008 and an overall slowdown in project awards.  In light of current macroeconomic conditions, we expect revenues from our power and industrial and commercial market sectors will continue to decline in 2010.  In addition, our clients may find it more difficult to raise capital in the future due to limitations on the availability of credit and other uncertainties in the federal, municipal and corporate credit markets.  Also, our clients may demand more favorable pricing terms and find it increasingly difficult to timely pay invoices for our services, which would impact our future cash flows and liquidity.  In addition, any rapid changes in the prices of commodities make it difficult for our clients and us to forecast future capital expenditures.  Inflation or significant changes in interest rates could reduce the demand for our services.  Any inability to timely collect our invoices may lead to an increase in our accounts receivables and potentially to increased write-offs of uncollectible invoices.  If the economy remains weak or uncertain, or client spending declines further, then our revenues, book of business, net income and overall financial condition could deteriorate.
 
We may not realize the full amount of revenues reflected in our book of business, particularly in light of the current economic conditions, which could harm our operations and significantly reduce our expected profits and revenues.
 
We account for all contract awards that may eventually be recognized as revenues or equity in income of unconsolidated joint ventures as our “book of business,” which includes backlog, option years and IDCs.  Our backlog consists of the monetary value of signed contracts, including task orders that have been issued and funded under IDCs and, where applicable, a notice to proceed has been received from the client that is expected to be recognized as revenues when future services are performed.  As of January 1, 2010, our book of business was estimated at approximately $29.4 billion, which included $17.3 billion of our backlog.  Our option year contracts are multi-year contracts with base periods, plus option years that are exercisable by our clients without the need for us to go through another competitive bidding process and would be cancelled only if a client decides to end the project (a termination for convenience) or through a termination for default.  Our IDCs are signed contracts under which we perform work only when our clients issue specific task orders.  Our book of business estimates may not result in realized profits and revenues in any particular period because clients may delay, modify terms or terminate projects and contracts and may decide not to exercise contract options or issue task orders.  This uncertainty is particularly acute in light of current economic conditions as the risk of contracts in backlog being delayed or cancelled is more likely to increase during periods of economic volatility.  In addition, our government contracts or subcontracts are subject to renegotiation or termination at the convenience of the applicable U.S. federal, state or local governments, as well as national governments of other countries.  Accordingly, if we do not realize a substantial amount of our book of business, our operations could be harmed and our expected profits and revenues could be significantly reduced.
 


As a government contractor, we must comply with various laws and regulations and are subject to regular government audits; failure to comply with these laws and regulations could result in sanctions, contract termination, forfeiture of profit, harm to our reputation or loss of our status as a government contractor.  Any interruption or termination of our government contractor status could reduce our profits and revenues significantly.
 
As a government contractor, we enter into many contracts with federal, state and local government clients.  For example, revenues from our federal market sector represented 45% of our total revenues for the year ended January 1, 2010.  We are affected by and must comply with federal, state, local and foreign laws and regulations relating to the formation, administration and performance of government contracts.  For example, we must comply with FAR, the Truth in Negotiations Act, CAS, ARRA, the Services Contract Act and DOD security regulations, as well as many other laws and regulations.  In addition, we must also comply with other government regulations related to employment practices, environmental protection, health and safety, tax, accounting and anti-fraud, as well as many others in order to maintain our government contractor status.  These laws and regulations affect how we transact business with our clients and in some instances, impose additional costs on our business operations.  Even though we take precautions to prevent and deter fraud, misconduct and non-compliance, we face the risk that our employees or outside partners may engage in misconduct, fraud or other improper activities.
 
Government agencies, such as the U.S. Defense Contract Audit Agency (“DCAA”), routinely audit and investigate government contractors.  These government agencies review and audit a government contractor’s performance under its contracts, a government contractor’s direct and indirect cost structure, and a government contractor’s compliance with applicable laws, regulations and standards.  For example, during the course of its audits, the DCAA may question our incurred project costs and, if the DCAA believes we have accounted for these costs in a manner inconsistent with the requirements for the FAR or CAS, the DCAA auditor may recommend to our U.S. government corporate administrative contracting officer to disallow such costs.  We can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future.  In addition, government contracts are subject to a variety of other socioeconomic requirements relating to the formation, administration, performance and accounting for these contracts.  We may also be subject to qui tam litigation brought by private individuals on behalf of the government under the Federal Civil False Claims Act, which could include claims for treble damages.  Government contract violations could result in the imposition of civil and criminal penalties or sanctions, contract termination, forfeiture of profit, and/or suspension of payment, any of which could make us lose our status as an eligible government contractor.  We could also suffer serious harm to our reputation.  Any interruption or termination of our government contractor status could reduce our profits and revenues significantly.
 
Employee, agent or partner misconduct or failure to comply with anti-bribery and other government laws and regulations could harm our reputation, reduce our revenues and profits, and subject us to criminal and civil enforcement actions.
 
Misconduct, fraud, non-compliance with applicable government laws and regulations, or other improper activities by one of our employees, agents or partners could have a significant negative impact on our business and reputation.  Such misconduct could include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations prohibiting bribery and other foreign corrupt practices, regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, environmental laws and any other applicable laws or regulations.  For example, the United States Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business.  In addition, we regularly provide services that may be highly sensitive or that relate to critical national security matters; if a security breach were to occur, our ability to procure future government contracts could be severely limited.
 


Our policies mandate compliance with these regulation and laws, and we take precautions to prevent and detect misconduct.  However, since our internal controls are subject to inherent limitations, including human error, it is possible that these controls could be intentionally circumvented or become inadequate because of changed conditions.  As a result, we cannot assure that our controls will protect us from reckless or criminal acts committed by our employees and agents.  Failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, loss of security clearances, and suspension or debarment from contracting, any or all of which could harm our reputation, reduce our revenues and profits and subject us to criminal and civil enforcement actions.
 
Our inability to win or renew government contracts during regulated procurement processes could harm our operations and reduce our profits and revenues.
 
Revenues from our federal market sector represented approximately 45% of our total revenues for the year ended January 1, 2010.  Government contracts are awarded through a regulated procurement process.  The federal government has increasingly relied upon multi-year contracts with pre-established terms and conditions, such as IDCs, that generally require those contractors that have previously been awarded the IDC to engage in an additional competitive bidding process before a task order is issued.  The increased competition, in turn, may require us to make sustained efforts to reduce costs in order to realize revenues and profits under government contracts.  If we are not successful in reducing the amount of costs we incur, our profitability on government contracts will be negatively impacted.  In addition, the U.S. government has announced its intention to scale back outsourcing of services in favor of “insourcing” jobs to its employees, which could reduce our revenues.  Moreover, even if we are qualified to work on a government contract, we may not be awarded the contract because of existing government policies designed to protect small businesses and under-represented minority contractors.  Our inability to win or renew government contracts during regulated procurement processes could harm our operations and reduce our profits and revenues.
 
Each year, client funding for some of our government contracts may rely on government appropriations or public-supported financing.  If adequate public funding is delayed or is not available, then our profits and revenues could decline.
 
Each year client funding for some of our government contracts may directly or indirectly rely on government appropriations or public-supported financing such as the ARRA, which provides funding for various clients’ state transportation projects.  Legislatures may appropriate funds for a given project on a year-by-year basis, even though the project may take more than one year to perform.  In addition, public-supported financing such as state and local municipal bonds, may be only partially raised to support existing infrastructure projects.  As a result, a project we are currently working on may only be partially funded and thus additional public funding may be required in order to complete our contract.  Public funds and the timing of payment of these funds may be influenced by, among other things, the state of the economy, competing political priorities, curtailments in the use of government contractors, a rise in the cost of raw materials, delays associated with a lack of a sufficient number of government staff to oversee contracts, budget constraints, the timing and amount of tax receipts and the overall level of government expenditures.  If adequate public funding is not available or is delayed, then our profits and revenues could decline.
 
Our government contracts may give government agencies the right to modify, delay, curtail, renegotiate or terminate existing contracts at their convenience at any time prior to their completion, which may result in a decline in our profits and revenues.
 
Government projects in which we participate as a contractor or subcontractor may extend for several years.  Generally, government contracts include the right for government agencies to modify, delay, curtail, renegotiate or terminate contracts and subcontracts at their convenience any time prior to their completion.  Any decision by a government client to modify, delay, curtail, renegotiate or terminate our contracts at their convenience may result in a decline in our profits and revenues.
 


If we are unable to accurately estimate and control our contract costs, then we may incur losses on our contracts, which could decrease our operating margins and reduce our profits.
 
It is important for us to accurately estimate and control our contract costs so that we can maintain positive operating margins and profitability.  We generally enter into four principal types of contracts with our clients:  cost-plus, fixed-price, target-price and time-and-materials.
 
Under cost-plus contracts, which may be subject to contract ceiling amounts, we are reimbursed for allowable costs and fees, which may be fixed or performance-based.  If our costs exceed the contract ceiling or are not allowable under the provisions of the contract or any applicable regulations, we may not be reimbursed for all of the costs we incur.  Under fixed-price contracts, we receive a fixed price regardless of what our actual costs will be.  Consequently, we realize a profit on fixed-price contracts only if we can control our costs and prevent cost over-runs on our contracts.  Under target-price contracts, project costs are reimbursable and our fee is established against a target budget that is subject to changes in project circumstances and scope.  As a result of the WGI acquisition, the number and size of our target-price and fixed-price contracts have increased, which may increase the volatility of our profitability.  Under time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and for other expenses.
 
If we are unable to accurately estimate and manage our costs, we may incur losses on our contracts, which could decrease our operating margins and significantly reduce or eliminate our profits.  Many of our contracts require us to satisfy specified design, engineering, procurement or construction milestones in order to receive payment for the work completed or equipment or supplies procured prior to achieving the applicable milestone.  As a result, under these types of arrangements, we may incur significant costs or perform significant amounts of work prior to receipt of payment.  If the customer determines not to proceed with the completion of the project or if the customer defaults on its payment obligations, we may encounter difficulties in collecting payment of amounts due to us for the costs previously incurred or for the amounts previously expended to purchase equipment or supplies.
 
Our actual business and financial results could differ from the estimates and assumptions that we use to prepare our financial statements, which may reduce our profits.
 
