UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 2014
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

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)

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 x No o

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

Large accelerated filer x Accelerated filer oNon-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 Exchange Act).  Yes o No x

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

Class	Outstanding at May 5, 2014
Common Stock, $.01 par value	68,965,235

URS CORPORATION AND SUBSIDIARIES

 This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “potential,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and similar terms used in reference to our future revenues, services, project awards and business trends; future accounting estimates; conversions of backlog and book of business into future revenues; future accounts receivable and days sales outstanding; future capital allocation priorities including dividend payments, share repurchases, debt pay downs, acquisitions and organic growth opportunities; future retirement plan expenses; future compliance with regulations; future legal proceedings and accruals; future insurance coverage and recoveries; future capital expenditures; 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:  declines in the economy or client spending; changes to the federal budget; changes in our book of business; our compliance with government regulations; integration of acquisitions; employee, agent or partner misconduct; our ability to procure government contracts; liabilities for pending and future litigation; environmental liabilities; changes in oil, natural gas and other commodity prices; weather conditions; availability of bonding and insurance; our reliance on government appropriations; unilateral termination provisions in government contracts; impairment of our goodwill; 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; impact of target and fixed-priced contracts on earnings; the inherent dangers at our project sites; the impact of changes in laws and regulations; nuclear indemnifications and insurance; misstatements in expert reports; a decline in defense spending; industry competition; our ability to attract and retain key individuals; retirement plan obligations; our leveraged position and the ability to service our debt; restrictive covenants in finance arrangements; risks associated with international operations; business activities in high security risk countries; information technology risks; natural and man-made disaster risks; our relationships with 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 32, in Item 1A – Risk Factors in our Annual Report on Form 10-K for the fiscal year ended January 3, 2014, 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.

PART I.  FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets
		April 4, 2014 and January 3, 2014	2
	Condensed Consolidated Statements of Operations
		Three months ended April 4, 2014 and March 29, 2013	3
	Condensed Consolidated Statements of Comprehensive Income
		Three months ended April 4, 2014 and March 29, 2013	4
	Condensed Consolidated Statements of Cash Flows
		Three months ended April 4, 2014 and March 29, 2013	5
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operation		32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		46
Item 4.	Controls and Procedures		47
PART II.  OTHER INFORMATION:
Item 1.	Legal Proceedings		48
Item 1A.	Risk Factors		48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		48
Item 3.	Defaults Upon Senior Securities		49
Item 4.	Mine Safety Disclosure		49
Item 5.	Other Information		49
Item 6.	Exhibits		50

1

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED6

(In millions, except per share data)

	April 4, 2014			January 3, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	231		$	284
Accounts receivable, including retentions of $126 and $117, respectively		1,377			1,393
Costs and accrued earnings in excess of billings on contracts		1,653			1,521
Less receivable allowances		(54	)		(65	)
Net accounts receivable		2,976			2,849
Other current assets		245			258
Total current assets		3,452			3,391
Investments in and advances to unconsolidated joint ventures		239			245
Property and equipment, net of accumulated depreciation of $699 and $676, respectively		597			608
Intangible assets, net		541			570
Goodwill		3,693			3,696
Other long-term assets		207			208
Total assets	$	8,729		$	8,718
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	48		$	45
Accounts payable and subcontractors payable, including retentions of $28 and $29, respectively		622			688
Accrued salaries and employee benefits		473			507
Billings in excess of costs and accrued earnings on contracts		241			233
Other current liabilities		336			366
Total current liabilities		1,720			1,839
Long-term debt		2,069			1,667
Deferred tax liabilities		442			444
Self-insurance reserves		126			127
Pension and post-retirement benefit obligations		282			286
Other long-term liabilities		125			128
Total liabilities		4,764			4,491
Commitments and contingencies (Note 12)
URS stockholders’ equity:
Preferred stock, authorized 3 shares; no shares outstanding		—			—
Common stock, par value $.01; authorized 200 shares; 89 and 89 shares issued, respectively; and 69 and 75 shares outstanding, respectively		1			1
Treasury stock, 20 and 14 shares at cost, respectively		(854	)		(588	)
Additional paid-in capital		3,046			3,038
Accumulated other comprehensive loss		(217	)		(201	)
Retained earnings		1,843			1,831
Total URS stockholders’ equity		3,819			4,081
Noncontrolling interests		146			146
Total stockholders’ equity		3,965			4,227
Total liabilities and stockholders’ equity	$	8,729		$	8,718

See Notes to Condensed Consolidated Financial Statements

2

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(In millions, except per share data)

	Three Months Ended
	April 4,			March 29,
	2014			2013
Revenues	$	2,537		$	2,803
Cost of revenues		(2,447	)		(2,651	)
General and administrative expenses		(22	)		(23	)
Equity in income of unconsolidated joint ventures		19			24
Operating income		87			153
Interest expense		(18	)		(21	)
Other income (expenses)		(4	)		(3	)
Income before income taxes		65			129
Income tax expense		(26	)		(42	)
Net income including noncontrolling interests		39			87
Noncontrolling interests in income of consolidated subsidiaries		(12	)		(15	)
Net income attributable to URS	$	27		$	72
Earnings per share (Note 3):
Basic	$	0.38		$	0.97
Diluted	$	0.37		$	0.96
Weighted-average shares outstanding (Note 3):
Basic		71.6			74.4
Diluted		72.1			74.9
Cash dividends declared per share (Note 10)	$	0.22		$	0.21

See Notes to Condensed Consolidated Financial Statements

3

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

(In millions)

	Three Months Ended
	April 4,			March 29,
	2014			2013
Comprehensive income:
Net income including noncontrolling interests	$	39			$	87
Pension and post-retirement related adjustments, net of tax		1				4
Foreign currency translation adjustments, net of tax		(17	)			(36	)
Comprehensive income		23				55
Noncontrolling interests in comprehensive income of consolidated subsidiaries		(12	)			(15	)
Comprehensive income attributable to URS	$	11			$	40

See Notes to Condensed Consolidated Financial Statements

4

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In millions)

	Three Months Ended
	April 4,			March 29,
	2014			2013
Cash flows from operating activities:
Net income including noncontrolling interests	$	39		$	87
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		35			40
Amortization of intangible assets		25			28
Gain on disposal of property and equipment		(1	)		(1	)
Deferred income taxes		(7	)		(7	)
Stock-based compensation		6			11
Equity in income of unconsolidated joint ventures		(19	)		(24	)
Dividends received from unconsolidated joint ventures		19			23
Changes in operating assets, liabilities and other:
Accounts receivable and costs and accrued earnings in excess of billings on contracts		(136	)		90
Other current assets		2			4
Other long-term assets		9			(91	)
Accounts payable, accrued salaries and employee benefits, and other current liabilities		(103	)		(130	)
Billings in excess of costs and accrued earnings on contracts		7			(15	)
Other long-term liabilities		(8	)		35
Total adjustments and changes		(171	)		(37	)
Net cash from operating activities		(132	)		50
Cash flows from investing activities:
Proceeds from disposal of property and equipment		4			3
Changes in restricted cash		1			2
Capital expenditures, less equipment purchased through capital leases and equipment notes		(15	)		(25	)
Net cash from investing activities		(10	)		(20	)

See Notes to Condensed Consolidated Financial Statements

5

URS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED (Continued)

(In millions)

	Three Months Ended
	April 4,			March 29,
	2014			2013
Cash flows from financing activities:
Payments on long-term debt		(2	)		(1	)
Borrowings from revolving line of credit		496			255
Payments on revolving line of credit		(109	)		(235	)
Net payments on other indebtedness		(5	)		(7	)
Net change in overdrafts		2			(31	)
Proceeds from employee stock purchases and exercises of stock options		1			6
Distributions to noncontrolling interests		(14	)		(15	)
Dividends paid		(15	)		(15	)
Repurchases of common stock		(266	)		(45	)
Net cash from financing activities		88			(88	)
Net change in cash and cash equivalents		(54	)		(58	)
Effect of foreign exchange rate changes on cash and cash equivalents		1			(8	)
Cash and cash equivalents at beginning of period		284			315
Cash and cash equivalents at end of period	$	231		$	249
Supplemental information:
Interest paid	$	28		$	6
Taxes paid	$	6		$	10
Supplemental schedule of non-cash investing and financing activities:
Equipment acquired with capital lease obligations and equipment note obligations	$	19		$	18
Cash dividends declared but not paid	$	18		$	16

See Notes to Condensed Consolidated Financial Statements

6

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

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

Overview

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

You should read our unaudited condensed consolidated financial statements in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended January 3, 2014.  The results of operations for the three months ended April 4, 2014 are not indicative of the operating results for the full year or for future years.

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

Principles of Consolidation and Basis of Presentation

Our condensed consolidated financial statements include the financial position, results of operations and cash flows of URS Corporation and our majority-owned subsidiaries and joint ventures that are required to be consolidated.

Investments in unconsolidated joint ventures are accounted for using the equity method and are included as “Investments in and advances to unconsolidated joint ventures” on our Condensed Consolidated Balance Sheets.  All significant intercompany transactions and accounts have been eliminated in consolidation.

Use of and Changes in Estimates 

The preparation of our unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the balance sheet dates, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  On an ongoing basis, we review our estimates based on information that is currently available.  Changes in facts and circumstances may cause us to revise our estimates.

Our business activities involve making significant estimates and assumptions in the normal course of business relating to our contracts.  We focus on evaluating the performance of contracts individually.  These estimates and assumptions can vary in the normal course of business as contracts progress, when estimated productivity assumptions change based on experience to-date and as uncertainties are resolved.  We use the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates.

There were no material changes in estimates during the three months ended April 4, 2014.

During the three months ended March 29, 2013, our results of operations included the recognition of $24 million of performance-based incentive fees from our work managing the chemical demilitarization program.  This change in estimate resulted in an increase of $24 million in operating income, $14 million in net income and $0.19 in diluted earnings per common share (“diluted EPS”) for the three months ended March 29, 2013.

7

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

NOTE 2.  ADOPTED AND OTHER RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

From time to time, the Financial Accounting Standards Board (“FASB”) issues accounting standards updates (each being an “ASU”) to its Accounting Standards Codification (“ASC”), which constitutes the primary source of U.S. GAAP.  We regularly monitor ASUs as they are issued and consider their applicability to our business.  All applicable ASUs are adopted by the due date and in the manner prescribed by the FASB.  ASUs adopted during the first quarter of fiscal year 2014 did not have a material impact on our condensed consolidated financial statements.  In addition, we are in the process of evaluating the impact of recently issued ASUs on our condensed consolidated financial statements.

NOTE 3.  EARNINGS PER SHARE

In our computation of diluted EPS, we exclude the potential shares related to nonvested restricted stock awards and units that have an anti-dilutive effect on EPS or that currently have not met performance conditions.  Potential shares related to nonvested restricted stock awards and units that have an anti-dilutive effect were less than half a million shares as of April 4, 2014 and March 29, 2013.

The following table summarizes the components of weighted-average common shares outstanding for both basic and diluted EPS:

	Three Months Ended
	April 4,		March 29,
(In millions)	2014		2013
Weighted-average shares of common stock outstanding (1)		71.6		74.4
Effect of dilutive restricted stock awards and units and employee stock purchase plan shares		0.5		0.5
Weighted-average shares of common stock outstanding – Diluted		72.1		74.9

(1)   Weighted-average shares of common stock outstanding are net of treasury stock and exclude nonvested restricted stock awards.

8

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

NOTE 4.  ACCOUNTS RECEIVABLE AND COSTS AND ACCRUED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS

The following table summarizes the components of our accounts receivable and costs and accrued earnings in excess of billings on contracts (“Unbilled Accounts Receivable”) with the U.S. federal government and with other customers as of April 4, 2014 and January 3, 2014:

	April 4,			January 3,
(In millions)	2014			2014
Accounts receivable:
U.S. federal government	$	329		$	353
Others		1,048			1,040
Total accounts receivable	$	1,377		$	1,393
Unbilled Accounts Receivable:
U.S. federal government	$	902		$	856
Others		881			796
Total		1,783			1,652
Less:  Amounts included in Other long-term assets		(130	)		(131	)
Unbilled Accounts Receivable	$	1,653		$	1,521

As of April 4, 2014 and January 3, 2014, we had one project with accounts receivable balances of $91 million and $82 million, respectively, relating to an outstanding claim.  See Note 12, “Commitments and Contingencies,” for further discussion regarding the Department of Energy (“DOE”) Deactivation, Demolition, and Removal Project.

