10-Q 1 form10-q.htm FORM 10-Q form10-q.htm


 
 
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 September 26, 2008
   
OR
 
  o
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ____________ to _____________

Commission file number 1-7567

Logo

URS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
94-1381538
(State or other jurisdiction of incorporation)
(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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x Accelerated filer o Non-Accelerated filer o Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 October 27, 2008


   
Common Stock, $.01 par value
83,496,063



 
 


 

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,” “will,” and similar terms used in reference to our future revenues, services and other business trends; future accounting policies and actuarial estimates; future adjustments to intangible assets and goodwill; future Washington Group International, Inc. acquisition related costs; future income taxes; future stock-based compensation expenses; future retirement plan expenses; future compliance with regulations; future legal proceedings and accruals; future bonding and insurance coverage; future interest and debt payments; future guarantees and contingencies; future capital resources; 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, such forward-looking statements by their nature involve risks and uncertainties.  We caution that a variety of factors, including but not limited to the following, could cause our business and financial results to differ materially from those expressed or implied in our forward-looking statements: an economic downturn; recent declines in the financial markets; changes in our book of business; our compliance with government contract procurement regulations; our leveraged position and the ability to service our debt; restrictive covenants in our 2007 Credit Facility; our integration of Washington Group International, Inc.; our ability to procure government contracts; our reliance on government appropriations; the ability of the government to unilaterally terminate our contracts; our ability to make accurate estimates and assumptions; our accounting policies; impairment of our goodwill; our and our partners’ ability to bid on, win, perform and renew contracts and projects; our dependence on partners, subcontractors and suppliers; customer payment defaults; our ability to recover on claims; availability of bonding and insurance; environmental liabilities; liabilities for pending and future litigation; the impact of changes in laws and regulations; nuclear energy indemnification; a decline in defense spending; industry competition; our ability to attract and retain key individuals; employee, agent or partner misconduct; risks associated with international operations; business activities in high security risk countries; third party software risks; terrorist and natural disaster risks; our relationships with our labor unions; our ability to protect our intellectual property rights; anti-takeover risks and other factors discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 39, Risk Factors beginning on page 70, 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
     
 
September 26, 2008 and December 28, 2007
    2  
 
Condensed Consolidated Statements of Operations and Comprehensive Income
       
 
Three and nine months ended September 26, 2008 and September 28, 2007
    3  
 
Condensed Consolidated Statements of Cash Flows
       
 
Nine months ended September 26, 2008 and September 28, 2007
    4  
 
Notes to Condensed Consolidated Financial Statements
    6  
Item 2.
Management’s Discussion and Analysis of
       
 
Financial Condition and Results of Operations
    39  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    68  
Item 4.
Controls and Procedures
    68  
           
PART II.
OTHER INFORMATION:
       
           
Item 1.
Legal Proceedings
    69  
Item 1A.
Risk Factors
    70  
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    86  
Item 3.
Defaults Upon Senior Securities
    86  
Item 4.
Submission of Matters to a Vote of Security Holders
    86  
Item 5.
Other Information
    86  
Item 6.
Exhibits
    87  

 
1

 

PART I
FINANCIAL INFORMATION


URS CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)

   
September 26,
2008
   
December 28,
2007
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 221,630     $ 256,502  
Accounts receivable, including retentions of $57,990 and $58,366, respectively
    1,013,708       1,015,052  
Costs and accrued earnings in excess of billings on contracts in process
    1,133,612       1,023,302  
Less receivable allowances
    (47,143 )     (51,173 )
Net accounts receivable
    2,100,177       1,987,181  
Deferred tax assets
    128,013       133,888  
Prepaid expenses and other assets
    179,342       210,807  
Total current assets
    2,629,162       2,588,378  
Investments in unconsolidated affiliates
    266,431       206,721  
Property and equipment at cost, net
    349,810       357,907  
Intangible assets, net
    526,774       572,974  
Goodwill
    3,150,834       3,139,618  
Other assets
    60,753       64,367  
Total assets
  $ 6,983,764     $ 6,929,965  
LIABILITIES, MINORITY INTERESTS, AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Book overdrafts
  $ 26,314     $ 15,638  
Current portion of long-term debt
    18,086       17,964  
Accounts payable and subcontractors payable, including retentions of $86,660 and $73,491, respectively
    786,675       693,614  
Accrued salaries and wages
    445,030       486,853  
Billings in excess of costs and accrued earnings on contracts in process
    228,196       296,752  
Accrued expenses and other
    157,593       170,782  
Total current liabilities
    1,661,894       1,681,603  
Long-term debt
    1,119,160       1,288,817  
Deferred tax liabilities
    222,630       137,058  
Self-insurance reserves
    102,379       73,253  
Pension, post-retirement, and other benefit obligations
    138,078       156,843  
Other long-term liabilities
    82,923       88,735  
Total liabilities
    3,327,064       3,426,309  
Commitments and contingencies (Note 9)
               
Minority interests
    26,926       25,086  
Stockholders’ equity:
               
Preferred stock, authorized 3,000 shares; no shares outstanding
           
Common stock, par value $.01; authorized 200,000 shares; 84,557 and 83,355 shares issued, respectively; and 83,505 and 83,303 shares outstanding, respectively
    845       833  
Treasury stock, 1,052 and 52 shares at cost, respectively
    (42,585 )     (287 )
Additional paid-in capital
    2,825,728       2,797,238  
Accumulated other comprehensive income
    7,075       16,635  
Retained earnings
    838,711       664,151  
Total stockholders’ equity
    3,629,774       3,478,570  
Total liabilities, minority interests and stockholders’ equity 
  $ 6,983,764     $ 6,929,965  

See Notes to Condensed Consolidated Financial Statements

 
2

 

URS CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)

   
Three Months Ended
   
Nine Months Ended
 
   
September 26,
2008
   
September 28,
2007
   
September 26,
2008
   
September 28,
2007
 
                                 
Revenues
  $ 2,588,091     $ 1,267,997     $ 7,378,062       3,643,634  
Cost of revenues
    (2,448,700 )     (1,189,647 )     (7,008,457 )     (3,418,286 )
General and administrative expenses
    (20,440 )     (12,963 )     (57,076 )     (40,571 )
Equity in income of unconsolidated affiliates
    24,289       4,284       81,021       11,041  
Operating income
    143,240       69,671       393,550       195,818  
Interest expense
    (21,401 )     (2,935 )     (70,146 )     (10,926 )
Income before income taxes and minority interests
    121,839       66,736       323,404       184,892  
Income tax expense
    (51,028 )     (26,956 )     (136,013 )     (75,987 )
Minority interests in income of consolidated subsidiaries, net of tax
    (5,046 )     (1,087 )     (12,831 )     (3,049 )
Net income
    65,765       38,693       174,560       105,856  
Other comprehensive income (loss):
                               
Foreign currency translation adjustments, net of tax
    (13,380 )     682       (7,962 )     3,858  
Interest rate swaps, net of tax
    1,201             (1,598 )      
Comprehensive income
  $ 53,586     $ 39,375     $ 165,000     $ 109,714  
Earnings per share (Note 1):
                               
Basic
  $ .80     $ .74     $ 2.13     $ 2.05  
Diluted
  $ .79     $ .73     $ 2.11     $ 2.01  
Weighted-average shares outstanding (Note 1):
                               
Basic
    82,296       51,944       82,031       51,559  
Diluted
    82,794       52,751       82,739       52,546  




















See Notes to Condensed Consolidated Financial Statements

 
3

 


URS CORPORATION AND SUBSIDIARIES
(In thousands)

   
Nine Months Ended
 
   
September 26,
2008
   
September 28,
2007
 
                 
Cash flows from operating activities:
               
Net income                                                                                    
  $ 174,560     $ 105,856  
Adjustments to reconcile net income to net cash from operating activities:
               
Depreciation
    66,147       29,029  
Amortization of intangible assets
    39,374       750  
Amortization of debt issuance costs
    6,280       1,286  
Normal profit
    (6,098 )     (1,450 )
Provision for doubtful accounts
    3,324       2,305  
Deferred income taxes
    66,242       (863 )
Stock-based compensation
    22,095       20,070  
Excess tax benefits from stock-based compensation
    (3,865 )     (6,489 )
Minority interests in income of consolidated subsidiaries, net of tax
    12,831       3,049  
Changes in operating assets, liabilities and other, net of effects of acquisitions:
               
Accounts receivable and costs and accrued earnings in excess of billings on contracts in process
    (100,173 )     (52,878 )
Prepaid expenses and other assets
    (12,339 )     (11,641 )
Investments in unconsolidated affiliates
    (19,070 )     12,706  
Accounts payable, accrued salaries and wages and accrued expenses
    9,192       70,289  
Billings in excess of costs and accrued earnings on contracts in process 
    6,673       (14,593 )
Other long-term liabilities
    (11,831 )     7,175  
Other assets, net
    9,774       (15,654 )
Total adjustments and changes                                                                              
    88,556       43,091  
Net cash from operating activities                                                                        
    263,116       148,947  
Cash flows from investing activities:
               