To prepare financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions as of the date of the financial statements, which affect the reported values of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities.  For example, we may recognize revenue over the life of a contract based on the proportion of costs incurred to date compared to the total costs estimated to be incurred for the entire project.  Areas requiring significant estimates by our management include:
 
·  
the application of the percentage-of-completion method of revenue recognition on contracts, change orders and contract claims;
 
·  
provisions for uncollectible receivables and customer claims and recoveries of costs from subcontractors, vendors and others;
 
·  
provisions for income taxes and related valuation allowances;
 
·  
impairment of goodwill and recoverability of other intangible assets;
 
·  
valuation of assets acquired and liabilities assumed in connection with business combinations;
 
·  
valuation of defined benefit pension plans and other employee benefit plans;
 
·  
valuation of stock-based compensation expense; and
 
·  
accruals for estimated liabilities, including litigation and insurance reserves.
 
Our actual business and financial results could differ from those estimates, which may reduce our profits.
 


Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.
 
The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability.  The rate at which we utilize our workforce is affected by a number of factors, including:
 
·  
our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees;
 
·  
our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our geographies and workforces;
 
·  
our ability to manage attrition;
 
·  
our need to devote time and resources to training, business development, professional development and other non-chargeable activities; and
 
·  
our ability to match the skill sets of our employees to the needs of the marketplace.
 
If we overutilize our workforce, our employees may become disengaged, which will impact employee attrition.  If we underutilize our workforce, our profit margin and profitability could suffer.
 
Our use of the percentage-of-completion method of revenue recognition could result in a reduction or reversal of previously recorded revenues and profits.
 
A substantial portion of our revenues and profits are measured and recognized using the percentage-of-completion method of revenue recognition.  Our use of this accounting method results in recognition of revenues and profits ratably over the life of a contract, based generally on the proportion of costs incurred to date to total costs expected to be incurred for the entire project.  The effects of revisions to revenues and estimated costs are recorded when the amounts are known or can be reasonably estimated.  Such revisions could occur in any period and their effects could be material.  Although we have historically made reasonably reliable estimates of the progress towards completion of long-term engineering, program management, construction management or construction contracts, the uncertainties inherent in the estimating process make it possible for actual costs to vary materially from estimates, including reductions or reversals of previously recorded revenues and profits.
 
Our failure to successfully bid on new contracts and renew existing contracts could reduce our profits.
 
Our business depends on our ability to successfully bid on new contracts and renew existing contracts with private and public sector clients.  Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which are affected by a number of factors, such as market conditions, financing arrangements and required governmental approvals.  For example, a client may require us to provide a surety bond or letter of credit to protect the client should we fail to perform under the terms of the contract.  If negative market conditions arise, or if we fail to secure adequate financial arrangements or the required governmental approval, we may not be able to pursue particular projects, which could adversely reduce or eliminate our profitability.
 


If we fail to timely complete, miss a required performance standard or otherwise fail to adequately perform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability.
 
We may commit to a client that we will complete a project by a scheduled date.  We may also commit that a project, when completed, will achieve specified performance standards.  If the project is not completed by the scheduled date or fails to meet required performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failure to achieve the required performance standards.  The uncertainty of the timing of a project can present difficulties in planning the amount of personnel needed for the project.  If the project is delayed or canceled, we may bear the cost of an underutilized workforce that was dedicated to fulfilling the project.  In addition, performance of projects can be affected by a number of factors beyond our control, including unavoidable delays from governmental inaction, public opposition, inability to obtain financing, weather conditions, unavailability of vendor materials, changes in the project scope of services requested by our clients, industrial accidents, environmental hazards, labor disruptions and other factors.  In some cases, should we fail to meet required performance standards, we may also be subject to agreed-upon financial damages, which are determined by the contract.  To the extent that these events occur, the total costs of the project could exceed our estimates and we could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate our overall profitability.
 
We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts.
 
We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts.  For example, one of our construction projects gives the client the right to assess approximately $25 million if project milestones are not completed by pre-determined dates.  Failure to meet any of the milestone requirements could result in additional costs, and the amount of such additional costs could exceed the projected profits on the project.  These additional costs include liquidated damages paid under contractual penalty provisions, which can be substantial and can accrue on a regular basis.
 
If our partners fail to perform their contractual obligations on a project, we could be exposed to joint and several liability and financial penalties that could reduce our profits and revenues.
 
We often partner with unaffiliated third parties, individually or via a joint venture, to jointly bid on and perform on a particular project.  For example, for the year ended January 1, 2010, our equity in income of unconsolidated joint ventures amounted to $100.9 million.  The success of our partnerships and joint ventures depends, in large part, on the satisfactory performance of contractual obligations by each member.  In addition, when we operate through a joint venture in which we are a minority holder, we have limited control over many project decisions, including decisions related to the joint venture’s internal controls, which may not be subject to the same internal control procedures that we employ.  If these unaffiliated third parties do not fulfill their contract obligations, the partnerships or joint ventures may be unable to adequately perform and deliver their contracted services.  Under these circumstances, we may be obligated to pay financial penalties, provide additional services to ensure the adequate performance and delivery of the contracted services and may be jointly and severally liable for the other’s actions or contract performance.  These additional obligations could result in reduced profits and revenues or, in some cases, significant losses for us with respect to the joint venture, which could also affect our reputation in the industries we serve.
 


Our dependence on subcontractors and equipment and material providers could reduce our profits.
 
We rely on third-party subcontractors and equipment and material providers.  For example, we procure heavy equipment and construction materials as needed when performing large construction and contract mining projects.  To the extent that we cannot engage subcontractors or acquire equipment and materials at reasonable costs, 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 exceed our estimates, we could experience reduced profit or 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 are needed.
 
If we experience delays and/or defaults in client payments, we could suffer liquidity problems or we may be unable to recover all working capital or equity investments.
 
Because of the nature of our contracts, at times we may commit resources to a client’s projects before receiving payments to cover our expenditures.  Sometimes, we incur and record expenditures for a client project before receiving any payment to cover our expenses.  In addition, we may make equity investments in majority or minority controlled large-scale client projects and other long-term capital projects before the project completes operational status or completes its project financing.  If a client project is unable to make its payments, we could incur losses including our working capital or equity investments.
 
The recent tightening of credit could increase this risk, as more clients may be unable to secure sufficient liquidity to pay their obligations.  If a client delays or defaults in making its payments on a project to which we have devoted significant resources, it could have an adverse effect on our financial position and cash flows.
 
Our failure to adequately recover on claims brought by us against project owners for additional contract costs could have a negative impact on our liquidity and profitability.
 
We have brought claims against project owners for additional costs exceeding the contract price or for amounts not included in the original contract price.  These types of claims occur due to matters such as owner-caused delays or changes from the initial project scope, both of which may result in additional cost.  Often, these claims can be the subject of lengthy arbitration or litigation proceedings, and it is difficult to accurately predict when these claims will be fully resolved.  When these types of events occur and unresolved claims are pending, we have used working capital in projects to cover cost overruns pending the resolution of the relevant claims.  A failure to promptly recover on these types of claims could have a negative impact on our liquidity and profitability.
 
Target-price and fixed-price contracts have increased due to our WGI acquisition as well as a shift away from cost-reimbursable contracts by some clients, thus increasing the volatility of our earnings.
 
Our WGI acquisition increased the number and size of our target-price and fixed-price contracts because  WGI has historically performed construction-related projects that are more likely to use fixed-price contracts.  In addition, the current administration has encouraged the federal government to increase the use of target-price and fixed-price contracts.  Fixed-price contracts require cost and scheduling estimates that are based on a number of assumptions, including those about future economic conditions, costs and availability of labor, equipment and materials, and other exigencies.  We could experience cost overruns if these estimates are originally inaccurate as a result of errors or ambiguities in the contract specifications, or become inaccurate as a result of a change in circumstances following the submission of the estimate due to, among other things, unanticipated technical problems, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather delays, changes in the costs of raw materials, or inability of our vendors or subcontractors to perform.  If cost overruns occur, we could experience reduced profits or, in some cases, a loss for that project.  For example, one of our construction projects has experienced cost increases and schedule delays and we have recorded cumulative project losses of approximately $82 million as of January 1, 2010.  If a project is significant, or if there are one or more common issues that impact multiple projects, costs overruns could have a material adverse impact on our business and earnings.
 


Maintaining adequate bonding capacity is necessary for us to successfully bid on and win fixed-price contracts.
 
In line with industry practice, we are often required to provide performance or payment bonds to clients under fixed-price contracts.  These bonds indemnify the customer should we fail to perform our obligations under the contract.  If a bond is required for a particular project and we are unable to obtain an appropriate bond, we cannot pursue that project.  We have bonding capacity but, as is typically the case, the issuance of a bond is at the surety’s sole discretion.  Moreover, due to events that affect the insurance and bonding markets generally, bonding may be more difficult to obtain in the future or may only be available at significantly higher costs.  There can be no assurance that our bonding capacity will continue to be available to us on reasonable terms.  Our inability to obtain adequate bonding and, as a result, to bid on new fixed-price contracts could have a material adverse effect on our business, financial condition, results of operations and cash flows.
 
Construction and project sites are inherently dangerous workplaces.  Failure to maintain safe work sites could result in employee deaths or injuries, reduced profitability, the loss of projects or clients and possible exposure to litigation.
 
Construction and maintenance sites often put our employees and others in close proximity with mechanized equipment, moving vehicles, chemical and manufacturing processes, and highly regulated materials.  On many sites, we are responsible for safety and, accordingly, must implement safety procedures.  If we fail to implement these procedures or if the procedures we implement are ineffective, we may suffer the loss of or injury to our employees, as well as expose ourselves to possible litigation.  As a result, our failure to maintain adequate safety standards could result in reduced profitability or the loss of projects or clients, and could have a material adverse impact on our business, financial condition, and results of operations.
 
If our goodwill or intangible assets become impaired, then our profits will be reduced.
 