NOTE 5.  JOINT VENTURES

We analyze all of our joint ventures and classify them into two groups:

·   Joint ventures that must be consolidated either because they are not variable interest entities (“VIEs”) and we hold the majority voting interest, or because they are VIEs of which we are the primary beneficiary; and

·   Joint ventures that do not need to be consolidated either because they are not VIEs and we do not hold a majority voting interest, or because they are VIEs of which we are not the primary beneficiary.

We perform a quarterly review of our joint ventures to determine whether there were any changes in the status of the VIEs or changes to the primary beneficiary designation of each VIE.  We determined that no such changes occurred during the three months ended April 4, 2014.

In the table below, we have aggregated financial information relating to our VIEs because their nature and risk and reward characteristics are similar.  None of our current joint ventures that meets the characteristics of a VIE is individually significant to our consolidated financial statements.

9

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

Consolidated Joint Ventures

The following table presents the total assets and liabilities of our consolidated joint ventures:

	April 4,		January 3,
(In millions)	2014		2014
Cash and cash equivalents	$	78	$	89
Net accounts receivable		208		200
Other current assets		3		3
Noncurrent assets		142		143
Total assets	$	431	$	435
Accounts and subcontractors payable	$	88	$	94
Billings in excess of costs and accrued earnings on contracts		8		15
Accrued expenses and other		41		40
Noncurrent liabilities		13		12
Total liabilities		150		161
Total URS equity		135		128
Noncontrolling interests		146		146
Total owners’ equity		281		274
Total liabilities and owners’ equity	$	431	$	435

Total revenues of the consolidated joint ventures were $221 million and $254 million for the three months ended April 4, 2014 and March 29, 2013, respectively.

The assets of our consolidated joint ventures are restricted for use only by the particular joint venture and are not available for our general operations.

10

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

Unconsolidated Joint Ventures

We use the equity method of accounting for our unconsolidated joint ventures.  Under the equity method, we recognize our proportionate share of the net earnings of these joint ventures as a single line item under “Equity in income of unconsolidated joint ventures” in our Condensed Consolidated Statements of Operations.

The table below presents financial information, derived from the most recent financial statements provided to us, in aggregate, for our unconsolidated joint ventures:

	Unconsolidated
(In millions)	VIEs
April 4, 2014
Current assets	$	634
Noncurrent assets	$	30
Current liabilities	$	423
Noncurrent liabilities	$	34
January 3, 2014
Current assets	$	616
Noncurrent assets	$	37
Current liabilities	$	433
Noncurrent liabilities	$	7
Three months ended April 4, 2014 (1)
Revenues	$	520
Cost of revenues	$	(468)
Income from continuing operations before tax	$	52
Net income	$	47
Three months ended March 29, 2013 (1)
Revenues	$	547
Cost of revenues	$	(487)
Income from continuing operations before tax	$	60
Net income	$	56

(1)   Income from unconsolidated U.S. joint ventures is generally not taxable in most tax jurisdictions in the United States.  The tax expenses on our other unconsolidated joint ventures are primarily related to foreign taxes.

We received $19 million and $23 million, respectively, of distributions from unconsolidated joint ventures for the three months ended April 4, 2014 and March 29, 2013.

11

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

Exposure to Loss

In addition to potential losses arising out of the carrying values of the assets and liabilities of our unconsolidated joint ventures, our maximum exposure to loss also includes performance assurances and guarantees we sometimes provide to clients on behalf of joint ventures that we do not directly control.  We enter into these guarantees primarily to support the contractual obligations associated with the joint ventures’ projects.  The potential payment amount of an outstanding performance guarantee is typically the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts.

However, the majority of the unconsolidated joint ventures in which we participate involve cost-reimbursable, level-of-effort projects that are accounted for as service-type projects, not engineering and construction projects that would follow the percentage-of-completion or completed-contract accounting method.  Revenues for service-type contracts are recognized in proportion to the number of service activities performed, in proportion to the direct costs of performing the service activities, or evenly across the period of performance, depending upon the nature of the services provided.  The scope of services we provide on these cost-reimbursable contracts are management and operations services for government clients and operations and maintenance services for non-government clients.  We believe that, due to the continual changes we experience in client funding and scope definitions, reliable estimates cannot be calculated because they cannot be reliably predicted.  In addition, we participate in joint ventures in which the level of our participation is so minimal that we do not have access to those joint ventures’ estimates to complete.  The joint ventures where we perform engineering and construction contracts and where we have access to the estimates to complete, which are needed to calculate the performance guarantees, are immaterial.

NOTE 6.  BILLINGS IN EXCESS OF COSTS AND ACCRUED EARNINGS ON CONTRACTS

Billings in excess of costs and accrued earnings on contracts consisted of the following:

	April 4,		January 3,
(In millions)	2014		2014
Billings in excess of costs and accrued earnings on contracts	$	196	$	193
Project-related legal liabilities and other project-related reserves		41		35
Estimated losses on uncompleted contracts		4		5
Total	$	241	$	233

NOTE 7.  INDEBTEDNESS

Indebtedness consisted of the following:

	April 4,		January 3,
(In millions)	2014		2014
Term loan, net of debt issuance costs	$	602	$	602
3.85% Senior Notes (net of discount)		400		400
5.00% Senior Notes (net of discount)		599		599
Revolving line of credit		387		—
Other indebtedness		129		111
Total indebtedness		2,117		1,712
Less:
Current portion of long-term debt		48		45
Long-term debt	$	2,069	$	1,667

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

2011 Credit Facility

As of both April 4, 2014 and January 3, 2014, the outstanding balance of the term loan under our senior credit facility (“2011 Credit Facility”) was $605 million.  As of April 4, 2014 and January 3, 2014, the interest rates applicable to the term loan were 1.65% and 1.67%, respectively.  Loans outstanding under our 2011 Credit Facility bear interest, at our option, at the base rate or at LIBOR plus, in each case, an applicable per annum margin.  The applicable margin is determined based on the better of our debt ratings or our leverage ratio in accordance with a pricing grid.  The interest rate at which we normally borrow is LIBOR plus 150 basis points.

We were in compliance with the covenants of our 2011 Credit Facility as of April 4, 2014.

As of both April 4, 2014 and January 3, 2014, the estimated fair market value of the term loan under our 2011 Credit Facility was approximately $603 million.  The carrying value of this term loan on our Condensed Consolidated Balance Sheets as of both April 4, 2014 and January 3, 2014 was $605 million, excluding unamortized issuance costs.  The fair value of our term loan as of April 4, 2014 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary loan market and multiplying it by the outstanding balance of our term loan. The fair value of our term loan as of January 3, 2014 was determined to be at par less issuance fees as the agreement was amended on December 19, 2013 (Level 2).

Senior Notes

On March 15, 2012, URS Corporation, the parent company (“Parent”), and URS Fox US LP (“Fox LP”), a 100% owned subsidiary of Parent issued, in a private placement, $400 million aggregate principal amount of 3.85% Senior Notes due on April 1, 2017 and $600 million aggregate principal amount of 5.00% Senior Notes due on April 1, 2022.  Substantially all of the Senior Notes were exchanged for new Senior Notes registered under the Securities Act of 1933, as amended, as of January 9, 2014 (collectively, the “Senior Notes”).  As of April 4, 2014, the outstanding balance of the Senior Notes was $999 million, net of $1 million of discount.

The Senior Notes are our general unsecured senior obligations and rank equally with our other existing and future unsecured senior indebtedness.  The Senior Notes are fully and unconditionally guaranteed (each a “Guarantee” or, collectively, the “Guarantees”) on a joint-and-several basis by each of our current and future domestic subsidiaries that are guarantors under our 2011 Credit Facility or that are 100% owned domestic obligors or 100% owned domestic guarantors, individually or collectively, under any future indebtedness of our subsidiaries in excess of $100 million (the “Guarantors”).  The Guarantees are the Guarantors’ unsecured senior obligations and rank equally with the Guarantors’ other existing and future unsecured senior indebtedness.

The Guarantee of a Guarantor will, so long as no event of default shall have occurred and be continuing with respect to the Senior Notes, be automatically and unconditionally released and discharged without any action on the part of the trustee or the holders of the Senior Notes:

(a)   with respect to a Guarantor which, individually or together with the Parent’s other domestic subsidiaries, no longer has any indebtedness of borrowed money in excess of $100 million outstanding and no longer guarantees, individually or together with the Parent’s other domestic subsidiaries, any indebtedness in excess of $100 million incurred by the Parent or any of the Parent’s other 100% owned domestic subsidiaries;

(b)   unless the Guarantor is the surviving entity, (i) upon the sale, lease or exchange of all or substantially all of the Guarantor’s assets to any person or entity not an affiliate of the Parent or (ii) upon any sale, exchange or transfer, to any person or entity not an affiliate of the Parent, of all of the Parent’s direct and indirect interest in such Guarantor;

(c)   upon the full and final payment and performance of all obligations under the indenture and the Senior Notes;

(d)   upon liquidation and dissolution of a Guarantor in a transaction that is not prohibited by the indenture; or

(e)   upon legal defeasance, covenant defeasance or satisfaction and discharge of the indenture.

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In addition, the Guarantee of any domestic subsidiary that is a Guarantor will be automatically and unconditionally released and discharged, without any further action required by such Guarantor, the trustee, or the holders of the Senior Notes, if at any time such domestic subsidiary of the Parent that is a Guarantor is no longer a domestic subsidiary of the Parent.

We were in compliance with the covenants of our Senior Notes as of April 4, 2014.

As of April 4, 2014 and January 3, 2014, the estimated fair market values of the Senior Notes were approximately $997 million and $983 million, respectively.  The carrying value of the Senior Notes on our Condensed Consolidated Balance Sheets as of both April 4, 2014 and January 3, 2014 was $1 billion, excluding unamortized discount.  The fair value of the Senior Notes was derived by taking quoted prices of comparable bonds and making an adjustment to reflect our credit to determine the price of the Senior Notes (Level 2) in the trading market and multiplying it by the outstanding balance of the notes.

Revolving line of credit

Our revolving line of credit is used to fund daily operating cash needs and to support our standby letters of credit.  In the ordinary course of business, the use of our revolving line of credit is a function of collection and disbursement activities.  Our daily cash needs generally follow a predictable pattern that parallels our payroll cycles, which dictate, as necessary, our short-term borrowing requirements.

As of April 4, 2014, we had an outstanding balance of $387 million on our revolving line of credit. We had no outstanding debt balances on our revolving line of credit as of January 3, 2014.  As of April 4, 2014, we had issued $95 million of letters of credit, leaving $518 million available under our revolving credit facility.

Other Indebtedness

Our other indebtedness included notes payable and capital leases for office equipment, computer equipment, furniture, vehicles and automotive equipment, and construction equipment, five-year loan notes, and foreign lines of credit.  As of April 4, 2014 and January 3, 2014, we maintained several credit lines with an aggregate borrowing capacity of $48 million and $51 million, respectively, and had remaining borrowing capacity of $45 million and $49 million, respectively.

NOTE 8.  INCOME TAXES

Our effective income tax ratefor the three months ended April 4, 2014 increased to 39.3% from 32.7% for the three months ended March 29, 2013. The higher rate was attributable to losses incurred in some international entities, primarily Canada, that were non-deductible for income tax purposes.  A portion of these losses were discrete to the first quarter of 2014.

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NOTE 9.  EMPLOYEE RETIREMENT PLANS

Defined Benefit Plans

We sponsor a number of pension and unfunded supplemental executive retirement plans.  The components of our net periodic pension costs relating to our defined benefit plans for the three months ended April 4, 2014 and March 29, 2013 were as follows:

	Three Months Ended
	Domestic Plans								Foreign Plans
	April 4,				March 29,				April 4,				March 29,
(In millions)	2014				2013				2014				2013
Service cost		$	2			$	2			$	—			$	—
Interest cost			5				5				6				6
Expected return on plan assets			(6	)			(5	)			(6	)			(6	)
Amortization of:
Net loss			2				4				—				—
Net periodic pension costs		$	3			$	6			$	—			$	—

During the three months ended April 4, 2014, we made cash contributions, including employer-directed benefit payments, of $7 million to our domestic and foreign defined benefit plans.  We expect to make additional cash contributions, including estimated employer-directed benefit payments, of approximately $41 million for the remainder of our 2014 fiscal year.

