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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549



Form 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012

OR

o

 

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

FOR THE TRANSITION PERIOD FROM                                    TO

Commission File Number 000-27261



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

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

9191 South Jamaica Street,
Englewood, CO

 

80112-5946
(Address of principal executive offices)   (Zip Code)

(303) 771-0900
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share



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

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

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

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

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

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

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

         The aggregate value of common stock held by non-affiliates computed by reference to the price as of June 30, 2012 was approximately $1.6 billion.

         As of February 8, 2013, there were 29,823,093 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         Information required by Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K are incorporated by reference from the CH2M HILL definitive proxy statement for its 2013 Annual Meeting of Stockholders to be held on May 13, 2013.


Table of Contents

CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

 
   
  Page
PART I.    
Item 1.   Business   4
Item 1A.   Risk Factors   10
Item 1B.   Unresolved Staff Comments   22
Item 2.   Properties   22
Item 3.   Legal Proceedings   23
Item 4.   Mine Safety Disclosures   23

PART II.

 

 
Item 5.   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   24
Item 6.   Selected Financial Data   30
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   31
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   44
Item 8.   Financial Statements and Supplementary Data   44
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   44
Item 9A.   Controls and Procedures   44
Item 9B.   Other Information   45

PART III.

 

 
Item 10.   Directors, Executive Officers and Corporate Governance   46
Item 11.   Executive Compensation   47
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   47
Item 13.   Certain Relationships and Related Transactions, and Director Independence   47
Item 14.   Principal Accounting Fees and Services   47

PART IV.

 

 
Item 15.   Exhibits and Financial Statement Schedules   48

SIGNATURES

 

 

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        This Form 10-K contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent the Company's expectations and beliefs concerning future events, based on information available to the Company on the date of the filing of this Form 10-K, and are subject to various risks and uncertainties. Such forward looking statements are and will be subject to many risks and uncertainties relating to our operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward looking statements. Words such as "believes," "anticipates," "expects," "will," "plans" and similar expressions are intended to identify forward looking statements. Additionally, forward looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law. Factors that could cause actual results to differ materially from those referenced in the forward-looking statements are listed in Item 1A, Risk Factors. The Company disclaims any intent or obligation to update or revise any of the forward- looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.

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PART I

Item 1.    Business

Summary

        CH2M HILL Companies, Ltd. was founded in 1946 and incorporated under the laws of the State of Delaware. We are an employee-controlled professional engineering services firm providing engineering, construction, consulting, design, design-build, procurement, engineering-procurement-construction ("EPC"), operations and maintenance, program management and technical services to U.S. federal, state, municipal and local government agencies, national governments, as well as private industry and utilities, around the world. We have approximately 30,000 employees worldwide.

Our Operating Segments

        Effective January 1, 2012, we reorganized our reporting structure under which our chief operating decision maker regularly reviews operating results and makes strategic and operating decisions with regards to assessing performance and allocating resources in order to streamline our business and reducing overhead costs. As a result, we formed the Energy, Water, and Facilities ("EWF") segment and the Government, Environment, and Infrastructure ("GEI") segment. The reporting units previously included in the Energy and Water segment in 2011 were moved to the EWF segment and the reporting units previously included in the Government, Environment and Nuclear segment in 2011 were moved to the GEI segment. Reporting units that were previously included in the Facilities and Infrastructure segment were divided into either the EWF or GEI segment, accordingly.

        On November 10, 2011, we acquired all of the share capital of Halcrow Holdings Limited ("Halcrow"). For 2012, the results of operations for the lines of business acquired within Halcrow were assigned to the appropriate segment according to the nature of their operations. More information about the acquisition can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Our Clients and Key Markets

Clients

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

        Within our EWF segment, our Energy business primarily focuses on providing services to a comprehensive range of private sector clients and utilities, while our Water business primarily provides services to state and local governments. Our facilities business provides services to private sector manufacturing clients as well as public sector entities. Within our GEI segment, our government business primarily provides a comprehensive range of services to various U.S. federal government agencies and foreign governments. Our infrastructure business provides services to all types of governments and military installations while our environment business provides comprehensive services to a broad spectrum of domestic and international clients in the public, private and government sectors.

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        The following table summarizes our primary client types, revenues and key markets served by each of our operating segments during 2012.

Operating Segment
  Client Type   % of 2012
Revenues
  Key Markets

Energy, Water and Facilities

  State and Local
Governments, Private
Sectors and Utilities
    56 %

Energy & Chemicals

Industrial and Advanced Technology

Operations Management

Power

Water

Government, Environment
and Infrastructure

  U.S. Federal and Foreign
Governments,
Governmental Agencies
and Authorities, Private
Sectors and Utilities
    44 %

Environmental Services

Government Facilities and Infrastructure

Nuclear

Transportation

        The following table provides a summary of representative clients:

Public Sector Clients   Private Sector Clients

U.S. Department of Energy ("DOE")

U.S. Department of Defense

U.S. Department of the Interior

U.S. Air Force

U.S. Navy

U.S. Army Corps of Engineers

U.S. Federal Emergency Management Agency ("FEMA")

Department of Homeland Security

U.S. Agency for International Development

U.S. Environmental Protection Agency

National Aeronautics and Space Administration

National Science Foundation

U.K. Environment Agency

Transport for London

U.K. Department for Transport

Local and Municipal Transport Agencies

 

U.K. Atomic Energy Authority

U.K. Nuclear Decommissioning Authority ("NDA")

Republic of Korea Ministry of Defense

U.S. cities

Foreign cities

U.S. and international airports and seaports

U.S. and State Departments of Transportation

U.S. state and international transit authorities and agencies

Water and wastewater municipalities

Panama Canal Authority

Qatar Public Works Authority

Qatar 2022 Supreme Committee

Rio 2016 Olympic and Paralympic Games

 

Major oil and gas companies, refiners and pipeline operators

Power utilities

Chemicals, bioprocessing and refining companies

Metals and mining

Microelectronics manufacturers

Pharmaceutical and biotechnology companies

Automotive, food and beverage consumer product manufacturers

Renewable energy companies

        In 2012, we derived approximately 28% of our total revenues from contracts with the U.S. federal government. This work is performed through numerous contracts and joint ventures primarily within the GEI operating segment.

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Key Markets

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

Energy, Water and Facilities Segment

        The EWF Segment is comprised of the Energy and Chemicals, Industrial and Advanced Technologies, Operations Management, Power and Water businesses. The portfolio of services includes: consulting, design, engineering, design-build, EPC, operations and maintenance, construction management, construction, and program management.

        Energy and Chemicals—In our Energy and Chemicals ("E&C") business, we serve the upstream, pipelines and terminals, and refining sectors of the oil and gas industry. For the upstream sector, we perform engineering, modular fabrication, erection, construction, and operations and maintenance services for oil and gas fields. We deliver compression and dehydration facilities, drilling and well support services, enhanced oil recovery, field development, fleet support, natural gas gathering and processing, conventional oil production, sulfur recovery, acid gas treating, and heavy oil and steam-assisted gravity drainage facilities. In our pipelines and terminals sector, we focus on infrastructure projects that gather, store, and transport oil, natural gas, refined products, carbon dioxide, and other related hydrocarbons, liquids, and gases. These projects include pipelines, compression, pump stations, metering, tank farms, terminals, and related facilities for midstream (wellhead to central processing) and downstream (cross-country transportation) systems. In our refining sector, we provide conceptual and preliminary engineering, front-end and detail design, procurement, construction, and operations and maintenance services. Our refining experience includes technology evaluation and feasibility studies; design and construction of refinery units, terminals, pipelines, pump stations, and cogeneration facilities; design, fabrication, and installation of modules and pipe racks; turnarounds and revamps; effluent treatment; refinery conversion to heavy crude oil processing; and process safety management. In our chemicals business, we serve all segments of the industry, including petrochemicals and derivatives, inorganics, specialties, and agricultural chemicals. We have substantial experience in polysilicon, chemicals from alternative feedstock, bioprocess, alkalis and chlorine, pigments and coating, monomers and polymers, resins and plastics, and synthetic performance fibers. This group also serves the biofuels market where we specialize in advanced fuel sources for biofuels development in the United States, Canada, and Latin America. In our metals and mining sector we provide the complete suite of engineering, construction, and operations and maintenance services for mining infrastructure and processing facilities. We serve clients in North and South America, the Middle East, Asia, and Russia.

        Industrial and Advanced Technology—In our Industrial and Advanced Technology ("I&AT") business, we provide program management, consulting, planning, design, and construction services to clients in the following manufacturing industries: integrated circuit, wafer, dynamic random access memory, nanotechnology, photo voltaic, data center, flat panel display, automotive, aerospace and aviation, food and beverage, building materials, metals and consumer products sectors. Our clients typically require integrated design and construction services for complex manufacturing systems, including clean rooms, ultrapure water and wastewater systems, chemical and gas systems and production tools. Our electronics business also provides specialized consulting services to optimize the operating efficiency and return on investment for complex manufacturing facilities. In addition, our IDC Architects group services the university research sectors as well as special economic zone developments. As the economy recovers, we will continue to expand market reach in Asia, North America, and the Middle East. We are leveraging our strategic business planning capabilities to help clients structure and plan their high-volume manufacturing projects, and to provide follow-on design and construction services.

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        Operations Management—In our Operations Management ("OM") business, we provide public sector entities and private/commercial companies with a broad range of tailored solutions focused on increasing efficiency and productivity. Our public sector clients include state and local governments and agencies as well as national governments outside the United States. We provide service in the private sector to customers in heavy manufacturing, electronics, food & beverage, advanced technology, mining and minerals, oil and gas, aviation, energy, and chemicals. Our services include water and wastewater system and staff optimization; contract operations and maintenance of water, wastewater, and other municipal functions such as public works, and community development; facilities management; utilities operations and maintenance; and management, asset management/maintenance, and financial consulting. Our geographic strategy is to expand market reach in North America, and follow our other business groups and clients into target geographies including Europe, Australia, and the Middle East. We see an increase in public-private and private-private partnerships for both full and customized services, as municipal and private entities continue to look for more ways to increase revenues and reduce costs through efficiency gains. We will continue to expand our consulting business and leverage cross-market synergies around design-build-operate, remediation, produced water, and manufacturing.

        Power—In our Power business, we design and build power generation facilities that produce energy from natural gas, coal, solar, wind, biomass, and geothermal sources. Our portfolio includes combined-cycle, simple-cycle, coal/integrated gasification, clean air, alternative/waste fuels, transmission and cogeneration projects. We also repower, upgrade, and modify existing plants to improve performance, reliability and achieve clean air standards. Our delivery of full-service EPC services helps clients craft long-term strategies while addressing the ongoing market challenges around unpredictable and changing electricity demand, transmission capacity constraints, changing environmental regulations and policies, aging infrastructure, outdated technologies, water constraints, and fuel diversification. We also provide engineering studies, design, construction management, program management and consulting services. We use advanced, novel technologies to deliver projects safely and effectively for our clients.

        Water—In our Water business, we are dedicated to sustainability as we serve water resources and ecosystem management; water treatment; conveyance and collection; wastewater treatment and reuse; and utility management market segments. We support the water-related needs of clients in the utility, industrial, government, energy, and agricultural sectors. Our broad portfolio of water solutions helps clients address the complex challenges related to population growth, aging infrastructure, water supply uncertainty, global climate change, regulatory changes, and increasing demand. Beginning in 2012, the industrial water capability from the industrial systems business was combined with the Water business to pursue the large and growing energy and industrial related water market. Addressing the impacts of global climate change requires the ability to create solutions for the energy-water-carbon nexus. Energy and mining production require a reliable, abundant, and predictable source of water, a resource that is already in short supply throughout much of the world. We work with clients to identify solutions for water and energy conservation, and to re-evaluate processes to achieve cost savings and reduce environmental impacts. Our geographic strategy is to expand market reach in North and South America, Europe, the Middle East, Asia, and Australia. We will continue to capitalize on market drivers such as drought and water scarcity, aging infrastructure, global climate change, and regulatory requirements.

Government, Environment and Infrastructure Segment

        The GEI segment is comprised of the Environmental Services, Government Facilities and Infrastructure, Nuclear, and Transportation businesses. GEI provides a full range of services—program management, engineering, design, construction, environmental remediation, operation and maintenance, decontamination and decommissioning, facility closure, sustainable solutions, and consulting services—to clients worldwide, including our largest client, the U.S. federal government. The segment also

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provides enterprise stewardship for the development of our facilities penetration strategy and our urban development practice for large program management projects.

        Environmental Services—Our Environmental Services ("ES") business is dedicated to sustainability by protecting human health, preserving the environment, and restoring impacted natural resources. We achieve this mission by offering services through nine global practices: sustainability consulting, threat reduction management, environmental compliance, planning and permitting, integrated waste solutions, munitions response, natural resources planning and management, sediment management and remediation, and site remediation and revitalization. A key differentiator for our services remains our innovation and complex problem solving capacities found in these practices. Clients include a broad spectrum of U.S. and state government agencies and departments; multinational commercial clients; and international clients in the public, private and government sectors. Over the past ten years our environmental services have consistently been rated in the top 10% of our peer provider base by market journals and trade magazines and we are considered to be an industry leader. Another key differentiator for us with both our government and multinational clients is project delivery with a global footprint—our ability to effectively and consistently deploy our systems and processes (especially safety, environmental compliance, and project management) throughout the world with minimal deviation.

        Government Facilities and Infrastructure—Our Government Facilities and Infrastructure ("GF&I") business plans, designs, constructs, operates and maintains various categories of facilities and infrastructure at all types of government and military installations offering contingency and logistics, planning and consulting engineering and design, design-build, operations and maintenance, and program management services. The U.S. Department of Defense is GF&I's largest client. We also provide a multitude of services to other government agencies such as the U.S. Federal Emergency Management Agency, National Science Foundation, U.S. Agency for International Development, Department of Energy (DOE), and the National Aeronautics and Space Administration. We continue to expand our government client base, both within the U.S. and internationally. At its core, our GF&I business ensures value-added mission success for our clients by safely delivering flexible and sustainable facilities, infrastructure, and contingency solutions on any scale worldwide while maintaining a focus to optimize client goals, and minimize impacts and costs.

        Nuclear—Our Nuclear business specializes in the management of complex nuclear programs and projects around the globe. Our experience includes managing and operating nuclear facilities and providing innovative cleanup and environmental remediation for commercial and government facilities and sites worldwide. We provide innovative cleanup and closure solutions for contaminated sites in the U.S. DOE nuclear weapons complex and at U.K. Nuclear Decommissioning Authority ("NDA") sites in Great Britain. In the commercial nuclear sector, we provide program management and program advisory services, as well as planning, permitting, and licensing of new nuclear energy generating stations. Additionally, we provide service offerings at government and commercial nuclear sites including which include program management and owner's engineer services, decommissioning, waste management, waste fuel strategies, support service operations, and planning, permitting, and licensing of new nuclear energy generating stations. Our Nuclear business unit serves three primary businesses sectors: nuclear remediation and decommissioning, nuclear power and national defense. The DOE and NDA are the primary clients served by our nuclear remediation and decommissioning sector, however we have also decommissioned reactors for utilities and research reactors for universities. Our nuclear power sector primarily serves clients such as the United Arab Emirates and Poland. Governmental clients such as the U.S. National Nuclear Security Agency and U.K. Ministry of Defense's Atomic Weapons Establishment are served by our national defense sector.