A decline in our stock price and market capitalization could result in an impairment of a material amount of our goodwill, which would reduce our earnings.  Goodwill may be impaired if the estimated fair value of one or more of our reporting units’ goodwill is less than the carrying value of the unit’s goodwill.  Because we have grown through acquisitions, goodwill and other intangible assets represent a substantial portion of our assets.  Goodwill and other net intangible assets were $3.6 billion as of January 1, 2010.  We perform an analysis on our goodwill balances to test for impairment on an annual basis and whenever events occur that indicate impairment could exist.  There are several instances that may cause us to further test our goodwill for impairment between the annual testing periods including:  (i) continued deterioration of market and economic conditions that may adversely impact our ability to meet our projected results; (ii) declines in our stock price caused by continued volatility in the financial markets that may result in increases in our weighted-average cost of capital or other inputs to our goodwill assessment; (iii) the occurrence of events that may reduce the fair value of a reporting unit below its carrying amount, such as the sale of a significant portion of one or more of our reporting units.
 
We also perform an analysis of our intangible assets to test for impairment whenever events occur that indicate impairment could exist.  Examples of such events are i) significant adverse changes in its market value, useful life, physical condition, or in the business climate that could affect its value; ii) a current-period operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of the intangible asset; and iii) a current expectation that, more likely than not, the intangible asset will be sold or otherwise disposed of before the end of its previously estimated useful life.
 


We may be subject to substantial liabilities under environmental laws and regulations.
 
A portion of our environmental business involves the planning, design, program management, construction and construction management, and operation and maintenance of pollution control and nuclear facilities, hazardous waste or Superfund sites and military bases.  In addition, we have contracts with U.S. federal government entities to destroy hazardous materials, including chemical agents and weapons stockpiles, as well as to decontaminate and decommission nuclear facilities.  These activities may require us to manage, handle, remove, treat, transport and dispose of toxic or hazardous substances.  We must comply with a number of governmental laws that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances.  Under CERCLA and comparable state laws, we may be required to investigate and remediate regulated hazardous materials.  CERCLA and comparable state laws typically impose strict, joint and several liabilities without regard to whether a company knew of or caused the release of hazardous substances.  The liability for the entire cost of cleanup could be imposed upon any responsible party.  Other principal federal environmental, health and safety laws affecting us include, but are not limited to, the Resource Conservation and Recovery Act, the National Environmental Policy Act, the Clean Air Act, the Clean Air Mercury Rule, the Occupational Safety and Health Act, the Toxic Substances Control Act and the Superfund Amendments and Reauthorization Act.  Our business operations may also be subject to similar state and international laws relating to environmental protection.  Our past waste management practices and contract mining activities as well as our current and prior ownership of various properties may also expose us to such liabilities.  Liabilities related to environmental contamination or human exposure to hazardous substances, or a failure to comply with applicable regulations could result in substantial costs to us, including clean-up costs, fines and civil or criminal sanctions, third-party claims for property damage or personal injury or cessation of remediation activities.  Our continuing work in the areas governed by these laws and regulations exposes us to the risk of substantial liability.
 
Our profits and revenues could suffer if we are involved in legal proceedings, investigations and disputes.
 
We engage in engineering, construction and technical services that can result in substantial injury or damages that may expose us to legal proceedings, investigations and disputes.  For example, in the ordinary course of our business, we may be involved in legal disputes regarding personal injury and wrongful death claims, employee or labor disputes, professional liability claims, and general commercial disputes involving project cost overruns and liquidated damages as well as other claims.  See Note 16, “Commitments and Contingencies,” to our “Consolidated Financial Statements and Supplementary Data” included under Item 8 for a discussion of some of our legal proceedings.  In addition, in the ordinary course of our business, we frequently make professional judgments and recommendations about environmental and engineering conditions of project sites for our clients.  We may be deemed to be responsible for these judgments and recommendations if they are later determined to be inaccurate.  Any unfavorable legal ruling against us could result in substantial monetary damages or even criminal violations.  We maintain insurance coverage as part of our overall legal and risk management strategy to minimize our potential liabilities.  Generally, our insurance program includes limits totaling $540.0 million per loss and in the aggregate for general liability; $220.0 million per loss and in the aggregate for professional errors and omissions liability; $140.0 million per loss for property; $100.0 million per loss for marine property and liability; and $100.0 million per loss and in the aggregate for contractor’s pollution liability (in addition to other policies for specific projects).  The general liability, professional errors and omissions liability, property, and contractor’s pollution liability limits are in excess of a self-insured retention of $10.0 million for each covered claim.  In addition, our insurance policies contain exclusions that insurance providers may use to deny us insurance coverage.  If we sustain liabilities that exceed our insurance coverage or for which we are not insured, it could have a material adverse impact on our results of operations and financial condition, including our profits and revenues.
 


Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well as disrupt the management of our business operations.
 
We maintain insurance coverage from third-party insurers as part of our overall risk management strategy and because some of our contracts require us to maintain specific insurance coverage limits.  If any of our third-party insurers fail, suddenly cancel our coverage or otherwise are unable to provide us with adequate insurance coverage then our overall risk exposure and our operational expenses would increase and the management of our business operations would be disrupted.  In addition, there can be no assurance that any of our existing insurance coverage will be renewable upon the expiration of the coverage period or that future coverage will be affordable at the required limits.
 
Changes in environmental, defense, or infrastructure industry laws could directly or indirectly reduce the demand for our services, which could in turn negatively impact our revenues.
 
Some of our services are directly or indirectly impacted by changes in federal, state, local or foreign laws and regulations pertaining to the environmental, defense or infrastructure industries.  For example, passage of the Clean Air Mercury environmental rules increased demand for our emissions control services, and any repeal of these rules would have a negative impact on our revenues.  Proposed climate change and greenhouse gas regulations, if adopted, could impact the services we provide to our clients, including services related to fossil fuel and industrial projects.  Relaxation or repeal of laws and regulations, or changes in governmental policies regarding the environmental, defense or infrastructure industries could result in a decline in demand for our services, which could in turn negatively impact our revenues.
 
Limitations of or modifications to indemnification regulations of the U.S. or foreign countries could adversely affect our business.
 
The Price-Anderson Act (“PAA”) comprehensively regulates the manufacture, use and storage of radioactive materials, while promoting the nuclear energy industry by offering broad indemnification to nuclear energy plant operators and DOE contractors.  Because we provide services to the DOE relating to its nuclear weapons facilities and the nuclear energy industry in the ongoing maintenance and modification, as well as the decontamination and decommissioning, of its nuclear energy plants, we may be entitled to some of the indemnification protections under the PAA.  However, the PAA’s indemnification provisions do not apply to all liabilities that we might incur while performing services as a radioactive materials cleanup contractor for the DOE and the nuclear energy industry.  If the PAA’s indemnification protection does not apply to our services or our exposure occurs outside of the U.S., our business could be adversely affected by either a refusal to retain us by new facilities operations or our inability to obtain commercially adequate insurance and indemnification.
 
A decline in defense or other federal spending or a change in budgetary priorities could reduce our profits and revenues.
 
Revenues from our federal market sector represented 45% of our total revenues and contracts, of which the DOD and other defense-related clients represented approximately 30% of our total revenues for the year ended January 1, 2010.  Past increases in spending authorization for defense-related or other federal programs and in outsourcing of federal government jobs to the private sector are not expected to be sustained on a long-term basis.  For example, the DOD budget declined in the late 1980s and the early 1990s, resulting in DOD program delays and cancellations.  Future levels of expenditures and authorizations for defense-related or other federal programs, including foreign military commitments, may decrease, remain constant or shift to programs in areas where we do not currently provide services.  As a result, a general decline in defense or other federal spending or a change in budgetary priorities could reduce our profits and revenues.
 


Our overall market share and profits will decline if we are unable to compete successfully in our industry.
 
Our industry is highly fragmented and intensely competitive.  For example, according to the publication Engineering News-Record, based on voluntarily reported information, the top ten U.S. engineering design firms accounted only for approximately 40% of the total top 500 U.S. design firm revenues in 2008.  The top 20 U.S. contractors accounted for approximately 41% of the total top 400 U.S. contractors’ revenues in 2008, as reported by the Engineering News-Record.  Our competitors are numerous, ranging from small private firms to multi-billion dollar companies.  In addition, the technical and professional aspects of some of our services generally do not require large upfront capital expenditures and provide limited barriers against new competitors.
 
Some of our competitors have achieved greater market penetration in some of the markets in which we compete and have substantially more financial resources and/or financial flexibility than we do.  As a result of the number of competitors in the industry, our clients may select one of our competitors on a project due to competitive pricing or a specific skill set.  If we are unable to maintain our competitiveness, our market share, revenues and profits will decline.  If we are unable to meet these competitive challenges, we could lose market share to our competitors and experience an overall reduction in our profits.
 
Our failure to attract and retain key employees could impair our ability to provide services to our clients and otherwise conduct our business effectively.
 
As a professional and technical services company, we are labor intensive, and, therefore, our ability to attract, retain and expand our senior management and our professional and technical staff is an important factor in determining our future success.  From time to time, it may be difficult to attract and retain qualified individuals with the expertise and in the timeframe demanded by our clients.  For example, some of our government contracts may require us to employ only individuals who have particular government security clearance levels.  We may occasionally enter into contracts before we have hired or retained appropriate staffing for that project.  In addition, we rely heavily upon the expertise and leadership of our senior management.  If we are unable to retain executives and other key personnel, the roles and responsibilities of those employees will need to be filled, which may require that we devote time and resources to identify, hire and integrate new employees.  In addition, the failure to attract and retain key individuals could impair our ability to provide services to our clients and conduct our business effectively.
 
We may be required to contribute cash to meet our underfunded benefit obligations in our employee retirement plans.
 
We have various employee retirement plan obligations that require us to make contributions to satisfy, over time, our underfunded benefit obligations, which are determined by calculating the projected benefit obligations minus the fair value of plan assets.  For example, as of January 1, 2010, our defined benefit pension and post-retirement benefit plans were underfunded by $180.4 million.  In the future, our retirement plan obligations may increase or decrease depending on changes in the levels of interest rates, pension plan asset performance and other factors.  If we are required to contribute a significant amount of the deficit for underfunded benefit plans, our cash flows could be materially and adversely affected.
 


Our inability to successfully integrate acquisitions could impede us from realizing all of the benefits of the acquisition, which could severely weaken our results of operations.
 