Payments for business acquisitions, net of cash acquired
    (26,784 )     (6,328 )
Proceeds from disposal of property and equipment, and sale-leaseback transactions
    10,722        
Investments in unconsolidated affiliates
    (28,035 )      
Change in restricted cash
    (134 )      
Capital expenditures, less equipment purchased through capital leases and equipment notes
    (62,329 )     (22,354 )
Net cash from investing activities                                                                        
    (106,560 )     (28,682 )
Cash flows from financing activities:
               
Long-term debt principal payments
    (176,777 )     (77,226 )
Net payments under lines of credit and short-term notes
    (259 )     (3,749 )
Net change in book overdrafts
    10,676       (3,222 )
Capital lease obligation payments
    (5,949 )     (9,491 )
Excess tax benefits from stock-based compensation
    3,865       6,489  
Proceeds from employee stock purchases and exercises of stock options
    19,314       18,720  
Purchase of treasury stock
    (42,298 )      
Net cash from financing activities                                                                        
    (191,428 )     (68,479 )
Net increase (decrease) in cash and cash equivalents
    (34,872 )     51,786  
Cash and cash equivalents at beginning of period                                                                                     
    256,502       89,502  
Cash and cash equivalents at end of period                                                                                     
  $ 221,630     $ 141,288  
See Notes to Condensed Consolidated Financial Statements

 
4

 


URS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED (continued)
(In thousands)

   
Nine Months Ended
 
   
September 26,
2008
   
September 28,
2007
 
                 
Supplemental information:
               
Interest paid                                                                                  
  $ 63,794     $ 10,272  
Taxes paid                                                                                  
  $ 44,336     $ 53,176  
                 
Supplemental schedule of noncash investing and financing activities:
               
Fair value of assets acquired (net of cash acquired)
  $ 9,747     $ 16,888  
Liabilities assumed                                                                                   
    (9,497 )     (127 )
Non cash business acquisitions                                                                                   
  $ 250     $ 16,761  
Equipment acquired with capital lease obligations and equipment note obligations
  $ 8,895     $ 13,679  
                 































See Notes to Condensed Consolidated Financial Statements

 
5

URS CORPORATIONS AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED

 
Overview
 
The terms “we,” “us,” and “our” used in these financial statements refer to URS Corporation and its consolidated subsidiaries unless otherwise indicated.  We are a leading international provider of engineering, construction and technical services.  We offer a broad range of program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to public agencies and private sector clients around the world.  We also are a major United States (“U.S.”) federal government contractor in the areas of systems engineering and technical assistance, and operations and maintenance.  Headquartered in San Francisco, we have more than 50,000 employees in a global network of offices and contract-specific job sites in more than 30 countries.  We operate through three divisions: the URS Division, the EG&G Division and the Washington Division.  On November 15, 2007, we acquired Washington Group International, Inc. (“WGI”), and its operations became the Washington Division of URS Corporation (see Note 2, “Acquisition” for additional disclosure).  Following the WGI acquisition, we realigned some of our operations to consolidate businesses serving the same markets or clients among our divisions (see Note 8, “Segment and Related Information” for additional information).  Information presented in the notes to the condensed consolidated financial statements excludes the results of operations and financial condition of WGI prior to November 16, 2007.
 
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 year ended December 28, 2007.  The results of operations for the nine months ended September 26, 2008 are not indicative of the operating results for the full year or for future years.
 
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments that are necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented.
 
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the balance sheet dates as well as the reported amounts of revenues and costs during the reporting periods.  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.
 
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 required to be consolidated under Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46-R”).  We participate in joint ventures formed for the purpose of bidding, negotiating and executing projects.  From time to time, we function as the sponsor or manager of the projects performed by the joint venture.  Investments in unconsolidated joint ventures are accounted for using the equity method and are included as investments in unconsolidated affiliates on our condensed consolidated balance sheets.  All significant intercompany transactions and accounts have been eliminated in consolidation.
 

 
6

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
Revenue Recognition
 
We recognize revenues from engineering, construction and construction-related contracts using the percentage-of-completion method as project progress occurs.  Service-related contracts, including operations and maintenance services and a variety of technical assistance services, are accounted for using the proportionate performance method as project progress occurs.
 
 Percentage of Completion.  Under the percentage-of-completion method of revenue recognition, revenue is recognized as contract performance progresses.  We estimate the progress towards completion to determine the amount of revenue and profit to recognize.  We generally utilize a cost-to-cost approach in applying the percentage-of-completion method, where revenue is earned in proportion to total costs incurred, divided by total costs expected to be incurred.  Costs are generally determined from actual hours of labor effort expended at per-hour labor rates calculated using a labor dollar multiplier that includes direct labor costs and allocable overhead costs.  Direct non-labor costs are charged as incurred plus any mark-up permitted under the contract.
 
For some contracts, using the cost-to-cost method in estimating the percentage of completion may misstate the progress of the project.  For instance, in a project where a large amount of permanent materials are purchased, including the costs of these materials in calculating the percentage of completion may overstate the actual progress on the project.  For projects where the cost-to-cost method does not appropriately reflect the progress on the projects, we use alternative methods, including labor hours, labor dollars, efforts expended, units of production, or value added for measuring progress on the project and recognize revenue accordingly.
 
Under the percentage-of-completion method, recognition of profit is dependent upon the accuracy of a variety of estimates, including engineering progress, materials quantities, and achievement of milestones, incentives, penalty provisions, labor productivity, cost estimates and others.  Such estimates are based on various professional judgments we make with respect to those factors and are subject to change as the project proceeds and new information becomes available.
 
Proportional Performance.  Our service contracts are accounted for using the proportional performance method, under which revenue is 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.
 
Revenues from all contracts may vary based on the actual number of labor hours worked and other actual contract costs incurred.  If actual labor hours and other contract costs exceed the original estimate agreed to by our client, we generally obtain a change order, contract modification or successfully prevail in a claim in order to receive and recognize additional revenues relating to the additional costs (see “Change Orders and Claims” below).
 
If estimated total costs on any contract indicate a loss, we charge the entire estimated loss to operations in the period the loss becomes known.  The cumulative effect of revisions to revenue, estimated costs to complete contracts, including penalties, incentive awards, change orders, claims, anticipated losses, and others are recorded in the accounting period in which the events indicating a loss or change in estimates are known and the loss can be reasonably estimated.  Such revisions could occur at any time and the effects may be material.
 
We have a history of making reasonably dependable estimates of the extent of progress towards completion, contract revenue and contract completion costs on our long-term engineering and construction contracts.  However, due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates.
 

 
7

URS CORPORATIONS AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
Change Orders and Claims.  Change orders and/or claims occur when changes are experienced once contract performance is underway, and may arise under any of the contract types described below.
 
Change orders are modifications of an original contract that effectively change the provisions of the contract without adding new provisions.  Change orders may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work.  Either we or our clients may initiate change orders.  Client agreement as to the terms of change orders is, in many cases, reached prior to work commencing; however, sometimes circumstances require that work progress without obtaining client agreement.  Costs related to change orders are recognized as incurred.  Revenues attributable to change orders that are unapproved as to price or scope are recognized to the extent that costs have been incurred if the amounts can be reliably estimated and their realization is probable.  Revenues in excess of the costs attributable to change orders that are unapproved as to price or scope are recognized only when realization is assured beyond a reasonable doubt.  Change orders that are unapproved as to both price and scope are evaluated as claims.
 
Claims are amounts in excess of agreed contract prices that we seek to collect from our clients or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to either scope or price, or other causes of unanticipated additional contract costs.  Claims are included in total estimated contract revenues when the contract or other evidence provides a legal basis for the claim, when the additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of the deficiencies in the contract performance, when the costs associated with the claim are identifiable, and when the evidence supporting the claim is objective and verifiable.  Revenue on claims is recognized only to the extent that contract costs related to the claims have been incurred and when it is probable that the claim will result in a bona fide addition to contract value which can be reliably estimated.  No profit is recognized on claims until final settlement occurs.  As a result, costs may be recognized in one period while revenues may be recognized when client agreement is obtained or claims resolution occurs, which can be in subsequent periods.
 