        Transportation—In the Transportation business, we serve the aviation, highway/bridge, ports and maritime, and transit and rail segments with horizontal infrastructure development. We provide planning, design, value engineering, design-build, project/program management, construction

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management, feasibility studies, public involvement/community management, environmental documentation, and sustainability planning services to our clients. Airport services include airfield planning and design, airfield navigational aids, airport master planning, program management, airport modeling and simulation, and airport facilities planning, design, mechanical, and electrical. For our highway and bridge clients, we provide transportation and sustainability planning; highway and bridge design and construction; traffic engineering and traffic modeling; intelligent transportation systems; highway safety consulting; geotechnical analysis; and tunneling. Ports and maritime client services include architecture; passenger, container, liquid, and bulk terminal facilities design and construction; asset management; inspection and rehabilitation; and ports infrastructure. Transit and rail services include planning; track, tunneling, and facilities design; vehicle engineering; transit technology; systems engineering; asset management; safety and security; and management consulting.

        Our Sustainability Practice has substantial client engagements in both our EWF and GEI segments. This practice develops and implements climate change, carbon and energy management, natural resources planning and management, green buildings and many other facets of sustainability. Through a robust Community of Practice and a Sustainability Leadership Board, we bring together strategists, scientists, architects, engineers, technologists, management consultants and economists to evaluate opportunities and work collaboratively to deliver lasting solutions that benefit our clients, their communities, and the environment. We also have a diverse platform of tools, technology, and best practices to help clients make well informed decisions and to evaluate the overall sustainability of various business decisions.

Competition

        The market for our design, consulting, engineering, construction, design-build, EPC, operations and maintenance, and program management services is highly competitive. We compete primarily with large multinational firms but also compete with smaller firms on contracts within the private industry and state and local government sectors. In addition, some of our clients, including government agencies, occasionally utilize their own internal resources to perform design, engineering and construction services where we might have been the service provider.

        Numerous mergers and acquisitions in the engineering services industry have resulted in a group of large firms that offer a full complement of single-source services including studies, designs, construction, design-build, EPC, operation and maintenance and in some instances, facility ownership. Included in the current trend is movement towards larger program and contract awards and longer-term contract periods for a full suite of services, (e.g., 5 to 20 year full-service contracts). While these larger, longer, more comprehensive contracts require us to have substantially greater financial and human capital than in the past, we compete effectively for these full service programs.

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

Backlog

        We define backlog as signed contracts and task orders less previously recognized revenue on such contracts and task orders. In addition, we include amounts under notices to proceed that have been received from clients and are expected to be recognized as revenues when future services are performed. Our operations and maintenance contracts are included for the non-cancellable term of the contract. Unexercised options under any contract are not included in our backlog. Our backlog also reflects the future activities related to consolidated joint ventures. Many of our contracts require us to provide services that span over a number of fiscal years. U.S. government agencies operate under

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annual fiscal appropriations by Congress and fund various federal contracts only on an incremental basis. The same is true of many state, local and foreign contracts. Our policy is to include in backlog the full contract award, whether funded or unfunded, for amounts that are expected to result in revenue in future periods based upon our experience with our clients or type of work. In accordance with industry practice, substantially all of our contracts are subject to cancellation, termination, or suspension at the discretion of the client. If sequestration occurs, our backlog could be negatively impacted. See Item 1A. Risk Factors for further discussion.

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

($ in millions)
  2012   2011  

Energy, Water and Facilities

  $ 4,135.1   $ 4,065.4  

Government, Environment and Infrastructure

    3,247.2     3,209.4  
           

  $ 7,382.3   $ 7,274.8  
           

Available Information

        For information regarding our company, including free copies of filings with the Securities and Exchange Commission ("SEC"), please visit our web site at www.ch2m.com. The SEC filings, which include our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K are located in the About Us/Employee Ownership section of our web site and are made available as soon as practicable after they are filed with the SEC.

Item 1A.    Risk Factors

You should carefully consider the following factors and other information contained in this Annual Report on Form 10-K before deciding to invest in our common stock.

Risks Related to Our Business

Unpredictable economic cycles, uncertain demand for our engineering and related services, and failure by our major customers to pay our fees, could cause our revenue to fluctuate or be uncollectible.

        Demand for our engineering and other services is affected by the general level of economic activity in the markets in which we operate, both in and outside of the U.S. Our customers and the markets in which we compete to provide services are likely to experience periods of economic decline from time-to-time. In particular, the recent global economic downturn and governmental tax revenue declines resulted in a slowdown in demand for our services in state and municipal clients.

        Adverse economic conditions may decrease our customers' willingness to make capital expenditures or otherwise reduce their spending to purchase our services, which could result in diminished revenues and margins for our business. The demand for services depends on the demand and capital spending of our customers in their target markets, some of which are cyclical in nature. Adverse economic conditions could alter the overall mix of services that our customers seek to purchase, and increased competition during a period of economic decline could force us to accept contract terms that are less favorable to us than we might be able to negotiate under other circumstances. Changes in our mix of services or a less favorable contracting environment may cause our revenues and margins to decline. Moreover, our customers impacted by the economic downturn could delay or fail to pay our fees. If a customer failed to pay a significant outstanding fee, our financial results could be adversely affected and our stock price could be reduced. Adverse credit market conditions could negatively impact our customers' ability to fund their projects and therefore utilize our services; they can also impact subcontractors' and suppliers' ability to deliver work. These credit disruptions could negatively impact our backlog and profits, and could increase our costs or adversely impact project schedules.

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        The uncertainties involved in prolonged procurement processes associated with our projects make it particularly difficult to predict whether and when we will receive a contract award. The uncertainty of contract award timing can present difficulties in matching our workforce size with our project needs. If an expected project award is delayed or not received, we could incur costs resulting from idle workforce reductions in staff, or redundancy of facilities that would have the effect of reducing our profits.

Changes and fluctuations in U.S. government's spending priorities could adversely affect our revenue expectations.

        Because a substantial part of our overall business is generated either directly or indirectly as a result of U.S. federal, state and local government regulatory and infrastructure priorities, shifts in these priorities due to changes in policy imperatives or economic conditions are often unpredictable and may affect our revenues.

        Our contracts with the U.S. federal government are subject to the uncertainties of Congressional funding. Since government contracts represent a significant percentage of our revenues (in fiscal 2012, our U.S. federal government contracts represented approximately 28% of our total revenues), government budget deficits or a significant reduction in government funding could lead to continued delays in contract awards and termination or suspension of our existing contracts, which could have an adverse impact on our business, financial condition and results of operations. In addition, any government shutdown could have an impact on our government projects including our ability to earn revenue on the projects already awarded, and could have an adverse impact on our financial condition.

        In particular, the Budget Control Act of 2011 imposed a process, known as sequestration, to implement $1.2 trillion in automatic spending cuts starting on March 1, 2013 and effective through fiscal year 2021, unless an alternative federal budget management process is agreed between the U.S. Congress and the President of the United States. If the sequestration takes effect, the agencies of the U.S. Federal Government may be required to modify or terminate contracts and substantially reduce awards of new work to companies like us, which will likely impact our ability to earn revenue on projects already awarded, win new work from U.S. Government customers and may have an adverse impact on our financial condition.

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

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

        In 2012, we derived approximately 28% of our total revenues from contracts with the U.S. federal government. The following risks are inherent in U.S. federal government contracts:

    Because U.S. federal laws permit government agencies to terminate a contract for convenience, our U.S. government clients may terminate or decide not to renew our contracts with little or no prior notice.

    Due to payments we receive from our U.S. government clients, our books, records and processes are subject to audit by various U.S. governmental agencies for a number of years after these

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      payments are made. Based on these audits, the U.S. government may adjust or demand repayment of payments we previously received, or withhold a portion of fees due to us because of unsatisfactory audit outcomes. Audits have been completed on our U.S. federal contracts through December 31, 2006, and are continuing for subsequent periods. Audits performed to date have not resulted in material adjustments to our financial statements. Unsatisfactory audit results may impact our ability to bid or win future U.S. government contract work. In addition, as a government contractor, we are subject to increased risks of investigation, criminal prosecution and other legal actions and liabilities to which purely private sector companies are not. The results of any such actions could adversely impact our business and have an adverse effect on our consolidated financial statements.

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

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

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

    If the sequestration takes effect, the agencies of the U.S. Federal Government may be required to modify or terminate contracts and substantially reduce awards of new work to companies like CH2M HILL, which will likely impact our ability to earn revenue on projects already awarded, win new work from U.S. Government customers and may have an adverse impact on our financial condition.

        Our ability to secure new government contracts and our revenues from existing government contracts could be adversely affected by any one or a combination of the factors listed above.

Many of our projects are funded by U.S. federal, state and local governments and if we violate applicable laws governing this work, we are subject to the risk of suspension or debarment from government contracting activities, which could have a material adverse affect on our business and results of operations.

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

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Our industry is highly competitive.

        We are engaged in a highly competitive business in which most of our contracts with public sector clients are awarded through a competitive bidding process that places no limit on the number or type of potential service providers. The process usually begins with a government agency request for proposal that delineates the size and scope of the proposed contract. The government agency evaluates the proposals on the basis of technical merit and cost.

        In both the private and public sectors, acting either as a prime contractor or as a subcontractor, we may join with other firms that we otherwise compete with to form a team to compete for a single contract. Because a team can often offer stronger combined qualifications than any firm standing alone, these teaming arrangements can be very important to the success of a particular contract competition or proposal. Consequently, we maintain a network of relationships with other companies to form teams that compete for particular contracts and projects. Failure to maintain technical and price competitiveness, as well as failure to maintain access to strong teaming partners may impact our ability to win work.

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

        Our backlog at December 31, 2012 was $7.4 billion. We cannot assure that the revenues projected in our backlog will be realized or, if realized, will result in profits. Projects may remain in our backlog for an extended period of time prior to project execution and, once project execution begins, it may occur unevenly over the current and multiple future periods. In addition, our ability to earn revenues from our backlog depends on the availability of funding for various government and private clients. Most of our industrial clients have termination for convenience provisions in their contracts. Therefore, project terminations, suspensions or reductions in scope may occur from time-to-time with respect to contracts reflected in our backlog. Some backlog reductions would adversely affect the revenue and profit we actually receive from contracts reflected in our backlog. Future project cancellations and scope adjustments could further reduce the dollar amount of our backlog and the revenues and profits that we actually earn.

Our inability to attract and retain professional personnel could adversely affect our business.

        Our ability to attract, retain and expand our staff of qualified engineers and technical professionals will be an important factor in determining our future success and growth. The market for these professionals is competitive in and outside the U.S. As some of our key personnel approach retirement age, we are developing and implementing proactive succession plans. If we cannot attract and effectively implement our succession plans, we could have a material adverse impact on our business, financial condition, and results of operations. Since we derive a significant part of our revenues from services performed by our professional staff, our failure to retain and attract professional staff could adversely affect our business by impacting our ability to complete our projects and secure new contracts.

Our projects may result in liability for faulty engineering services.

        Our engineering practice involves professional judgments regarding the planning, design, development, construction, operations and management of industrial facilities and public infrastructure projects. Because our projects are often large and can affect many people, our failure to make judgments and recommendations in accordance with applicable professional standards could result in large damages and, perhaps, punitive damages. Although we have adopted quality control, risk management and risk avoidance programs designed to reduce potential liabilities, and carry professional liability to set off this risk, there can be no assurance that such programs will protect us fully from all risks and liabilities.

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Fluctuations in commodity prices may affect our customers' investment decisions and therefore subject us to risks of cancellation or delays in existing work, or changes in the timing and funding of new awards.

        Commodity prices can affect our customers and may have a significant impact on the costs and profitability of our projects. For projects that we perform on a guaranteed fixed price or "not to exceed" cost basis, unforeseen rising commodity prices can reduce our profit or cause us to incur a loss. Rising commodity prices can negatively impact the potential returns on investments for our customers and may lead to customers deferring new investments or canceling or delaying existing projects. Some of our customers are engaged in the production or processing of commodity products, particularly in the energy sector, and fluctuations in commodity prices can impact their business and their willingness to make new capital investments, which in turn may reduce demand for our services. Cancellations, delays and weakness in demand for our services in markets that are affected by commodity price fluctuations may affect our operating results in significant and unpredictable ways and could have a material adverse impact on our business, financial condition, and results of operations.

We could sustain losses on contracts that contain a fixed price or guaranteed maximum price provision if our costs exceed the maximum prices.

        In 2012, we derived approximately 38% of our revenues from fixed price and "guaranteed maximum price" contracts. Under fixed price contracts, we agree to deliver projects for a definite, predetermined price and under guaranteed maximum price contracts, we agree to deliver projects for a price that is capped regardless of our actual costs incurred over the life of the project. Under cost reimbursable contracts with maximum pricing provisions, we are typically compensated for the labor hours expended at agreed-upon hourly rates plus cost of materials plus any subcontractor costs used; however, there is a stated maximum compensation for the services to be provided under the contract. Many fixed price or guaranteed maximum price contracts involve large industrial facilities and public infrastructure projects and present the risk that our costs to complete a project may exceed the guaranteed maximum or fixed price agreed upon with the client. The fees negotiated for such projects may not cover our actual costs and desired profit margins. In addition, many of our customers on fixed or maximum price contracts do not accept escalation clauses regarding labor or material cost increases, including commodity price increases. If our actual costs for a maximum price project or fixed price project are higher than we expect, our profit margins on the project will be reduced or we could suffer a loss.

Percentage-of-completion accounting used for our engineering and construction contracts can result in overstated or understated profits or losses.

        The revenue for our engineering and construction contracts is accounted for on the percentage-of-completion method of accounting. This method of accounting requires us to calculate revenues and profit to be recognized in each reporting period based on our predictions of future outcomes, including our estimates of the total cost to complete the project, project schedule and completion date, the percentage of the project that is completed and the amounts of any probable unapproved change orders. Our failure to accurately estimate these often subjective factors could result in reduced profits or losses.

Environmental regulations and related compliance investigations may adversely impact our project performance, expose us to liability and could adversely affect our revenues.