Historically, we have used acquisitions as one way to expand our business.  Our inability to successfully integrate future acquisitions could impede us from realizing all of the benefits of those acquisitions and could severely weaken our business operations.  The integration process may disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could seriously harm our results of operations.  In addition, the overall integration of two combining companies may result in unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships, and diversion of management’s attention, and may cause our stock price to decline.  The difficulties of integrating an acquisition include, among others:
 
·  
unanticipated issues in integrating information, communications and other systems;
 
·  
unanticipated incompatibility of logistics, marketing and administration methods;
 
·  
maintaining employee morale and retaining key employees;
 
·  
integrating the business cultures of both companies;
 
·  
preserving important strategic and customer relationships;
 
·  
consolidating corporate and administrative infrastructures and eliminating duplicative operations;
 
·  
the diversion of management’s attention from ongoing business concerns; and
 
·  
coordinating geographically separate organizations.
 
In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings, or sales or growth opportunities that we expect.  These benefits may not be achieved within the anticipated time frame, or at all.
 
Our outstanding indebtedness could adversely affect our liquidity, cash flows and financial condition.
 
As of January 1, 2010, our outstanding balance under the Senior Secured Credit Facility (“2007 Credit Facility”) was $775.0 million.  We have prepaid scheduled principal payments on the 2007 Credit Facility until December 2011.  This level of debt might:
 
·  
increase our vulnerability to, and limit flexibility in planning for, adverse economic and industry conditions;
 
·  
adversely affect our ability to obtain surety bonds;
 
·  
limit our ability to obtain additional financing to fund future working capital, capital expenditures, additional acquisitions and other general corporate initiatives; and
 
·  
limit our ability to apply proceeds from an asset sale to purposes other than the servicing and repayment of debt.
 
Our access to credit markets may be limited if we require an increased level of debt.
 
If we were required to access the corporate debt markets, we cannot be assured that we would be able to finance the required amount in full or at a rate and on terms that are favorable to us.  Currently, the debt markets are highly volatile, and success can depend on exogenous variables that impact the overall credit markets, regardless of our inherent qualifications to secure financing.
 


We may not be able to generate or borrow enough cash to service our indebtedness, which could result in bankruptcy or otherwise impair our ability to maintain sufficient liquidity to continue our operations.
 
We rely primarily on our ability to generate cash from operations to service our indebtedness in the future.  If we do not generate sufficient cash flows to meet our debt service and working capital requirements, we may need to seek additional financing.  If we are unable to obtain financing on terms that are acceptable to us, we could be forced to sell our assets or those of our subsidiaries to make up for any shortfall in our payment obligations under unfavorable circumstances.  Our 2007 Credit Facility limits our ability to sell assets and also restricts our use of the proceeds from any such sale.  If we default on our debt obligations, our lenders could require immediate repayment of our entire outstanding debt.  If our lenders require immediate repayment on the entire principal amount, we will not be able to repay them in full, and our inability to meet our debt obligations could result in bankruptcy or otherwise impair our ability to maintain sufficient liquidity to continue our operations.
 
Because we are a holding company, we may not be able to service our debt if our subsidiaries do not make sufficient distributions to us.
 
We have no direct operations and no significant assets other than investments in the stock of our subsidiaries.  Because we conduct our business operations through our operating subsidiaries, we depend on those entities for payments and dividends to generate the funds necessary to meet our financial obligations.  Legal restrictions, including state and local tax regulations and other contractual obligations could restrict or impair our subsidiaries’ ability to pay dividends or make loans or other distributions to us.  The earnings from, or other available assets of, these operating subsidiaries may not be sufficient to make distributions to enable us to pay interest on our debt obligations when due or to pay the principal of such debt at maturity.
 
Restrictive covenants in our 2007 Credit Facility may restrict our ability to pursue business strategies.
 
Our 2007 Credit Facility and our other outstanding indebtedness include covenants limiting our ability to, among other things:
 
·  
incur additional indebtedness;
 
·  
pay dividends to our stockholders;
 
·  
repurchase or redeem our stock;
 
·  
repay indebtedness that is junior to our 2007 Credit Facility;
 
·  
make investments and other restricted payments;
 
·  
create liens securing debt or other encumbrances on our assets;
 
·  
enter into sale-leaseback transactions;
 
·  
enter into transactions with our stockholders and affiliates;
 
·  
sell or exchange assets; and
 
·  
acquire the assets of, or merge or consolidate with, other companies.
 
Our 2007 Credit Facility also requires that we maintain various financial ratios, which we may not be able to achieve.  The covenants may impair our ability to finance future operations or capital needs or to engage in other favorable business activities.
 


Our international operations are subject to a number of risks that could significantly reduce our profits and revenues or subject us to criminal and civil enforcement actions.
 
As a multinational company, we have operations in more than 30 countries and we derived 9% of our revenues from international operations for the year ended January 1, 2010.  International business is subject to a variety of risks, including:
 
·  
lack of developed legal systems to enforce contractual rights;
 
·  
greater risk of uncollectible accounts and longer collection cycles;
 
·  
currency fluctuations;
 
·  
logistical and communication challenges;
 
·  
potentially adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;
 
·  
changes in labor conditions;
 
·  
general economic, political and financial conditions in foreign markets; and
 
·  
exposure to civil or criminal liability under the Foreign Corrupt Practices Act, anti-boycott rules, trade and export control rules and other international regulations, for example:
 
o  
Foreign Corrupt Practices Act:  Practices in the local business community outside the U.S. might not conform to international business standards and could violate anticorruption regulations, including the United States Foreign Corrupt Practices Act, which prohibits giving or offering to give anything of value with the intent to influence the awarding of government contracts; and
 
o  
Export Control Regulations:  To the extent that we export products, technical data and services outside the U.S., we are subject to U.S. laws and regulations governing international trade and exports, including but not limited to the International Traffic in Arms Regulations, the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury; and
 
o  
Corporate Manslaughter and Corporate Homicide Act:  In the U.K., companies can be found guilty of corporate manslaughter as a result of serious management failures resulting in a gross breach of a duty of care.
 
International risks and violations of international regulations may significantly reduce our profits and revenues and subject us to criminal or civil enforcement actions, including fines, suspensions or disqualification from future U.S. federal procurement contracting.  Although we have policies and procedures to monitor legal and regulatory compliance, our employees, subcontractors and agents could take actions that violate these requirements.  As a result, our international risk exposure may be more or less than the percentage of revenues attributed to our international operations.
 
Our international operations may require our employees to travel to and work in high security risk countries, which may result in employee death or injury, repatriation costs or other unforeseen costs.
 
As a multinational company, some of our employees often travel to and work in high security risk countries around the world that are undergoing political, social and economic upheavals resulting in war, civil unrest, criminal activity, acts of terrorism, or public health crises.  For example, we have employees working in high security risk countries located in the Middle East and Southwest Asia.  As a result, we risk loss of or injury to our employees and may be subject to costs related to employee death or injury, repatriation or other unforeseen circumstances.
 


We rely on third-party internal and outsourced software to run our critical accounting, project management and financial information systems.  As a result, any sudden loss, disruption or unexpected costs to maintain these systems could significantly increase our operational expense as well as disrupt the management of our business operations.
 
We rely on third-party internal and outsourced software to run our critical accounting, project management and financial information systems.  For example, we relied on one software vendor’s products to process a majority of our total revenues for the year ended January 1, 2010.  We also depend on our software vendors to provide long-term software maintenance support for our information systems.  Software vendors may decide to discontinue further development, integration or long-term software maintenance support for our information systems, in which case, we may need to abandon one or more of our current information systems and migrate some or all of our accounting, project management and financial information to other systems, thus increasing our operational expense as well as disrupting the management of our business operations.
 
Force majeure events, including natural disasters and terrorists’ actions have negatively impacted and could further negatively impact our business, which may affect our financial condition, results of operations or cash flows.
 
Force majeure or extraordinary events beyond the control of the contracting parties could negatively impact the economies in which we operate.  For example, in August 2005, Hurricane Katrina caused several of our Gulf Coast offices to close, interrupted a number of active client projects and forced the relocation of our employees in that region from their homes.  In addition, during the September 11, 2001 terrorist attacks, many client records were destroyed when our office at the World Trade Center was destroyed.
 
We typically remain obligated to perform our services after a terrorist action or 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.
 
Negotiations with labor unions and possible work actions could divert management attention and disrupt operations.  In addition, new collective bargaining agreements or amendments to agreements could increase our labor costs and operating expenses.
 
As of January 29, 2010, approximately 14% of our employees were covered by collective bargaining agreements.  The outcome of any future negotiations relating to union representation or collective bargaining agreements may not be favorable to us.  We may reach agreements in collective bargaining that increase our operating expenses and lower our net income as a result of higher wages or benefit expenses.  In addition, negotiations with unions could divert management attention and disrupt operations, which may adversely affect our results of operations.  If we are unable to negotiate acceptable collective bargaining agreements, we may have to address the threat of union-initiated work actions, including strikes.  Depending on the nature of the threat or the type and duration of any work action, these actions could disrupt our operations and adversely affect our operating results.
 
We have a limited ability to protect our intellectual property rights, which are important to our success.  Our failure to protect our intellectual property rights could adversely affect our competitive position.
 
Our success depends, in part, upon our ability to protect our proprietary information and other intellectual property.  We rely principally on a combination of trade secrets, confidentiality policies and other contractual arrangements to protect much of our intellectual property.  Trade secrets are generally difficult to protect.  Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation of our confidential information.  In addition, we may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights.  Failure to obtain or maintain our intellectual property rights would adversely affect our competitive business position.  In addition, if we are unable to prevent third parties from infringing or misappropriating our intellectual property, our competitive position could be adversely affected.
 


Delaware law and our charter documents may impede or discourage a merger, takeover or other business combination even if the business combination would have been in the best interests of our stockholders.
 
We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our stockholders.  In addition, our Board of Directors has the power, without stockholder approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock, which could be used defensively if a takeover is threatened.  Our incorporation under Delaware law, the ability of our Board of Directors to create and issue a new series of preferred stock and provisions in our certificate of incorporation and bylaws, such as those relating to advance notice of certain stockholder proposals and nominations, could impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, even if the business combination would have been in the best interests of our current stockholders.
 
Our stock price could become more volatile and stockholders’ investments could lose value.
 