“At-risk” and “Agency” Contracts.  The amount of revenues we recognize also depends on whether the contract or project represents an at-risk or an agency relationship between the client and us.  Determination of the relationship is based on characteristics of the contract or the relationship with the client.  Pursuant to Emerging Issues Task Force (“EITF”) Issue 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” (“EITF 99-19”) for at-risk relationships where we act as the principal to the transaction, the revenue and the costs of materials, services, payroll, benefits, and other costs are recognized at gross amounts.  For agency relationships, where we act as an agent for our client, only the fee revenue is recognized, meaning that direct project costs and the related reimbursement from the client are netted.
 
In classifying contracts or projects as either at-risk or agency, we consider the following primary characteristics to be indicative of at-risk relationships: (i) we acquire the related goods and services using our procurement resources, (ii) we assume the risk of loss under the contract and (iii) we are responsible for insurance coverage, employee-related liabilities and the performance of subcontractors.
 
We consider the following primary characteristics to be indicative of agency relationships: (i) our client owns the work facilities utilized under the contract, (ii) we act as a procurement agent for goods and services acquired with client funds, (iii) our client is invoiced for our fees, (iv) our client is exposed to the risk of loss and maintains insurance coverage, and (v) our client is responsible for employee-related benefit plan liabilities and any remaining liabilities at the end of the contract.
 
Contract Types
 
Our contract types include cost-plus, fixed-price, target-price, and time-and-materials contracts.  Revenue recognition is determined based on the nature of the service provided, irrespective of the contract type, with engineering, construction and construction-related contracts accounted for under the percentage-of-completion method and service-related contracts accounted for under the proportional performance method.
 
 
8

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
Cost-Plus Contracts.  We enter into four major types of cost-plus contracts.  Revenue for the majority of our cost-plus contracts is recognized using the percentage-of-completion method:
 
Cost-Plus Fixed Fee.  Under cost-plus fixed fee contracts, we charge our clients for our costs, including both direct and indirect costs, plus a fixed negotiated fee.
 
Cost-Plus Fixed Rate.  Under our cost-plus fixed rate contracts, we charge clients for our direct costs plus negotiated rates based on our indirect costs.
 
Cost-Plus Award Fee.  Some cost-plus contracts provide for award fees or penalties based on performance criteria in lieu of a fixed fee or fixed rate.  Other contracts include a base fee component plus a performance-based award fee.  In addition, we may share award fees with subcontractors and/or our employees.  We accrue fee sharing on a monthly basis as related award fee revenue is earned.  We take into consideration the award fee or penalty on contracts when estimating revenues and profit rates, and we record revenues related to the award fees when there is sufficient information to assess anticipated contract performance.  On contracts that represent higher than normal risk or technical difficulty, we defer all award fees until an award fee letter is received.  Once an award fee letter is received, the estimated or accrued fees are adjusted to the actual award amount.
 
Cost-Plus Incentive Fee.  Some of our cost-plus contracts provide for incentive fees based on performance against contractual milestones.  The amount of the incentive fees vary, depending on whether we achieve above-, at-, or below-target results.  We recognize incentive fees revenues as milestones are achieved, assuming that we will achieve at-target results, unless our estimates indicate our cost at completion to be significantly above or below target.
 
Target-Price Contracts.  Under our target-price contracts, project costs are reimbursable.  Our fee is established against a target budget that is subject to changes in project circumstances and scope.  Should the project costs exceed the target budget within the agreed-upon scope, we generally degrade a portion of our fee or profit to mitigate the excess cost; however, the customer reimburses us for the costs that we incur if costs continue to escalate beyond our expected fee.  If the project costs are less than the target budget, we generally recover a portion of the project cost savings as additional fee or profit.  We recognize revenues on target-price contracts using the percentage-of-completion method.
 
Fixed-Price Contracts.  We enter into two major types of fixed-price contracts:
 
Firm Fixed-Price (“FFP”).  Under FFP contracts, our clients pay us an agreed fixed-amount negotiated in advance for a specified scope of work.  We generally recognize revenues on FFP contracts using the percentage-of-completion method.  If the nature or circumstances of the contract prevent us from preparing a reliable estimate at completion, we will delay profit recognition until adequate information about the contract’s progress becomes available.  Prior to completion, our recognized profit margins on any FFP contract depend on the accuracy of our estimates and will increase to the extent that our current estimates of aggregate actual costs are below amounts previously estimated.  Conversely, if our current estimated costs exceed prior estimates, our profit margins will decrease and we may realize a loss on a project.
 
Fixed-Price Per Unit (“FPPU”).  Under our FPPU contracts, clients pay us a set fee for each service or production transaction that we complete.  We recognize revenues under FPPU contracts as we complete the related service or production transactions for our clients generally using the proportional performance method.  Some of our FPPU contracts are subject to maximum contract values.
 
 
9

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
Time-and-Materials Contracts.  Under our time-and-materials contracts, we negotiate hourly billing rates and charge our clients based on the actual time that we spend on a project.  In addition, clients reimburse us for our actual out-of-pocket costs of materials and other direct incidental expenditures that we incur in connection with our performance under the contract.  The majority of our time-and-material contracts are subject to maximum contract values and, accordingly, revenues under these contracts are generally recognized under the percentage-of-completion method.  However, time and materials contracts that are service-related contracts, are accounted for utilizing the proportional performance method.  Revenues on contracts that are not subject to maximum contract values are recognized based on the actual number of hours we spend on the projects plus any actual out-of-pocket costs of materials and other direct incidental expenditures that we incur on the projects.  Our time-and materials contracts also generally include annual billing rate adjustment provisions.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include all highly liquid investments with maturities of 90 days or less at the date of purchase and include interest-bearing bank deposits and money market funds.  As of September 26, 2008 and December 28, 2007, we had book overdraft positions of $26.3 million and $15.6 million, respectively, related to some of our disbursement accounts.  These overdrafts primarily consisted of outstanding checks that had not cleared the bank accounts at the end of the reporting period.  We transfer cash on an as-needed basis to fund these items as they clear the bank in subsequent periods.  Restricted cash was included in other current assets because it was not material.
 
At September 26, 2008 and December 28, 2007, cash and cash equivalents included $80.4 million and $68.6 million, respectively, of cash and cash equivalents held by our consolidated joint ventures.
 
Earnings Per Share
 
Basic earnings per share (“EPS”) is computed by dividing net income available for common stockholders by the weighted-average number of common shares outstanding for the period, excluding nonvested restricted stock awards and units.  Diluted EPS is computed using the treasury stock method for stock options and nonvested restricted stock awards and units once the performance conditions have been met for those awards that contain performance conditions.  The treasury stock method assumes conversion of all potentially dilutive shares of common stock with the proceeds from assumed exercises used to hypothetically repurchase stock at the average market price for the period.  Potentially dilutive shares of common stock outstanding include stock options and nonvested restricted stock awards and units.  Diluted EPS is computed by dividing net income plus preferred stock dividends, if any, by the weighted-average common shares and potentially dilutive common shares that were outstanding during the period.
 
The reconciliation between weighted-average shares outstanding used in calculating basic and diluted EPS is as follows:
 
   
Three Months Ended
   
Nine Months Ended
 
(In thousands)
 
September 26,
2008
   
September 28,
2007
   
September 26,
2008
   
September 28,
2007
 
Weighted-average common stock shares outstanding
    82,296       51,944       82,031       51,559  
Stock options and restricted stock awards and units
    498       807       708       987  
      82,794       52,751       82,739       52,546  
 
 
10

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
In our computation of diluted EPS, we exclude the potential shares of issued and unexercised stock options where the exercise price exceeds the average market price, and nonvested restricted stock awards and units that had an anti-dilutive effect on EPS or that currently have not met performance conditions.  For the three and nine months ended September 26, 2008 and September 28, 2007, we had approximately 0.5 million and 44 thousand anti-dilutive shares, respectively, that were excluded from the computation of diluted EPS.
 
Presentation of Condensed Consolidated Statements of Operations and Comprehensive Income
 
During 2007, in connection with the WGI acquisition, we undertook a review of the historical manner of presentation of our Condensed Consolidated Statement of Operations and Comprehensive Income and adopted a revised format that we believe is more comparable to formats presented by companies in our industry.  As a result, we reformatted the presentation of contract-related indirect expenses, which had previously been presented under the caption “Indirect, general and administrative expenses,” and grouped them with direct contract-related expenses to present an intermediate total of “Cost of revenues.”  This change in manner of presentation did not affect our operating income, net income or the determination of income or loss on our contracts.  We made conforming changes to the Condensed Consolidated Statement of Operations and Comprehensive Income for the three and nine months ended September 28, 2007 to reflect the new format.
 
In addition, “Equity in income of unconsolidated affiliates,” which was historically presented in “Revenues,” is now presented as a separate component of operating income because these amounts are now more significant after our acquisition of WGI.
 