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NOTE 10.  STOCKHOLDERS' EQUITY

Dividend Program

Our Board of Directors declared the following dividends:

Declaration Date	Dividend Per Share		Record Date	Total Maximum Payment		Payment Date
(In millions, except per share data)
February 28, 2014	$	0.22	March 21, 2014	$	16	April 11, 2014
May 9, 2014	$	0.22	June 20, 2014		NA	July 11, 2014

NA = Not available

Equity Incentive Plan

On March 27, 2014, 1.4 million shares of restricted stock awards and units were granted from our 2008 Plan to our executive officers and other employees.  We recognize stock-based compensation expense for awards with performance conditions if and when it is probable that the performance condition will be achieved.  In the first quarter of 2014, 0.5 million performance-based awards that did not achieve performance requirements were forfeited.

A summary of the status of and changes in our nonvested restricted stock awards and units, according to their contractual terms, as of and for the three months ended April 4, 2014, is presented below:

	Three Months Ended
	April 4, 2014
		Weighted-
	Shares	Average Grant
	(in millions)	Date Fair Value
Nonvested at January 3, 2014	2.8	$	43.66
Granted	1.4	$	46.98
Vested	(0.1)	$	46.89
Forfeited	(0.6)	$	42.84
Nonvested at April 4, 2014	3.5	$	44.53

Stock Repurchase Program

For fiscal years 2012 and 2013, the number of shares authorized for repurchase under the repurchase program was 3.0 million shares, plus the number of shares equal to the difference between the number of shares authorized to be repurchased in the prior year and the actual number of shares repurchased during the prior year, not to exceed 6.0 million shares in aggregate.  In February 2014, our Board of Directors approved a modification of our stock repurchase program to allow for the repurchase of up to 12.0 million shares of our common stock in fiscal year 2014.  The Board of Directors may modify, suspend, extend or terminate the program at any time.

The following table summarizes our stock repurchase activities for the three months ended April 4, 2014 and March 29, 2013:

	Three Months Ended
	April 4,			March 29,
(In millions, except average price paid per share)	2014			2013
Common stock repurchase shares			5.7			1.0
Average price paid per share		$	46.45		$	42.96
Cost of common stock repurchased		$	266		$	45

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NOTE 11.  SEGMENT AND RELATED INFORMATION

We operate our business through the following four segments:

·   Our Infrastructure & Environment Division provides program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to the U.S. federal government, state and local government agencies, and private sector clients in the U.S. and internationally.

·   Our Federal Services Division provides services to a wide variety of U.S. federal government agencies, as well as to national governments in other countries.  This includes program management, planning, design, engineering, systems engineering and technical assistance, construction and construction management, operations and maintenance, management and operations, IT, and decommissioning and closure services.

·   Our Energy & ConstructionDivision provides program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to private sector clients as well as federal, state, and local government agencies.

·   Our Oil & Gas Division provides services to oil and gas industry clients throughout the U.S. and Canada.  This includes oilfield services, such as rig transportation and fluid hauling; oil and gas production services, including mechanical, electrical and instrumentation services; pipeline and facility construction; module fabrication; and maintenance services.

These four segments operate under separate management groups and produce discrete financial information.  Their operating results also are reviewed separately by management.  The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in our Annual Report on Form 10-K for the fiscal year ended January 3, 2014.  The information disclosed in our condensed consolidated financial statements is based on the four segments that compose our current organizational structure.

Effective with the beginning of our fiscal year 2014, we realigned our Global Management and Operations Services Group, which was a component of our Energy & Construction Division in fiscal year 2013, under the operations and management of our Federal Services Division.  The realignment of this group consolidates the majority of our business with U.S. federal government agencies and national governments outside the U.S in our Federal Services Division.  We also realigned a portion of our facility construction, process engineering, and operations and maintenance services to the oil and gas industry among our Oil & Gas, Infrastructure & Environment, and Energy & Construction Divisions.  These changes, which restructured elements of our oil and gas business from an organization based on legacy acquisitions to one based on service, are designed to improve our ability to provide integrated services to our oil and gas clients.  To reflect these realignments, we have revised the prior year amounts to conform to our current year presentation.

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The following table presents summarized financial information for our reportable segments.  “Inter-segment, eliminations and other” in the following table includes eliminations of inter-segment sales and investments in subsidiaries.  The segment balance sheet information presented below is included for informational purposes only.  We do not allocate resources based upon the balance sheet amounts of individual segments.  Our long-lived assets consist primarily of property and equipment.

	Three Months Ended
	April 4,			March 29,
(In millions)	2014			2013
Revenues
Infrastructure & Environment	$	850		$	898
Federal Services		649			907
Energy & Construction		544			538
Oil & Gas		514			508
Inter-segment, eliminations and other		(20	)		(48	)
Total revenues	$	2,537		$	2,803
Equity in income of unconsolidated joint ventures
Infrastructure & Environment	$	—		$	1
Federal Services		19			21
Energy & Construction		1			2
Oil & Gas		(1	)		—
Total equity in income of unconsolidated joint ventures	$	19		$	24
URS operating income (1)
Infrastructure & Environment	$	36		$	40
Federal Services		48			104
Energy & Construction		2			8
Oil & Gas		11			9
Corporate (2)		(22	)		(23	)
Total URS operating income	$	75		$	138
Operating income
Infrastructure & Environment	$	36		$	40
Federal Services		57			115
Energy & Construction		5			12
Oil & Gas		11			9
Corporate (2)		(22	)		(23	)
Total operating income	$	87		$	153
Depreciation and amortization
Infrastructure & Environment	$	12		$	13
Federal Services		11			11
Energy & Construction		9			11
Oil & Gas		26			31
Corporate		2			2
Total depreciation and amortization	$	60		$	68

(1)   We are providing information regarding URS operating income (loss) by segment because management uses this information to assess performance and make decisions about resource allocation.

(2)   Corporate includes expenses related to corporate functions and acquisition-related expenses.

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Reconciliations of URS operating income by segment to segment operating income for the three months ended April 4, 2014 and March 29, 2013 were as follows:

	Three Months Ended April 4, 2014
	Infrastructure						Energy			Oil
	&			Federal			&			&
(In millions)	Environment			Services			Construction			Gas			Corporate				Consolidated
URS operating income		$	36		$	48		$	2		$	11		$	(22	)		$	75
Noncontrolling interests			—			9			3			—			—				12
Operating income		$	36		$	57		$	5		$	11		$	(22	)		$	87

	Three Months Ended March 29, 2013
	Infrastructure						Energy			Oil
	&			Federal			&			&
(In millions)	Environment			Services			Construction			Gas			Corporate				Consolidated
URS operating income		$	40		$	104		$	8		$	9		$	(23	)		$	138
Noncontrolling interests			—			11			4			—			—				15
Operating income		$	40		$	115		$	12		$	9		$	(23	)		$	153

Total investments in and advances to unconsolidated joint ventures and property and equipment, net of accumulated depreciation, were as follows:

	April 4,		January 3,
(In millions)	2014		2014
Infrastructure & Environment	$	8	$	8
Federal Services		94		95
Energy & Construction		22		21
Oil & Gas		115		121
Total investments in and advances to unconsolidated joint ventures	$	239	$	245
Infrastructure & Environment	$	139	$	136
Federal Services		38		39
Energy & Construction		51		53
Oil & Gas		340		351
Corporate		29		29
Total property and equipment, net of accumulated depreciation	$	597	$	608

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Total assets by segment were as follows:

	April 4,		January 3,
(In millions)	2014		2014
Infrastructure & Environment	$	2,122	$	2,119
Federal Services		2,765		2,728
Energy & Construction		2,125		2,129
Oil & Gas		1,525		1,485
Corporate		192		257
Total assets (1)	$	8,729	$	8,718

(1)   Total assets by segments, as of April 4, 2014 and January 3, 2014, include inter-segment transfers of goodwill as a result of the realignment of our businesses.  Approximately $566 million of goodwill related to our Global Management and Operations Services Group was transferred from the Energy & Construction Division to the Federal Services Division.  The realignment of the other businesses did not have a material impact to the transfer of goodwill between segments.

Major Customers and Other

Our largest clients are from our federal market sector.  Within this sector, we have multiple contracts with our two major customers:  the U.S. Army and the DOE.  For the purpose of analyzing revenues from major customers, we do not consider the combination of all federal departments and agencies as one customer.  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 procurement decisions are made separately by each federal agency.  The loss of the federal government, the U.S. Army, or DOE as clients would have a material adverse effect on our business.

Our revenues from the U.S. Army and DOE by division for the three months ended April 4, 2014 and March 29, 2013 are presented below:

	Three Months Ended
	April 4,			March 29,
(In millions, except percentages)	2014			2013
The U.S. Army (1)
Infrastructure & Environment	$	33		$	33
Federal Services		175			388
Energy & Construction		38			25
Total U.S. Army	$	246		$	446
Revenues from the U.S. Army as a percentage of our consolidated revenues		10	%		16	%
DOE
Infrastructure & Environment	$	1		$	1
Federal Services		185			211
Energy & Construction		1			—
Total DOE	$	187		$	212
Revenues from DOE as a percentage of our consolidated revenues		7	%		8	%
Revenues from the federal market sector as a percentage of our consolidated revenues		30	%		38	%

(1)   The U.S. Army includes U.S. Army Corps of Engineers.

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NOTE 12.  COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, we and our affiliates are subject to various disputes, audits, investigations and legal proceedings.  Additionally, as a government contractor, we are subject to audits, investigations, and claims with respect to our contract performance, pricing, costs, cost allocations, and procurement practices.  The final outcomes of these various matters cannot be predicted or estimated with certainty.  We are including information regarding the following matters:

·   USAID Egyptian Projects:  In March 2003, Washington Group International, Inc., a Delaware company (“WGI Delaware”), our wholly owned subsidiary, was notified by the Department of Justice that the federal government was considering civil litigation against WGI Delaware for potential violations of the U.S. Agency for International Development (“USAID”) source, origin, and nationality regulations in connection with five of WGI Delaware’s USAID-financed host-country projects located in Egypt beginning in the early 1990s.  In November 2004, the federal government filed an action in the United States District Court for the District of Idaho against WGI Delaware, Contrack International, Inc., and MISR Sons Development S.A.E., an Egyptian construction company, asserting violations under the Federal False Claims Act, the Federal Foreign Assistance Act of 1961, as well as common law theories of payment by mistake and unjust enrichment.  The federal government seeks damages and civil penalties (including doubling and trebling of damages) for violations of the statutes as well as a refund of the approximately $373 million paid to WGI Delaware under the specified contracts.  WGI Delaware has denied any liability in the action and contests the federal government’s damage allegations and its entitlement to recovery.  All USAID projects under the contracts have been completed and are fully operational.

In March 2005, WGI Delaware filed motions in Idaho District Court and the United States Bankruptcy Court in Nevada contending that the federal government’s Idaho action is barred under the plan of reorganization approved by the Bankruptcy Court in 2002 when WGI Delaware emerged from bankruptcy protection.  In 2006, the Idaho action was stayed pending the bankruptcy-related proceedings.  On April 24, 2012, the Bankruptcy Court ruled that the bulk of the federal government’s claims under the False Claims and the Federal Foreign Assistance Acts are not barred.  On November 7, 2012, WGI Delaware appealed the Bankruptcy Court’s decision to the Ninth Circuit Bankruptcy Appellate Panel.  On August 2, 2013, the Appellate Panel affirmed the Bankruptcy Court’s decision.  On September 26, 2013, WGI Delaware appealed the Appellate Panel’s decision to the United States Ninth Circuit Court of Appeals.

WGI Delaware intends to continue to defend this matter vigorously; however, WGI Delaware cannot provide assurance that it will be successful in these efforts.  The potential range of loss and the resolution of these matters cannot be determined at this time primarily due to the very limited factual record that exists in light of the limited discovery that has been conducted to-date in the Idaho litigation; the fact that the matter involves unique and complex bankruptcy, international, and federal regulatory legal issues; the uncertainty concerning legal theories and their potential resolution by the courts; and the overall age of this matter, as well as a number of additional factors.  Accordingly, no amounts have been accrued for the federal government claims in the Idaho action.

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·   New Orleans Levee Failure Class Action Litigation:  From July 1999 through May 2005, Washington Group International, Inc., an Ohio company (“WGI Ohio”), a wholly owned subsidiary acquired by us on November 15, 2007, performed demolition, site preparation, and environmental remediation services for the U.S. Army Corps of Engineers on the east bank of the Inner Harbor Navigation Canal (the “Industrial Canal”) in New Orleans, Louisiana.  On August 29, 2005, Hurricane Katrina devastated New Orleans.  The storm surge created by the hurricane overtopped the Industrial Canal levee and floodwall, flooding the Lower Ninth Ward and other parts of the city.  Fifty-nine personal injury and property damage class action lawsuits were filed in Louisiana State and federal court against several defendants, including WGI Ohio, seeking $200 billion in damages plus attorneys’ fees and costs.  Plaintiffs are residents and property owners who claim to have incurred damages from the breach and failure of the hurricane protection levees and floodwalls in the wake of Hurricane Katrina.