In addition to the macroeconomic factors that have recently affected the prices of many securities generally, all of the factors discussed in this section could affect our stock price.  The timing of announcements in the public markets regarding new services or potential problems with the performance of services by us or our competitors or any other material announcements could affect our stock price.  Speculation in the media and analyst community, changes in recommendations or earnings estimates by financial analysts, changes in investors’ or analysts’ valuation measures for our stock and market trends unrelated to our stock can cause the price of our stock to change.  Continued volatility in the financial markets could also cause further declines in our stock price, which could trigger an impairment of the goodwill of our individual reporting units that could be material to our consolidated financial statements.  A significant drop in the price of our stock could also expose us to the risk of securities class action lawsuits, which could result in substantial costs and divert managements’ attention and resources, which could adversely affect our business.
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
None.
 


ITEM 2.  PROPERTIES
 
As of January 1, 2010, we had approximately 505 facility leases in locations throughout the world.  The lease terms range from a minimum of month-to-month to a maximum of 28 years with options for renewal, expansions, contraction and termination, sublease rights and allowances for improvements.  Our significant lease agreements expire at various dates through the year 2022.  We believe that our current facilities are sufficient for the operation of our business and that suitable additional space in various local markets is available to accommodate any needs that may arise.  The following table summarizes our ten most significant leased properties by location based on annual rental expenses:
 
Property Location
 
Reporting Segment
Austin, TX
 
Infrastructure & Environment
Boise, ID
 
Energy & Construction
Denver, CO
 
Energy & Construction/Infrastructure & Environment
Gaithersburg, MD
 
Infrastructure & Environment
Kuwait
 
Federal Services
New York, NY
 
Infrastructure & Environment
Princeton, NJ
 
Energy & Construction
San Francisco, CA
 
Corporate, Infrastructure & Environment
Seattle, WA
 
Infrastructure & Environment
Tampa, FL
 
Infrastructure & Environment

ITEM 3.  LEGAL PROCEEDINGS
 
Various legal proceedings are pending against us and our affiliates.  The resolution of outstanding claims and litigation is subject to inherent uncertainty, and it is reasonably possible that resolution of any of the outstanding claims or litigation matters could have a material adverse effect on us.  See Note 16, “Commitments and Contingencies,” to our “Consolidated Financial Statements and Supplementary Data” included under Item 8 of this report for a discussion of our legal proceedings, the discussion of which is incorporated into this item by reference.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None.
 
PART II
 
 
Market information
 
Our common stock is listed on the NYSE under the symbol “URS.”  As of February 22, 2010, we had approximately 3,300 stockholders of record.  The following table sets forth the high and low closing sale prices of our common stock for the periods indicated.
 
   
2009
   
2008
 
Sale Price per Share
 
Low
   
High
   
Low
   
High
 
First Quarter
  $ 28.00     $ 43.65     $ 31.95     $ 54.33  
Second Quarter
  $ 39.75     $ 52.45     $ 32.69     $ 48.96  
Third Quarter
  $ 41.32     $ 51.00     $ 36.89     $ 48.37  
Fourth Quarter
  $ 38.12     $ 45.75     $ 20.78     $ 41.82  
 

 


We have not paid cash dividends since 1986, and at the present time, we do not anticipate paying dividends on our outstanding common stock in the near future.  In addition, we are precluded by provisions in our 2007 Credit Facility from paying cash dividends on our outstanding common stock until our Consolidated Leverage Ratio is equal to or less than 1.00:1.00.  Please refer to Note 9, “Indebtedness” and Note 14, “Stockholders’ Equity” to our “Consolidated Financial Statements and Supplementary Data” included under Item 8 of this report.
 
Stock Purchases
 
The following table sets forth all purchases made by us or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) of the Securities Exchange Act of 1934, as amended, of our common stock during the fourth quarter of 2009.
 
Period
 
(a) Total Number of Shares Purchased (1)
   
(b) Average Price Paid per Share
   
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
   
(d) Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
 
   
(In thousands, except average price paid per share)
 
October 3, 2009 – October 30, 2009
    22     $ 41.46              
October 31, 2009 – November 27, 2009
        $              
November 28, 2009 – January 1, 2010
    47     $ 42.98             2,724  
Total                                        
    69                     2,724  
 
(1)  
All purchases were made pursuant to awards issued under our equity incentive plans, which allow our employees to surrender shares of our common stock as payment toward the exercise cost and tax withholding obligations associated with the exercise of stock options or the vesting of restricted or deferred stock.
 
 
(2)  
On March 26, 2007, we announced that our Board of Directors approved a common stock repurchase program that will allow the repurchase of up to one million shares of our common stock plus additional shares issued or deemed issued under our stock incentive plans and Employee Stock Purchase Plan for the period from December 30, 2006 through January 1, 2010 (excluding shares issuable upon the exercise of options granted prior to December 30, 2006).  On February 26, 2010, the Board of Directors approved to extend the stock repurchase period from January 2, 2010 through December 28, 2012.  Pursuant to our 2007 Credit Facility, we are subject to covenants that will limit our ability to repurchase our common stock.  However, we amended our 2007 Credit Facility on June 19, 2008 so that we are allowed to repurchase up to one million shares of common stock annually if we maintain various designated financial criteria.  We did not make any repurchases during the three months ended January 1, 2010.  For the year ended January 1, 2010, we repurchased an aggregate of one million shares of our common stock.
 
 

 
 
The following selected financial data was derived from our consolidated financial statements.  You should read the selected financial data presented below in conjunction with the information contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the notes thereto contained in Item 8, “Consolidated Financial Statements and Supplementary Data,” of this report.
 
(In millions, except per share data)
 
Year Ended January 1,
2010 (1)
   
Year Ended January 2,
2009 (1)
   
Year Ended December 28,
2007 (1,2)
   
Year Ended December 29,
2006 (1)
   
Year Ended December 30,
2005 (1)
 
Income Statement Data:
                             
Revenues
  $ 9,249.1     $ 10,086.3     $ 5,383.0     $ 4,222.9     $ 3,890.3  
Cost of revenues (3) 
    (8,772.4 )     (9,608.8 )     (5,095.2 )     (3,978.1 )     (3,660.5 )
Impairment of an intangible asset (4)
    (32.8 )                        
General and administrative expenses (3,5,6)
    (75.8 )     (78.7 )     (56.5 )     (43.3 )     (82.7 )
Equity in income of unconsolidated joint ventures
    100.9       106.3       31.5       17.3       27.3  
Operating income
    469.0       505.1       262.8       218.8       174.4  
Other income, net (7) 
    47.9                          
Net income attributable to URS (8)
    269.1       219.8       132.2       113.0       82.5  
                                         
Earnings per share:
                                       
Basic (9) 
  $ 3.31     $ 2.61     $ 2.33     $ 2.19     $ 1.75  
Diluted (9) 
  $ 3.29     $ 2.59     $ 2.30     $ 2.15     $ 1.71  
                                         
Balance Sheet Data (As of the end of period):
                                       
Total assets
  $ 6,904.4     $ 7,001.2     $ 6,930.0     $ 2,581.0     $ 2,469.4  
Total long-term debt
  $ 689.7     $ 1,091.5     $ 1,288.8     $ 149.5     $ 297.9  
Total URS stockholders’ equity (6,10,11)
  $ 3,905.8     $ 3,624.6     $ 3,478.6     $ 1,506.7     $ 1,344.5  
Total noncontrolling interests (8)
  $ 44.7     $ 31.1     $ 25.1     $ 3.5     $  
Total stockholders’ equity (8) 
  $ 3,950.5     $ 3,655.8     $ 3,503.7     $ 1,510.2     $ 1,344.5  

(1)  
Our fiscal year is the 52/53-week period ending on the Friday closest to December 31.  Our fiscal year ended January 2, 2009 contained 53 weeks.
 
 
(2)  
In November 2007, we acquired WGI, resulting in the inclusion of WGI’s results of operations for the six-week period from November 16, 2007, the effective date of the acquisition for financial reporting purposes, through December 28, 2007, in our 2007 results of operations and cash flows.  The fair value of the acquired net assets of WGI was included in our Consolidated Balance Sheet as of December 28, 2007.
 
 
  
In connection with the WGI acquisition, we issued approximately 29.5 million shares of common stock valued at $1.8 billion and borrowed $1.4 billion under the 2007 Credit Facility.  The 2007 Credit Facility provides for two term loan facilities in the aggregate amount of $1.4 billion and a revolving credit facility in the amount of $700.0 million, which is also available for issuing letters of credit.
 
 
(3)  
Costs of revenues and general and administrative expenses for fiscal years 2009, 2008, and 2007 included stock-based compensation expense of $41.2 million, $30.3 million, and $25.1 million, respectively.  There was no stock-based compensation expense related to employee stock options and employee stock purchases prior to 2006 as permitted under the then applicable accounting guidance.
 
 
(4)  
For the year ended January 1, 2010, we recorded a $32.8 million charge for the impairment of our intangible asset related to the “Washington” trade name.  On a net, after-tax basis, this transaction resulted in decreases to net income and diluted EPS of $19.6 million and $0.24, respectively, for the year ended January 1, 2010.  See further discussion in Note 8, “Goodwill and Intangible Assets” to our “Consolidated Financial Statements” included under Item 8 of this annual report.
 
 


(5)  
General and administrative expenses included charges of $2.9 million, $0.2 million and $33.1 million for costs incurred to extinguish our debt during the years ended December 28, 2007, December 29, 2006 and December 30, 2005, respectively.  
 
 
(6)  
On December 30, 2006, the beginning of our 2007 fiscal year, we adopted new accounting guidance on tax contingencies.  As of December 30, 2006, we had $20.1 million of unrecognized tax benefits.  The cumulative effect of the adoption of this guidance was a reduction in retained earnings of $4.3 million.  For the years ended January 1, 2010, January 2, 2009 and December 28, 2007, we recognized $0.5 million, $1.6 million and $0.6 million, respectively, of accrued interest and penalties related to unrecognized tax benefits.  Accrued interest is included as interest expense and penalties are included as income tax expense in our consolidated financial statements.
 