Adopted and Recently Issued Accounting Standards
 
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosure requirements about fair value measurements.  SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements.  The fair value measurement of financial assets and financial liabilities became effective for us beginning in fiscal year 2008.  Two FASB Staff Positions (“FSP”) on this statement were subsequently issued.  FSP No. 157-1, issued on February 14, 2007, excluded SFAS No. 13, “Accounting for Leases” (“SFAS 13”), and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS 13.  However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination, which are required to be measured at fair value under SFAS No. 141, “Business Combinations” (“SFAS 141”), or “Business Combinations (Revised 2007)” (“SFAS 141(R)”), regardless of whether those assets and liabilities are related to leases.  This FSP was effective upon our initial adoption of SFAS 157.  FSP No. 157-2, issued on February 12, 2007, delayed the effective date of this statement for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.  This FSP will be effective for us in fiscal year 2009.  Accordingly, our adoption of SFAS 157 on December 29, 2007 was limited to financial assets and liabilities and did not have a material impact on our consolidated financial position, results of operations or cash flows.  We are currently evaluating the anticipated effect of this statement on the non-financial assets and non-financial liabilities of our consolidated financial statements.
 
In September 2006, the FASB issued SFAS No. 158, “Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”).  This statement requires (1) recognition on the balance sheet of an asset for a defined benefit plan’s overfunded status or a liability for such a plan’s underfunded status, (2) measurement of a defined benefit plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year, and (3) recognition, as a component of other comprehensive income, of the changes in a defined benefit plan’s funded status.  We adopted the recognition and disclosure provisions of SFAS 158 on December 29, 2006, the end of our fiscal year 2006.  We adopted the requirement to measure our defined benefit plan assets and benefit obligations as of our fiscal year ended December 28, 2007.  Our adoption of this requirement did not have a material impact on our consolidated financial position, results of operations or cash flows for fiscal year 2007.
 

 
11

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 permits entities to choose to measure selected financial assets and liabilities and other eligible items at fair value, which are not otherwise currently required to be measured at fair value.  Under SFAS 159, the decision to measure items at fair value is made at specified election dates on an irrevocable instrument-by-instrument basis.  Entities electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront cost and fees associated with the items for which the fair value option is elected.  Entities electing the fair value option are required to distinguish on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute.  SFAS 159 became effective for us as of the beginning of our fiscal year 2008.  We did not elect the fair value option for any financial assets or liabilities during the nine months ended September 26, 2008.
 
In December 2007, the FASB ratified a consensus reached by the EITF on Issue 07-1, "Accounting for Collaborative Arrangements" (“EITF 07-1”).  The EITF agreed on the definition of a collaborative arrangement and concluded that revenues and costs incurred with third parties in connection with collaborative arrangements should be presented on a gross or a net basis in accordance with the guidance in EITF 99-19.  Payments to or from participants should be accounted for based on the appropriate authoritative accounting literature, by analogy to other authoritative literature, or by a consistently applied accounting policy election.  Companies are also required to disclose the nature and purpose of collaborative arrangements along with the accounting policies and the classification and amounts of significant financial statement amounts related to the arrangements.  EITF 07-1 will be effective for us beginning in our fiscal year 2009, and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date.  We are currently evaluating the impact of adopting EITF 07-1 on our consolidated financial statements.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”).  This statement amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements.”  This statement establishes accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary.  Noncontrolling interests are currently described as minority interests in our Condensed Consolidated Financial Statements.  SFAS 160 requires that noncontrolling interests be presented as a separate line item under stockholders’ equity on the Condensed Consolidated Balance Sheet.  SFAS 160 requires prospective application, except that the presentation and disclosure of minority interests is retrospectively applied for all periods presented.  SFAS 160 will be effective for us in fiscal year 2009, which will begin on January 3, 2009.  Early adoption is prohibited.  We are currently evaluating the impact of adopting SFAS 160 on our consolidated financial statements.
 
In December 2007, the FASB issued SFAS 141(R), which replaced SFAS 141.  This statement establishes principles and requirements for how the acquirer of a business recognizes and measures, in its financial statements, the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree.  With limited exceptions, assets and liabilities should be measured and recorded at their acquisition-date fair value.  This statement also requires contractual contingent assets acquired and contractual contingent liabilities assumed to be recorded at acquisition-date fair values and noncontractual contingencies to be treated the same way only if they are more likely than not to meet the definition of an asset or liability in FASB Concepts Statement No. 6, “Elements of Financial Statements.”  If this criterion is not met at the acquisition date, the acquirer would account for the contingencies using other applicable GAAP.  This statement also requires the expensing of acquisition-related costs as incurred.  SFAS 141(R) also provides guidance for recognizing and measuring the goodwill acquired in a business combination and determines what information is required to be disclosed to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141(R) will be applied prospectively at our adoption date, effective at the beginning of our fiscal year 2009.  Early adoption is prohibited.  Finally, SFAS 141(R) requires pre-acquisition tax exposures and any subsequent changes to tax exposures to be recorded as adjustments to our income statement instead of as adjustments to goodwill on our balance sheet.  We are currently evaluating the impact of adopting SFAS 141(R) on our consolidated financial statements.
 

 
12

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”).  SFAS 161 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities, requiring enhanced disclosures to improve the transparency of financial reporting about an entity’s derivative and hedging activities.  SFAS 161 requires disclosures to provide additional information on how and why derivative instruments are being used.  This statement will be effective for us at the beginning of our fiscal year 2009 and applies to interim period financial statements.  We are currently evaluating the impact of adopting SFAS 161 on our consolidated financial statements.
 
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  This statement mandates that the GAAP hierarchy reside in the accounting literature as opposed to the audit literature and has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy.  This statement will become effective 60 days following Securities and Exchange Commission approval.  We do not believe that the adoption of this statement will impact our financial statements.
 
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60.”  The scope of this statement is limited to financial guarantee insurance (and reinsurance) contracts.  The statement will be effective for us at the beginning of our fiscal year 2009.  We do not believe that the adoption of this statement will impact our financial statements.
 
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.”  This FSP states that share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents prior to vesting is a participating security and should be included in the earnings allocation in computing EPS under the two-class method described in SFAS No. 128, “Earnings per Share.”  Our 2008 Equity Incentive Plan and related stock award agreements provide that unvested restricted stock units and unvested restricted stock awards may include nonforfeitable dividend rights and, consequently, are participating securities as defined in this FSP.  This FSP will be effective for us beginning in our fiscal year 2009.  We are currently evaluating the impact of adopting FSP EITF 03-6-1 on our consolidated financial statements.
 
 
WGI Acquisition
 
On November 15, 2007, we completed the acquisition of WGI, a provider of program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services for approximately $3.3 billion.  The acquisition was accounted for in accordance with SFAS 141.  During the nine months ended September 26, 2008, we revised our estimate of direct transaction costs and the estimated fair values of some of the tangible and intangible assets and liabilities associated with our acquisition of WGI.  The purchase price is comprised of the following:
 
(In thousands)
 
Purchase Price
 
Cash consideration
  $ 1,478,313  
Value of URS Corporation common stock issued
    1,816,821  
Estimated direct transaction costs
    25,171  
Total purchase price
  $ 3,320,305  
 
In connection with the acquisition, we purchased 100% of WGI’s outstanding common stock and equity awards and issued approximately 29.5 million shares, net of shares withheld for taxes, of our common stock.  The fair value of our common stock of $60.09 per share was based on the average of the closing market prices of our common stock for the period beginning two trading days before and ending two trading days after November 5, 2007, the date that the amendment to the merger agreement was announced in accordance with EITF Issue 99-12, “Determination of the Market Price of Acquirer Securities Issued in a Purchase Business Combination.”
 
 
13

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
Direct transaction costs of $25.2 million, which consisted of investment banking, legal and accounting fees, and other external costs directly related to the acquisition, have been included in the purchase price.
 
In accordance with SFAS 141, the purchase price has been allocated to WGI’s net tangible and identifiable intangible assets based upon their fair values.  The excess of the purchase price over the value of the net tangible and identifiable intangible assets has been recorded as goodwill.  We are substantially complete with the valuation and the allocation of the purchase price to the individual assets acquired and liabilities assumed.  As of September 26, 2008, plans for restructuring activities were still being finalized which may result in a change to the restructuring reserve including any related income tax impacts.  The finalization of the restructuring reserve may result in adjustments to the values allocated to the Washington Division and the determination of any residual amount that will be allocated to goodwill.
 