All 59 lawsuits were pleaded as class actions but none have yet been certified as class actions.  Along with WGI Ohio, the U.S. Army Corps of Engineers, the Board for the Orleans Levee District, and its insurer, St. Paul Fire and Marine Insurance Company were also named as defendants.  At this time WGI Ohio and the Army Corps of Engineers are the remaining defendants.  These 59 lawsuits, along with other hurricane-related cases not involving WGI Ohio, were consolidated in the United States District Court for the Eastern District of Louisiana (“District Court”).

Plaintiffs allege that defendants were negligent in their design, construction and/or maintenance of the New Orleans levees.  Specifically, as to WGI Ohio, plaintiffs allege that work WGI Ohio performed adjacent to the Industrial Canal damaged the levee and floodwall, causing or contributing to breaches and flooding.  WGI Ohio did not design, construct, repair or maintain any of the levees or the floodwalls that failed during or after Hurricane Katrina.  Rather, WGI Ohio performed work adjacent to the Industrial Canal as a contractor for the federal government.

WGI Ohio filed a motion for summary judgment, seeking dismissal on grounds that government contractors are immune from liability.  On December 15, 2008, the District Court granted WGI Ohio’s motion for summary judgment, but several plaintiffs appealed that decision to the United States Fifth Circuit Court of Appeals on April 27, 2009.  On September 14, 2010, the Court of Appeals reversed the District Court’s summary judgment decision and WGI Ohio’s dismissal, and remanded the case back to the District Court for further litigation.  On August 1, 2011, the District Court decided that the government contractor immunity defense would not be available to WGI Ohio at trial, but would be an issue for appeal.  Five of the cases were tried in District Court from September 12, 2012 through October 3, 2012.  On April 12, 2013, the District Court ruled in favor of WGI Ohio and the Army Corps of Engineers, finding that the five plaintiffs failed to prove that WGI Ohio’s or the Army Corps of Engineers’ actions caused the failure of the Industrial Canal floodwall during Hurricane Katrina.  On July 1, 2013, WGI Ohio filed a motion for summary judgment in District Court to dismiss all other related cases as a result of the District Court’s April 2013 decision.  On December 20, 2013, the District Court dismissed the majority of the lawsuits and the remainder of the outstanding claims is being transferred to the District Court for final judgment of dismissal.

WGI Ohio intends to continue to defend these matters vigorously until all claims are dismissed; however, WGI Ohio cannot provide assurance that it will be successful in these efforts.  The potential range of loss and the resolution of these matters cannot be determined at this time primarily due to the likelihood of an appeal; uncertainty concerning legal theories and factual bases that plaintiffs may present and their resolution by courts or regulators; and uncertainty about the plaintiffs’ claims, if any, that might survive certain key motions of our affiliate, as well as a number of additional factors.

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·   DOE Deactivation, Demolition, and Removal Project:  WGI Ohio executed a cost-reimbursable task order with the DOE in 2007 to provide deactivation, demolition and removal services at a New York State project site that, during 2010, experienced contamination and performance issues.  In February 2011, WGI Ohio and the DOE executed a Task Order Modification that changed some cost-reimbursable contract provisions to at-risk.  The Task Order Modification, including subsequent amendments, requires the DOE to pay all project costs up to $106 million, requires WGI Ohio and the DOE to equally share in all project costs incurred from $106 million to $146 million, and requires WGI Ohio to pay all project costs exceeding $146 million.  In addition, in September 2011, WGI Ohio voluntarily paid a civil penalty related to the contamination incident.  Through April 4, 2014, WGI Ohio has incurred total project costs of $271 million.

Due to unanticipated requirements and permitting delays by federal and state agencies, as well as delays and related ground stabilization activities caused by Hurricane Irene, WGI Ohio has been required to perform work outside the scope of the Task Order Modification.  In April 2013, WGI Ohio submitted claims against the DOE pursuant to the Contracts Disputes Acts seeking recovery of $118 million in unfunded requests for equitable adjustments (“REAs”), including additional fees on expanded work scope.  Through April 4, 2014, the DOE has approved one of the REAs for $1 million and has authorized $32 million of additional funding primarily related to the hurricane-caused impacts.  As of April 4, 2014, WGI Ohio has recorded $91 million in accounts receivable for project costs incurred to date in excess of the DOE contracted amount that may not be collected unless and until the claims are favorably resolved.  In addition, due to continuing delays and disagreements about the responsibilities for the scope of the remaining project completion costs, WGI Ohio is unable to determine its portion of the remaining project completion costs, which may exceed $300 million.

WGI Ohio can provide no certainty that it will recover the $118 million in submitted DOE claims and fees incurred through April 2013 related to REAs, hurricane-caused work or other directed changes, as well as any other project costs after April 2013 that WGI Ohio is obligated to incur including the remaining project completion costs, which could negatively impact our future results of operations.

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·   Bolivian Mine Services Agreement:  In 2009, a mine service agreement performed by our wholly owned subsidiary, Washington Group Bolivia, was unilaterally terminated for convenience by the mine owner.  The mine owner disputed the fair market value of mining equipment it was required to repurchase under the terms of the mine services agreement.  Subsequently, on November 16, 2010, Washington Group Bolivia received a formal claim asserting breaches of contractual obligations and warranties, including the failure to adhere to the requisite professional standard of care while performing the mine services agreement.  On June 17, 2011, Washington Group Bolivia received a formal demand for arbitration pursuant to the Rules of Arbitration of the International Chamber of Commerce (“ICC”) asserting claims up to $53 million.  Washington Group Bolivia brought a $50 million counterclaim on August 3, 2012 against the mine owner asserting claims of wrongful termination and lost productivity.  Arbitration on the mine owner’s claims and Washington Group Bolivia’s counterclaims commenced before the ICC.  In the course of the arbitration proceedings, the mine owner reduced its claims to approximately $32 million, while Washington Group Bolivia refined its counterclaim amount to not more than $63 million.  On August 9, 2013, an $11 million ICC arbitration tribunal award was issued against Washington Group Bolivia and, on September 5, 2013, the mine owner petitioned the United States District Court of Colorado to confirm the ICC arbitration award.  On October 1, 2013, Washington Group Bolivia filed a cross motion to partially vacate the ICC arbitration award in the District Court of Colorado.  On February 3, 2014, the District Court of Colorado entered judgment confirming the ICC arbitration award and denied Washington Group Bolivia’s motion to partially vacate the award.  Washington Group Bolivia has paid the award, and a satisfaction of judgment was filed by the mine owner with the Court on February 25, 2014.

We have accrued an estimated probable loss of $11 million related to this matter; however, we expect the loss to be recoverable under our insurance program.

·   Canadian Pipeline Contract:  In January 2010, a pipeline owner filed an action in the Court of Queen’s Bench of Alberta, Canada against Flint Energy Services Ltd. (“Flint”), a company we acquired in May 2012, as well as against a number of other defendants, alleging that the defendants negligently provided pipe coating and insulation system services, engineering, design services, construction services, and other work, causing damage to and abandonment of the line.  The pipeline owner alleges it has suffered approximately C$85 million in damages in connection with the abandonment and replacement of the pipeline.  Flint was the construction contractor on the pipeline project.  Other defendants were responsible for engineering and design-services and for specifying and providing the actual pipe, insulation and coating materials used in the line.  In January 2011, the pipeline owner served a Statement of Claim on Flint and, in September 2011, Flint filed a Statement of Defense denying that the damages to the coating system of the pipeline were caused by any negligence or breach of contract of Flint.  Flint believes the damages were caused or contributed to by the negligence of one or more of the co-defendants and/or by the negligent operation of the pipeline owner.

Flint intends to continue to defend this matter vigorously; however, it cannot provide assurance that it will be successful, in whole or in part, in these efforts.  The potential range of loss and the resolution of this matter cannot be determined at this time primarily due to the early stage of the discovery; the substantial uncertainty regarding the actual cause of the damage to or loss of the line; the nature and amount of each individual damage claim against the various defendants; and the uncertainty concerning legal theories and factual bases that the customer may present against all or some of the defendants.

The resolution of outstanding claims and legal proceedings is subject to inherent uncertainty, and it is reasonably possible that any resolution of these claims and legal proceedings could have a material adverse effect on us, including a substantial charge to our earnings and operating results for that period; however, an estimate of all the reasonably possible losses cannot be determined at this time.

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Insurance

Generally, our insurance program covers workers’ compensation and employer’s liability, general liability, automobile liability, professional errors and omissions liability, property, marine property and liability, aviation liability, management liability, and contractor’s pollution liability (in addition to other policies for specific projects).  We have also elected to retain a portion of the losses that occur through the use of various deductibles, limits, and self-insured retentions under our insurance programs.  In addition, our insurance policies contain exclusions and sublimits that insurance providers may use to deny or restrict coverage.  Excess liability, contractor’s pollution liability, and professional liability insurance policies provide 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.

Guarantee Obligations and Commitments

As of April 4, 2014, we had the following guarantee obligations and commitments:

We have agreed to indemnify one of our joint venture partners up to $25 million for any potential losses, damages, and liabilities associated with lawsuits in relation to general and administrative services we provide to the joint venture.

As of April 4, 2014, we had $48 million in bank guarantees outstanding under foreign credit facilities and other banking arrangements.

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

In the ordinary course of business, we may provide performance assurances and guarantees related to our services.  For example, these guarantees may include surety bonds, arrangements among our client, a surety, and us to ensure we perform our contractual obligations pursuant to our client agreement.  If our services under a guaranteed project are later determined to have resulted in a material defect or other material deficiency, then we may be responsible for monetary damages or other legal remedies.  When sufficient information about claims on guaranteed projects is available and monetary damages or other costs or losses are determined to be probable, we recognize such guarantee losses.

NOTE 13.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION

On March 15, 2012, the Parent and Fox LP issued the Senior Notes.  See Note 7, “Indebtedness,” for more information.

Consistent with the arrangement between Parent and Fox LP, $299 million and $700 million of the Senior Notes are included in the liabilities of Parent and Fox LP, respectively, as of both April 4, 2014 and January 3, 2014.

25

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

The following is our condensed consolidating financial information, segregating the issuers, guarantor subsidiaries and non-guarantor subsidiaries, as of April 4, 2014 and January 3, 2014, and for the three months ended April 4, 2014 and March 29, 2013.

	CONDENSED CONSOLIDATING BALANCE SHEET – UNAUDITED
	As of April 4, 2014
(in millions)	Issuer Parent			Issuer Fox LP			Guarantors			Non- Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	61		$	—		$	37		$	190		$	(57	)	$	231
Accounts receivable, including retentions		—			—			744			641			(8	)		1,377
Costs and accrued earnings in excess of billings on contracts		—			—			1,051			607			(5	)		1,653
Less receivable allowances		—			—			(23	)		(31	)		—			(54	)
Net accounts receivable		—			—			1,772			1,217			(13	)		2,976
Intercompany accounts receivable		315			22			2,120			425			(2,882	)		—
Other current assets		25			—			131			114			(25	)		245
Total current assets		401			22			4,060			1,946			(2,977	)		3,452
Investments in and advances to subsidiaries and unconsolidated joint ventures		5,490			60			1,454			179			(6,944	)		239
Property and equipment, net		29			—			167			401			—			597
Intangible assets, net		—			—			218			323			—			541
Goodwill		—			—			2,230			1,463			—			3,693
Other long-term assets		18			—			106			86			(3	)		207
Total assets	$	5,938		$	82		$	8,235		$	4,398		$	(9,924	)	$	8,729
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	3		$	—		$	18		$	27		$	—		$	48
Accounts payable and subcontractors payable, including retentions		5			—			377			313			(73	)		622
Accrued salaries and employee benefits		35			—			289			149			—			473
Billings in excess of costs and accrued earnings on contracts		—			—			124			117			—			241
Intercompany accounts payable		1,452			—			1,079			351			(2,882	)		—
Short-term intercompany notes payable		66			—			21			131			(218	)		—
Other current liabilities		58			—			282			18			(22	)		336
Total current liabilities		1,619			—			2,190			1,106			(3,195	)		1,720
Long-term debt		1,168			700			39			162			—			2,069
Deferred tax liabilities		—			—			371			74			(3	)		442
Self-insurance reserves		—			—			11			115			—			126
Pension and post-retirement benefit obligations		—			—			121			161			—			282
Long-term intercompany notes payable		—			—			566			1,256			(1,822	)		—
Other long-term liabilities		2			—			90			33			—			125
Total liabilities		2,789			700			3,388			2,907			(5,020	)		4,764
URS stockholders' equity		3,819			22			5,490			1,432			(6,944	)		3,819
Intercompany notes receivable		(670	)		(640	)		(643	)		(87	)		2,040			—
Total URS stockholders' equity		3,149			(618	)		4,847			1,345			(4,904	)		3,819
Noncontrolling interests		—			—			—			146			—			146
Total stockholders' equity		3,149			(618	)		4,847			1,491			(4,904	)		3,965
Total liabilities and stockholders' equity	$	5,938		$	82		$	8,235		$	4,398		$	(9,924	)	$	8,729