 
(7)  
During fiscal year 2009, we recorded $47.9 million of other income, net, consisting of a $75.6 million gain associated with the sale of our equity investment in MIBRAG, net of $5.2 million of sale-related costs.  This gain was partially offset by a $27.7 million loss on the settlement of a foreign currency forward contract during the fiscal year 2009, which primarily hedged our net investment in MIBRAG.  On a net, after-tax basis, these two transactions resulted in increases to net income and diluted EPS of $30.6 million and $0.37, respectively, for the year ended January 1, 2010.  For further discussion, see Note 5, “Investments in and Advances to Joint Ventures” and Note 9, “Indebtedness” to our “Consolidated Financial Statements” included under Item 8 of this annual report.
 
 
(8)  
On January 3, 2009, the beginning of our 2009 fiscal year, we adopted new accounting guidance on the disclosure of noncontrolling interests on consolidated financial statements.  This guidance requires us to present noncontrolling interests separately in our Consolidated Statements of Operations.  Under the new presentation, net income attributable to URS in our Consolidated Statements of Operations excludes the noncontrolling interests in income of consolidated subsidiaries, net of tax.  In addition, this guidance requires us to present noncontrolling interests, which were previously characterized as minority interests, as a component of our total stockholders’ equity.  Prior years’ balances have been retroactively revised for comparability.
 
 
(9)  
On January 3, 2009, the beginning of our 2009 fiscal year, we adopted new accounting guidance on share-based payment awards.  This guidance defines share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents prior to vesting as participating securities.  These share-based payments are considered in the earnings allocation in computing EPS under the two-class method.  Because this guidance requires retrospective application, our EPS was revised to reflect the impact on years prior to fiscal year 2009.
 
 
     
Year Ended January 2,
2009
   
Year Ended December 28,
2007
   
Year Ended December 29,
2006
   
Year Ended December 30,
2005
 
 
Earnings per share:
                       
 
Basic (as reported)
  $ 2.68     $ 2.39     $ 2.23     $ 1.76  
 
Basic (as revised)
  $ 2.61     $ 2.33     $ 2.19     $ 1.75  
                                   
 
Diluted (as reported)
  $ 2.66     $ 2.35     $ 2.19     $ 1.72  
 
Diluted  (as revised)
  $ 2.59     $ 2.30     $ 2.15     $ 1.71  
 
(10)  
Stockholders’ equity for 2006 included the incremental effect of applying and the effects of adopting new accounting guidance on retirement benefits.  During fiscal year 2006, we adopted this guidance and recognized additional pension liabilities of approximately $4.4 million.  We also reduced our stockholders’ equity by approximately $4.4 million on an after-tax basis.
 
 
(11)  
We have not paid cash dividends to our stockholders since 1986 and we are precluded from paying cash dividends to our stockholders on outstanding common stock under the provisions of our 2007 Credit Facility until our Consolidated Leverage Ratio is equal to or less than 1.00:1.00.
 
 

 
 
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 herein.  You should read this section in conjunction with Item 1A, “Risk Factors,” of this report beginning on page 18 and the consolidated financial statements and notes thereto contained in Item 8, “Consolidated Financial Statements and Supplementary Data,” of this report.
 
BUSINESS SUMMARY
 
We are a leading international provider of engineering, construction and technical services.  We offer a broad range of program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to public agencies and private sector clients around the world.  We also are a major U.S. federal government contractor in the areas of systems engineering and technical assistance, and operations and maintenance.
 
We generate revenues by providing fee-based professional and technical services and by executing construction and mining contracts.  As a result, our professional and technical services are primarily labor intensive and our construction and mining projects are labor and capital intensive.  To derive income from our revenues, we must effectively manage our costs.  We provide services through three businesses:  Infrastructure & Environment, Federal Services and Energy & Construction.
 
Our revenues are dependent upon our ability to attract and retain qualified and productive employees, identify business opportunities, allocate our labor resources to profitable markets, secure new contracts, execute existing contracts and maintain existing client relationships.  Moreover, as a professional services company, the quality of the work generated by our employees is integral to our revenue generation.
 
Our cost of revenues is comprised of the compensation we pay to our employees, including fringe benefits; the cost of subcontractors, construction materials and other project-related expenses; as well as segment administrative, marketing, sales, bid and proposal, rental and other overhead costs.
 
We report our financial results on a consolidated basis and for our three reporting segments:  the Infrastructure & Environment business, the Federal Services business and the Energy & Construction business.  In addition, for the purposes of reporting and analyzing our results, we redefined our key market sectors effective with the beginning of our 2008 fiscal year as follows: the power sector, the infrastructure sector, the federal sector, and the industrial and commercial sector.
 
OVERVIEW AND BUSINESS TRENDS
 
Fiscal Year 2009 Results
 
Consolidated revenues for the year ended January 1, 2010 were $9.2 billion compared with $10.1 billion for the year ended January 2, 2009, a decrease of 8.3%.  Net income attributable to URS increased 22.4% from $219.8 million for the year ended January 2, 2009 to $269.1 million for the year ended January 1, 2010 primarily due to the net gain on the sale of our equity investment in MIBRAG, and reductions in overhead costs, interest expense and our effective income tax rate, partially offset by a charge for the impairment of an intangible asset.
 

 
Cash Flows and Debt
 
During the year ended January 1, 2010, we generated $651.6 million in net cash from operations.  (See Consolidated Statements of Cash Flows” to our “Consolidated Financial Statements and Supplementary Data” included under Item 8 of this report.)  Cash flows from operations increased $277.4 million for fiscal year 2009 compared with fiscal year 2008.  This increase was primarily due to decreases in receivables, partially offset by decreases in payables.  Receivables decreased as a result of the decline in revenues from various completed, delayed, or cancelled projects and the timing of payments from clients on accounts receivable.  In addition to the impact of various completed, delayed, or cancelled projects on payables, the timing of payments to vendors and subcontractors, and the timing of payroll payments relative to our fiscal year-ends also impacted payables.  Decreases in income tax and interest payments further contributed to the increase in operating cash flows.
 
On June 10, 2009, we completed the sale of our equity investment in MIBRAG and received €206.1 million (equivalent to U.S. $287.8 million) in cash proceeds from the sale and incurred sale-related costs of $5.2 million.  In addition, we settled our foreign currency forward contract, which primarily hedged our net investment in MIBRAG, at a loss of $27.7 million.  For the year ended January 1, 2010, we used $57.0 million and $30.0 million of the net proceeds from the sale to pay down debt and to invest in bank certificates of deposits as short-term investments, respectively, with the remaining $167.9 million held in cash.
 
During the third quarter of our 2009 fiscal year, a mining contract located in Bolivia was terminated at our former client’s discretion and we received $47.4 million primarily related to the sale of the mining equipment and other related assets associated with this contract.
 
Our ratio of debt to total capitalization (total debt divided by the sum of debt and total stockholders’ equity) decreased from 23% at January 2, 2009 to 17% at January 1, 2010.
 
Business Trends
 
Given the recent turmoil in global financial markets and the current economic uncertainty, it is difficult to predict the impact of the continuing global recession on our business.  In fiscal 2009, we experienced a moderate decline in revenues, as well as a slowdown in new project awards, compared to our 2008 fiscal year, and we are continuing to monitor the situation carefully to determine the potential impact on our business during our 2010 fiscal year.  However, the continuing global uncertainty and challenging economic conditions may impair our ability to forecast business trends accurately.  The challenging economic environment also could potentially lead to the delay, curtailment or cancellation of proposed and existing projects, thus decreasing the overall demand for our services and adversely impacting our results of operations and weakening our financial condition.
 
We believe that our expectations regarding business trends are reasonable and are based on reasonable assumptions.  However, such forward-looking statements, by their nature, involve risks and uncertainties and, in the current economic climate, may be subject to an unusual degree of uncertainty.  You should read this discussion of business trends in conjunction with Item 1A, “Risk Factors,” of this report, which begins on page 18.
 
Power
 
Revenues in our power market sector declined during the 2009 fiscal year and we expect revenues to continue to decline in the power sector during our 2010 fiscal year, primarily due to the timing of new emissions control projects and the delay of some projects resulting from the economic downturn.  The Clean Air Interstate Rule (the “Rule”) mandates a 45% reduction in sulfur dioxide emissions below 2003 levels by 2010 and, at full implementation, a 73% reduction below 2003 levels by 2015.  The Rule and other environmental regulations have driven demand for the emissions control services we provide.  However, many of our clients have completed or are in the final phases of projects that will enable them to meet mandates established by the Rule’s 2010 deadline.  As these projects are completed, we have experienced a delay before our clients move forward with additional projects that will allow them to meet the Rule’s 2015 deadline for additional emissions mandates.  In addition, as a result of the economic downturn and weaker demand for electricity, we expect to continue to experience the deferral of large capital improvement projects.
 


At the same time, partially offsetting this anticipated decline, we expect sustained demand for engineering and construction services related to the development of new natural gas-fired power plants because these facilities produce fewer emissions than coal-fired power plants.  In addition, the ready supply and relatively low cost of natural gas make these facilities more cost effective to operate.  We also expect continued demand for the services we provide to increase generating capacity and efficiency at existing nuclear facilities.  The Nuclear Regulatory Commission currently is reviewing nine applications to upgrade existing nuclear power plants, and the Commission expects to receive additional applications over the next few years.  In addition, the current Administration has proposed increasing the size of the DOE’s nuclear loan guarantee program to approximately $54 billion to support the development of new nuclear generating facilities.
 
Infrastructure
 
Revenues in our infrastructure market declined moderately during fiscal year 2009; however, given the need to rebuild and modernize aging infrastructure and the diversity of funding sources for infrastructure programs, we expect revenues to grow in fiscal year 2010.  As a result of the current economic downturn, many state and local governments are experiencing reductions in tax revenues and large budget deficits.  In order to close budget gaps, many states have reduced spending, including funding for key infrastructure programs, which has resulted in the delay, curtailment or cancellation of some infrastructure projects.  At the same time, an increasing portion of our infrastructure work is being funded from other sources, such as bond measures, federal matching grants and dedicated tax measures.  In 2009, new bond sales were $250 billion, a 20% increase over the previous year, in large part due to the success of the Build America Bonds program.  We expect that bonds sold under this program will be used by states and municipalities to fund a variety of transportation, education and public facilities projects.
 