During the nine months ended September 26, 2008, we revised the estimated fair values of some of the tangible and intangible assets and liabilities associated with our WGI acquisition, which resulted in immaterial changes to the allocation of the purchase price.  The following table summarizes the revised allocation of the purchase price to the acquired net assets of WGI and the associated estimated useful lives:

Allocation of purchase price:
(In thousands)
 
Amount
   
Estimated
Useful Life as of
November 15,
2007
 
Net tangible assets:
               
Current tangible assets
  $ 1,214,618          
Property and equipment
    179,295          
Other non-current tangible assets
    197,492          
Current liabilities
    (781,055 )        
Long-term liabilities
    (203,913 )        
Minority interests
    (17,373 )        
Total net tangible assets
    589,064          
Identifiable intangible assets:
               
Customer relationships and backlog
    513,131    
12 years†
 
Trade name
    50,700    
6 years†
 
Favorable leases
    2,810    
4.6 years†
 
Total amount allocated to identifiable intangible assets
    566,641          
Net deferred tax assets
    46,346          
Accrual for restructuring costs
    (27,194 )        
Goodwill
    2,145,448          
Total purchase price
  $ 3,320,305          
†Weighted-average estimated remaining useful life
               
 
Identifiable intangible assets.  Of the total purchase price, $566.6 million was allocated to customer relationships and backlog, trade name and favorable leases.  We amortize these assets based on the pattern in which the economic benefits of the intangible assets are expected to be consumed.  Customer relationships and backlog represents the combined fair value of existing contracts in backlog and the fair value of established customer relationships.  The customer relationships and backlog intangible asset is amortized using the straight-line method over periods ranging from 7 to 16 years with a weighted-average useful life of 12 years.  Trade name relates to the WGI trade name, which is amortized using the straight-line method over an estimated useful life of six years.  Favorable leases represent the net favorable difference between market and existing lease rates.  We amortize the fair value of these assets based on the terms of the respective underlying leases.  During the three and nine months ended September 26, 2008, we recorded $12.4 million and $38.9 million of amortization of identifiable intangible assets, respectively.
 
 
14

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued) 

Net deferred tax assets.  The net deferred tax assets reflect the excess of WGI’s pre-existing deferred tax assets over the estimated net deferred tax liabilities associated with purchase accounting.  Such deferred tax liabilities are associated with the step-up to fair value of the net tangible and identifiable intangible assets.  This determination is substantially complete, but is subject to change based upon the finalization of the restructuring reserve.
 
Goodwill.  Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets and is subject to adjustment as the fair value of identifiable intangible assets and net deferred tax liabilities are adjusted.  In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill will not be amortized, but instead will be tested for impairment at least annually (more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable).  In the event we determine that the value of goodwill has become impaired, we will incur an accounting charge for the amount of the impairment during the period in which the determination is made.  The factors that contributed to the recognition of goodwill included the acquisition of a talented workforce and cost savings opportunities.  Of the total goodwill acquired, $457.1 million represents tax deductible goodwill.  The adjustments made to our estimate of direct transaction costs and to the estimated fair values of some net tangible and identifiable intangible assets associated with our WGI acquisition resulted in a decrease of $2.9 million in goodwill for the nine months ended September 26, 2008.
 
Normal profit.  Normal profit is included in the fair value liability adjustment and is an accounting concept that results from the requirement that an acquiring company record at fair value all contracts, including construction contracts, of an acquiree in process at the date of the acquisition.  As such, an asset for favorable contracts or a liability for unfavorable contracts is recorded in purchase accounting in cases where there have been intervening events and changes in circumstances that occurred between the commencement of the contracts and the date of the acquisition that significantly changed the economics of the contracts.  These assets or liabilities are then reduced based on revenues recorded over the remaining contract lives effectively resulting in the recognition of a reasonable or normal profit margin on contract activity performed by us subsequent to the acquisition.  Because some of the acquired fixed-price and target-price contracts had either above or below-market profit status, we originally recorded an estimated fair value net liability of $41.3 million in purchase accounting.  During the three and nine months ended September 26, 2008, we recorded adjustments of $19.5 million and $21.1 million, respectively, to goodwill to reduce the fair value of the net normal profit liability that was recorded in purchase accounting in connection with the finalization of the valuation of individual contracts.  As a result of the normal profit adjustments, we recognized a $2.8 million increase in cost of revenues which decreased operating income during the three months ended September 26, 2008.  During the nine months ended September 26, 2008, we recognized $5.8 million of normal profit which has been reflected as a reduction to cost of revenues and an increase in operating income.  As of September 26, 2008, $11.8 million of net normal profit liability remained and was included in “Billings in excess of costs and accrued earnings on contracts in process” on our Condensed Consolidated Balance Sheet.
 

 
15

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)

Restructuring costs.  We began a restructuring plan to integrate and restructure the Washington Division immediately after the acquisition of WGI.  Estimated restructuring costs of $27.2 million relate primarily to costs for severance, associated benefits, outplacement services and excess facilities.  The estimated restructuring costs associated with integration activities of the Washington Division were recorded as an adjustment to the WGI purchase price allocation in accordance with the requirements of EITF Issue 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination,” (“EITF 95-3”).  We are still finalizing decisions regarding the restructuring plan of the combined company, and, as a result, we expect that additional adjustments and refinements to the restructuring plan will arise.  Future adjustments, whether increasing or decreasing the restructuring plan's total value, may impact goodwill and accrued expense and other liabilities.  The restructuring plan will be finalized by November 15, 2008 under the provisions of EITF 95-3.  All other restructuring liabilities outside the scope of EITF 95-3 will be recognized in the income statement when those costs have been incurred in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  The following table presents a reconciliation of the restructuring reserve balance from December 28, 2007 to September 26, 2008.
 
(In thousands)
 
Three Months Ended
September 26, 2008
   
Nine Months Ended
September 26, 2008
 
Estimated restructuring reserve at beginning of period
  $ 20,607     $ 26,600  
Adjustments
    3,379       594  
Payments
    (5,788 )     (8,996 )
Balance as of September 26, 2008
  $ 18,198     $ 18,198  
 
Pro Forma Results
 
The unaudited financial information in the table below summarizes the combined results of operations of URS Corporation and WGI for the three and nine months ended September 28, 2007, on a pro forma basis, as though the companies had been combined as of the beginning of the period presented.  The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the period presented, nor should it be taken as indicative of our future consolidated results of operations.
 
Unaudited (In millions, except per share data)
 
Three Months Ended
September 28, 2007 (1)
   
Nine Months Ended
September 28, 2007 (1)
 
Revenues (1)                                                       
  $ 2,197.7     $ 6,132.1  
Net income                                                       
  $ 54.0     $ 103.5  
Basic EPS                                                       
  $ .66     $ 1.28  
Diluted EPS                                                       
  $ .66     $ 1.26  
 
(1)  
For the three months ended September 28, 2007, we included pro forma adjustments of $134.2 million to revenues and $119.8 million to cost of revenues.  For the nine months ended September 28, 2007, we included pro forma adjustments of $364.6 million to revenues and $339.5 million to cost of revenues.  These adjustments were made to conform WGI’s unconsolidated joint ventures, previously accounted for using proportionate consolidation, to reflect the use of the equity method.
 
 
In August 2008, we acquired LopezGarcia Group, Inc. and Tryck Nyman Hayes, Inc. for an aggregate purchase price, net of cash acquired, of $21.8 million. Pro forma results have not been presented as the acquisitions are not considered material.
 

 
16

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)

NOTE 3.  JOINT VENTURES
 
Consolidated Ventures
 
We participate in construction joint ventures, partnerships and partially owned limited liability companies that are formed to bid, negotiate and complete specific projects.  We have majority ownership in some of these entities, which are consolidated in our financial statements.
 
We are a 60% owner and the primary beneficiary of Advatech, LLC. (“Advatech”), our most material consolidated limited liability company.  Advatech provides design, engineering, construction and construction management services to its customers relating to specific technology involving wet flue gas desulfurization processes.  We have not guaranteed any debt on behalf of Advatech; however, one of our subsidiaries has guaranteed the performance of Advatech’s contractual obligations.  Advatech’s total revenues were $73.6 million and $115.7 million for the three months ended September 26, 2008 and September 28, 2007, respectively.  Advatech’s total revenues were $266.9 million and $344.4 million for the nine months ended September 26, 2008 and September 28, 2007, respectively.
 
We also formed a consolidated joint venture for the purpose of constructing a cement plant in Missouri.  We have a 55% interest in and are the primary beneficiary of this joint venture.  The joint venture’s total revenues were $163.8 million and $409.1 million for the three and nine months ended September 26, 2008.  The following table represents the total assets of the two consolidated joint ventures described above.  This joint venture was a part of our acquisition of WGI on November 15, 2007.  As a result, we have not included financial information for this consolidated joint venture for the three and nine months ended September 28, 2007.
 