        A substantial portion of our business is generated either directly or indirectly as a result of laws and regulations related to environmental matters. In particular, our business involves significant risks including the assessment, analysis, remediation, handling, management and disposal of hazardous substances. As a result, we are subject to a variety of environmental laws and regulations governing, among other things, discharges of pollutants and hazardous substances into the air and water and the

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handling and disposal of hazardous waste including nuclear materials and related record keeping requirements. These laws and regulations and related investigations into our compliance, as it pertains to facility operations and remediation of hazardous substances, can cause project delays and, substantial management time commitment and may significantly add to our costs. Violations of these environmental laws and regulations could subject us to civil and criminal penalties and other liabilities, which can be very large. Although we have not been subject to any material civil or criminal penalties for violations of these laws to date, we have incurred costs and diverted resources to respond to reviews that have negatively impacted the profitability of some of our projects. While the costs of these reviews have not been material to our consolidated results of operations in the past, additional or expanded reviews or proceedings on environmental compliance, or any substantial fines or penalties, could affect our profitability and our stock price in the future, or could adversely affect our ability to compete for new business. Changes in environmental regulations could affect our business more significantly than other firms. Accordingly, a reduction in the number or scope of these laws and regulations, or changes in government policies regarding the funding, implementation or enforcement of such laws and regulations, could significantly reduce one of our most important markets and limit our opportunities for growth or reduce our revenues. In addition, any effort by government agencies to reduce the role of private contractors in regulatory programs, including environmental compliance projects, could have material adverse effects on our business.

We may not be successful in growing through acquisitions or integrating effectively any businesses and operations we may acquire.

        Our success depends on our ability to continually enhance and broaden our service offerings and our service delivery footprint in response to changing customer demands, technology, and competitive pressures. Numerous mergers and acquisitions in our industry have resulted in a group of larger firms that offer a full complement of single source services including studies, design, engineering, procurement, construction, operations, maintenance, and facility ownership. To remain competitive, we may acquire new and complementary businesses to expand our portfolio of services, add value to the projects undertaken for clients or enhance our capital strength. We do not know if we will be able to complete any future acquisitions or whether we will be able to successfully integrate any acquired businesses, operate them profitably, or retain their key employees.

        When suitable acquisition candidates are identified, we anticipate significant competition when trying to acquire these companies, and there can be no assurance that we will be able to acquire such acquisition targets at reasonable prices or on favorable terms. If we cannot identify or successfully acquire suitable acquisition candidates, we may not be able to successfully expand our operations. Further, there can be no assurance that we will be able to generate sufficient cash flow from an acquisition to service any indebtedness incurred to finance such acquisitions or realize any other anticipated benefits. In addition, there can be no assurance that the due diligence undertaken in connection with an acquisition will uncover all liabilities relating to the acquired business. Nor can there be any assurance that our profitability will be improved as a result of these acquisitions. Any acquisition may involve operating risks, such as:

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

    the potential impairment of employee morale;

    the potential disruption of our ongoing business;

    preserving important strategic and customer relationships;

    the diversion of management's attention and other resources;

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

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

    the risks associated with possible violations of the Foreign Corrupt Practices Act, the United Kingdom Bribery Act of 2010, and other anti-corruption laws as a result of any acquisition; and

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

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

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

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

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

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

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

        We rely on third party subcontractors as well as third party equipment manufacturers to complete our projects. To the extent that we cannot engage subcontractors or acquire equipment or materials, our ability to complete a project in a timely fashion or at a profit may be impaired. If the amount we are required to pay for these goods and services exceeds the amount we have estimated in bidding for fixed price contracts, we could experience losses in the performance of these contracts. In addition, if a subcontractor or a manufacturer is unable to deliver its services, equipment or materials according to the negotiated terms for any reason, including the deterioration of its financial condition, we may be required to purchase the services, equipment or materials from another source at a higher price. These risks are potentially more significant in the current economic downturn if financial difficulties in our supply chain cause our sub contractors or equipment suppliers not to be able to support the demands and schedules of our business. This may reduce the profit we expect to realize or result in a loss on a project for which the services, equipment or materials were needed.

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Our defined benefit pension plans have significant deficits that may grow in the future; we may be required to contribute additional cash to meet any underfunded benefit obligations under these plans.

        As a result of our recent acquisition of Halcrow, the Company acquired defined benefit pension plans (also known as "defined benefit pension schemes") that have significant deficits. The ongoing funding obligations for the defined benefit pension plans vary from time to time depending on actuarial assumptions outside of the Company's control, such as discount rates, inflation rates, plan investment returns, and life expectancy of the plan members. In order to maintain an adequate funding position over time, the Company continuously reviews these assumptions and mitigates these risks by working with the pension plan trustees and with actuarial and investment advisors. The Company maintains an ongoing dialog with its pension plan trustees to negotiate a reasonable schedule for cash contributions as required by local regulations. If we are unable to agree such schedule in the future, or if the actuarial assumptions change significantly, we could have material adverse effects on our financial position, results of operations and/or cash flows.

We face special risks associated with our international business.

        In 2012 and 2011, we derived approximately 31% and 25%, respectively, of our revenues from operations outside of the U.S. Conducting business abroad is subject to a variety of risks including:

    Currency exchange rate fluctuations, restrictions on currency movement and impact of international tax laws could adversely affect our results of operations, if we are forced to maintain assets in currencies other than the U.S. dollar as our financial results are reported in U.S. dollars.

    Political and economic instability and unexpected changes in regulatory environment in countries outside the U.S. could adversely affect our projects overseas and our ability to repatriate cash.

    Inconsistent and diverse regulations, licensing and legal requirements may increase our costs because our operations must comply with a variety of laws that differ from one country to another.

    Terrorist attacks and civil unrest in some of the countries where we do business may delay project schedules, threaten the health and safety of our employees and increase our cost of operations.

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

        While we are monitoring such regulatory, geopolitical and other factors, we cannot assess with certainty what impact they may have over time on our business.

Limitations of or modifications to, indemnification regulations of the U.S. or foreign countries could adversely affect our business.

        The Price-Anderson Nuclear Industries Indemnity Act, commonly called the Price-Anderson Act, ("PAA") is a United States federal law, which, among other things, regulates radioactive materials and the nuclear energy industry, including liability and compensation in the event of nuclear related incidents. The PAA provides certain protections and indemnification to nuclear energy plant operators and Department of Energy ("DOE") contractors. The PAA protections and indemnification apply to us as part of our services to the U.S. nuclear energy industry and the DOE for new facilities, maintenance, modification, decontamination and decommissioning of nuclear energy, weapons, and research facilities. We offer similar services in other jurisdictions outside the U.S., provided we believe similar protections and indemnities are available, either through laws or commercial insurance. These protections and

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indemnifications, however, may not cover all of our liability that could arise in the performance of these services. To the extent the PAA or other protections and indemnifications do not apply to our services, our business could be adversely affected because of the cost of losses associated with liability not covered by the available protections and indemnifications, or by virtue of our loss of business because of these added costs.

Foreign exchange risks may affect our ability to realize a profit from certain projects.

        We attempt to minimize our exposure from currency risks by denominating our contracts in the currencies of our expenditures, obtaining escalation provisions for projects in inflationary economies, or entering into derivative (hedging) instruments. However, these actions may not always eliminate our currency risk exposure. Based on fluctuations in currency, the U.S. dollar value of our backlog may from time to time increase or decrease significantly. We do not enter into derivative instruments or hedging activities for speculative purposes. Our operational cash flows and cash balances may consist of different currencies at various points in time in order to execute our project contracts globally. In addition, our non-U.S. asset and liability balances are subject to currency fluctuations when measured period to period for financial reporting purposes in U.S. dollars. Financial hedging may be used to minimize currency volatility for financial reporting purposes.

Special risks associated with doing business in highly corrupt environments and employee, agent or partner misconduct or failure to comply with anti-bribery and other governmental laws could, among other things, harm our reputation.

        The global nature of our business creates various domestic and local regulatory challenges. Our operations include projects in developing countries and countries torn by war and conflict. Many of these countries are rated poorly by Transparency International, the independent watchdog organization for government and institutional corruption around the world. Our operations outside of the U.S. are subject to the Foreign Corrupt Practices Act ("FCPA"), the United Kingdom Bribery Act of 2010, and similar anti-bribery laws in other jurisdictions which generally prohibit companies and their intermediaries from paying or offering anything of value to foreign government officials for the purpose of obtaining or retaining business, or otherwise receiving discretionary favorable treatment of any kind. In addition, we may be held liable for actions taken by our local partners, subcontractors and agents even though such parties are not always subject to our control. Any determination that we have violated the FCPA, the United Kingdom Bribery Act of 2010, or any similar anti-bribery laws in other jurisdictions (whether directly or through acts of others, intentionally or through inadvertence) could result in sanctions that could have a material adverse effect on our business and our reputation and on our ability to secure U.S. federal government and other contracts. While our staff is trained on FCPA and other anti-corruption laws and we have procedures and controls in place to monitor compliance, situations outside of our control may arise that could potentially put us in violation of the these regulations and thus negatively impact our business. In addition, we are also subject to various international trade and export laws. Any misconduct, fraud, non-compliance with applicable governmental laws and regulations, or other improper activities by our employees, agents or partners could have a significant impact on our business, financial results and reputation and could subject us to criminal and civil enforcement actions.

        Misconduct could also include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, environmental laws and any other applicable laws or regulations. In addition, we regularly provide services that may be highly sensitive or that relate to critical national security matters; if a security breach were to occur, our ability to procure future government contracts could be severely limited. Failure to comply with applicable laws or regulations or

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acts of misconduct could subject us to fines and penalties, loss of security clearances, and suspension or debarment from contracting, any or all of which could harm our reputation, reduce our revenues and profits and subject us to criminal and civil enforcement actions.

We face risks associated with working in locations where there are high security risks.

        Some of our projects are performed in locations known for their high security risks. In these high risk locations, we may incur substantial security costs to maintain the safety of our employees and work sites. Despite our best efforts, we cannot guarantee the safety of our employees and we may suffer future losses of employees and subcontractors.

We face risks associated with our work sites and the maintenance of adequate safety standards.

        Construction and maintenance sites are inherently dangerous workplaces and place our employees in close proximity to dangers of the work site, such as mechanized equipment, moving vehicles, chemical and manufacturing process and materials. Our failure to maintain and implement adequate safety standards and procedures could have a material adverse impact on our business, financial condition and results of operations.

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

        Repercussions of severe weather conditions may include:

    Evacuation of personnel and curtailment of services which may be temporary in nature;

    Increased labor and materials costs in areas impacted by weather and subsequent increased demand for labor and materials for repairing and rebuilding;

    Weather related damage to our jobsites or facilities;

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

    Loss of productivity.

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

Rising inflation, interest rates and/or construction costs could reduce the demand for our services as well as decrease our profit on our existing contracts.

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

Inability to secure adequate bonding would impact our ability to win projects.

        As is customary in our industry, we are often required to provide performance and surety bonds to customers in connection with our construction, EPC and fixed price projects. These bonds indemnify the customer if we fail to perform our obligations under the contract. Failure to provide a bond on terms and conditions desired by a customer may result in an inability to compete for or win projects.

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Historically, we have had and continue to have good relationships with our sureties and have a strong bonding capacity. The issuance of bonds under any bonding facilities, however, is at the sureties' sole discretion. There can be no assurance that bonds will continue to be available to us on reasonable terms. Our inability to obtain adequate bonding may result in our ineligibility to bid for construction, EPC and fixed price projects, which could have a material adverse effect on our growth and financial condition.

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

        As part of our business operations, we maintain insurance both as a corporate risk management strategy and to satisfy the requirements of many of our contracts. Insurance products go through market fluctuations and can become expensive and sometimes very difficult to obtain. We work with a diversified team of insurers to reduce our risk of available capacity. There can be no assurances, however, that we can secure all necessary or appropriate insurance in the future at an affordable price for the required limits. Our failure to obtain such insurance could lead to uninsured losses that could have a material adverse effect on our results of operations or financial condition.

        Our present assessment of the insurance market is that there is adequate capacity to cover our insurance needs, but there are indications that the cost of insurance is likely to rise. Currently our insurance and bonds are purchased from several of the world's leading and financially stable providers often in layered insurance or co-surety arrangements. The built-in redundancy of such arrangements usually enables us to call upon existing insurance and surety suppliers to fill gaps that may arise if other such suppliers become financially unstable. Our risk management personnel continuously monitor the developments in the insurance market and financial stability of the insurance providers.

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

        In order to prepare financial statements in conformity with generally accepted accounting principles in the U.S., we are required to make estimates and assumptions as of the date of the financial statements which affect the reported values of our assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Areas requiring significant estimates by us include:

    Recognition of contract revenues, costs, profit or losses in applying the percentage-of-completion method of accounting;

    Recognition of recoveries under contract change orders or claims;

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

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

    Determination of potential liabilities under pension and other postretirement benefit programs;

    Accruals for self insurance programs for medical, workers compensation, general liability and professional liability;

    Recoverability of deferred tax assets and the related valuation allowances, and accruals for uncertain tax positions;

    Stock option valuation model assumptions;

    Accruals for other estimated liabilities;

    Employee incentive plans and stock valuation;

    Variable interest entities; and

    Asset valuations.

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We rely on information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.

        Because of recent advancements in technology and well-known efforts on the part of computer hackers and cyber terrorists to breach data security of companies, we face risks associated with potential failure to adequately protect critical corporate, client, and employee data which, if released, could adversely impact our client relationships, our reputation, and even violate privacy laws. As part of our business, we develop, receive and retain confidential data about our company and our clients including the U.S. federal and other governments' classified or sensitive information.

        In addition, as a global company, we rely heavily on computer, information and communications technology and related systems in order to properly operate. From time to time, we may be subject to systems failures, including network, software or hardware failures, whether caused by us, third party service providers, intruders or hackers, computer viruses, natural disasters, power shortages or terrorist attacks. Such failures could cause loss of data and interruptions or delays in our or our customers' businesses and could damage our reputation. In addition, the failure or disruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Losses that may occur as a result of any system or operational failure or disruption may cause our actual results to differ materially from those anticipated.

        We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems. However, these measures and technology may not adequately prevent security breaches. Any significant interruption or failure of our information systems or any significant breach of security could damage our reputation and adversely affect our business and results of operations.

        The currently evolving landscape of cyber security regulations relating to "critical infrastructure" may impact our clients, and how we offer our services to our clients.

Risks Related to Our Internal Market

Absence of a public market may prevent you from selling your stock and cause you to lose all or part of your investment.

        There is no public market for our common stock. While we intend the internal market to provide liquidity to stockholders, there can be no assurance that there will be enough orders to purchase shares to permit stockholders to sell their shares on the internal market, or that our internal trading market will be sustained in the future. The price in effect on any trade date may not be attractive enough to buyers and sellers to result in a balanced market because the price is determined by our Board of Directors based on their judgment of fair value, and not by actual market trading activity. Moreover, although we may participate in the internal market as a buyer of common stock if there are more sell orders than buy orders in the market, we have no obligation to engage in internal market transactions and will not guarantee market liquidity. Consequently, insufficient buyer demand could cause sell orders to be prorated, or could prevent the internal market from opening on any particular trade date. Insufficient buyer demand could cause stockholders to suffer a total loss of investment or substantial delay in their ability to sell their common stock. No assurance can be given that stockholders desiring to sell all or a portion of their shares of common stock will be able to do so.