26

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

	CONDENSED CONSOLIDATING BALANCE SHEET - UNAUDITED
	As of January 3, 2014
(in millions)	Issuer Parent			Issuer Fox LP			Guarantors			Non- Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	107		$	—		$	20		$	205		$	(48	)	$	284
Accounts receivable, including retentions		—			—			815			590			(12	)		1,393
Costs and accrued earnings in excess of billings on contracts		—			—			980			547			(6	)		1,521
Less receivable allowances		—			—			(30	)		(35	)		—			(65	)
Net accounts receivable		—			—			1,765			1,102			(18	)		2,849
Intercompany accounts receivable		440			19			2,439			422			(3,320	)		—
Other current assets		42			—			108			118			(10	)		258
Total current assets		589			19			4,332			1,847			(3,396	)		3,391
Investments in and advances to subsidiaries and unconsolidated joint ventures		5,731			52			1,488			192			(7,218	)		245
Property and equipment, net		29			—			166			413			—			608
Intangible assets, net		—			—			229			341			—			570
Goodwill		—			—			2,230			1,466			—			3,696
Other long-term assets		19			—			106			87			(4	)		208
Total assets	$	6,368		$	71		$	8,551		$	4,346		$	(10,618	)	$	8,718
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	2		$	—		$	16		$	27		$	—		$	45
Accounts payable and subcontractors payable, including retentions		3			—			421			331			(67	)		688
Accrued salaries and employee benefits		34			—			345			128			—			507
Billings in excess of costs and accrued earnings on contracts		—			—			126			107			—			233
Intercompany accounts payable		1,952			—			1,052			316			(3,320	)		—
Short-term intercompany notes payable		66			—			21			189			(276	)		—
Other current liabilities		50			9			277			40			(10	)		366
Total current liabilities		2,107			9			2,258			1,138			(3,673	)		1,839
Long-term debt		907			700			28			32			—			1,667
Deferred tax liabilities		—			—			371			76			(3	)		444
Self-insurance reserves		—			—			11			116			—			127
Pension and post-retirement benefit obligations		—			—			124			162			—			286
Long-term intercompany notes payable		—			—			564			1,263			(1,827	)		—
Other long-term liabilities		3			—			94			31			—			128
Total liabilities		3,017			709			3,450			2,818			(5,503	)		4,491
URS stockholders' equity		4,081			19			5,731			1,468			(7,218	)		4,081
Intercompany notes receivable		(730	)		(657	)		(630	)		(86	)		2,103			—
Total URS stockholders' equity		3,351			(638	)		5,101			1,382			(5,115	)		4,081
Noncontrolling interests		—			—			—			146			—			146
Total stockholders' equity		3,351			(638	)		5,101			1,528			(5,115	)		4,227
Total liabilities and    stockholders' equity	$	6,368		$	71		$	8,551		$	4,346		$	(10,618	)	$	8,718

27

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

	CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS – UNAUDITED
	For the Three Months Ended April 4, 2014
(in millions)	Issuer Parent			Issuer Fox LP			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	—		$	1,463		$	1,136		$	(62	)	$	2,537
Cost of revenues		—			—			(1,397	)		(1,112	)		62			(2,447	)
General and administrative expenses		(23	)		—			—			1			—			(22	)
Equity in income (loss) in subsidiaries		23			8			(11	)		(5	)		(15	)		—
Equity in income of unconsolidated joint ventures		—			—			2			17			—			19
Intercompany royalty and general and administrative charges		34			—			(25	)		(9	)		—			—
Operating income (loss)		34			8			32			28			(15	)		87
Interest expense		(7	)		(9	)		—			(2	)		—			(18	)
Intercompany interest income		2			1			9			1			(13	)		—
Intercompany interest expense		(1	)		—			(2	)		(10	)		13			—
Other expenses		—			—			—			(4	)		—			(4	)
Income (loss) before income taxes		28			—			39			13			(15	)		65
Income tax benefit (expense)		(1	)		3			(16	)		(12	)		—			(26	)
Net income (loss) including noncontrolling interests		27			3			23			1			(15	)		39
Noncontrolling interests in income of consolidated subsidiaries		—			—			—			(12	)		—			(12	)
Net income (loss) attributable to URS	$	27		$	3		$	23		$	(11	)	$	(15	)	$	27
Comprehensive income (loss) attributable to URS	$	11		$	3		$	9		$	(28	)	$	16		$	11

28

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

	CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS – UNAUDITED
	For the Three Months Ended March 29, 2013
(in millions)	Issuer Parent			Issuer Fox LP			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	—		$	1,723		$	1,160		$	(80	)	$	2,803
Cost of revenues		—			—			(1,598	)		(1,133	)		80			(2,651	)
General and administrative expenses		(22	)		—			—			(1	)		—			(23	)
Equity in income (loss) in subsidiaries		66			8			4			(5	)		(73	)		—
Equity in income of unconsolidated joint ventures		—			—			3			21			—			24
Intercompany royalty and general and administrative charges		37			—			(33	)		(4	)		—			—
Operating income (loss)		81			8			99			38			(73	)		153
Interest expense		(8	)		(8	)		—			(5	)		—			(21	)
Intercompany interest income		3			1			9			—			(13	)		—
Intercompany interest expense		—			—			(3	)		(10	)		13			—
Other expenses		—			—			—			(3	)		—			(3	)
Income (loss) before income taxes		76			1			105			20			(73	)		129
Income tax benefit (expense)		(4	)		2			(39	)		(1	)		—			(42	)
Net income (loss) including noncontrolling interests		72			3			66			19			(73	)		87
Noncontrolling interests in income of consolidated subsidiaries		—			—			—			(15	)		—			(15	)
Net income (loss) attributable to URS	$	72		$	3		$	66		$	4		$	(73	)	$	72
Comprehensive income (loss) attributable to URS	$	40		$	3		$	36		$	(33	)	$	(6	)	$	40

29

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

	CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS – UNAUDITED
	For the Three Months Ended April 4, 2014
(in millions)	Issuer Parent			Issuer Fox LP			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net cash from operating activities	$	5		$	(15	)	$	(13	)	$	(100	)	$	(9	)	$	(132	)
Cash flows from investing activities:
Proceeds from disposal of property and equipment		—			—			—			4			—			4
Changes in restricted cash		—			—			—			1			—			1
Capital expenditures, less equipment purchased through capital leases and equipment notes		(1	)		—			(6	)		(8	)		—			(15	)
Other intercompany investing activities		50			17			22			21			(110	)		—
Net cash from investing activities		49			17			16			18			(110	)		(10	)
Cash flows from financing activities:
Payments on long-term debt		—			—			7			(9	)		—			(2	)
Borrowings from revolving line of credit		360			—			—			136			—			496
Payments on revolving line of credit		(100	)		—			—			(9	)		—			(109	)
Net payments on other indebtedness		(1	)		—			5			(9	)		—			(5	)
Net change in overdrafts		—			—			—			2			—			2
Proceeds from employee stock purchases and exercises of stock options		1			—			—			—			—			1
Distributions to noncontrolling interests		—			—			—			(14	)		—			(14	)
Dividends paid		(15	)		—			—			—			—			(15	)
Repurchases of common stock		(266	)		—			—			—			—			(266	)
Other intercompany financing activities		(79	)		(2	)		2			(31	)		110			—
Net cash from financing activities		(100	)		(2	)		14			66			110			88
Net change in cash and cash equivalents		(46	)		—			17			(16	)		(9	)		(54	)
Effect of foreign exchange rate changes on cash and cash equivalents		—			—			—			1			—			1
Cash and cash equivalents at beginning of period		107			—			20			205			(48	)		284
Cash and cash equivalents at end of period	$	61		$	—		$	37		$	190		$	(57	)	$	231

30

URS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Continued)

	CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS – UNAUDITED
	For the Three Months Ended March 29, 2013
(in millions)	Issuer Parent			Issuer Fox LP		Guarantors			Non- Guarantors			Eliminations			Consolidated
Net cash from operating activities	$	26		$	—	$	46		$	(21	)	$	(1	)	$	50
Cash flows from investing activities:
Proceeds from disposal of property and equipment		—			—		—			3			—			3
Changes in restricted cash		—			—		—			2			—			2
Capital expenditures, less equipment purchased through capital leases and equipment notes		(2	)		—		(7	)		(16	)		—			(25	)
Other intercompany investing activities		80			—		5			(20	)		(65	)		—
Net cash from investing activities		78			—		(2	)		(31	)		(65	)		(20	)
Cash flows from financing activities:
Payments on long-term debt		—			—		(1	)		—			—			(1	)
Borrowings from revolving line of credit		255			—		—			—			—			255
Payments on revolving line of credit		(195	)		—		—			(40	)		—			(235	)
Net payments on other indebtedness		—			—		(3	)		(4	)		—			(7	)
Net change in overdrafts		—			—		3			3			(37	)		(31	)
Proceeds from employee stock purchases and exercises of stock options		6			—		—			—			—			6
Distributions to noncontrolling interests		—			—		—			(15	)		—			(15	)
Dividends paid		(15	)		—		—			—			—			(15	)
Repurchases of common stock		(45	)		—		—			—			—			(45	)
Other intercompany financing activities		(75	)		—		(47	)		57			65			—
Net cash from financing activities		(69	)		—		(48	)		1			28			(88	)
Net change in cash and cash equivalents		35			—		(4	)		(51	)		(38	)		(58	)
Effect of foreign exchange rate changes on cash and cash equivalents		—			—		—			(8	)		—			(8	)
Cash and cash equivalents at beginning of period		14			—		17			286			(2	)		315
Cash and cash equivalents at end of period	$	49		$	—	$	13		$	227		$	(40	)	$	249

31

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties.  Our actual results and the timing of events could differ materially from those expressed or implied in this report.  See “URS Corporation and Subsidiaries” regarding forward-looking statements on page 1.  You should read this discussion in conjunction with:  Part II – Item 1A, “Risk Factors,” beginning on page 48; the condensed consolidated financial statements and notes thereto contained in Part I – Item 1, “Financial Statements;” and Part I – Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2014.

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.  In addition to these services, we also provide systems engineering and technical assistance, management and operations, and information technology services to our United States (“U.S.”) federal government clients.  With more than 50,000 employees in a global network of offices in nearly 50 countries, we provide services for federal, infrastructure, oil and gas, power and industrial programs and projects.

Our strategy is to maintain a balanced portfolio of diversified businesses that serve a variety of markets worldwide.  We believe that this strategy helps to mitigate our exposure to industrial, technological, environmental, financial, economic and political risks that may affect a particular market or geographic region.  Our growth strategy involves both organic growth as well as small add-on acquisitions to complement our technical capabilities or enable us to serve new geographic regions.

Reporting Segments

We operate through four reporting segments:  the Infrastructure & Environment Division, the Federal Services Division, the Energy & Construction Division, and the Oil & Gas Division.  These segments were generally created based on the size and management structure of the businesses and the integration of acquired operating companies that address similar markets or provide similar services.  We report our financial results on both a consolidated basis and for our four reporting segments.

Effective with the beginning of our fiscal year 2014, we realigned our Global Management and Operations Services Group, which was a component of our Energy & Construction Division in fiscal year 2013, under the operations and management of our Federal Services Division.  The realignment of this group consolidates the majority of our business with U.S. federal government agencies and national governments outside the U.S in our Federal Services Division.  We also realigned a portion of our facility construction, process engineering, and operations and maintenance services to the oil and gas industry among our Oil & Gas, Infrastructure & Environment, and Energy & Construction Divisions.  These changes, which restructured elements of our oil and gas business from an organization based on legacy acquisitions to one based on service are designed to improve our ability to provide integrated services to our oil and gas clients.  To reflect these realignments, we have revised the prior year amounts to conform to our current year presentation.

32

Market Sectors

The table below summarizes the primary market sectors served by our four divisions for the three months ended April 4, 2014.