Although ARRA funding for the types of large-scale surface transportation projects we support were not awarded as quickly as expected during the 2009 fiscal year, the pace at which these projects are moving forward has accelerated, which we anticipate will increase demand for the types of engineering and construction services we provide.  In addition, with a total of $8 billion in stimulus funding awarded in January 2010 to expand high-speed rail and passenger rail programs, the ARRA is creating increased opportunities in mass transit.
 
Federal
 
Revenues from our federal government clients increased during 2009, and we expect revenues in this market sector to continue to grow in the 2010 fiscal year based on the diversification of our federal business, steady demand for outsourced services from the DOD and DOE, and stable funding for the type of work we perform.  The $636 billion DOD budget for fiscal 2010 contains funding for a broad range of programs we support, including operations and maintenance; research, development, test and evaluation; chemical demilitarization; and the Military Transformation Initiative.  In addition, the President submitted a $33 billion supplemental funding request in February to support the deployment of an additional 30,000 troops to Afghanistan this year, which should result in increased demand for the types of repair, maintenance and modification work we perform under long-term DOD contracts.  The DOD recently submitted a $708 billion budget request for fiscal 2011, which begins October 1.  The proposal consists of a $549 billion baseline budget and $159 billion in funding to support overseas contingency operations in the Middle East.  This funding includes $14 billion for the Military Construction program, which we are well positioned to support through our major indefinite quantity contracts with all branches of the military.
 
In addition, Congress has approved the DOE’s fiscal 2010 budget, which contains approximately $17 billion in funding for the DOE programs we support involving the remediation and disposal of radioactive waste and the operation of DOE facilities.  We also expect to continue to benefit from our success in capturing new work from the $6 billion in ARRA funding to accelerate environmental management and restoration programs at nuclear weapons production and testing facilities.  Finally, the current administration’s proposed DOE budget for 2011 would increase funding for the DOE programs we support to $18 billion.
 


Industrial and Commercial
 
Revenues from our industrial and commercial sector declined in fiscal year 2009, and we expect revenues from this sector to continue to decline in fiscal 2010.  The economic downturn, tightened credit markets and the changes in commodity prices have resulted in reductions in capital spending for the development of new production facilities, particularly among clients in the oil and gas and manufacturing industries.  As a result, we have experienced and expect to continue to experience delays in new capital projects for which we typically provide engineering, procurement and construction services.  In addition, as a result of the decline in the prices of metals and mineral resources in 2008, many of our mining clients have curtailed mining activities and, in some cases, closed mines.
 
For the 2010 fiscal year, we expect the number of large-scale capital improvement projects and growth opportunities will decline as our industrial and commercial clients continue to recover from the economic downturn.  At the same time, there are several positive trends emerging in this market sector.  If the economy continues to improve, we expect demand to increase for facilities management services as manufacturing clients restart dormant facilities and increase production levels.  We also anticipate increased demand for the types of planning and environmental services we provide to our oil and gas clients as they begin planning for new and previously suspended projects, which they may decide to pursue to the extent that economic conditions and capital budgets improve.  In addition, as the prices of metals and mineral resources stabilize, we expect demand to increase for the services we provide to our mining clients.
 
Other Business Trends
 
The diversification of our business and changes in the mix and timing of our fixed-cost, target-price and other contracts can cause earnings and profit margins to vary between periods.  For example, we are experiencing an increase in the number of fixed-price contracts, particularly among clients in the federal sector.  The increase in fixed-price contracting creates both additional risks and opportunities for achieving higher margins or losses on these contracts.  In addition, earnings recognition on many contracts is measured based on progress achieved as a percentage of the total project effort or upon the completion of milestones or performance criteria rather than evenly or linearly over the period of performance.
 
The WGI acquisition increased the magnitude of our equity in the income of our unconsolidated joint ventures.  We recognize our portion of the income from our unconsolidated joint ventures using the equity method; therefore our share of the joint venture’s revenues are not included in our consolidated revenues; however, equity in income of unconsolidated joint ventures is a component of operating income and represents a larger percentage of our operating income since the WGI acquisition.
 
We cannot determine if proposed climate change and greenhouse gas regulations would materially impact our business or our clients’ businesses at this time, however, any new regulations could impact the demand for the services we provide to our clients.  For example, we could see reduced client demand for our services related to fossil fuel and industrial projects, and increased demand for environmental, infrastructure and nuclear and alternative energy related services.
 


Results of Operations
 
The Year Ended January 1, 2010 Compared with the Year Ended January 2, 2009
 
Consolidated
 
   
Year Ended
 
(In millions, except percentages and per share amounts)
 
January 1,
2010
   
January 2,
2009
   
Increase (Decrease)
   
Percentage Increase (Decrease)
 
Revenues
  $ 9,249.1     $ 10,086.3     $ (837.2 )     (8.3 %)
Cost of revenues
    (8,772.4 )     (9,608.8 )     (836.4 )     (8.7 %)
Impairment of an intangible asset
    (32.8 )           32.8       N/M  
General and administrative expenses
    (75.8 )     (78.7 )     (2.9 )     (3.7 %)
Equity in income of unconsolidated joint ventures
    100.9       106.3       (5.4 )     (5.1 %)
Operating income
    469.0       505.1       (36.1 )     (7.1 %)
Interest expense
    (48.4 )     (90.7 )     (42.3 )     (46.6 %)
Other income, net
    47.9             47.9       N/M  
Income before income taxes
    468.5       414.4       54.1       13.1 %
Income tax expense
    (177.6 )     (172.8 )     4.8       2.8 %
Net Income
    290.9       241.6       49.3       20.4 %
Noncontrolling interest in income of consolidated subsidiaries, net of tax
    (21.8 )     (21.8 )            
Net income attributable to URS
  $ 269.1     $ 219.8     $ 49.3       22.4 %
                                 
Diluted earnings per share (1) 
  $ 3.29     $ 2.59     $ 0.70       27.0 %

N/M = Not meaningful
 
(1)  
On January 3, 2009, the beginning of our 2009 fiscal year, we adopted new accounting guidance on share-based payment awards.  Because this guidance requires retrospective application, we revised our EPS for the year ended January 2, 2009 to reflect the impact of this guidance.
 
 


The following table presents our consolidated revenues by market sector and reporting segment for the years ended January 1, 2010 and January 2, 2009.
 
   
Year Ended
 
(In millions, except percentages)
 
January 1,
2010
   
January 2,
2009
   
Increase (Decrease)
   
Percentage Increase (Decrease)
 
Revenues
                       
Power sector
                       
Infrastructure & Environment
  $ 144.2     $ 246.0     $ (101.8 )     (41.4 %)
Federal Services
                       
Energy & Construction
    1,248.0       1,616.1       (368.1 )     (22.8 %)
Power Total
    1,392.2       1,862.1       (469.9 )     (25.2 %)
Infrastructure sector
                               
Infrastructure & Environment
    1,400.4       1,419.8       (19.4 )     (1.4 %)
Federal Services
                       
Energy & Construction
    262.8       335.5       (72.7 )     (21.7 %)
Infrastructure Total
    1,663.2       1,755.3       (92.1 )     (5.2 %)
Federal sector
                               
Infrastructure & Environment
    675.7       602.8       72.9       12.1 %
Federal Services
    2,558.1       2,413.9       144.2       6.0 %
Energy & Construction
    907.0       540.8       366.2       67.7 %
Federal Total
    4,140.8       3,557.5       583.3       16.4 %
Industrial and commercial sector
                               
Infrastructure & Environment
    901.0       1,104.3       (203.3 )     (18.4 %)
Federal Services
                       
Energy & Construction
    1,151.9       1,807.1       (655.2 )     (36.3 %)
Industrial and Commercial Total
    2,052.9       2,911.4       (858.5 )     (29.5 %)
Total revenues, net of eliminations
  $ 9,249.1     $ 10,086.3     $ (837.2 )     (8.3 %)


 
Reporting Segments
 
(In millions, except percentages)
 
Revenues
   
Cost of Revenues
   
Impairment of an Intangible Asset
   
General and Administrative Expenses
   
Equity in Income of Unconsolidated Joint Ventures
   
Operating Income (Loss)
 
Year ended January 1, 2010  
 
Infrastructure & Environment
  $ 3,170.4     $ (2,920.9 )   $     $     $ 6.2     $ 255.7  
Federal Services
    2,561.3       (2,420.0 )     (3.8 )           5.7       143.2  
Energy & Construction
    3,583.9       (3,498.0 )     (29.0 )           89.0       145.9  
Eliminations
    (66.5 )     66.5                          
Corporate
                      (75.8 )           (75.8 )
Total
  $ 9,249.1     $ (8,772.4 )   $ (32.8 )   $ (75.8 )   $ 100.9     $ 469.0  
                                                 
Year ended January 2, 2009  
 
Infrastructure & Environment
  $ 3,395.6     $ (3,164.7 )   $     $     $ 11.8     $ 242.7  
Federal Services
    2,415.7       (2,292.9 )                 7.3       130.1  
Energy & Construction
    4,328.9       (4,205.1 )                 87.2       211.0  
Eliminations
    (53.9 )     53.9                          
Corporate
                      (78.7 )           (78.7 )
Total
  $ 10,086.3     $ (9,608.8 )   $     $ (78.7 )   $ 106.3     $ 505.1  
                                                 
Increase (decrease) for the year ended January 1, 2010 vs. the year ended January 2, 2009
 
 
Infrastructure & Environment
  $ (225.2 )   $ (243.8 )   $     $     $ (5.6 )   $ 13.0  
Federal Services
    145.6       127.1       3.8             (1.6 )     13.1  
Energy & Construction
    (745.0 )     (707.1 )     29.0             1.8       (65.1 )
Eliminations
    (12.6 )     (12.6 )                        
Corporate
                      (2.9 )           2.9  
Total
  $ (837.2 )   $ (836.4 )   $ 32.8     $ (2.9 )   $ (5.4 )   $ (36.1 )
                                                 
Percentage increase (decrease) for the year ended January 1, 2010 vs. the year ended January 2, 2009
 
 
Infrastructure & Environment
    (6.6 %)     (7.7 %)                 (47.5 %)     5.4 %
Federal Services
    6.0 %     5.5 %     N/M             (21.9 %)     10.1 %
Energy & Construction
    (17.2 %)     (16.8 %)     N/M             2.1 %     (30.9 %)
Eliminations
    23.4 %     23.4 %                        
Corporate
                      (3.7 %)           (3.7 %)
Total
    (8.3 %)     (8.7 %)           (3.7 %)     (5.1 %)     (7.1 %)

N/M = Not meaningful
 

 


Revenues
 
Our consolidated revenues for the year ended January 1, 2010 were $9.2 billion, a decrease of $837.2 million or 8.3% compared with the year ended January 2, 2009.  Revenues from our Infrastructure & Environment business for the year ended January 1, 2010 were $3.2 billion, a decrease of $225.2 million or 6.6% compared with the year ended January 2, 2009.  Revenues from our Federal Services business for the year ended January 1, 2010 were $2.6 billion, an increase of $145.6 million or 6.0% compared with the year ended January 2, 2009.  Revenues from our Energy & Construction business for the year ended January 1, 2010 were $3.6 billion, a decrease of $745.0 billion or 17.2% compared with the year ended January 2, 2009.
 