Transfer restrictions on our common stock could prevent you from selling your common stock and cause you to lose all or part of your investment.

        Since all of the shares of our common stock are subject to transfer restrictions, you will generally only be able to sell your common stock through our internal market on the scheduled trade dates each

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year. Unlike shares that are actively traded in public markets, you will not be able to sell your shares on demand. Our common stock price could decline between the time you want to sell and the time you become able to sell. For a detailed discussion of the transfer restrictions on our common stock, see Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our stock prices are and will continue to be determined by our Board of Directors' judgment of fair value and not by market trading activity.

        The prices of our common stock at each trade date are established by our Board of Directors based on the factors that are described in Item 5 of this Annual Report on Form 10-K. Our Board of Directors sets the stock price in advance of each trade date, and all trades on our internal market are transacted at the price established by our Board. The market trading activity on any given trade date, therefore, cannot affect the price on that trade date. This is a risk to you because our common stock price will not change to reflect supply of and demand for shares on a given trade date as it would in a public market. You may not be able to sell shares or you may have to sell your shares at a price that is lower than the price that would prevail if the internal market price could change on a given trade date to reflect supply and demand. Our Board of Directors endeavors to use the common stock valuation methodology that results in the stock price that represents fair value. The valuation methodology used to determine fair value is subject to change at the discretion of our Board of Directors.

The limited market and transfer restrictions on our common stock, as well as restrictions in our restated articles of incorporation and bylaws, will likely have anti-takeover effects.

        Only our active and retired employees, directors, eligible consultants, and employee benefit plans may own our common stock and participate in our internal market. We also have significant restrictions on the transfer of our common stock other than through sales on our internal market. These limitations make it extremely difficult for a potential acquirer who does not have the prior consent of our Board of Directors to attain control of our company, regardless of the price per share an acquirer might be willing to pay and whether or not our stockholders would be willing to sell at that price. In addition, restrictions in our restated articles of incorporation and bylaws may make it more difficult for our stockholders to elect directors not endorsed by management.

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

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

Item 1B.    Unresolved Staff Comments

    None

Item 2.    Properties

        Our operations are conducted primarily in leased properties in approximately 60 countries throughout the world. Our corporate headquarters are located in Englewood, Colorado, where we lease approximately 155,000 square feet of space. The lease on our corporate headquarters building expires in 2017, with an option to extend the term twice for either a five or ten year term. We believe that our existing facilities are adequate for the present needs of our business and that suitable additional or substitute space will be available as needed to accommodate any expansion of operations.

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Item 3.    Legal Proceedings

        We are party to various contractual guarantees and legal actions arising in the normal course of business. Because a large portion of our business comes from U.S. federal, state and municipal sources, our procurement and certain other practices at times are subject to review and investigation by U.S. and state attorneys offices. Such state and U.S. government investigations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties or could lead to suspension or debarment from future U.S. government contracting. These investigations often take years to complete and many result in no adverse action or alternatively could result in settlement. Damages assessed in connection with and the cost of defending any such actions could be substantial. While the outcomes of pending proceedings and legal actions are often difficult to predict, management believes that proceedings and legal actions currently pending would not result in a material adverse effect on our results of operations or financial condition even if the final outcome is adverse to our company.

        Many claims that are currently pending against us are covered by our professional liability insurance. Management estimates that the levels of insurance coverage (after retentions and deductibles) are generally adequate to cover our liabilities, if any, with regard to such claims. Any amounts that are probable of payment are accrued when such amounts are estimable.

        In 2010, we were notified that the U.S. Attorney's Office for the Eastern District of Washington is investigating overtime practices in connection with the U.S. Department of Energy Hanford tank farms management contract which we transitioned to another contractor in 2008. In 2011 and 2012, eight former CH2M HILL Hanford Group ("CH2M HILL Subsidiary") employees pleaded guilty on felony charges related to time card fraud committed while working on the Hanford Tank Farm Project. As part of its investigation, the U.S. Attorney's Office raised the possibility of civil and/or criminal charges for possible violations arising from CH2M HILL's Subsidiary overtime practices on the project. In September 2012, the government intervened in a False Claims Act case filed in the District Court for the Eastern District of Washington by one of the employees who plead guilty to time card fraud. We are cooperating with the government's investigation and continue to seek an amicable settlement of any potential civil and criminal charges and resolution of any potential False Claims Act allegations with the Department of Justice. We have reached an agreement in principle with the United States Attorney which, when finalized, will settle the False Claims Act case and result in an agreement by the United States Attorney to not bring criminal charges against us. Based on the information available to us at this time, we do not believe that the ultimate resolution of this matter will have a material impact on our results of operations or financial condition.

Item 4.    Mine Safety Disclosures

        None.

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PART II

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

        We are employee-controlled. As a result, our stock is only available to certain active and retired employees, directors, eligible consultants and benefit plans. There is no market for our stock with the general public. In order to provide liquidity for our stockholders, an internal market ("Internal Market") is maintained through an independent broker, currently Neidiger, Tucker and Bruner, Inc. (NTB).

        The Internal Market enables eligible participants to offer to sell or purchase shares of our common stock on predetermined days (each, a "Trade Date"). The Trade Dates are determined by our Board. Generally, there are four Trade Dates each year. Currently our Board of Directors meetings are scheduled quarterly. All sales of our common stock are made at the price determined by our Board of Directors pursuant to the valuation methodology described below.

        All sales of common stock on the Internal Market are restricted to the following authorized buyers:

    Our employees, directors and eligible consultants

    Trustees of the benefit plans

    Administrator of the Payroll Deduction Stock Purchase Plan ("PDSPP")

        We may impose limitations on the number of shares that an individual may purchase when there are more buy orders than sell orders for a particular Trade Date. After our Board of Directors determines the stock price for use on the next Trade Date, all stockholders, employees, directors and eligible consultants will be advised as to the new stock price and the next Trade Date.

        Our Internal Market is managed through an independent broker, currently NTB, which acts upon instructions from the buyers and sellers to affect trades at the stock price set by our Board of Directors and in accordance with the Internal Market rules. NTB does not play a role in determining the price of our common stock and is not affiliated with us. Individual stock ownership account records are currently maintained by our in-house transfer agent.

        We may purchase shares if the Internal Market is under-subscribed. We may, but are not obligated to, purchase shares of common stock on the Internal Market on any Trade Date at the price in effect on that Trade Date, but only to the extent that the number of shares offered for sale by stockholders exceeds the number of shares sought to be purchased by authorized buyers. The decision as to whether or not we will purchase shares in the Internal Market, if the Internal Market is under-subscribed, is solely within our discretion and we will not notify investors as to whether or not we will participate prior to the Trade Date. Investors should understand that there can be no assurance that they will be able to sell their CH2M HILL stock without substantial delay or that their stock will be able to be sold at all on the Internal Market. We will consider a variety of factors including our cash position, financial performance and number of shares outstanding in making the determination as to whether to participate in an under-subscribed market. The terms of our existing unsecured revolving line of credit do not play a role in the decision as to whether to buy shares in the Internal Market. To date, no other factors have been considered by us in our decisions as to whether or not to participate in an under-subscribed market.

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        If the aggregate number of shares offered for sale on the Internal Market on any Trade Date is greater than the number of shares sought to be purchased, stockholder offers to sell will be accepted as follows:

    If enough orders to buy are received to purchase all the shares offered by each seller selling fewer than 500 shares and at least 500 shares from each other seller, then all sell orders will be accepted up to the first 500 shares and the portion of any sell orders exceeding 500 shares will be accepted on a pro-rata basis

    If not enough orders to buy are received to purchase all the shares offered by each seller selling fewer than 500 shares and at least 500 shares from each other seller, then the purchase orders will be allocated equally to each seller

        We may sell shares if the Internal Market is over-subscribed. To the extent that the aggregate number of shares sought to be purchased exceeds the aggregate number of shares offered for sale, we may, but are not obligated to, sell authorized but unissued shares of common stock on the Internal Market at the price in effect on that Trade Date to satisfy purchase demands. The decision as to whether or not we will sell shares in the Internal Market, if the Internal Market is over-subscribed, is solely within our discretion and we will not notify investors as to whether or not we will participate prior to the Trade Date. Investors should understand that there can be no assurance that they will be able to buy as many shares as they would like on a given Trade Date. We will consider a variety of factors including our cash position, financial performance and number of shares outstanding in making the determination as to whether to participate in an over-subscribed market. The terms of our existing unsecured revolving line of credit do not play a role in the decision as to whether to sell shares in the Internal Market. To date, no other factors have been considered by us in our decisions as to whether or not to participate in an over-subscribed market.

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

    Administrator of the PDSPP

    Trustees of the 401(k) Plan

    Internal Market participants on a pro-rata basis (including purchases through pre-tax and after-tax deferred compensation plans)

        Effective February 11, 2011, all sellers on the Internal Market, other than us and the trustees of the 401(k) Plan, pay NTB a commission fee equal to three tenths of one percent (.3%) of the proceeds from such sales. The previous commission level was two percent (2%) of proceeds from such sales. Employees who sell their common stock upon retirement from our company will have the option to sell the common stock they own on the Internal Market and pay a commission on the sale or to sell to us without paying a commission. In the latter case, the employee will sell their common stock to us at the price in effect on the date of their termination in exchange for a four-year note at a market interest rate determined biannually. No commission is paid by buyers on the Internal Market.


Price of our Common Stock

        Our Board of Directors will determine the price, which is intended to be the fair value, of the shares of our common stock to be used for buys and sells on each Trade Date pursuant to the valuation methodology described below. The price per share of our common stock generally is set as follows:

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

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

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

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

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

    The merger and acquisition market for companies comparable to us

    The prospects for our future performance

    General economic conditions

    General capital market conditions

    Other factors our Board of Directors deem appropriate

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

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

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

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

        Profit After Tax ("P").    "P" is profit after tax, otherwise referred to as net income, for the four fiscal quarters immediately preceding the Trade Date. Our Board of Directors, at its discretion, may exclude nonrecurring or unusual transactions from the calculation. Nonrecurring or unusual transactions are developments that the market would not generally take into account in valuing an equity security. A change in accounting rules, for example, could increase or decrease net income without changing the fair value of our common stock. Similarly, such a change could fail to have an immediate impact on the value of our common stock, but still have an impact on the value of our common stock over time. As a result, our Board of Directors believes that in order to determine the fair value of our common stock, it needs the ability to review unusual events that affect net income. In the past, our Board of Directors has excluded unusual items from the calculation of "P", including nonrecurring revenue from Kaiser-Hill Company, LLC and a write off of an investment in an international telecommunications company. Because "P" is calculated on a four quarter basis, an exclusion impacts the calculation of fair value for four consecutive quarters. Our Board of Directors may determine to exclude other future unusual or non-recurring items from the calculation of "P".

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

        Common Stock Outstanding ("CS").    "CS" is the weighted-average number of shares of our common stock outstanding during the four fiscal quarters immediately preceding the Trade Date, calculated on a fully-diluted basis. By "fully-diluted" we mean that the calculations are made as if all outstanding options to purchase our common stock had been exercised and other "dilutive" securities were converted into shares of our common stock. In addition, an estimate of the weighted-average number of shares that we reasonably anticipate will be issued under our stock-based compensation programs and employee benefit plans is included in this calculation. For example, we include in CS as calculated an estimate of the weighted-average number of shares that we reasonably anticipate will be issued during the next four quarters under our stock-based compensation programs and employee benefit plans in this calculation. We include an estimate of the weighted-average number of shares that we reasonably anticipate will be issued during the next four quarters because we have more than a 30-year history in making annual grants of stock-based compensation. Therefore, we believe that we have sufficient information to reasonably estimate the number of such "to be issued" shares. This approach avoids an artificial variance in share value during the first calendar quarter of each year when the bulk of shares of our common stock are issued by us pursuant to our stock-based compensation programs. Similarly, if we make a substantial issuance of shares during the four fiscal quarters immediately preceding the Trade Date, using the weighted average of those shares may create an inappropriate variance in share value during the four fiscal quarters following the issuance. For example, if we use shares as all or part of the consideration for the acquisition of a business, the

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time-weighted average number of shares issued in the acquisition transaction would not match the impact of the transaction reflected in total Stockholders' Equity (or SE) as described above. Therefore, in the discretion of the Board of Directors, a substantial issuance of shares during the four-quarter period used to calculate CS for each Trade Date may be treated as having been issued at the beginning of such four-quarter period. As a result, our Board of Directors may determine, in its discretion, to adjust the weighted-average number of shares to reflect in an appropriate manner the impact of past or anticipated future issuances.

        Modification of the Calculation of Common Stock Outstanding ("CS").    On February 9, 2011, our Board of Directors determined that it would be in the best interest of the company and our stockholders to modify the calculation of CS to treat substantial issuances of shares at any time during the four fiscal quarters immediately preceding the Trade Date as having been issued at the beginning of such four-quarter period. As such, we determined that the issuance of 342,379 shares as partial consideration for our acquisition of Halcrow Holdings Limited in November 2011 would result in approximately a 1% artificial increase in the stock price for the first quarterly Trade Date after the fiscal quarter in which the transaction was completed because the shares issued in that transaction were issued only 51 days prior to year end. As a result, under the valuation methodology, such shares would be included in the weighted-average number of shares used to calculate CS on the basis of 51/365 while the full amount of the increase to stockholders' equity resulting from the Halcrow transaction would be included in the SE factor as of December 31, 2011. We determined the artificial increase in the stock price resulting from the Halcrow acquisition would not be material, but could potentially be material in connection with future transactions. Such artificial variance in the calculation of the CS factor can be eliminated, under appropriate circumstances and solely for the purpose of determining the price of our common stock, by treating the transaction involving such substantial issuance of shares as having been completed at the beginning of the four-fiscal quarter period immediately preceding the Trade Date for which the fair value for our stock is being calculated.

        The following table shows a comparison of the "CS" value actually used by our Board of Directors to calculate stock prices on the dates indicated versus the year-to-date weighted-average number of shares of common stock as reflected in the diluted earnings per share calculation in our financial statements for the past three years.

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

May 6, 2010

    34,353     32,305  

August 13, 2010

    34,178     32,356  

November 12, 2010

    33,903     32,270  

February 11, 2011

    33,450     32,163  

May 5, 2011

    33,189     31,362  

August 10, 2011

    32,885     31,327  

November 10, 2011

    32,670     31,363  

February 9, 2012

    32,962     31,428  

May 11, 2012

    32,944     31,801  

August 10, 2012

    32,941     31,851  

November 9, 2012

    32,779     31,718  

February 15, 2013

    32,466     31,484  

        Constant 7.8.    In the course of developing this valuation methodology, it became apparent to our Board of Directors that a multiple would be required in order for the stock price derived by this methodology to approximate our historical, pre-Internal Market stock price. Another objective of our

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Board of Directors when developing the valuation methodology was to establish the fair value of our common stock using a market factor of 1.0. We believe that it was important to begin the Internal Market program with an "M" factor equal to 1.0 in order to make it easier for stockholders to understand future changes, if any, to the market factor.