Market Sector	Division
	Infrastructure & Environment	Federal Services	Energy & Construction	Oil & Gas
Federal	ü	ü	—	—
Infrastructure	ü	—	ü	—
Oil and Gas	ü	—	ü	ü
Power	ü	—	ü	—
Industrial	ü	—	ü	—

ü   a primary market sector for the division.

— not a primary market sector for the division.

We generate revenues by providing fee-based professional and technical services and by executing construction contracts.  As a result, our professional and technical services are primarily labor intensive and our construction projects are labor and capital intensive.  To derive income from our revenues, we must effectively manage our costs.

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 and develop new 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; and segment administrative, marketing, sales, bid and proposal, rental and other overhead costs.

OVERVIEW AND BUSINESS TRENDS

Results for the Three Months Ended April 4, 2014

Consolidated revenuesfor the three months ended April 4, 2014 were $2.5 billion, a decrease of $266 million, or 9.5%, compared to revenues for the three months ended March 29, 2013.  The decrease reflects a decline in revenues in the federal market sector, resulting from the wind down of four large contracts involving the destruction of chemical weapons at Chemical Demilitarization sites, as well as an overall decline in spending by U.S. federal government agencies.  We also experienced a decline in work in the oil and gas market sector, primarily due to the completion of a large facility construction project in the Canadian oil sands that has not been replaced by a comparable project.  These declines were partially offset by increased activity in the infrastructure and power market sectors, while revenues in the industrial market sector were essentially flat compared to the same period last year.

Net income attributable to URS was $27 million for the three months ended April 4, 2014 compared with net income attributable to URS of $72 million for the three months ended March 29, 2013, a decrease of 62.5%.  In addition to factors described above impacting revenues and operating income, our net income for the three months ended April 4, 2014 was also negatively affected by the higher rate attributable to an increase in losses incurred in certain contracting entities  in foreign jurisdictions, primarily Canada, which, under local tax laws, cannot be offset against income recognized in other entities.

33

Cash Flows

For the three months ended April 4, 2014, we used $132 million in net cash from operations.  Cash flows from operations decreased by $182 million for the three months ended April 4, 2014 compared with the same period in 2013.  This decrease was primarily due to the timing of billings, collections and advance payments from clients on accounts receivable and the timing of vendor and subcontractor payments.  This decrease was partially offset by the reduction of employee incentive compensation payments.

We borrowed $387 million on our revolving line of credit and used $266 million to repurchase shares of our common stock during the first quarter of 2014.  In addition, we paid $15 million of cash dividends for the three months ended April 4, 2014.

Book of Business

As of both April 4, 2014 and January 3, 2014, our total book of business was $23 billion.

Business Trends

It is difficult to predict the impact of the continuing global economic weakness on our business or to forecast business trends accurately.  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 Part II, Item 1A, “Risk Factors,” of this report, which begins on page 48 and Part I – Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2014.

In the federal market sector, due to U.S. federal budget cuts, we expect to continue experiencing delays in procurement decisions, project cancellations and reductions in spending on some existing contracts.  The Bipartisan Budget Act of 2013, which was passed in January 2014, establishes discretionary spending levels for the federal government’s 2014 and 2015 fiscal years.  However, if Congress is unable to reach a budget agreement beyond 2015, we could face further government shutdowns and increasing budget cuts as a result of sequestration in the future.  Any significant reduction in federal government spending could reduce the demand for the services we provide to the DOD and other federal agencies, and result in the cancellation or delay of existing projects, as well as potential projects in our book of business.

We have multiple contracts to manage the destruction of chemical agents and weapons at various DOD chemical demilitarization facilities, including at the Umatilla Chemical Depot, the Tooele Chemical Agent Disposal Facility, the Pine Bluff Arsenal, the Anniston Army Depot, the Blue Grass Army Depot and Pueblo Chemical Depot.  Revenues and operating income from the various chemical demilitarization contracts were, collectively, $648 million and $213 million, respectively, for the year ended January 3, 2014 and $89 million and $23 million, respectively, for the quarter ended April 4, 2014.  These amounts primarily reflect accelerated incentive awards at several project facilities as a result of our achievement of early completion milestones.  Because we have met numerous early completion milestones at four of the project facilities, these sites are in the closure phase.  While we expect to continue generating revenues and operating income from these projects in the future, we anticipate that these amounts will decline as the projects approach final completion.  We estimate that revenues and operating income from these projects will decrease by over 50% in 2014 as compared to 2013.

In the infrastructure market sector, as a result of increased tax revenues and improved budgets, many states are moving forward with additional funding for infrastructure improvement programs, although some states continue to experience budget challenges.

In the oil and gas market sector, we may continue to be affected by a slowdown in project activity due to continued low natural gas prices and limited pipeline capacity for oil produced in the Canadian oil sands.

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We also expect that stagnant demand for power and lower plant utilization rates will continue to limit spending on the development of new fossil and nuclear plants in the power market sector.  In addition, the shift from the development of coal-fired power generating facilities to natural gas, and challenges to the implementation of new emission control regulations, have resulted, and could continue to result, in lower demand for the air quality control services we provide to utilities.

We have experienced an increase in the number of fixed-price contract opportunities, particularly among clients in the federal, power, infrastructure, and oil and gas market sectors.  There is also an increase in the award of federal contracts based on a low-price, technically acceptable criteria emphasizing price over qualitative factors, such as past performance that may reduce our profit margins on future federal contracts.  Our public and private sector clients are increasingly using indefinite delivery contracts (“IDCs”) that require us to engage in a competitive procurement process before any task orders are issued as compared to traditional award contracts.

We cannot determine if proposed climate change and greenhouse gas regulations would have a material impact on our business or our clients’ businesses at this time; however, any new regulations could affect demand for the services we provide to our clients.  For example, depending on legislation enacted, we could see reduced client demand for our services related to fossil fuel and industrial projects, and increased demand for services related to environmental, infrastructure and nuclear and alternative energy.

Seasonality

Our revenues typically are lower during the holidays because many of our clients’ employees, as well as our own employees, do not work during these holidays, resulting in fewer billable hours charged to projects and thus, lower revenues recognized.  In addition, our business is affected by seasonal weather conditions that may cause some of our offices and projects to close or reduce activities temporarily.

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.  We also include an estimate of the equity in income of unconsolidated joint ventures over the life of the contracts in our book of business.  We categorize the amount of our book of business into backlog, option years and IDCs, based on the nature of the award and its current status.

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 as services are performed.

The performance periods of our contracts vary widely from a few months to many years.  In addition, contract durations often differ significantly among our divisions.  As a result, the amount of revenues that will be realized beyond one year also varies from division to division.

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 decided to end the project (a termination for convenience) or through a termination for default.  Option years are in addition to the “base periods” of these contracts.  Option years for these contracts can vary from one to five years.

Indefinite Delivery Contracts.  IDCs 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.

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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 converting 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 by our clients, the value of our IDCs is 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, by division and market sector, our book of business as of those dates:

(In millions)	Infrastructure & Environment		Federal Services		Energy & Construction		Oil & Gas		Total
As of April 4, 2014
Backlog	$	3,079	$	4,213	$	3,392	$	494	$	11,178
Option years		143		3,932		76		—		4,151
Indefinite delivery contracts		3,002		3,400		136		1,127		7,665
Total book of business	$	6,224	$	11,545	$	3,604	$	1,621	$	22,994
As of January 3, 2014
Backlog	$	2,851	$	4,284	$	3,705	$	462	$	11,302
Option years		146		3,734		76		—		3,956
Indefinite delivery contracts		3,081		3,150		131		1,187		7,549
Total book of business	$	6,078	$	11,168	$	3,912	$	1,649	$	22,807

	April 4,		January 3,
(In millions)	2014		2014
Backlog by market sector:
Federal	$	4,820	$	4,891
Infrastructure		2,745		2,683
Oil and Gas		1,123		1,102
Power		1,245		1,339
Industrial		1,245		1,287
Total backlog	$	11,178	$	11,302

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CONSOLIDATED REVENUES BY MARKET SECTOR

The Three Months Ended April 4, 2014 Compared with the Three Months Ended March 29, 2013

	Three Months Ended
											Percentage
	April 4,			March 29,			Increase				Increase
(In millions, except percentages)	2014			2013			(Decrease)				(Decrease)
Revenues by Market Sector:
Federal		$	750		$	1,068		$	(318	)		(29.8	%)
Infrastructure			490			436			54			12.4	%
Oil and Gas			758			803			(45	)		(5.6	%)
Power			260			214			46			21.5	%
Industrial			279			282			(3	)		(1.1	%)
Total revenues, net of eliminations		$	2,537		$	2,803		$	(266	)		(9.5	%)

Consolidated Revenues by Market Sectors

Our consolidated revenues for the three months ended April 4, 2014 were $2.5 billion, a decrease of $266 million, or 9.5%, compared with the three months ended March 29, 2013.  See the discussion of revenues by market sector below for more detail.

Federal

	Three Months Ended
											Percentage
	April 4,			March 29,			Increase				Increase
(In millions, except percentages)	2014			2013			(Decrease)				(Decrease)
Federal Market Sector:
Infrastructure & Environment		$	99		$	163		$	(64	)		(39.3	%)
Federal Services			647			902			(255	)		(28.3	%)
Energy & Construction			3			3			—			0.0	%
Oil & Gas			1			—			1			—
Federal total		$	750		$	1,068		$	(318	)		(29.8	%)

Consolidated revenues from our federal market sector for the three months ended April 4, 2014 declined compared with the three months ended March 29, 2013.  Revenues associated with our chemical agent demilitarization program declined from $252 million for the quarter ended March 29, 2013 to $89 million for the quarter ended April 4, 2014.  The decline was primarily due to decreased activity on contracts to manage the destruction of chemical weapons at chemical agent disposal facilities in the U.S.  At many of these facilities, we have completed the destruction of weapons stockpiles and transitioned to the closure phase of these projects, resulting in lower levels of activity.  During the comparable period last year, we also earned incentive award fees for the accelerated completion of this work.

Additionally, our business in this market sector continued to be negatively affected by declines in spending by the U.S. federal government and delays in the award of new contracts.  This resulted in a decline in revenues from the engineering, facility construction, systems engineering, technical assistance, IT, and operations and maintenance services we provide to the DOD and other federal agencies.  Our work providing management and operations services to the DOE also was affected by funding constraints, resulting in decreased activity at some DOE sites we manage.

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Infrastructure

	Three Months Ended
										Percentage
	April 4,			March 29,			Increase			Increase
(In millions, except percentages)	2014			2013			(Decrease)			(Decrease)
Infrastructure Market Sector:
Infrastructure & Environment		$	423		$	383		$	40		10.4	%
Energy & Construction			67			53			14		26.4	%
Infrastructure total		$	490		$	436		$	54		12.4	%

Consolidated revenues from our infrastructure market sector for the three months ended April 4, 2014 increased compared with the three months ended March 29, 2013.  Revenues increased from the services we provide to expand and modernize surface transportation and water storage, conveyance and treatment systems, as well as from work repairing infrastructure in the northeastern U.S. that was damaged by Hurricane Sandy.  We also benefited from sustained demand for the planning, design, engineering, and program and construction management services we provide to develop airports, rail networks and mass transit.  In addition, revenues increased from a large dam construction project in Illinois.  These increases were partially offset by a decline in our work modernizing and expanding educational and health care facilities due to the completion of assignments that have not been replaced by similar projects.

Oil and Gas

	Three Months Ended
											Percentage
	April 4,			March 29,			Increase				Increase
(In millions, except percentages)	2014			2013			(Decrease)				(Decrease)
Oil and Gas Market Sector:
Infrastructure & Environment		$	106		$	114		$	(8	)		(7.0	%)
Energy & Construction			153			191			(38	)		(19.9	%)
Oil & Gas			499			498			1			0.2	%
Oil and Gas total		$	758		$	803		$	(45	)		(5.6	%)

Consolidated revenues from our oil and gas market sector for the three months ended April 4, 2014 decreased compared with the three months ended March 29, 2013.  The decline was primarily due to the completion of a large construction project in the Canadian oil sands, which generated significant revenues in the first quarter of fiscal year 2013 and has not been replaced by a comparable contract.  We also experienced a modest decline in our work providing oilfield services, including rig moving and fluid hauling, in support of drilling activities and from the engineering and environmental services we provide to oil and gas clients worldwide through Master Services Agreements (“MSAs”).  These declines were partially offset by increased revenues from the production services we provide for mid-sized pipeline and facility construction projects, as well as from a large project to construct a natural gas processing plant in West Virginia.