The revenues reported above for each of our businesses are presented prior to the elimination of inter-segment transactions.  Our analysis of these changes in revenues is set forth below.
 
Power
 
Consolidated revenues from our power market sector were $1.4 billion, a decrease of $469.9 million or 25.2% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  The decline in revenues in the power sector reflects the completion of several major emissions control projects that experienced high levels of activity and generated significant revenues during the 2008 fiscal year.  Projects of this type, which involve the retrofit of coal-fired power plants with clean air technology to reduce sulfur dioxide, mercury and other emissions, are driven by the timing of regulatory mandates to reduce emissions, such as the Clean Air Interstate Rule.  Many of our clients have completed, or will soon complete, projects to meet a 2010 deadline for emissions reductions.  We have experienced a delay in the start-up of new projects to meet the Rule’s 2015 deadline for additional reductions.  In addition, as a result of the economic downturn, some of our power clients have deferred or cancelled large capital improvement projects.  The impact of these factors was partially offset by strong demand for engineering and construction services we provide to develop new natural gas-fired power plants and to increase generating capacity and efficiency at both nuclear and fossil fuel power facilities.  We also benefited from strong demand to upgrade transmission and distribution systems to improve reliability and support the delivery of renewable energy.
 
The Infrastructure & Environment business’ revenues from our power market sector were $144.2 million, a decrease of $101.8 million or 41.4% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  The decrease in power revenues for the Infrastructure & Environment business was related to the completion of several large emissions control projects that had higher levels of activities during the 2008 fiscal year.  Additionally, as we win new emissions control work, these projects are typically being performed by our Energy & Construction business.  This decline in revenues from emissions control work was partially offset by steady demand for the engineering and environmental services provided by the Infrastructure & Environment business to expand and modernize power transmission and distribution facilities.
 
The Energy & Construction business’ revenues from our power market sector were $1.2 billion, a decrease of $368.1 million or 22.8% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  The decrease was primarily due to the completion of several major projects involving retrofitting coal-fired power plants with clean air technologies and a project to construct a uranium enrichment facility.  The completion of these projects resulted in a $695.5 million decline in revenues compared with the same period in fiscal 2008.  The impact of these factors was partially offset by an increase in revenues of $291.6 million from new and continuing projects to provide engineering and construction services for the expansion of generating capacity at existing fossil fuel power plants and the development of new facilities, particularly natural gas-fired power plants.  In addition, we experienced an increase in revenues of $21.6 million from ongoing projects to provide engineering and maintenance services at nuclear power generating facilities.
 


Infrastructure
 
Consolidated revenues from our infrastructure market sector were $1.7 billion, a decrease of $92.1 million or 5.2% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  The decrease in revenues from our infrastructure market sector was primarily the result of the timing of work on several major infrastructure projects, which generated significant revenues during our 2008 fiscal year.  These projects were largely completed during fiscal 2008 and did not generate significant revenues during our 2009 fiscal year.  In addition, the current economic downturn has, in some cases, led to reduced spending by state and local governments on infrastructure programs, and ARRA funding for the types of projects we support has not been awarded as quickly as expected.  As a result, we experienced a decline in revenues from surface transportation projects.  By contrast, we continued to benefit from strong demand for the services we provide to expand and modernize airports and rail/transit infrastructure because many of these projects are being funded through alternative funding sources, such as bond sales, dedicated tax measures and user fees.
 
The Infrastructure & Environment business’ revenues from our infrastructure market sector were $1.4 billion, a decrease of $19.4 million or 1.4% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  The moderate decline in revenues was largely the result of spending reductions by state and local government agencies on key infrastructure programs, as well as the delay in ARRA funding for the types of infrastructure projects we support.  While revenues decreased from the services we provide to expand and modernize surface transportation, these declines were partially offset by increased demand for program management, planning, design and engineering services for airport and rail/transit projects.  Revenues also increased from the program and construction management services we provide for capital improvement projects involving schools, healthcare facilities and government buildings.
 
The Energy & Construction business’ revenues from our infrastructure market sector were $262.8 million, a decrease of $72.7 million or 21.7% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  A decrease in revenues of $53.6 million compared to fiscal 2008 was due to the completion of a highway project in California and a project to expand a transit system in Texas.  Additionally, we completed work on projects to expand a prison in Idaho, to design the infrastructure at an oil sands site in Canada and to rebuild infrastructure in Iraq resulting in a $41.5 million decline in revenues, compared with fiscal 2008.  The impact of the completion of these projects was partially offset by the receipt of a $7.0 million project development success fee for a transit project in Washington, D.C., which occurred in the first quarter of fiscal 2009, as well as revenues of $20.1 million generated from a new water project in California.
 
Federal
 
Consolidated revenues from our federal market sector were $4.1 billion, an increase of $583.3 million or 16.4% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  The increase in revenues reflects strong demand for the services we provide to the DOD, DOE, NASA and other U.S. federal government agencies.  We continued to benefit from strong demand for systems engineering and technical assistance services to modernize aging weapons systems and develop new systems.  Revenues also increased from the operations and installations management support services we provide at military bases, test ranges, space flight centers and other government installations.  In addition, revenues increased from our work managing chemical demilitarization programs to eliminate chemical and biological weapons, as well as from the environmental and nuclear management services we provide for the storage, treatment and disposal of radioactive waste.  We also benefited from increased demand for the engineering, construction and environmental services we provide at U.S. military installations in the United States and overseas in support of DOD activities to realign military bases and redeploy troops to meet the evolving security needs of the post-Cold War era.
 


The Infrastructure & Environment business’ revenues from our federal market sector were $675.7 million, an increase of $72.9 million or 12.1% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  We continued to experience strong demand for the engineering, construction and environmental services we provide to the DOD at installations in the United States and internationally.  Many of these assignments support the DOD’s long-term Military Transformation initiative to realign military bases and redeploy troops to meet evolving security needs.  Our work typically involves the design and construction of aircraft hangars, barracks, military hospitals and other facilities, as well as environmental remediation and restoration for the redevelopment of military bases and other government installations.  Revenues also increased from the services we provide to the Federal Emergency Management Agency for recovery services following natural disasters, as well as for the mapping and risk analysis of flood hazards in support of the National Flood Insurance Program.
 
The Federal Services business’ revenues from our federal market sector were $2.6 billion, an increase of $144.2 million or 6.0% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  We continued to benefit from strong demand for the systems engineering and technical assistance services we provide to the DOD for the development, testing and evaluation of new weapons systems and the modernization of aging weapons systems.  In addition, revenues increased from our work managing the destruction of chemical weapons stockpiles at Army demilitarization facilities throughout the United States.  We also experienced strong demand for the operations and installations management services we provide to the DOD, NASA and other federal agencies in support of complex government and military installations, such as military bases, test ranges and space flight centers.
 
The Energy & Construction business’ revenues from our federal market sector were $907.0 million, an increase of $366.2 million or 67.7% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  The increase in federal revenues in the Energy & Construction business was primarily due to a new DOE contract to provide nuclear waste management services, which resulted in an increase in revenues of $263.0 million during 2009.  Revenues also increased by $127.8 million as a result of the acceleration of activities under several other nuclear waste management services contracts for the DOE.  In addition, we experienced revenue growth of $59.0 million from projects awarded during our 2008 fiscal year to provide nuclear cleanup and waste management services in the U.K.  The impact of these factors was partially offset by a decrease in revenues of $50.3 million due to the loss of a DOE management services contract and a decrease in revenues of $27.2 million on a DOE nuclear waste processing facility construction project that recognized additional revenues in 2008 as a result of a contract modification.
 
Industrial and Commercial
 
Consolidated revenues from our industrial and commercial market sector were $2.1 billion, a decrease of $858.5 million or 29.5% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  The industrial and commercial market sector, which includes the work we perform for oil and gas, mining and manufacturing clients, continues to be the most exposed to the economic downturn because many of our clients in this sector are dependent on oil and gas or other commodity prices to support capital expenditure programs.  During our 2009 fiscal year, we experienced a significant decline in revenues, primarily due to a decrease in activity on several large construction projects that are nearing completion or have been completed, as well as the delay or deferral of new, large-scale capital improvement projects as a result of the economic downturn.  In addition, demand decreased for the services we provide to develop and operate mines. In the past fiscal year, the decline in the prices of metals and mineral resources resulted in the curtailment of mining activities and, in some cases, mine closures.  Revenues also declined from the planning and environmental services we provide to industrial clients to support existing plant operations, reflecting lower levels of activity at these facilities.
 


The Infrastructure & Environment business’ revenues from our industrial and commercial market sector were $901.0 million, a decrease of $203.3 million or 18.4% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  Revenues declined due to a decrease in demand for the engineering and construction-related services we provide to oil and gas and manufacturing clients related to major capital improvement projects.  In addition, we experienced a decrease in demand for the planning and environmental services we provide in support of existing plant operations, reflecting decreased levels of activities at these facilities.  Due to the economic downturn and its effect on the business of our commercial clients, such as real estate developers, transportation/freight carriers, telecommunications providers and financial services providers, demand also decreased for the environmental, engineering and construction management services we provide to these clients.
 
The Energy & Construction business’ revenues from the industrial and commercial market sector were $1.2 billion, a decrease of $655.2 million or 36.3% for the year ended January 1, 2010 compared with the year ended January 2, 2009.  Revenues decli