        Therefore, the constant 7.8 was introduced into the formula. The constant 7.8 is the multiple that our Board of Directors determined necessary (i) for the new stock price to approximate our historical stock price derived using the pre-Internal Market formula as well as (ii) to allow the use of the market factor of 1.0 at the beginning of the Internal Market program.

        We intend to announce the new stock price and the Trade Date approximately four weeks prior to each Trade Date. The information will be delivered by the broker to all employees, eligible consultants and eligible participants in the internal market. In addition, we will file a Current Report on Form 8-K disclosing the new stock price and all components used by our Board of Directors in determining such price in accordance with the valuation methodology described above.

        We will also distribute the most current prospectus for our common stock and our audited annual financial statements to all stockholders, as well as other employees and eligible consultants, and to participants in the Internal Market through the employee benefit plans. Such information will be distributed at the same time as our annual reports and proxy information. Solicitations are distributed for voting instructions from stockholders and participants in the employee benefit plans each year.


Current Price of Our Common Stock

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

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

May 6, 2010

    1.2     93,067     541,940     34,353     41.13     1.5 %

August 13, 2010

    1.2     105,385     568,233     34,178     45.49     10.6 %

November 12, 2010

    1.2     106,297     581,344     33,903     46.49     2.2 %

February 11, 2011

    1.2     106,848     563,649     33,450     46.75     0.6 %

May 5, 2011

    1.2     115,190     595,629     33,189     50.43     7.9 %

August 10, 2011

    1.2     122,525     640,303     32,885     54.35     7.8 %

November 10, 2011

    1.2     121,959     678,358     32,670     55.71     2.5 %

February 9, 2011

    1.2     124,121     717,414     32,962     57.01     2.3 %

May 11, 2012

    1.2     110,441     725,247     32,944     53.39     (6.3 )%

August 10, 2012

    1.2     101,423     743,484     32,941     51.39     (3.7 )%

November 9, 2012

    1.2     111,722     746,205     32,779     54.67     6.4 %

February 15, 2013

    1.2     121,490     734,331     32,466     57.64     5.4 %

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Changes to Commission Charged to Sellers on the Internal Market

        Effective February 11, 2011, NTB agreed that all sellers on the internal market, other than CH2M HILL and the trustees of CH2M HILL's benefit plans will pay NTB a commission fee equal to three tenths of one percent (.3%) of proceeds from such sales. It was a reduction from the previous commission level of two percent (2%). No commission is paid by buyers on the internal market.


Holders of Our Common Stock

        As of February 8, 2013, there were 8,068 holders of record of our common stock. As of such date, all of our common stock of record was owned by our current and retired employees, directors, eligible consultants, and by our various employee benefit plans. Common stock is held in a trust for each of our employee benefit plans and each trust is considered one holder of record of our common stock.


Dividend Policy

        We have never declared or paid any cash dividends on our common stock and no cash dividends are contemplated on our common stock in the foreseeable future.


Issuer Purchases of Equity Securities

        The following table covers the purchases of our securities by CH2M HILL during the quarter ended December 31, 2012:

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

October (a)

    1,738   $ 53.18          

November

                 

December (a)(b)

    929,785   $ 54.67          
                     

Total

    931,523   $ 54.67          
                     

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

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

Item 6.    Selected Financial Data

        The selected financial data presented below under the captions "Selected Statement of Operations Data" and "Selected Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended December 31, 2012, are derived from the consolidated financial statements of CH2M HILL Companies, Ltd. and subsidiaries, which consolidated financial statements have been audited by KPMG LLP, an independent registered public accounting firm. The consolidated financial statements as of December 31, 2012 and 2011, and for each of the years in the three-year period ended December 31, 2012, and the report thereon, are included in Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K. The following information should be read in conjunction with Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes thereto.

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

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

 
  Years Ended December 31,  
($ in millions, except per share data)
  2012   2011   2010   2009   2008  

Selected Statement of Operations Data:

                               

Revenue

  $ 6,160.6 (d) $ 5,555.2   $ 5,422.8   $ 5,499.3   $ 5,589.9  

Operating income

    158.8     185.2     174.8     174.5 (a)   89.2  

Net income attributable to CH2M HILL

    93.0     113.3     93.7     103.7     32.1  

Net income per common share

                               

Basic

  $ 2.99   $ 3.68   $ 2.98   $ 3.25   $ 0.96  

Diluted

  $ 2.95   $ 3.60   $ 2.91   $ 3.18   $ 0.93  

Selected Balance Sheet Data:

                               

Total assets

  $ 3,114.6   $ 2,754.0 (c) $ 1,967.1   $ 1,948.0   $ 1,971.8  

Long-term debt, including current maturities

    252.3 (e)   92.8     37.6     52.3 (b)   175.9  

Total stockholders' equity

    616.7     666.3     554.2     524.8     386.7  

(a)
The increase in 2009 was primarily attributable to the gain of $58.2 million on the sale of certain assets of our Enterprise Management Solutions ("EMS") business.

(b)
During 2009, the net repayments of debt were approximately $123.6 million. Repayments were paid out of proceeds from the EMS sale and operating cash flows.

(c)
The majority of the increase in total assets relates to the acquisition of Halcrow in November 2011.

(d)
The majority of the increase in revenue relates to the acquisition of Halcrow in November 2011.

(e)
The majority of the increase in debt relates to funding for Halcrow operations and cash used for increased working capital needs.

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

Business Summary

        We are a large employee-controlled professional engineering services firm providing engineering, construction, consulting, design, design-build, EPC, procurement, operations and maintenance, program management and technical services to U.S. federal, state, municipal and local government agencies, national governments, as well as private industry and utilities, around the world. Founded in 1946, we have approximately 30,000 employees worldwide.

        We provide services to a diverse customer base including the U.S. federal and foreign governments and governmental authorities, various U.S. federal government agencies, provincial, state and local municipal governments, major oil and gas companies, refiners and pipeline operators, utilities, metal and mining, automotive, food and beverage and consumer products manufacturers, microelectronics, pharmaceuticals and biotechnology companies. We believe we provide our clients with innovative project delivery using cost-effective approaches and advanced technologies.

        Our revenues are dependent upon our ability to attract and retain qualified and productive employees, identify business opportunities, allocate our labor resources to profitable markets, secure new contracts, execute existing contracts, and maintain existing client relationships. Moreover, as a

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professional services company, the quality of the work generated by our employees is integral to our revenue generation.

        The Budget Control Act of 2011 imposed a process known as sequestration to implement $1.2 trillion in automatic spending cuts starting on March 1, 2013 and effective through fiscal year 2021, unless an alternative federal budget management process is agreed between the U.S. Congress and the President of the United States. If the sequestration takes effect, the agencies of the U.S. Federal Government may be required to modify or terminate contracts and substantially reduce awards of new work to companies like CH2M HILL, which will likely impact our ability to earn revenue on projects already awarded, win new work from U.S. Government customers and may have an adverse impact on our financial condition. We are beginning to feel the effects of the impending sequestration as a result of a postponement in projects, at least one termination for convenience after contract award, and cancellations of planned projects prior to award.

Acquisitions

        We continuously monitor acquisition and investment opportunities that will expand our portfolio of services, provide local resources internationally to serve our customers, add value to the projects undertaken for clients, or enhance our capital strength.

        On November 10, 2011, we purchased all the share capital of Halcrow Holdings Limited ("Halcrow") for approximately £124.0 million ($197.3 million). Halcrow is a United Kingdom-headquartered engineering, planning, design and management services firm specializing in developing infrastructure and buildings. Halcrow has 5,000 employees who provide services to our clients in the United Kingdom, Middle East, Canada, the United States, China, India, Australia, South America, and Europe. Halcrow's clients include public and private-sector organizations around the world, including local, regional and national governments, asset owners, international funding agencies, regulators, financial institutions, contractors, developers and operators. The results of Halcrow's operations have been reported in the consolidated financial statements since the date of acquisition.

        On July 29, 2011, we acquired Booz Allen Hamilton's State and Local Government Transportation and Consulting business ("BAH"). BAH has approximately 150 employees and provides management consulting, system engineering, vehicle engineering, asset management, train control and communications systems, systems safety and revenue system consulting to transit and rail agencies throughout North America. The cost of the acquisition was $28.5 million adjusted for working capital requirements. The results of operations for BAH have been included in the consolidated financial statements since the date of acquisition and are reported in the GEI operating segment.

Summary of Operations

        Effective January 1, 2012, we reorganized our reporting structure under which our chief operating decision maker regularly reviews operating results and makes strategic and operating decisions with regards to assessing performance and allocating resources in order to streamline our business and reducing overhead costs. As a result, we formed the Energy, Water, and Facilities ("EWF") segment and the Government, Environment, and Infrastructure ("GEI") segment. The reporting units previously included in the Energy and Water segment in 2011 were moved to the EWF segment and the reporting units previously included in the Government, Environment and Nuclear segment in 2011 were moved to the GEI segment. Reporting units that were previously included in the Facilities and Infrastructure segment were divided into either the EWF or GEI segment, accordingly. Additionally, for 2012, the results of operations for various lines of business acquired within Halcrow were assigned to the appropriate reporting units within our segments according to the nature of their operations. The majority of the Halcrow operations were assigned to our transportation reporting unit. We believe this new organizational structure will help us capitalize on cross-market synergies, consolidate our service

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offerings and optimize our client management process. Prior period amounts have been adjusted to conform to the revised organization.

Results of Operations for the Year Ended December 31, 2012 Compared to 2011

 
  2012   2011   Change  
($ in millions)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
 

Energy, Water and Facilities

  $ 3,474.8   $ 22.6   $ 88.2   $ 2,784.4   $ 25.0   $ 99.6   $ 690.4     24.8 % $ (2.4 ) $ (11.4 )   (11.4 )%

Government, Environment and Infrastructure

    2,685.8     41.1     93.2     2,770.8     39.5     107.0     (85.0 )   (3.1 )%   1.6     (13.8 )   (12.9 )%

Corporate

            (22.6 )           (21.4 )               (1.2 )   (5.6 )%
                                                   

Total

  $ 6,160.6   $ 63.7   $ 158.8   $ 5,555.2   $ 64.5   $ 185.2   $ 605.4         $ (0.8 ) $ (26.4 )      
                                                   

Energy, Water and Facilities Segment

        Revenue from our EWF segment increased for the year ended December 31, 2012 compared to the same period in the prior year by $690.4 million, or 24.8%. Approximately $177.9 million of the revenue increase relates to Halcrow operations. The remaining increase in revenue of $512.5 million is primarily attributable to four new EPC power projects awarded in late 2011. Our E&C business also experienced year over year increases in revenues due to higher volumes on operations and maintenance projects on the North Slope of Alaska. Additionally, we experienced improved volumes in our North American design-build water and wastewater reclamation projects as well as increases in our international water projects in the United Kingdom and Middle East. These increases were partially offset by a decrease in revenue from a significant water project that completed the design-build phase of the project in 2012 and transitioned into the operations phase.

        Operating income decreased for the year ended December 31, 2012 by $11.4 million, or 11.4% compared to the prior year period. During the year ended December 31, 2012, approximately $9.8 million of the decrease related to losses in Halcrow's operations, which was comprised of $2.2 million of operating income, $5.4 million of acquisition related amortization expense and $6.6 million in costs incurred to integrate the Halcrow operations. Excluding Halcrow, operating income was $98.0 million for the year ended December 31, 2012 compared to $99.6 million in the comparable prior year period. The annual results for 2012 were negatively impacted by a significant loss on a power project in the western United States as well as two loss projects within our E&C business in North America. These project losses were partially offset by better performance in our E&C construction business where we were able to reduce losses on projects in 2012 compared to 2011, as well as the recovery of costs on an OM project in the southwest United States in the second quarter of 2012. In addition, allocable corporate overhead costs and indirect spending within the EWF segment has decreased during 2012 in comparison to 2011. While revenues from our Water business increased during 2012, operating profit for the same period remained relatively constant due to certain higher margin contracts being completed in 2011 as well as slightly higher overhead costs during 2012.

Government, Environment and Infrastructure Segment

        Revenue from our GEI segment decreased for the year ended December 31, 2012, compared to the same period in the prior year by $85.0 million, or 3.1%. Excluding revenue related to Halcrow of $394.1 million, the segment experienced a decline of $479.1 million during the year ended December 31, 2012. This decline in revenue was primarily the result of lower volumes in our Nuclear markets as a result of a decrease in funding levels for large Department of Energy projects as well as lower design build volumes in the Middle East in our GF&I business. These decreases were partially

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offset by improved results in our domestic and international environmental services private-sector clients business as well as growth in our domestic Transportation business, driven by the Booz Allen Hamilton acquisition in 2011.

        Operating income decreased for the year ended December 31, 2012 compared to the same period in the prior year by $13.8 million, or 12.9%. Our GEI operating results were affected by a 2012 loss of approximately $27.7 million in Halcrow's operations which was comprised of $6.2 million of income from operations, $18.6 million of acquisition related amortization expense and $15.3 million of costs incurred to integrate the Halcrow operations. Excluding Halcrow, operating income was $120.9 million for the year ended December 31, 2012 compared to $107.0 million in the comparable prior year period. This increase of $13.9 million in operating income, excluding Halcrow, relates primarily to volume growth in our ES business and our North American consulting services in our Transportation business. In addition, excluding Halcrow, allocable corporate overhead costs and indirect spending within the GEI division has decreased during 2012 in comparison to 2011. The operating income increase, excluding Halcrow, was significantly impacted by increased costs on various U.S. government military base facility projects within our GF&I business, resulting in an overall decrease in gross margin. The overall decrease in revenue volumes in our Nuclear and GF&I markets discussed above also impacted our operating income for the year. These decreases in earnings were principally offset by fees earned from the successful completion of the venues on the London 2012 Olympics.

Results of Operations for the Year Ended December 31, 2011 Compared to 2010

 
  2011   2010   Change  
($ in millions)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
  Revenue   Equity in
Earnings
  Operating
Income
(Loss)
 

Energy, Water and Facilities

  $ 2,784.4   $ 25.0   $ 99.6   $ 2,667.1   $ 24.6   $ 49.4   $ 117.3     4.4 % $ 0.4   $ 50.2     101.6 %

Government, Environment and Infrastructure

    2,770.8     39.5     107.0     2,755.7     43.9     138.4     15.1     0.5 %   (4.4 )   (31.4 )   (22.7 )%

Corporate

            (21.4 )           (13.0 )               (8.4 )   64.6 %
                                                   

Total

  $ 5,555.2   $ 64.5   $ 185.2   $ 5,422.8   $ 68.5   $ 174.8   $ 132.4         $ (4.0 ) $ 10.4        
                                                   

Energy, Water and Facilities Segment

        Revenue increased for the year ended December 31, 2011, compared to the prior year by $117.3 million or 4.4%. The increase in revenue was partially attributable to the acquisition of Halcrow in November 2011, which contributed approximately $35.5 million of revenues to this segment. Revenue also increased in our OM business due to new water projects in Washington and Arizona. Additionally, this increase was attributable to improvement in our North American operations and maintenance equipment rental program as well as improvements in engineering services within our E&C business. Finally, our I&AT business experienced higher volumes of work due to increased capital spending in that sector. These increases in revenue were slightly offset due to the completion of design-build projects in North America and Australia for both our Power and Water businesses during the second half of 2011.