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Power

	Three Months Ended
										Percentage
	April 4,			March 29,			Increase			Increase
(In millions, except percentages)	2014			2013			(Decrease)			(Decrease)
Power Market Sector:
Infrastructure & Environment		$	55		$	40		$	15		37.5	%
Energy & Construction			199			168			31		18.5	%
Oil & Gas			6			6			—		0.0	%
Power total		$	260		$	214		$	46		21.5	%

Consolidated revenues from our power market sector for the three months ended April 4, 2014 increased compared with the three months ended March 29, 2013.  Revenues increased from our work retrofitting coal-fired power plants with air quality control systems to meet regulatory mandates to reduce emissions.  In the nuclear power market, we experienced an increase in revenues from maintenance and retrofit projects to increase the generating capacity and extend the service life of nuclear power plants, as well as from seismic upgrade and flood control projects to meet post-Fukushima safety requirements issued by the Nuclear Regulatory Commission.  We also benefited from stable demand for the services we provide to expand and modernize transmission and distribution systems.

Industrial

	Three Months Ended
											Percentage
	April 4,			March 29,			Increase				Increase
(In millions, except percentages)	2014			2013			(Decrease)				(Decrease)
Industrial Market Sector:
Infrastructure & Environment		$	161		$	170		$	(9	)		(5.3	%)
Federal Services			1			3			(2	)		(66.7	%)
Energy & Construction			115			106			9			8.5	%
Oil & Gas			2			3			(1	)		(33.3	%)
Industrial total		$	279		$	282		$	(3	)		(1.1	%)

Consolidated revenues from our industrial market sector for the three months ended April 4, 2014 were essentially flat compared with the three months ended March 29, 2013.  Revenues increased as a result of the start of work on a new contract to construct a fertilizer plant in Iowa.  Revenues from the engineering and environmental services we provide to industrial clients through MSAs were flat compared to the prior year.  By contrast, revenues declined from our work for mining clients, primarily due to the completion of a contract to operate a phosphate mine in Canada, which was in full production in the comparable period last year, and the wind down of other mining projects.  We also experienced a decrease in revenues from the facilities management services we provide to manufacturing clients, due largely to lower volumes of work on ongoing contracts.

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CONSOLIDATED RESULTS

The Three Months Ended April 4, 2014 Compared with the Three Months Ended March 29, 2013

	Three Months Ended
										Percentage
(In millions, except percentages and per share amounts)	April 4,			March 29,			Increase			Increase
	2014			2013			(Decrease)			(Decrease)
Revenues	$	2,537		$	2,803		$	(266	)		(9.5	%)
Cost of revenues		(2,447	)		(2,651	)		(204	)		(7.7	%)
General and administrative expenses		(22	)		(23	)		(1	)		(4.3	%)
Equity in income of unconsolidated joint ventures		19			24			(5	)		(20.8	%)
Operating income		87			153			(66	)		(43.1	%)
Interest expense		(18	)		(21	)		(3	)		(14.3	%)
Other income (expenses)		(4	)		(3	)		1			33.3	%
Income before income taxes		65			129			(64	)		(49.6	%)
Income tax expense		(26	)		(42	)		(16	)		(38.1	%)
Net income including noncontrolling interests		39			87			(48	)		(55.2	%)
Noncontrolling interests in income of consolidated subsidiaries		(12	)		(15	)		(3	)		(20.0	%)
Net income attributable to URS	$	27		$	72		$	(45	)		(62.5	%)
Diluted earnings per share	$	0.37		$	0.96		$	(0.59	)		(61.5	%)

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CONSOLIDATED RESULTS BY DIVISION

Revenues

(In millions, except percentages)	Infrastructure & Environment			Federal Services			Energy & Construction			Oil & Gas			Eliminations			Total
Three months ended
April 4, 2014	$	850		$	649		$	544		$	514		$	(20	)	$	2,537
March 29, 2013		898			907			538			508			(48	)		2,803
Increase (decrease)		(48	)		(258	)		6			6			(28	)		(266	)
Percentage increase (decrease)		(5.3	%)		(28.4	%)		1.1	%		1.2	%		(58.3	%)		(9.5	%)

The revenues reported are presented prior to the elimination of inter-segment transactions.

The Infrastructure & Environment Division’s Revenues

The Infrastructure & Environment Division’s revenues decreased during the quarter ended April 4, 2014 compared to the quarter ended March 29, 2013.  The decline was primarily due to lower revenues from the engineering and construction services we provide to the DOD, resulting from the completion of projects that have not been replaced by comparable assignments, and lower activity on ongoing projects that are nearing completion.  In addition, revenues were lower due to inclement weather conditions in the U.S., specifically in the East and Midwest, which resulted in fewer billable hours and project delays.

These decreases were partially offset by an increase in infrastructure revenues, specifically for program and construction management services for projects in the U.S. and for projects managed by our International Development team based in Australia.  We also benefited from sustained demand for the services we provide to modernize surface, air, rail and mass transit infrastructure in the United Kingdom.

The Federal Services Division’s Revenues

The Federal Services Division’s revenues decreased during the quarter ended April 4, 2014 compared to the quarter ended March 29, 2013.  Revenues associated with our chemical agent demilitarization program declined from $252 million for the quarter ended March 29, 2013 to $89 million for the quarter ended April 4, 2014.  This decline reflects the transition at several facilities from the operations phase of the projects to the closure phase, which is characterized by lower levels of activities.  Revenues related to other services also declined as a result of delayed awards on new and existing programs, delays in finalizing the DOD’s budget, and lower revenues from the services we provide to the DOD to maintain, repair and overhaul aircraft, ground vehicles and other equipment.

The Energy & Construction Division’s Revenues

The Energy & Construction Division’s revenues for the quarter ended April 4, 2014 were essentially flat compared to the quarter ended March 29, 2013.  During the first quarter of our 2014 fiscal year, revenues increased from the start-up of a new air quality control project in the power market sector, as well as a new project involving the construction of a natural gas facility and increased maintenance outage work at a nuclear power plant.

By contrast, these increases were partially offset by the completion of a large oil and gas project, as well as engineering and construction work for an air quality control project in the power market sector.

The Oil & Gas Division’s Revenues

The Oil & Gas Division’s revenues were essentially flat for the quarter ended April 4, 2014 compared to the quarter ended March 29, 2013.  We experienced a higher level of activity in mechanical and oilfield hauling services in the U.S. and commenced work on projects that were delayed during the fourth quarter of 2013.  These increased activities were offset by the impact of the weakening of the Canadian dollar against the U.S. dollar.

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Cost of Revenues

(In millions, except percentages)	Infrastructure & Environment			Federal Services			Energy & Construction			Oil & Gas			Eliminations			Total
Three months ended
April 4, 2014	$	(814	)	$	(611	)	$	(540	)	$	(502	)	$	20		$	(2,447	)
March 29, 2013		(859	)		(813	)		(528	)		(499	)		48			(2,651	)
Increase (decrease)		(45	)		(202	)		12			3			(28	)		(204	)
Percentage increase (decrease)		(5.2	%)		(24.8	%)		2.3	%		0.6	%		(58.3	%)		(7.7	%)

Our consolidated cost of revenues, which consists of labor, subcontractor costs, and other expenses related to projects and services provided to our clients, for the three months ended April 4, 2014 decreased compared with the three months ended March 29, 2013.  Because our revenues are primarily project-based, the factors impacting the fluctuation of our revenues also drove a corresponding change in our cost of revenues.  Consolidated cost of revenues as a percent of revenues increased from 94.6% for the three months ended March 29, 2013 to 96.5% for the three months ended April 4, 2014.

Operating Income

(In millions, except percentages)	Infrastructure & Environment			Federal Services			Energy & Construction			Oil & Gas			Corporate			Total
Three months ended
April 4, 2014	$	36		$	57		$	5		$	11		$	(22	)	$	87
March 29, 2013		40			115			12			9			(23	)		153
Increase (decrease)		(4	)		(58	)		(7	)		2			(1	)		(66	)
Percentage increase (decrease)		(10.0	%)		(50.4	%)		(58.3	%)		22.2	%		(4.3	%)		(43.1	%)

Operating income decreased by $66 million in the three months ended April 4, 2014 compared to the corresponding period last year.  As a percentage of revenues, operating income for the three months ended April 4, 2014 was 3.4% compared to 5.5% for the three months ended March 29, 2013.  The decrease in operating income was primarily due to a reduction in performance-based incentive fees recognized from work performed managing the chemical demilitarization program and the reduction of our scope of work at a large oil and gas project.  See the detailed discussion in operating income by segment below.

The Infrastructure & Environment Division’s Operating Income

Operating income decreased by $4 million in the three months ended April 4, 2014 compared to the corresponding period last year.  Operating income as a percentage of revenues was 4.2% for the three months ended April 4, 2014 compared to 4.5% for the three months ended March 29, 2013.  The decreases in operating income and operating income as a percentage of revenues were due to several factors:  the harmonization of benefit costs, severe weather in the eastern and midwestern U.S., the closing of a legal entity in the Philippines, and foreign currency translation losses in Canada and Europe.

The Federal Service Division’s Operating Income

Operating income decreased by $58 million for the three months ended April 4, 2014 compared to the comparable period in the prior year.  Operating income as a percentage of revenues was 8.8% for the three months ended April 4, 2014 compared to 12.7% for the three months ended March 29, 2013.  The decreases in both operating income and operating income as a percentage of revenues were primarily due to a $67 million reduction in fees recognized from work performed managing the chemical demilitarization program in the current period compared to the corresponding period in the prior year.  This decrease was partially offset by improved margins on existing contracts.

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The Energy & Construction Division’s Operating Income

Operating income decreased by $7 million for the three months ended April 4, 2014 compared to the comparable period in the prior year.  Operating income as a percentage of revenues was 0.9% for the three months ended April 4, 2014 compared to 2.2% for the three months ended March 29, 2013.  The decreases in both operating income and operating income as a percentage of revenues were primarily due to a $7 million decrease related to the completion of an oil and gas construction project and a $6 million decrease related to a reduction in the scope of work for another oil and gas construction project and a dispute regarding the extent of the project fee.  This project has experienced a substantial reduction of our scope of work as well as productivity and other cost impacts.  These decreases were partially offset by increases in operating income from a new project at a natural gas facility of $4 million, as well as a new air quality control project of $4 million.

The Oil & Gas Division’s Operating Income

Operating income increased by $2 million for the three months ended April 4, 2014 compared to the comparable period in the prior year.  Operating income as a percentage of revenues was 2.1% for the three months ended April 4, 2014 compared to 1.8% for the three months ended March 29, 2013.  The increase was due to improved equipment utilization in Canadian operations and a higher level of activity for mechanical and oilfield hauling services in the U.S.

Interest Expense

Our consolidated interest expense for the three months ended April 4, 2014 decreased by $3 million, or 14.3%, compared with the three months ended March 29, 2013.  This decrease was primarily due to the redemption of the Flint senior notes on December 27, 2013.

Income Tax Expense

Our effective income tax rate for the three months ended April 4, 2014 increased to 39.3% from 32.7% for the three months ended March 29, 2013.  The higher rate was attributable to losses incurred in some international entities, primarily Canada, that were non-deductible for income tax purposes.  A portion of these losses were discrete to the first quarter of 2014.

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LIQUIDITY AND CAPITAL RESOURCES

	Three Months Ended
	April 4,				March 29,
(In millions)	2014				2013
Cash flows from operating activities		$	(132	)		$	50
Cash flows from investing activities			(10	)			(20	)
Cash flows from financing activities			88				(88	)

Cash and Working Capital

Our primary sources of liquidity are collections of accounts receivable from our clients, dividends from our unconsolidated joint ventures and borrowings related to our lines of credit.  Our primary uses of cash are to fund working capital and capital expenditures; to service our debt; to pay dividends; to repurchase our common stock; and to make distributions to the minority owners in our consolidated joint ventures.

Our cash flows from operations are primarily impacted by fluctuations in working capital requirements, which are affected by numerous factors, including the billing and payment terms of our contracts, the stage of completion of contracts performed by us, the timing of payments to vendors, subcontractors, and joint ventures, and the changes in interest and income tax payments, as well as unforeseen events or issues that may have an impact on our working capital.

Our future capital allocation priorities are expected to include dividend payments, share repurchases, debt pay downs, small add-on acquisitions and organic growth opportunities.

We borrowed $387 million from our revolving line of credit during the first quarter of 2014. As a result, our consolidated leverage ratio approached, but did not exceed, the maximum consolidated leverage ratio permitted under our senior credit facility (“2011 Credit Facility”).  As of April 4, 2014, we were in compliance with this covenant under this Facility.