(In thousands)
 
September 26,
2008
   
December 28,
2007
 
Cash and cash equivalents
  $ 54,214     $ 58,396  
Net accounts receivable
    119,208       99,064  
Other assets
    211       33,737  
Total assets
  $ 173,633     $ 191,197  
 
Unconsolidated Construction Joint Ventures
 
We participate in unconsolidated construction joint ventures, which are generally controlled by the joint venture partners.  The joint venture agreements typically limit our interests in any profits and assets, and our respective share in any losses and liabilities that may result from the performance of the contract are limited to our stated percentage interest in the project.  Although joint venture contracts with the project owners typically require joint and several liabilities, our agreements with our joint venture partners may provide that each partner will assume and pay its full proportionate share of any losses resulting from a project.  We have no significant commitments beyond completion of the contract.
 
We account for construction joint ventures, in which we have determined that we do not hold a controlling interest but do exercise significant influence, using the equity method of accounting.  Under the equity method, we recognize our proportionate share of the net earnings of the joint ventures as a single line item under “Equity in income of unconsolidated affiliates” in our Condensed Consolidated Statement of Operations and Comprehensive Income.  Our proportionate share of the unconsolidated construction joint ventures and other unconsolidated affiliates generally ranges from 8% to 50%.
 

 
17

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
Other Unconsolidated Affiliates
 
We participate in other unconsolidated joint ventures that do not perform construction activities and in which we do not hold a controlling interest but do exercise significant influence.  We have determined that we are not the primary beneficiary in these investments and, thus, we account for these investments using the equity method.  The most significant of these investments is a 50% interest in an incorporated mining venture in Germany — MIBRAG mbH (“MIBRAG”), a company that operates lignite coal mines and power plants.

The table below presents financial information, derived from the most recent financial statements provided to us, on a combined 100% basis for our unconsolidated construction and non-construction joint ventures and affiliates, in which we do not hold a controlling interest but do exercise significant influence.
 
(In thousands)
 
MIBRAG
Mining
Venture
   
Unconsolidated
Construction Joint
Ventures
   
Unconsolidated
Non-Construction
Joint Ventures
 
September 26, 2008
                       
Current assets
  $ 201,763     $ 405,064     $ 129,598  
Noncurrent assets
  $ 1,099,217     $ 3,860     $ 11,150  
Current liabilities
  $ 94,172     $ 330,477     $ 83,841  
Noncurrent liabilities
  $ 834,412     $     $ 1,147  
                         
December 28, 2007
                       
Current assets
  $ 121,297     $ 389,104     $ 114,534  
Noncurrent assets
  $ 1,060,199     $ 5,254     $ 10,190  
Current liabilities
  $ 67,899     $ 357,430     $ 78,914  
Noncurrent liabilities
  $ 839,655     $     $ 17,853  
                         
Three months ended September 26, 2008
   
 
 
Revenues
  $ 133,266     $ 323,261     $ 116,692  
Cost of revenues
  $ (114,946 )   $ (302,930 )   $ (87,459 )
Income from continuing operations before tax
  $ 18,320     $ 20,331     $ 29,233  
                         
Three months ended September 28, 2007
   
 
 
Revenues
    N/A (1)   $ 84,044     $ 78,682  
Cost of revenues
    N/A (1)   $ (78,616 )   $ (75,711 )
Income from continuing operations before tax
    N/A (1)   $ 5,428     $ 2,971  
                         
Nine months ended September 26, 2008
   
 
 
Revenues
  $ 397,274     $ 1,107,812     $ 341,729  
Cost of revenues
  $ (345,360 )   $ (1,028,237 )   $ (254,304 )
Income from continuing operations before tax
  $ 51,914     $ 79,575     $ 87,425  
                         
Nine months ended September 28, 2007
   
 
 
Revenues
    N/A (1)   $ 258,814     $ 215,750  
Cost of revenues
    N/A (1)   $ (247,003 )   $ (206,544 )
Income from continuing operations before tax
    N/A (1)   $ 11,811     $ 9,206  
 
(1)  
Financial information for our MIBRAG mining joint venture for the three and nine months ended September 28, 2007 is not presented because it was a part of our acquisition of WGI on November 15, 2007.
 

 
18

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)

 
Property and Equipment
 
(In thousands)
 
September 26,
2008
   
December 28,
2007
 
Equipment and internal-use software
  $ 308,538     $ 294,084  
Construction and mining equipment
    224,869       198,883  
Furniture and fixtures
    51,283       49,401  
Leasehold improvements
    60,919       59,125  
Construction in progress
    10,475       6,553  
Land and improvements
    584       584  
      656,668       608,630  
Accumulated depreciation and amortization
    (306,858 )     (250,723 )
Property and equipment at cost, net
  $ 349,810     $ 357,907  
 
In addition to the property and equipment presented above, we also have a parcel of land held for sale, valued at $14.0 million as of September 26, 2008 included in “Prepaid expenses and other assets” on our Condensed Consolidated Balance Sheet.
 
Depreciation expense related to property and equipment was $22.3 million and $9.8 million for the three months ended September 26, 2008 and September 28, 2007, respectively.  Depreciation expense related to property and equipment was $66.1 million and $29.0 million for the nine months ended September 26, 2008 and September 28, 2007, respectively.
 
Intangible Assets
 
Amortization expense related to intangible assets for the three months ended September 26, 2008 and September 28, 2007 was $12.5 million and $0.3 million, respectively.  Amortization expense related to intangible assets for the nine months ended September 26, 2008 and September 28, 2007 was $39.4 million and $0.8 million, respectively.
 
 
Indebtedness consists of the following:
 
(In thousands)
 
September 26,
2008
   
December 28,
2007
 
Bank term loans, net of debt issuance costs
  $ 1,088,113     $ 1,254,383  
Obligations under capital leases
    18,571       22,715  
Notes payable, foreign credit lines and other indebtedness
    30,562       29,683  
Total indebtedness
    1,137,246       1,306,781  
Less:
               
 Current portion of long-term debt
    18,086       17,964  
Long-term debt
  $ 1,119,160     $ 1,288,817  

 
19

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
2007 Credit Facility
 
Our Senior Secured Credit Facility (“2007 Credit Facility”) consists of two term loan facilities in the original aggregate amount of $1.4 billion and a revolving credit facility in the amount of $700.0 million, which is also available for issuing letters of credit.  In June 2008, we entered into the first amendment to the 2007 Credit Facility, which allows us to repurchase up to one million shares of our common stock annually, provided that we maintain designated financial criteria.  During the three months ended September 26, 2008, we repurchased one million shares of our common stock as permitted by the amended 2007 Credit Facility.
 
As of September 26, 2008 and December 28, 2007, the outstanding balance of the term loan A was $866.3 million and $999.6 million at interest rates of 4.73% and 6.79%, respectively.  As of September 26, 2008 and December 28, 2007, the outstanding balance of the term loan B was $238.7 million and $275.4 million at interest rates of 5.73% and 7.54%, respectively.  We did not have any amount outstanding under our revolving line of credit as of September 26, 2008 and December 28, 2007.  As of September 26, 2008, we were in compliance with the covenants of the 2007 Credit Facility.
 
Revolving Line of Credit
 
Our revolving line of credit information is summarized as follows:
 
(In millions, except percentages)
 
Nine Months Ended
September 26,
2008
   
Year Ended
December 28,
2007
 
Effective average interest rates paid on the revolving line of credit
    5.7 %     8.2 %
Average daily revolving line of credit balances
  $ 0.3     $ 2.3  
Maximum amounts outstanding at any one point in time
  $ 7.7     $ 40.3  
 
Other Indebtedness
 
Notes payable, foreign credit lines and other indebtedness.  As of September 26, 2008 and December 28, 2007, we had outstanding amounts of $30.6 million and $29.7 million, respectively, in notes payable and foreign lines of credit.  Notes payable primarily include notes used to finance the purchase of office equipment, computer equipment and furniture.  The weighted-average interest rates of the notes were approximately 6.0% and 6.5% as of September 26, 2008 and December 28, 2007, respectively.
 
We maintain foreign lines of credit, which are collateralized by the assets of our foreign subsidiaries and, in some cases, parent guarantees.  As of September 26, 2008 and December 28, 2007, we had $16.2 million and $15.0 million in lines of credit available under these facilities, respectively.  The amount outstanding under foreign lines of credit totaled $0.8 million as of September 26, 2008.  There was no amount outstanding as of December 28, 2007.
 
Capital Leases.  As of September 26, 2008 and December 28, 2007, we had approximately $18.6 million and $22.7 million in obligations under our capital leases, respectively, consisting primarily of leases for office equipment, computer equipment and furniture.
 