        Operating income increased for the year ended December 31, 2011 compared to 2010 by $50.2 million, or 101.6%. This increase was primarily due to a shift in the mix of our business within our I&AT market from construction to design projects. An increase in design projects, which contribute higher margins than construction projects, was consistent with the trend in capital spending in this market at that time. Additionally, our OM business recognized higher margins on design-build-operate projects as they transitioned to the operational phases of the projects. Although our Power business experienced lower revenues in 2011, it was able to maintain its year over year operating income due to

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incentive fees earned on the successful completion of construction milestones from their design build projects as well as successfully managing their controllable indirect costs. These increases were partially offset by a loss on a large construction project in our North American E&C business as well as decreasing margins on their operations and maintenance and engineering work.

Government, Environment and Infrastructure Segment

        Revenue increased for the year ended December 31, 2011, compared to the same period in the prior year by $15.1 million or 0.5%. The increase in revenue was directly attributable to the acquisition of Halcrow in November 2011, which contributed approximately $78.6 million of revenues to this segment. Additionally, we experienced improved results in the Environmental Services market due to the start of the Twelve Mile Creek construction project and other work performed for the U.S. Environmental Protection Agency. These increases were significantly offset by decreased volumes in our Nuclear and GF&I businesses as a result of the conclusion of the American Recovery and Reinvestment Act ("ARRA") projects in 2011 that had provided full year revenues in 2010. Additionally, revenue decreased in our GF&I business due to the lack of new awards in the first half of 2011 during the Congressional Budget impasse. Revenues from our Transportation business remained relatively consistent year over year.

        Operating income decreased for the year ended December 31, 2011 compared to the same period in the prior year by $31.4 million or 22.7%. The decrease in operating income was primarily due to the decrease in revenues in our Nuclear and GF&I businesses discussed above. Additionally, our GF&I business experienced increased costs on U.S. government military base facility projects in both the U.S. and Middle East. Furthermore, the GF&I market provided fewer services in support of disaster response work to FEMA during 2011 compared to 2010. Finally, we experienced a decrease in earnings from our Transportation business due to claims arising on two port projects as well as a decrease in fees earned on a major bridge project completed in 2010. These decreases were partially offset by schedule incentive fees on the River Corridor project in our Nuclear business. We also recorded increased earnings in 2011 compared to 2010 from our program management activities on the London 2012 Olympics as we earned fees for the successful completion of certain Olympic venues.

Corporate

        The Corporate segment includes expenses which represent centralized management costs that are not allocable to individual operating segments and primarily include expenses associated with administrative functions such as executive management, legal, and general business development efforts. Corporate expenses for the year ended December 31, 2012 were $22.6 million compared to $21.4 million for the same period in the prior year. The increase in corporate costs for 2012 is primarily due to increased severance costs associated with overhead reduction efforts offset by a decrease in activities associated with initiatives for potential acquisitions and business development activities.

Income Taxes

        The income tax provisions for the years ended December 31, 2012, 2011 and 2010 are as follows:

($ in millions)
  Income Tax
Provision
  Effective
Tax Rate
 

2012

  $ 52.1     35.9 %

2011

  $ 55.9     33.1 %

2010

  $ 53.8     36.5 %

        The effective tax rate for the year ended December 31, 2012 was 35.9% compared to 33.1% for the same period in the prior year. The effective tax rate in 2012 was higher in comparison to the

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effective rate in 2011 primarily due to a 2012 decrease in domestic permanent benefits such as the research and experimentation credit and the domestic production deduction as well as the 2012 negative impacts of certain foreign operations which were partially offset by international tax planning. Our effective tax rate continues to be negatively impacted by the effect of state income taxes, non-deductible foreign net operating losses, the disallowed portion of executive compensation, and disallowed portions of meals and entertainment expenses.

        The effective tax rate for the year ended December 31, 2011 was 33.1% compared to 36.5% for 2010. The 2011 rate was favorably impacted by significant improvements in foreign operating results when compared to 2010, as well as benefits from international tax planning strategies.

        We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our tax provision by recording a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable. As of December 31, 2012 and 2011, we reported a valuation allowance of $116.9 million and $99.3 million, respectively, related primarily to the reserve of certain foreign net loss carryforwards.

Liquidity and Capital Resources

        Our primary sources of liquidity are cash flows from operations and borrowings under our unsecured revolving line of credit. Our primary uses of cash are to fund our working capital, capital expenditures and purchases of common stock presented on our internal market. During the year ended December 31, 2012, cash provided by operating activities was $134.2 million compared to $257.4 million for the year ended December 31, 2011. The significant decrease in cash provided by operations is primarily due to an increase in working capital needs primarily attributable to slower collections of accounts receivables as well as timings of billings of our work in progress.

        Billings and collections on accounts receivable can impact our operating cash flows. We continuously monitor collection efforts and assess the allowance for doubtful accounts. Based on this assessment at December 31, 2012, we have deemed the allowance for uncollectible accounts to be adequate; however, future economic conditions may adversely impact some of our clients' ability to pay our bills or the timeliness of their payments. Consequently, it may also impact our timing of cash receipts necessary to meet our operating needs.

        Cash used in investing activities was $33.1 million in the year ended December 31, 2012 compared to $217.0 million used in investing activities for the same period in 2011. The majority of investing expenditures during 2011 related to the $187.7 million spent on the acquisitions of Halcrow and BAH, net of $23.5 million of cash acquired. In addition, we spent $46.7 million and $30.2 million on capital expenditures in 2012 and 2011, respectively. These cash outflows were partially offset by proceeds from the sale of fixed assets of $1.0 million and $6.4 million in 2012 and 2011, respectively. We had net distributions of capital from our joint ventures of $12.7 million in the year ended December 31, 2012 compared to cash outflows for joint venture capital contributions of $5.5 million in the year ended December 31, 2011.

        Cash provided by financing activities was $1.8 million in the year ended December 31, 2012 compared to $118.0 million of cash used in financing activities for the same period in 2011. The major components of our financing activities include repurchases and retirements of our common stock and net borrowings or repayments on our long-term debt. For the twelve months ended December 31, 2012, repurchases of stock were $157.2 million compared to $93.6 million for the same period in the prior year. Additionally, the net proceeds from borrowings on debt were approximately $159.4 million during 2012 compared to approximately $25.7 million repayments of debt during 2011. The primary uses of cash received from borrowings during 2012 were to fund increased working capital needs discussed above. For additional information regarding repurchases of stock and our Internal Market, see Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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        We finance our operations, acquisitions and capital expenditures using a variety of capital vehicles. On December 6, 2010, we entered into a Credit Agreement providing for an unsecured revolving Credit Facility (the "Credit Facility") in an amount up to $600.0 million. We entered into an amendment to the original Credit Agreement on September 27, 2011 which provided modifications to certain covenants and other provisions of the Credit Agreement to take into account the acquisition of Halcrow. On April 19, 2012 we amended and restated this agreement for the purposes of increasing the size of the Credit Facility to $900.0 million, extending the maturity to April 19, 2017, increasing the capacity of certain subfacilities as well as improving our borrowing rates. Under the terms of the revised agreement we may be able to invite existing and new lenders to increase the amount available to be borrowed under the agreement by up to $200.0 million. The revised credit facility has a subfacility for the issuance of standby letters of credit in a face amount up to $500.0 million, compared to $300.0 million in the original agreement, and a subfacility up to $300.0 million for multicurrency borrowings, which is unchanged from the original agreement

        Revolving loans under the Credit Facility bear interest, at our option, at a rate equal to either (i) the base rate plus a margin based on our consolidated leverage ratio or (ii) the eurodollar rate, based on interest periods of one, two, three or six months, plus a margin based on our consolidated leverage ratio. The base rate is defined as the highest of (i) the "Federal Funds Rate," as published from time to time by the Federal Reserve Bank of New York, plus 0.5%, (ii) the Agent's "prime rate" in effect from time to time, and (iii) the one month eurodollar rate in effect from time to time, plus 1.0%. Our "consolidated leverage ratio" on any date is the ratio of our consolidated total funded debt to our consolidated adjusted earnings before interest, taxes, depreciation and amortization for the preceding four fiscal quarters. The definition of consolidated adjusted earnings before interest, taxes, depreciation and amortization was amended to allow for the addition of, among other things, all expenses associated with the non-cash portion of all stock-based compensation. We are also obligated to pay other closing fees, commitment fees and letter of credit fees customary for a credit facility of this size and type. Under the terms of the revised agreement, the margin added to either the base rate or the eurodollar rate has decreased, which provides us with access to capital at lower overall borrowing rates.

        Both the original and revised credit agreements contain customary representations and warranties and conditions to borrowing. They also include customary affirmative and negative covenants, including covenants that limit or restrict our ability to incur indebtedness and other obligations, grant liens to secure their obligations, make investments, merge or consolidate, dispose of assets outside the ordinary course of business, enter into transactions with affiliates, and make certain kinds of payments, in each case subject to customary exceptions for credit facilities of this size and type. We are also required to comply with a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio. As of December 31, 2012, we were in compliance with the covenants required by the Credit Agreement. There can be no assurance that the capacity under this facility will be adequate to fund future operations or acquisitions we may pursue from time to time.

        At December 31, 2012, issued and outstanding letters of credit of $126.5 million were reserved against the borrowing base of the Credit Facility, compared to $90.6 million at December 31, 2011. Additionally, Halcrow and CH2M HILL have approximately $106.4 million of other letters of credit and bank guarantee facilities with various banks. Approximately $27.5 million of letters of credit and $48.5 million of bank guarantees were outstanding as of December 31, 2012, leaving us with remaining available capacity of approximately $30.4 million on these other credit facilities.

        The remaining borrowing capacity under the revised credit facility is $504.3 million at December 31, 2012. Based on our total cash and credit capacity available at December 31, 2012, we believe we have sufficient resources to fund our operations, any future acquisition and capital expenditure requirements, as well as purchases of common stock presented on our internal market, should we choose to do so, for the next 12 months and beyond.

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Depreciation and Amortization

        Depreciation and amortization expense for the year ended December 31, 2012 of $79.6 million was $31.4 million greater than the same period in 2011. The increase was due to an increase in depreciation expense of $3.9 million and an increase in amortization expense of $27.5 million. We recognized $38.6 million and $11.1 million of amortization expense related to intangible assets during 2012 and 2011, respectively. The increase in amortization expense in 2012 is related to amortization of the intangible assets acquired in the Halcrow and BAH transactions as well as amortization of a tradename, previously acquired. The increase in depreciation is primarily due to the addition of property, plant and equipment acquired in the Halcrow acquisition.

Off-Balance Sheet Arrangements

        We have interests in multiple joint ventures, some of which are considered variable interest entities. These entities facilitate the completion of contracts that are jointly owned with our joint venture partners. These joint ventures are formed to leverage the skills of the respective partners and include consulting, construction, design, project management and operations and maintenance contracts. Our risk of loss on joint ventures is similar to what the risk of loss would be if the project was self-performed, other than the fact that the risk is shared with our partners.

        There were no substantial changes to other off-balance sheet arrangements or contractual commitments during the twelve months ended December 31, 2012.

Aggregate Commercial Commitments

        We maintain a variety of commercial commitments that are generally made available to provide support for various provisions in engineering and construction contracts. Letters of credit are provided to clients in the ordinary course of the contracting business in lieu of retention or for performance and completion guarantees on engineering and construction contracts. We post surety and bid bonds, which are contractual agreements issued by a surety, for the purpose of guaranteeing our performance on contracts and to protect owners and are subject to full or partial forfeiture for failure to perform obligations arising from a successful bid. We also carry substantial premium paid, traditional insurance for our business risks including professional liability and general casualty insurance and other coverage which is customary in our industry.

        We believe that we will be able to continue to have access to professional liability and general casualty insurance, as well as bonds, with sufficient coverage limits, and on acceptable financial terms necessary to support our business. The cost of such coverage has remained stable during 2012 and is expected to continue to be stable in the foreseeable future. For additional information, see Item 1A. Risk Factors.

        Our risk management personnel continuously monitor the developments in the insurance market. The financial stability of the insurance and surety providers is one of the major factors that we take into account when buying our insurance coverage. Currently our insurance and bonds are purchased from several of the world's leading and financially stable providers often in layered insurance or co-surety arrangements. The built-in redundancy of such arrangements usually enables us to call upon existing insurance and surety suppliers to fill gaps that may arise if other such suppliers become financially unstable.

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        Contractual obligations outstanding as of December 31, 2012 are summarized below:

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

Letters of credit

  $ 94.7   $ 36.2   $   $ 23.1   $ 154.0  

Bank guarantees

    22.9     12.3     1.4     11.9     48.5  

Total debt

    3.5     6.5     238.2     4.1     252.3  

Interest payments

    4.8     9.0     8.5     0.3     22.6  

Operating lease obligations

    106.3     160.3     107.5     85.0     459.1  

Surety and bid bonds

    507.1     1,199.8         35.2     1,742.1  
                       

Total

  $ 739.3   $ 1,424.1   $ 355.6   $ 159.6   $ 2,678.6  
                       

Critical Accounting Policies

        Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect both the results of operations as well as the carrying values of our assets and liabilities. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We base estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities as of the date of the financial statements that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        Although our significant accounting policies are described in the Notes to Consolidated Financial Statements in Item 15. of this Annual Report on Form 10-K, below is a summary of our most critical accounting policies.

Revenue Recognition

        We earn our revenues from different types of services under a variety of different types of contracts, including cost-plus, fixed-price and time-and-materials. We evaluate contractual arrangements to determine how to recognize revenue. We recognize revenue and profit for most of our contracts on the percentage-of-completion method where progress towards completion is measured by relating the actual cost of work performed to date to the current estimated total cost of the respective contract. In making such estimates, judgments are required to evaluate potential variances in schedule, the cost of materials and labor, productivity, liability claims, contract disputes, or achievement of contract performance standards.

        Change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to contract value and can be reliably estimated. Losses on construction and engineering contracts in process are recognized in their entirety when the loss becomes evident and the amount of loss can be reasonably estimated.

        We have a history of making reasonable estimates of the extent of progress towards completion, total contract revenue and total contract costs on our engineering and construction contracts. However, due to uncertainties inherent in the estimation process, actual total contract revenue and completion costs can vary from estimates.

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

        Cost-Plus Contracts.    Cost-plus contracts can be cost plus a fixed fee or rate, or cost plus an award fee. Under these types of contracts, we charge our clients for our costs, including both direct and indirect costs, plus a fixed negotiated fee or award fee. We generally recognize revenue based on the actual labor costs and non-labor costs we incur, plus the portion of the fixed fee or award fee we have earned to date. If the actual labor hours and other costs we expend are lower than the total number of hours and other costs we have estimated, our revenues related to cost recoveries from the project will be lower than originally estimated. If the actual labor hours and other costs we expend exceed the original estimate, we must obtain a change order, contract modification, or successfully prevail in a claim in order to receive payment for the additional costs.