Cash and cash equivalents include all highly liquid investments with maturities of 90 days or less at the date of purchase, including interest-bearing bank deposits and money market funds.  At April 4, 2014 and January 3, 2014, restricted cash was $12 million and $13 million, respectively, which amounts were included in “Other current assets” on our Condensed Consolidated Balance Sheets.

As of April 4, 2014 and January 3, 2014, we had cash and cash equivalents of $28 million and $36 million, respectively, held outside the U.S., excluding amounts in consolidated joint ventures.  We are not aware of any material restrictions on cash and cash equivalents in those countries outside the U.S where we conduct business.  If cash and cash equivalents held outside the U.S. are needed for our operations in the U.S., we may be required to accrue and pay U.S. taxes to repatriate these funds; however, our intent is to indefinitely reinvest these foreign amounts outside of the U.S., and our current plans do not demonstrate a need to repatriate these foreign amounts to fund our U.S. operations.

In addition, as of April 4, 2014 and January 3, 2014, our consolidated joint ventures held cash and cash equivalents of $78 million and $89 million, respectively.  These amounts are restricted for use by each joint venture and are not available for use in our general operations.

We use Days Sales Outstanding (“DSO”) to monitor the average time, in days, that it takes us to convert our accounts receivable into cash.  DSO also is a useful tool for investors to measure our liquidity and understand our average collection period.  We calculate DSO by dividing net accounts receivable, less billings in excess of costs and accrued earnings on contracts, as of the end of the quarter by the amount of revenues recognized during the quarter, and multiplying the result of that calculation by the number of days in that quarter.  We included the non-current amounts in our calculation of DSO and the ratio of accounts receivable to revenues.  Our DSO increased from 101 days as of January 3, 2014 to 103 days as of April 4, 2014.

We also analyze the ratio of our accounts receivable to quarterly revenues (the “Ratio”), which changed from 103% at January 3, 2014 to 113% at April 4, 2014.  We calculate this ratio by dividing net accounts receivable, less billings in excess of costs and accrued earnings on contracts as of the end of the quarter by the amount of revenues recognized during the quarter.

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The factors that affect the Ratio also have the same effect on DSO.  The increases in the Ratio, and therefore the increases in DSO, occurred primarily for the following reasons:

·   The revenues used in the calculation of these Ratios for the quarter ended April 4, 2014 in comparison to the quarter ended January 3, 2014 had declined by $124 million.  The decrease in revenues added 5% to the Ratio.

·   Receivables from performance-based incentives under long-term U.S. federal government contracts, primarily with the DOD, for the quarter ended April 4, 2014 increased, in comparison to the quarter ended January 3, 2014.  This change added 2% to the Ratio.  These receivables were included in costs and accrued earnings in excess of billings on contracts (“Unbilled Accounts Receivable”) and “Other long-term assets,” and they become billable as provided under the terms of the contracts to which they relate.  We expect to bill for these incentives beginning in 2014 and beyond.  Our Unbilled Accounts Receivable and “Other long-term assets” included amounts earned under milestone payment clauses, which provided for payments to be received beyond a year from the date service occurs.  Based on our historical experience, we generally consider the collection risk related to these amounts to be low.

We believe that we have sufficient resources to fund our operating and capital expenditure requirements, to pay income taxes, and to service our debt for at least the next twelve months.  In the ordinary course of our business, we may experience various loss contingencies including, but not limited to, the pending legal proceedings identified in Note 12, “Commitments and Contingencies,” to our condensed consolidated financial statements included under Item 8 of this report, which may adversely affect our liquidity and capital resources.

Operating Activities

The decrease in cash flows from operating activities for the three months ended April 4, 2014, compared to the three months ended March 29, 2013, was primarily due to the timing of billings, collections and advance payments from clients on accounts receivable and the timing of vendor and subcontractor payments.  These decreases were partially offset by the reduction of employee incentive compensation payments.  For billings and collections of our accounts receivable, see our analysis of DSO and ratio of accounts receivable to quarterly revenues above. 

Investing Activities

Capital expenditures, excluding purchases financed through capital leases and equipment notes, were $15 million and $25 million for the three months ended April 4, 2014 and March 29, 2013, respectively.

For the remainder of fiscal year 2014, we expect to incur approximately $70 million to $80 million in capital expenditures, a portion of which will be financed through capital leases or equipment notes.

Financing Activities

We borrowed $387 million on our revolving line of credit during the first quarter of 2014, compared to $20 million during the first quarter of 2013.  The increase in borrowings was primarily for the repurchases of shares of our common stock and working capital requirements in Canada.  We used $266 million for the repurchase of our common stock during the first quarter of 2014, compared to $45 million during the first quarter of 2013.

Off-balance Sheet Arrangements

In the ordinary course of business, we may use off-balance sheet arrangements if we believe that such an arrangement would be an efficient way to lower our cost of capital or help us manage the overall risks of our business operations.  We do not believe that such arrangements have had a material adverse effect on our financial position or our results of operations.  There have been no material changes to our existing off-balance sheet arrangements during the first quarter of fiscal year 2014.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions in the application of certain accounting policies that affect amounts reported in our condensed consolidated financial statements and related footnotes included in Item 1 of this report.  In preparing these financial statements, we have made our best estimates and judgments of certain amounts, after considering materiality.  Application of these accounting policies, however, involves the exercise of judgment and the use of assumptions as to future uncertainties.  Consequently, actual results could differ from our estimates, and these differences could be material.

The accounting policies that we believe are most critical to an investor’s understanding of our financial results and condition and that require complex judgments by management are included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2014.  There were no material changes to these critical accounting policies during the three months ended April 4, 2014.

ADOPTED AND OTHER RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2, “Adopted and Other Recently Issued Statements of Financial Accounting Standards,” to our Condensed Consolidated Financial Statements included under Part I – Item 1 of this report.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to changes in interest rates as a result of our borrowings under our 2011 Credit Facility.  We borrow under the 2011 Credit Facility at a fixed rate plus a market rate margin.  The margin is based on LIBOR or similar indexes.  Based on the outstanding term loan of $605 million and an outstanding revolving line of credit balance of $387 million under our 2011 Credit Facility, if market rates used to calculate interest expense were to average 1% higher in the next twelve months, our net-of-tax interest expense would increase by approximately $5 million.  Interest rates, as measured by LIBOR or similar indices, remain at historic low levels, thereby limiting how far we can measure a drop in interest rates.  As a result, we have analyzed that if rates fall by 1% or by the maximum amount below 1%, it would lower our net-of-tax interest expense by approximately $1 million.  This analysis is computed taking into account the current outstanding term loan of our 2011 Credit Facility, assumed interest rates and current debt payment schedule.  The result of this analysis would change if the underlying assumptions were modified.

Foreign Currency Risk

The majority of our transactions are in U.S. dollars; however, our foreign subsidiaries conduct businesses in various foreign currencies.  Therefore, we are subject to currency exposures and volatility because of currency fluctuations.  We attempt to minimize our exposure to foreign currency fluctuations by matching our revenues and expenses in the same currency for our contracts.  From time to time, we purchase derivative financial instruments in the form of foreign currency exchange contracts to manage specific foreign currency exposures.  As of April 4, 2014, we do not have any derivative financial instruments.  We recorded foreign currency translation losses of $17 million and $36 million in “Other comprehensive income” for the three months ended April 4, 2014 and March 29, 2013, respectively.

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ITEM 4.  CONTROLS AND PROCEDURES

Attached as exhibits to this Form 10-Q are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").  This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding.

Evaluation of Disclosure Controls and Procedures

Based on our management’s evaluation, with the participation of our CEO and CFO, of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), our CEO and CFO have concluded that our disclosures controls and procedures were effective as of April 4, 2014, the end of the period covered by this report, to provide reasonable assurance that the information required to be disclosed by us in the reports that we filed or submitted to the SEC under the Exchange Act were (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended April 4, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, has designed our disclosure controls and procedures and our internal control over financial reporting to provide reasonable assurances that the controls’ objectives will be met.  However, management does not expect that disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.  The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any system’s design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of a system’s control effectiveness into future periods are subject to risks.  Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II

OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Various legal proceedings are pending against our subsidiaries and us.  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 12, “Commitments and Contingencies,” to our “Condensed Consolidated Financial Statements” included under Part 1 – Item 1 of this report for a discussion of our legal proceedings, which is incorporated herein by reference.

ITEM 1A.  RISK FACTORS

Please refer to Item 1A – Risk Factors in our Annual Report on Form 10-K for the fiscal year ended January 3, 2014 for a discussion of some of the factors that have affected our business, financial condition, and results of operations in the past and which could affect us in the future.  There have been no material changes to those risk factors during the period covered by this Quarterly Report on Form 10-Q.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table sets forth all purchases made by us or by any “affiliated purchaser” as defined in Rule 10b-18(a)(3) of the Securities Exchange Act of 1934, as amended, of our common shares during the three monthly periods that compose our first quarter of 2014:

	(a) Total Number of Shares Purchased (1,2)			(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 (2)
	(In millions, except average price paid per share)
January 4, 2014 – January 31, 2014		—	†		$	—		—		12.0
February 1, 2014 – February 28, 2014		2.8				45.71		2.8		9.2
March 1, 2014 – April 4, 2014		2.9				47.18		2.9		6.3
Total		5.7						5.7

† Represents less than half a million shares.

(1)   Reflects purchases of shares previously issued 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)   For fiscal years 2012 and 2013, the number of shares authorized for repurchase under the repurchase program was 3.0 million shares, plus the number of shares equal to the difference between the number of shares authorized to be repurchased in the prior year and the actual number of shares repurchased during the prior year, not to exceed 6.0 million shares in aggregate.  In February 2014, our Board of Directors approved a modification of our stock repurchase program to allow for the repurchase of up to 12.0 million shares of our common stock in fiscal year 2014.  The Board of Directors may modify, suspend, extend or terminate the program at any time.

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Our 2011 Credit Facility permits unlimited dividend payments and stock repurchases if no default has occurred and our Consolidated Leverage Ratio is equal to or less than 1.50:1.00.  However, if no default has occurred and the Consolidated Leverage Ratio is below the threshold indicated above, then our dividend payments and stock repurchases are limited to $200 million per fiscal year and the sum of 50% of our cumulative net income and net cash proceeds from the issuance of equity securities to third parties after October 19, 2011.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURE

Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) by the federal Mine Safety and Health Administration.  We do not act as the owner of any mines, but we may act as a mining operator as defined under the Mine Act where we may be a lessee of a mine, a person who operates, controls or supervises such mine, or an independent contractor performing services or construction of such mine.

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95.

ITEM 5.  OTHER INFORMATION

None.

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ITEM 6.  EXHIBITS

a)   Exhibits

		Incorporated by Reference (Exchange Act Filings Located at File No. 011-07567)
Exhibit				Filing	Filed
Number	Exhibit Description	Form	Exhibit	Date	Herewith
3.1	Restated Certificate of Incorporation of URS Corporation, as filed with the Secretary of State of Delaware on September 9, 2008.	8-K	3.01	9/11/2008
3.2	Bylaws of URS Corporation as amended on February 26, 2010.	10-K	3.2	3/3/2014
10.1*	URS Corporation Restated Incentive Compensation Plan 2014 Plan Year Summary.				X
10.2*	Amended and Restated Employment Agreement between URS E&C Holdings and George L. Nash, Jr., dated as of March 27, 2014.				X
10.3*	Description of Base Salary, 2014 Performance Metrics and Target Bonuses.	8-K	N/A	4/1/2014
31.1	Certification of URS Corporation’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
31.2	Certification of URS Corporation’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
32**	Certification of URS Corporation’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
95	Mine Safety Disclosure.				X
99.1	Cooperation Agreement, dated March 13, 2014, by and between JANA Partners LLC and URS Corporation.	8-K	99.1	3/17/2014
101.INS	XBRL Instance Document.				X
101.SCH	XBRL Taxonomy Extension Schema Document.				X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.				X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.				X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.				X

* Represents a management contract or compensatory plan or arrangement.

** Document has been furnished and not filed and not to be incorporated into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language included in any such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	URS CORPORATION
Dated: May 13, 2014	By:	/s/ Reed N. Brimhall
		Reed N. Brimhall
		Vice President and Chief Accounting Officer

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Exhibit No.	Description
10.1	URS Corporation Restated Incentive Compensation Plan 2014 Plan Year Summary.
10.2	Amended and Restated Employment Agreement between URS E&C Holdings and George L. Nash, Jr., dated as of March 27, 2014.
31.1	Certification of URS Corporation’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of URS Corporation’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of URS Corporation’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95	Mine Safety Disclosure.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

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