 
20

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
Maturities
 
As of September 26, 2008, the amounts of our long-term debt outstanding (excluding capital leases) that mature in the next five years and thereafter were as follows:
 
(In thousands)
 
Less than one year                                           
  $ 10,003  
Second year                                           
    9,066  
Third year                                           
    89,635  
Fourth year                                           
    673,583  
Fifth year                                           
    336,359  
Thereafter                                           
    29  
    $ 1,118,675  
 
As of September 26, 2008, the amounts of our capital leases that mature in the next five years and thereafter were as follows:
 
(In thousands)
     
Less than one year                                                                
  $ 8,932  
Second year                                                                
    5,405  
Third year                                                                
    3,805  
Fourth year                                                                
    1,860  
Fifth year                                                                
    277  
Total minimum lease payments                                                              
    20,279  
Less: amounts representing interest                                                                
    1,708  
Present value of net minimum lease payments
  $ 18,571  
 
Fair Values of Debt Instruments and Interest Rate Swaps
 
Our 2007 Credit Facility is a floating-rate facility.  To hedge against changes in floating interest rates, we entered into three floating-for-fixed interest rate swaps with notional amounts totaling $900.0 million.
 
At September 26, 2008 and December 28, 2007, the estimated current market value of term loans A and B, net of debt issuance costs, was approximately $17.6 million and $9.5 million less than the amount reported on our Condensed Consolidated Balance Sheets, respectively.  As of September 26, 2008 and December 28, 2007, the fair values of our swap liabilities were $6.7 million and $3.9 million, respectively.  The increase in these liabilities was due to falling short-term market interest rates.  The short-term portion of the swap liabilities was recorded in “Accrued expenses” and the long-term portion of the swap liabilities was recorded in “Other long-term liabilities” on our Condensed Consolidated Balance Sheets.  The adjustments to the fair values of the swap liabilities were recorded in “Accumulated other comprehensive income.”  We have recorded no gain or loss on our Condensed Consolidated Statements of Operations and Comprehensive Income as our interest rate swaps have been deemed to be an effective hedge.
 
Valuation Hierarchy
 
SFAS 157 establishes a valuation hierarchy for disclosure of the inputs used to measure fair value.  This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.  The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 
21

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)

Our financial instruments carried at fair value consist principally of our swap liabilities.  The following table presents the fair value of our swap liabilities, which were carried at fair value on a recurring basis as of September 26, 2008:
 
(In millions)
Total Carrying Value as of September 26, 2008
Fair Value Measurement as of September 26, 2008
Quoted Prices in Active Markets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs (Level 3)
Interest rate swap liabilities
$        6.7
$      —
$        6.7
$      —
 
Valuation
 
 
Our interest rate swap liabilities are used as risk management tools and are not used for trading or speculative purposes.  The fair value of each interest rate swap is based on mark-to-model measurements that are interpolated from observable market data as of September 26, 2008 and for the duration of the interest rate swaps’ terms.
 
 
Domestic Pension and Supplemental Executive Retirement Plans
 
We sponsor a number of pension and unfunded supplemental executive retirement plans.  The components of our net periodic pension costs relating to the domestic pension and supplemental executive retirement plans for the three and nine months ended September 26, 2008 and September 28, 2007 were as follows:
 
   
Three Months Ended
   
Nine Months Ended
 
(In thousands)
 
September 26,
2008
   
September 28,
2007
   
September 26,
2008
   
September 28,
2007
 
Service cost                                        
  $ 1,343     $ 1,922     $ 4,711     $ 5,768  
Interest cost                                        
    4,460       2,807       13,460       8,421  
Expected return on plan assets
    (3,567 )     (2,850 )     (11,395 )     (8,550 )
Amortization of:
                               
Prior service costs                                     
    (518 )     (525 )     (1,554 )     (1,575 )
Net loss                                     
    12       265       36       795  
Curtailment gain (1)
    (860 )           (860 )      
Net periodic pension cost
  $ 870     $ 1,619     $ 4,398     $ 4,859  
 
(1) The curtailment gain was a result of the termination of a customer contract, which resulted in a reduction in our workforce.
 
During the nine months ended September 26, 2008, we made cash contributions of $18.1 million to the pension plans.  We currently expect to make additional cash contributions of approximately $0.3 million by the end of 2008.
 

 
22

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
Final Salary Pension Fund
 
As part of the acquisition of Dames & Moore Group, Inc. in 1999, we assumed the Dames & Moore Final Salary Pension Fund in the United Kingdom (“Final Salary Pension Fund”).  The Final Salary Pension Fund provides retirement benefit payments for the life of participating retired employees and their spouses.  The components of our net periodic pension costs relating to this plan for the three and nine months ended September 26, 2008 and September 28, 2007 were as follows:
 
   
Three Months Ended
   
Nine Months Ended
 
(In thousands)
 
September 26,
2008
   
September 28,
2007
   
September 26,
2008
   
September 28,
2007
 
Interest cost                                           
  $ 306     $ 286     $ 930     $ 843  
Expected return on plan assets
    (129 )     (131 )     (392 )     (386 )
Amortization of:
                               
Net loss                                        
    51       50       154       147  
Net periodic pension cost (1)
  $ 228     $ 205     $ 692     $ 604  
 
(1) We used the current rate method in translating our net periodic pension costs to the U.S. dollar.
 
During the nine months ended September 26, 2008, we made cash contributions of $0.5 million to the Final Salary Pension Fund.  We currently expect to make additional cash contributions by the end of 2008 of approximately $0.3 million.
 
 
We sponsor a number of retiree health and life insurance benefit plans (post-retirement benefit plans).  Post-retirement benefit plans provide medical and life insurance benefits to employees that meet eligibility requirements.  All of these benefits may be subject to deductibles, co-payment provisions, and other limitations.
 
The components of our net periodic benefit cost relating to the post-retirement benefit plans for the three and nine months ended September 26, 2008 and September 28, 2007 were as follows:
 
   
Three Months Ended
   
Nine Months Ended
 
(In thousands)
 
September 26,
2008
   
September 28,
2007
   
September 26,
2008
   
September 28,
2007
 
Service cost
  $ 17     $ 65     $ 51     $ 195  
Interest cost
    647       79       1,941       237  
Expected return on plan assets
    (74 )     (75 )     (222 )     (225 )
Amortization of:
                               
Net (gain) loss                                        
    (57 )     10       (171 )     30  
Net periodic benefit cost
  $ 533     $ 79     $ 1,599     $ 237  
 
During the nine months ended September 26, 2008, we did not make any cash contributions to the post-retirement benefit plans, nor do we currently expect to make any additional cash contributions in 2008.
 

 
23

 URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
NOTE 7.  STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM
 
We recognize stock-based compensation expense, net of estimated forfeitures, over the vesting periods (generally three to four years) of the stock-based compensation awards on a straight-line basis in “General and administrative expenses” in our Condensed Consolidated Statements of Operations and Comprehensive Income.
 
The following table presents our stock-based compensation expenses related to stock options, restricted stock awards and units, and the related income tax benefits recognized, for the three and nine months ended September 26, 2008 and September 28, 2007.
 
   
Three Months Ended
   
Nine Months Ended
 
(In millions)
 
September 26,
2008
   
September 28,
2007
   
September 26,
2008
   
September 28,
2007
 
Stock-based compensation expenses:
                               
Restricted stock awards and units
  $ 7.8     $ 5.3     $ 22.1     $ 17.4  
Stock options
          0.8             2.6  
Stock-based compensation expenses
  $ 7.8     $ 6.1     $ 22.1     $ 20.0  
                                 
Total income tax benefits recognized in our net income related to stock-based compensation expenses
  $ 3.0     $ 2.4     $ 8.6     $ 7.7  
 
On May 22, 2008, our stockholders approved our 2008 Equity Incentive Plan, which replaces our 1999 Equity Incentive Plan and authorizes the issuance of up to five million shares of common stock in the form of restricted stock awards, restricted stock units, stock options and other forms of equity awards.
 