        In the case of a cost-plus award fee, we include in the total contract value the portion of the fee that we are probable of receiving. Award fees are influenced by the achievement of contract milestones, cost savings and other factors.

        Fixed Price Contracts.    Under fixed price contracts, our clients pay us an agreed amount negotiated in advance for a specified scope of work. For engineering and construction contracts, we recognize revenue on fixed price contracts using the percentage-of-completion method where costs incurred to date are compared to total projected costs at contract completion. Prior to completion, our recognized profit margins on any fixed price contract depend on the accuracy of our estimates and will increase to the extent that our actual costs are below the original estimated amounts. Conversely, if our costs exceed these estimates, our profit margins will decrease and we may realize a loss on a project. If our actual costs exceed the original estimate, we attempt to obtain a change order or contract modification.

        Time-and-Materials Contracts.    Under our time-and-materials contracts, we negotiate hourly billing rates and charge our clients based on the actual time that we expend on a project. In addition, clients reimburse us for our actual out-of-pocket costs of materials and other direct expenditures that we incur in connection with our performance under the contract. Our profit margins on time-and-materials contracts fluctuate based on actual labor and overhead costs that we directly charge or allocate to contracts compared with the negotiated billing rate and markup on other direct costs. Some of our time-and-materials contracts are subject to maximum contract values, and accordingly, revenue under these contracts are recognized under the percentage-of-completion method where costs incurred to date are compared to total projected costs at contract completion. Revenue on contracts that are not subject to maximum contract values are recognized based on the actual number of hours we spend on the projects plus any actual out-of-pocket costs of materials and other direct expenditures that we incur on the projects. Our time-and-materials contracts generally include annual billing rate escalation provisions.

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

Income Taxes

        In determining net income for financial statement purposes, we must make estimates and judgments in the calculation of tax assets and liabilities and in the determination of the recoverability of the deferred tax assets. The tax assets and liabilities arise from temporary differences between the tax return and the financial statement recognition of revenue and expenses. We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must

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

        In addition, the calculation of our income tax provision involves uncertainties in the application of complex tax regulations. For income tax benefits to be recognized, a tax position must be more likely than not to be sustained upon ultimate settlement. We record reserves for uncertain tax positions that do not meet this criterion.

Goodwill

        Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill acquired in a purchase business combination is not amortized, but instead is tested for impairment at least annually in accordance with the provisions of the FASB Accounting Standards Codification ("ASC") 350, Intangibles—Goodwill and Other ("ASC 350"), as amended under Accounting Standards Update 2011-08 ("ASU 2011-08"). In performing the annual impairment test, we evaluate our goodwill at the reporting unit level which we have determined based upon our various lines of business within each of our reporting segments. These lines of business are further discussed in Item 1 of this Form 10-K within the respective segments. Under the guidance of ASC 350, we have the option to assess either quantitative or qualitative factors to determine if it is more likely than not that the fair values of our reporting units are less than their carrying amounts. If after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair values of our reporting units are less than their carrying amounts, then the next step of the impairment test is unnecessary. If we conclude otherwise, then we are required to test goodwill for impairment under the two-step process. The two-step process involves comparing the estimated fair value of each reporting unit to the unit's carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not considered impaired; therefore, the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, we would then perform a second step to measure the amount of goodwill impairment loss to be recorded. We determine the fair value of our reporting units using a market approach. Our market based valuation method provides estimates of the fair value of our reporting units based on applying a multiple to our estimate of a cash flow metric for each business unit. Our annual goodwill impairment test is conducted as of October 1st of each year.

        At our goodwill assessment date in 2012, we concluded that the two-step process was necessary to assess the goodwill associated with the Halcrow acquisition (see Acquisitions above). Based on our assessment, using the market valuation approach described above, we concluded there was no indication of impairment of the goodwill in any of our reporting units. At our 2011 goodwill assessment date, our qualitative assessment determined there were no events or circumstances that lead us to believe it was more likely than not that the fair values of our reporting units were less than their carrying amounts.

Pension and Postretirement Employee Benefits

        The unfunded or overfunded projected benefit obligation of our defined benefit pension plans and other postretirement benefits are recorded in our consolidated financial statements using actuarial valuations that are based on many assumptions. These assumptions primarily include discount rates, rates of compensation increases for participants, and long-term rates of return on plan assets. We use judgment in selecting these assumptions each year because we have to consider not only the current economic environment in each host country, but also future market trends, changes in interest rates and equity market performance. Our plan liabilities are most sensitive to changes in the discount rates, which if reduced by 25 basis points, plan liabilities for the U.S. and non-U.S. plans would increase by approximately $8.4 million and $45.9 million, respectively. Changes in these assumptions have an

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immaterial impact on our net periodic pension costs as most of our defined benefit arrangements have been closed to new entrants and ceased future accruals.

Recent Accounting Standards

        In June 2009, the FASB issued Accounting Standards Update (ASU) 2009-17, Consolidations (Topic 810)—Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, revising the existing guidance on the consolidation and disclosures of variable interest entities ("VIEs") which was codified in Accounting Standards Codification ("ASC") 810-10. Specifically, it changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting rights should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the entity's purpose and design and the reporting entity's ability to direct the activities of the other entity that most significantly impact the other entity's economic performance. The guidance also requires additional disclosures about a company's involvement with VIEs and requires an entity to continually assess any significant changes in risk exposure as well as an entity's assessment of the primary beneficiary of the entity. ASC 810-10 became effective for us beginning January 1, 2010.

        In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which amends current guidance to result in common fair value measurement and disclosures between accounting principles generally accepted in the United States and International Financial Reporting Standards. The amendments explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuations standards or affect valuation practices outside of financial reporting. The amendments in ASU 2011-04 became effective for our interim and annual periods beginning January 1, 2012. The adoption of the provisions of ASU 2011-04 did not have a material impact on our consolidated financial position or results of operations.

        In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which changes the financial reporting of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of changes in stockholders' equity. The amendments in this standard require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this standard do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU 2011-05 became effective for our interim and annual periods beginning January 1, 2012 and have been applied retrospectively.

        In December 2011, the FASB issued ASU 2011-11 Balance Sheet Topic 210, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires that an entity disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013 and will be applied retrospectively.

        In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 allows entities testing an indefinite-lived intangible asset other than goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of the asset. If it is determined, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more likely than not greater than the carrying amount, no further testing is necessary. ASU 2012-02 is effective for interim and annual impairment tests performed for fiscal years beginning after September 15, 2012. We do not believe that the adoption of ASU 2012-02 will have a material effect on its consolidated financial statements.

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Commitments and Contingencies

        We are party to various contractual guarantees and legal actions arising in the normal course of business. Because a large portion of our business comes from U.S. federal, state and municipal sources, our procurement and certain other practices at times are subject to review and investigation by U.S. and state attorneys offices. Such state and U.S. government investigations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties or could lead to suspension or debarment from future U.S. government contracting. These investigations often take years to complete and many result in no adverse action or alternatively could result in settlement. Damages assessed in connection with and the cost of defending any such actions could be substantial. While the outcomes of pending proceedings and legal actions are often difficult to predict, management believes that proceedings and legal actions currently pending would not result in a material adverse effect on our results of operations or financial condition even if the final outcome is adverse to our company.

        Many claims that are currently pending against us are covered by our professional liability insurance. Management estimates that the levels of insurance coverage (after retentions and deductibles) are generally adequate to cover our liabilities, if any, with regard to such claims. Any amounts that are probable of payment are accrued when such amounts are estimable. As of December 31, 2012 and 2011, accruals for potential estimated claim liabilities were $34.4 million and $34.1 million, respectively.

        In 2010, we were notified that the U.S. Attorney's Office for the Eastern District of Washington is investigating overtime practices in connection with the U.S. Department of Energy Hanford tank farms management contract which we transitioned to another contractor in 2008. In 2011 and 2012, eight former CH2M HILL Hanford Group ("CH2M HILL Subsidiary") employees pleaded guilty on felony charges related to time card fraud committed while working on the Hanford Tank Farm Project. As part of its investigation, the U.S. Attorney's Office raised the possibility of civil and/or criminal charges for possible violations arising from CH2M HILL's Subsidiary overtime practices on the project. In September 2012, the government intervened in a False Claims Act case filed in the District Court for the Eastern District of Washington by one of the employees who plead guilty to time card fraud. We are cooperating with the government's investigation and continue to seek an amicable settlement of any potential civil and criminal charges and resolution of any potential False Claims Act allegations with the Department of Justice. We have reached an agreement in principle with the United States Attorney which, when finalized, will settle the False Claims Act case and result in an agreement by the United States Attorney to not bring criminal charges against us. Based on the information available to us at this time, we do not believe that the ultimate resolution of this matter will have a material impact on our results of operations or financial condition.

        In connection with the Halcrow acquisition, we assumed a lease obligation for office space which was entered into by Halcrow in 1981 and was previously occupied as one of their primary office locations. Subsequently, Halcrow vacated the space and has been subleasing a portion of the building to third parties. The lease requires Halcrow to continue to make lease payments until 2080 with rent escalating provisions that can increase with market conditions. In 2012, we obtained a final third party determination of the fair value of this lease obligation and the associated real property in order to complete the purchase price allocation. As a result, we recorded capital lease and related obligations of $66.1 million, of which $65.5 million and $0.6 million are included in other long-term liabilities and other accrued liabilities in the consolidated balance sheets, respectively, as well as a related building asset of $25.9 million. In addition, we have assumed an operating lease for the associated land on which the building is located with total lease payments due over the remaining term of the lease totaling $36.8 million.

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Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

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

        Foreign currency exchange rates.    We operate in many countries around the world and as a result, are exposed to foreign currency exchange rate risk on transactions in numerous countries. We are primarily subject to this risk on long term projects whereby the currency being paid by our client differs from the currency in which we incurred our costs, as well as, intercompany trade balances among our entities with differing currencies. In order to mitigate this risk, we enter into derivative financial instruments. We do not enter into derivative transactions for speculative or trading purposes. All derivatives are carried at fair value in the consolidated balance sheets and changes in the fair value of the derivative instruments are recognized in earnings. These currency derivative instruments are carried on the balance sheet at fair value and are typically based upon Level 2 inputs including third party quotes. As of December 31, 2012 there were no foreign exchange contracts outstanding.

        Interest rates.    Our interest rate exposure is generally limited to our unsecured revolving credit agreement, purchase of interest bearing short-term investments and holdback contingency balances outstanding related to our acquisitions of VECO and BAH. As of December 31, 2012, the outstanding balance on the unsecured revolving credit agreement was $235.5 million and there was approximately $32.1 million outstanding on the holdback contingencies. We have assessed the market risk exposure on these financial instruments and determined that any significant changes to the fair value of these instruments would not have a material impact on our consolidated results of operations, financial position or cash flows. Based upon the amount outstanding under the unsecured credit agreement and the holdback contingency, a one percentage point change in the assumed interest rate would change our annual interest expense by approximately $2.7 million.

Item 8.    Financial Statements and Supplementary Data

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

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

        None.

Item 9A.    Controls and Procedures

Disclosure Controls and Procedures

        We carried out an evaluation as of the last day of the period covered by this Annual Report on Form 10-K, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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        There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's Annual Report on Internal Control over Financial Reporting

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

        Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.

        The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein on page F-2.

Item 9B.    Other Information

        In November 2011, CH2M HILL acquired Halcrow, a U.K. engineering consulting company that provides services to clients worldwide and had a small presence in Iran. As a condition of the acquisition, the U.K. affiliate was required to terminate all activities in Iran and the company undertook expedient steps to withdraw all operational activities in Iran, including abandoning certain assets. The wind down was completed within the context of U.S. and European sanctions governing restrictions on activities in Iran. The acquired company has no intentions to resume its activities in Iran.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance

        Certain information required by this item is incorporated by reference from CH2M HILL's definitive proxy statement for its 2013 Annual Meeting of Stockholders. Information regarding the executive officers of CH2M HILL is presented below:

EXECUTIVE OFFICERS OF CH2M HILL

        The executive officers of CH2M HILL are listed below, along with their ages, tenure as officer and business background for at least the last five years.

        Robert W. Bailey.    Age 57. Mr. Bailey has served as President of CH2M HILL's Water Business Group since 2008. Between 2002 and 2007, he served as the Regional Manager for CH2M HILL's southeast U.S. region. Prior to 2002, Mr. Bailey, a professional engineer, held a variety of positions from Project Manager to Regional Business Group Manager for the Water Business Group.

        Jacqueline C. Hinman.    Age 51. Ms. Hinman has served as Senior Vice President and President of the International Division of CH2M HILL since 2012. She was previously the President of the Facilities and Infrastructure Division from 2009 until 2011 and served as the Vice President, Major Programs and Executive Director for Mergers and Acquisitions between 2009 and 2010. Between 2007 and 2009, she led our Center for Project Excellence and has worked for CH2M HILL since 1988 in various senior technical and executive positions. Ms. Hinman left CH2M HILL in 1997 to form her own consulting company, Talisman Partners, and returned to CH2M HILL in 2005 after successfully selling her business to an industry competitor.

        Michael A. Lucki.    Age 56. Mr. Lucki has served as Senior Vice President and Chief Financial Officer of CH2M HILL since 2010. Mr. Lucki came to CH2M HILL from Ernst & Young LLP where he was a partner and led the firm's U.S. and Americas Engineering and Construction (E&C) Industry Practice since 1994, the firm's Global E&C Industry Practice since 2002 and the firm's Global Infrastructure Practice since 2008.

        John A. Madia.    Age 57. Mr. Madia has served as Chief Human Resources Officer of CH2M HILL since November 2009. In May 2009 he joined CH2M HILL as Senior Vice President of Human Resources. Mr. Madia came to CH2M HILL from Dow Chemical Company where he was Vice President of Human Resources from 2006 to 2009.

        Lee A. McIntire.    Age 64. Mr. McIntire has served as Chairman of the Board of Directors of CH2M HILL since 2010 and the Chief Executive Officer since 2009. He joined CH2M HILL as the President and Chief Operating Officer in 2006. Before joining CH2M HILL, Mr. McIntire was a Professor and Executive-in-Residence at the Graduate School of Management, University of California, Davis (UC Davis). Prior to that, Mr. McIntire spent more than 15 years with Bechtel Group in various executive leadership positions.

        Michael E. McKelvy.    Age 53. Mr. McKelvy has served as Senior Vice President of CH2M HILL and President of the Government, Environment and Infrastructure Division since 2012. From 2009 to 2011, Mr. McKelvy was the President of the Government, Environment and Nuclear Division. Prior to these positions, Mr. McKelvy was the President for the Industrial Client business between 2006 and 2009, and President for the Manufacturing and Life Sciences business of CH2M HILL since 2005. Prior to CH2M HILL, Mr. McKelvy held executive leadership positions within Lockwood Greene, a company CH2M HILL acquired in 2003.