Restricted Stock Awards and Units
 
We record compensation expense related to restricted stock awards and units over the applicable vesting periods as required under SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123(R)”).  Vesting of some awards is subject to both service requirements and performance conditions.  As of September 26, 2008, we had unrecognized stock-based compensation expense of $75.3 million related to nonvested restricted stock awards and units.  This expense is expected to be recognized over a weighted-average period of 2.8 years.  The total fair values of shares vested and the grant date fair values of restricted stock awards and units granted during the nine months ended September 26, 2008 and September 28, 2007 are summarized below:
 
(In millions)
 
September 26, 2008
   
September 28, 2007
 
Fair values of shares vested
  $ 17.1     $ 17.9  
Grant date fair values of restricted stock awards and units
  $ 38.2     $ 20.0  
 
 
 
24

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
A summary of the status of and changes in our nonvested restricted stock awards and units, according to their contractual terms, as of September 26, 2008 and for the nine months ended September 26, 2008 is presented below:
 
   
Nine Months Ended
September 26, 2008
 
   
Shares
   
Weighted-Average Grant Date Fair Value
 
Nonvested at December 28, 2007
    1,736,333     $ 44.58  
Granted                                                
    1,092,060     $ 35.00  
Vested                                                
    (444,082 )   $ 41.77  
Forfeited                                                
    (109,410 )   $ 44.44  
Nonvested at September 26, 2008
    2,274,901     $ 40.53  
 
Stock Incentive Plans
 
We have not granted any stock options since September 2005.  A summary, as of September 26, 2008 and for the nine months ended September 26, 2008, of the status of, and changes in, stock options granted under our 1991 Stock Incentive Plan and 1999 Equity Incentive Plan, according to their contractual terms, which provide for expiration of the options in ten years from the date of grant, is presented below:
 
   
Stock Options
   
Weighted-Average Exercise Price
   
Weighted-Average Remaining Contractual Term
(in years)
   
Aggregate Intrinsic Value
(in millions)
 
Outstanding at December 28, 2007
    1,605,957     $ 22.60       4.74     $ 51.7  
Exercised
    (418,467 )   $ 21.70                  
Forfeited/expired/cancelled
    (7,500 )   $ 20.93                  
Outstanding and exercisable at September 26, 2008
    1,179,990     $ 22.93       4.53     $ 18.4  
 
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing market price of $38.50 as of September 26, 2008, which would have been received by the option holders had all option holders exercised their options on that date.
 
For the nine months ended September 26, 2008 and September 28, 2007, the aggregate intrinsic value of stock options exercised, determined as of the date of option exercise, was $9.9 million and $16.9 million, respectively.  As of September 26, 2008, all of our stock option awards were fully vested and there was no remaining unrecognized stock-based compensation expense related to nonvested stock option awards.  The total fair value of stock options vested during the nine months ended September 26, 2008 and September 28, 2007 was $0.1 million and $4.3 million, respectively.
 
Stock Repurchase Program
 
During the three months ended September 26, 2008, we repurchased an aggregate of one million shares of our common stock at an average price of $42.30 per common share for approximately $42.3 million.  This repurchase was allowed under our 2007 Credit Facility as amended on June 19, 2008.
 

 
25

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)

 
We operate our business through three segments: the URS Division, the EG&G Division and the Washington Division.  The URS Division provides a comprehensive range of professional 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 industry clients in the U.S. and internationally.  The EG&G Division provides services to various U.S. federal government agencies, primarily the Departments of Defense and Homeland Security.  These services include program management, planning, design and engineering, systems engineering and technical assistance, operations and maintenance, and decommissioning and closure.  The Washington 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 industry clients in the U.S. and internationally.
 
These three 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 year ended December 28, 2007.  The information disclosed in our condensed consolidated financial statements is based on the three segments that comprise our current organizational structure.
 
At the beginning of our 2008 fiscal year, we realigned several of our operations to consolidate businesses serving the same markets or clients in the division most capable of successfully addressing these markets or clients.  This realignment included transferring the majority of the URS Division’s interest in Advatech, which provides emissions control services for coal-fired power plants, to the Washington Division and transferring the Washington Division’s Defense Business Unit to the EG&G Division, as well as the realignment of some smaller businesses.
 
The following tables present summarized financial information for our reportable segments.  “Inter-segment, eliminations and other” in the following tables include elimination of inter-segment sales and investments in subsidiaries.  The segment balance sheet information presented below is included only for informational purposes.  We do not allocate resources based upon the balance sheet amounts of individual segments.  Our long-lived assets primarily consist of property and equipment.
 
 
26

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)
 
   
Three Months Ended
   
Nine Months Ended
 
(In millions)
 
September 26,
2008
   
September 28,
2007 (3)
   
September 26,
2008
   
September 28,
2007 (3)
 
Revenues
                               
URS Division
  $ 839.7     $ 801.4     $ 2,546.4     $ 2,330.7  
EG&G Division
    606.8       377.0       1,732.2       1,085.4  
Washington Division
    1,154.8       102.5       3,137.6       270.6  
Inter-segment, eliminations and other
    (13.2 )     (12.9 )     (38.1 )     (43.1 )
Total revenues
  $ 2,588.1     $ 1,268.0     $ 7,378.1     $ 3,643.6  
Equity in income of unconsolidated affiliates
                               
URS Division
  $ 2.8     $ 2.9     $ 7.1     $ 6.9  
EG&G Division
    1.7       1.4       5.3       4.1  
Washington Division
    19.8             68.6        
Total equity in income of unconsolidated affiliates
  $ 24.3     $ 4.3     $ 81.0     $ 11.0  
Contribution (1)
                               
URS Division
  $ 61.5     $ 60.2     $ 189.9     $ 171.5  
EG&G Division
    43.4       20.9       104.1       60.1  
Washington Division
    54.9       3.2       147.2       9.7  
Inter-segment and other unallocated operating costs
          (0.1 )           (0.8 )
General and administrative expenses (2)
    (26.4 )     (16.1 )     (72.8 )     (51.4 )
Corporate interest expense
    (20.3 )     (3.2 )     (67.0 )     (9.5 )
Total contribution
  $ 113.1     $ 64.9     $ 301.4     $ 179.6  
Operating income
                               
URS Division
  $ 59.7     $ 57.6     $ 184.1     $ 165.9  
EG&G Division
    42.0       20.1       101.0       57.2  
Washington Division
    62.0       5.1       165.5       14.1  
Inter-segment and other unallocated operating costs
          (0.1 )           (0.8 )
General and administrative expenses (2)
    (20.5 )     (13.0 )     (57.1 )     (40.6 )
Total operating income
  $ 143.2     $ 69.7     $ 393.5     $ 195.8  
Depreciation and amortization
                               
URS Division
  $ 9.1     $ 8.7     $ 25.8     $ 25.5  
EG&G Division
    4.4       0.9       16.0       3.0  
Washington Division
    19.8       0.2       59.8       0.6  
Corporate and other
    1.5       0.3       3.9       0.7  
Total depreciation and amortization
  $ 34.8     $ 10.1     $ 105.5     $ 29.8  
 
(1)  
We define segment contribution as total segment operating income minus interest expense and minority interests attributable to that segment, but before allocation of various segment expenses, including stock compensation expenses.  Segment operating income represents net income before income taxes, minority interests and interest expense.
 
(2)  
General and administrative expenses represent expenses related to corporate functions.
 
(3)  
We revised and conformed the prior period’s amounts to our current year’s segment presentation.  Because the Washington Division did not exist as one of our divisions before November 15, 2007, the amounts presented for the three and nine months ended September 28, 2007 are not comparable to the results for the three and nine months ended September 26, 2008, and are comprised of the amounts that represent the result of the realignment of our operations among our divisions as discussed above.
 

 
27

URS CORPORATIONS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED
(Continued)

A reconciliation of segment contribution to segment operating income for the three and nine months ended September 26, 2008 and September 28, 2007 is as follows:
 
   
Three Months Ended September 26, 2008 (1)
 
(In millions)
 
URS
Division
   
EG&G
Division
   
Washington
Division
   
Corporate
   
Corporate Interest Expense
   
Eliminations
   
Consolidated
 
Contribution
  $ 61.5     $ 43.4     $ 54.9     $ (26.4 )   $ (20.3 )   $     $ 113.1  
Minority interests
    0.3             8.4                         8.7  
Unallocated SFAS 123(R) expenses
    (2.7 )     (1.0 )     (1.7 )     5.4                    
Other miscellaneous unallocated expenses
    0.6       (0.4 )     0.4       0.5       20.3             21.4  
Operating income (loss)
  $ 59.7     $ 42.0     $ 62.0     $ (20.5 )   $     $     $ 143.2  
                                                         
   
Three Months Ended September 28, 2007 (1)
 
(In millions)
 
URS
Division
   
EG&G
Division
   
Washington
Division
   
Corporate
   
Corporate Interest Expense
   
Eliminations
   
Consolidated
 
Contribution
  $ 60.2     $ 20.9     $ 3.2     $ (16.1 )   $ (3.2 )   $ (0.1 )   $ 64.9  
Minority interests
    0.1             1.8                         1.9  
Unallocated SFAS 123(R) expenses
    (2.9 )     (0.8 )           3.7                    
Other miscellaneous unallocated expenses
    0.2             0.1       (0.6 )     3.2             2.9  
Operating income (loss)
  $ 57.6     $ 20.1     $ 5.1     $ (13.0 )   $     $ (0.1 )   $ 69.7  

   
Nine Months Ended September 26, 2008 (1)
 
(In millions)
 
URS
Division
   
EG&G
Division
   
Washington
Division
   
Corporate
   
Corporate Interest Expense
   
Eliminations