        Margaret B. McLean.    Age 49. Ms. McLean has served as CH2M HILL's Chief Legal Officer and Chief Ethics & Compliance officer since 2007. Ms. McLean was appointed as CH2M HILL's Corporate

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Secretary and Senior Vice President in 2009. From 1998 to 2007, she was CH2M HILL's International, M&A and Securities Counsel. Prior to joining CH2M HILL, Ms. McLean was a Partner at the law firm of Holme Roberts & Owens LLP.

        JoAnn Shea.    Age 48. Ms. Shea has served as Chief Accounting Officer of CH2M HILL since 2006 and as Vice President and Controller since 2003. She also served as acting Chief Financial Officer of CH2M HILL from May to November of 2010. Ms. Shea joined CH2M HILL in 1998 as Assistant Controller.

        Michael A. Szomjassy.    Age 62. Mr. Szomjassy has served as President of the Energy, Water and Facilities Division since August 2012. He previously served as President of the Environmental Services Business Group of CH2M HILL from 2011 until 2012. Between 2007 and 2010, Mr. Szomjassy served as the Deputy Program Director for the CLM Delivery Partner, a joint venture providing program management services to the Olympic Delivery Authority for the London 2012 Olympic and Paralympic Games. Between 2004 and 2007, Mr. Szomjassy served as Senior Vice President and Director of Operations of the Environmental Business Group.

        There are no family relationships among the executive officers or directors of CH2M HILL. The executive officers are elected by the Board of Directors each year and hold office until the organizational meeting of the Board in the next subsequent year and until his or her successor is chosen or until his or her earlier death, resignation or removal.

Item 11.    Executive Compensation

        Information required by this item is incorporated by reference from CH2M HILL's definitive proxy statement for its 2013 Annual Meeting of Stockholders.

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

        Information required by this item is incorporated by reference from CH2M HILL's definitive proxy statement for its 2013 Annual Meeting of Stockholders.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

        Information required by this item is incorporated by reference from CH2M HILL's definitive proxy statement for its 2013 Annual Meeting of Stockholders.

Item 14.    Principal Accounting Fees and Services

        Information required by this item is incorporated by reference from CH2M HILL's definitive proxy statement for its 2013 Annual Meeting of Stockholders.

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PART IV

Item 15.    Exhibits and Financial Statement Schedules

    Documents Filed as Part of this Report

1.
Financial Statements

2.
Financial Statement Schedules and Other

        All financial statement schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto, or because such schedules are not applicable.

3.
Exhibits

        The Exhibits required by this item are listed in the Exhibit Index. Each management contract and compensatory plan or arrangement is denoted with a "+" in the Exhibit Index.

Exhibit
Number
  Description
2.1   Implementation Agreement dated September 24, 2011 between CH2M HILL Companies, Ltd. and Halcrow Holdings Limited (filed as Exhibit 2.1 to CH2M HILL's Form 10-Q for the quarter ended September 30, 2011 (Commission File No. 000-27261), and incorporated herein by reference)

3.1

 

Certificate of Incorporation of CH2M HILL Companies, Ltd. (filed as Exhibit 3.1 to CH2M HILL's Form 8-K on July 5, 2011 (Commission File No. 000-27261), and incorporated herein by reference)

3.2

 

Bylaws of CH2M HILL Companies, Ltd. (filed as Exhibit 3.2 to CH2M HILL's Form 8-K/A (Amendment No. 1), on July 20, 2011 (Commission File No. 000-27261), and incorporated herein by reference)

10.1

 

CH2M HILL Companies, Ltd. Payroll Deduction Stock Purchase Plan as amended and restated effective January 1, 2004 (filed as Appendix B to CH2M HILL's Definitive Proxy Statement on Schedule 14A on March 26, 2004 (Commission File No. 000-27261), and incorporated herein by reference)

+10.2

 

CH2M HILL Companies, Ltd. Amended and Restated Short Term Incentive Plan effective January 1, 2012 (filed as Exhibit 10.2 to CH2M HILL's Form 10-Q for the quarter ended June 30, 2012 (Commission File No. 000-27261), and incorporated herein by reference)

+10.3

 

CH2M HILL Companies, Ltd. Amended and Restated Long Term Incentive Plan effective January 1, 2011 (filed as Exhibit 10.3 to CH2M HILL's Form 10-K for the year ended December 31, 2011 (Commission File No. 000-27261), and incorporated herein by reference)

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Exhibit
Number
  Description
+10.4   CH2M HILL Companies, Ltd. Amended and Restated 2009 Stock Option Plan, effective May 7, 2012 (filed as Exhibit 10.1 to CH2M HILL's Form 8-K on May 11, 2012 (Commission File No. 000-27261), and incorporated herein by reference)

+10.5

 

CH2M HILL Companies, Ltd. Restricted Stock Policy and Administration Plan effective January 1, 2000 as amended and restated on February 11, 2011 (filed as Exhibit 10.4 to CH2M HILL's Form 10-K for the year ended December 31, 2010 (Commission File No. 000-27261), and incorporated herein by reference)

+10.6

 

CH2M HILL Companies, Ltd. Amended and Restated Deferred Compensation Plan effective January 1, 2011 (filed as Exhibit 10.5 to CH2M HILL's Form 10-Q for the quarter ended June 30, 2012 (Commission File No. 000-27261), and incorporated herein by reference)

+10.7

 

CH2M HILL Companies, Ltd. Amended and Restated Deferred Compensation Plan effective January 1, 2011 (filed as Exhibit 10.5 to CH2M HILL's Form 10-Q for the quarter ended June 30, 2012 (Commission File No. 000-27261), and incorporated herein by reference)

*+10.8

 

CH2M HILL Companies, Ltd. Supplemental Executive Retirement and Retention Plan effective January 1, 2013 (Commission File No. 002-27261)

+10.9

 

Form of Change of Control Agreement between CH2M HILL Companies, Ltd. and employee directors and executive officers, effective as of July 1, 2010 (filed as Exhibit 10.1 to CH2M HILL's Form 10-Q for the quarter ended September 30, 2010, (Commission File No. 002-27261), and incorporated herein by reference)

+10.10

 

CH2M HILL Companies, Ltd. Death Benefit Only Plan effective September 13, 2012 (filed as Exhibit 10.1 to CH2M HILL's Form 10-Q for the quarter ended September 30, 2012 (Commission File No. 000-27261), and incorporated herein by reference)

10.11

 

Contract with Neidiger, Tucker, Bruner, Inc. dated as of July 1, 2006 (filed as Exhibit 10.12 to CH2M HILL's Form 10-K for the year ended December 31, 2010 (Commission File No. 000-27261), and incorporated herein by reference)

10.12

 

Addendum to Contract with Neidiger, Tucker, Bruner, Inc. dated as of February 11, 2011 (filed as Exhibit 10.1 to CH2M HILL's Form 10-Q for the quarter ended March 31, 2011 (Commission File No. 000-27261), and incorporated herein by reference)

10.13

 

Addendum to Contract with Neidiger, Tucker, Bruner, Inc. dated as of June 21, 2012 (filed as Exhibit 10.4 to CH2M HILL's Form 10-Q for the quarter ended June 30, 2012 (Commission File No. 000-27261), and incorporated herein by reference)

10.14

 

Amended and Restated Credit Agreement dated as of April 19, 2012, by and among CH2M HILL Companies, Ltd. and certain of its subsidiaries, Wells Fargo Bank, National Association, and other lenders as party thereto (filed as Exhibit 10.1 to CH2M HILL's Form 10-Q for the quarter ended June 30, 2012 (Commission File No. 000-27261), and incorporated herein by reference)

10.15

 

Retirement Transition Agreement between CH2M HILL Companies, Ltd. and Nancy R. Tuor (filed as Exhibit 10.1 to CH2M HILL's Form 10-Q for the quarter ended March 31, 2012 (Commission File No. 000-27261), and incorporated herein by reference)

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Exhibit
Number
  Description
14.1   CH2M HILL Companies, Ltd. Ethics Code for Executive and Financial Officers (filed as Exhibit 14.1 to CH2M HILL's Form 10-K for the year ended December 31, 2009 (Commission File No. 000-27261), and incorporated herein by reference)

*21.1

 

Subsidiaries of CH2M HILL Companies, Ltd.

*23.1

 

Consent of KPMG LLP, Independent Registered Public Accounting Firm

*24.1

 

Power of Attorney authorizing signature

*31.1

 

Written Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*31.2

 

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

*32.1

 

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

*32.2

 

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

99.1

 

Internal Market Rules, (filed as Exhibit 99.1 to CH2M HILL's Form 8-K on February 11, 2011 (Commission File No. 000-27261), and incorporated herein by reference)

99.2

 

Voluntary, Separation, Waiver and General Release Agreement entered into on August 10, 2012 by and between CH2M HILL Companies, Ltd. and Robert G. Card (filed as Exhibit 99.1 to CH2M HILL's Form 8-K on August 10, 2012 (Commission File No. 000-27261), and incorporated herein by reference)

**101.INS

 

XBRL Instance Document

**101.SCH

 

XBRL Taxonomy Extension Schema Document

**101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

**101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

**101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

**101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

*
Filed herewith

**
XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.


+
Indicates management contract or compensatory plan or arrangement

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Report of Independent Registered Public Accounting Firm

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

        We have audited the accompanying consolidated balance sheets of CH2M HILL Companies, Ltd. and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2012. We also have audited the Company's internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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

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

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CH2M HILL Companies, Ltd. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, CH2M HILL Companies, Ltd. and subsidiaries maintained,

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in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by COSO.

        As described in note 1 to the consolidated financial statements, the Company adopted new accounting standards relating to variable interest entities on January 1, 2010.

/s/ KPMG LLP

KPMG LLP

Denver, Colorado
February 28, 2013

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands)

 
  December 31, 2012   December 31, 2011  

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 310,638   $ 208,266  

Available-for-sale securities

    2,135     2,356  

Receivables, net—

             

Client accounts

    794,903     703,062  

Unbilled revenue

    570,914     448,553  

Other

    19,606     17,155  

Income tax receivable

    6,905     36,837  

Deferred income taxes

    75,556     69,370  

Prepaid expenses and other current assets

    82,299     66,777  
           

Total current assets

    1,862,956     1,552,376  

Investments in unconsolidated affiliates

    118,008     103,871  

Property, plant and equipment, net

    212,007     204,402  

Goodwill

    562,461     545,443  

Intangible assets, net

    133,657     162,399  

Deferred income taxes

    155,250     128,743  

Employee benefit plan assets and other

    70,245     56,805  
           

Total assets

  $ 3,114,584   $ 2,754,039  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             

Current portion of long-term debt

  $ 3,497   $ 11,334  

Accounts payable and accrued subcontractor costs

    568,507     398,332  

Billings in excess of revenue

    385,985     393,754  

Accrued payroll and employee related liabilities

    335,457     305,549  

Other accrued liabilities

    216,907     241,546  
           

Total current liabilities

    1,510,353     1,350,515  

Long-term employee related liabilities

    574,406     461,583  

Long-term debt

    248,832     81,474  

Other long-term liabilities

    164,285     194,154  
           

Total liabilities

    2,497,876     2,087,726  

Commitments and contingencies (Note 16)

             

Stockholders' equity:

             

Preferred stock, Class A $0.01 par value, 50,000,000 shares authorized; none issued

         

Common stock, $0.01 par value, 100,000,000 shares authorized; 29,845,190 and 31,050,654 issued and outstanding at December 31, 2012 and 2011, respectively

    298     311  

Additional paid-in capital

         

Retained earnings

    734,033     717,103  

Accumulated other comprehensive loss

    (130,671 )   (60,855 )
           

Total CH2M HILL common stockholders' equity

    603,660     656,559  

Noncontrolling interests

    13,048     9,754  
           

Total equity

    616,708     666,313  
           

Total liabilities and stockholders' equity

  $ 3,114,584   $ 2,754,039  
           

   

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

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Consolidated Statements of Income

(Dollars in thousands except per share amounts)

 
  For The Years Ended December 31  
 
  2012   2011   2010  

Gross revenue

  $ 6,160,553   $ 5,555,233   $ 5,422,801  

Equity in earnings of joint ventures and affiliated companies

    63,674     64,477     68,513  

Operating expenses:

                   

Direct cost of services and overhead

    (4,967,318 )   (4,487,584 )   (4,426,352 )

General and administrative

    (1,098,070 )   (946,973 )   (890,199 )
               

Operating income

    158,839     185,153     174,763  

Other income (expense):

                   

Interest income

    1,496     534     1,372  

Interest expense

    (9,972 )   (4,328 )   (4,616 )
               

Income before provision for income taxes

    150,363     181,359     171,519  

Provision for income taxes

    (52,066 )   (55,930 )   (53,804 )
               

Net income

    98,297     125,429     117,715  

Less: Income attributable to noncontrolling interests

    (5,321 )   (12,132 )   (24,020 )
               

Net income attributable to CH2M HILL

  $ 92,976   $ 113,297   $ 93,695  
               

Net income attributable to CH2M HILL per common share:

                   

Basic

  $ 2.99   $ 3.68   $ 2.98  

Diluted

  $ 2.95   $ 3.60   $ 2.91  

Weighted average number of common shares:

                   

Basic

    31,081,679     30,823,954     31,458,126  

Diluted

    31,483,901     31,427,823     32,163,093  

   

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

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CH2M HILL COMPANIES, LTD.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

 
  Year ended December 31,  
 
  2012   2011   2010  

Net Income

  $ 98,297   $ 125,429   $ 117,715  

Other comprehensive income (loss):

                   

Foreign currency translation adjustments

    13,384     (15,052 )   4,178  

Benefit plan adjustments, net of tax

    (83,066 )   (26,868 )   9,869  

Unrealized gain (loss) on available-for-sale investments and other, net of tax

    (133 )   (34 )   275  
               

Other comprehensive income (loss)

    (69,815 )   (41,954 )   14,322  
               

Comprehensive income

    28,482     83,475     132,037  

Less: comprehensive income attributable to noncontrolling interests

    (5,321 )   (12,132 )   (24,020 )
               

Comprehensive income attributable to CH2M HILL

  $ 23,161   $ 71,343   $ 108,017  
               

   

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

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity and Comprehensive Income

(Dollars in thousands)

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

Balance at December 31, 2009

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

Net income

                  93,695           24,020     117,715  

Other comprehensive income:

                                           

Foreign currency translation adjustments

                      3,831     347     4,178  

Benefit plan adjustments, net of tax

                      9,869           9,869  

Unrealized gain on equity investments, net of tax

                      275         275  
                               

Comprehensive income

                                    132,037  

Distributions to affiliates, net

                          (31,806 )   (31,806 )

Impact of adoption of ASC 810, consolidation of previously unconsolidated VIEs

                        4,088     4,088  

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

    1,857,418     18     43,776                 43,794  

Shares purchased and retired

    (2,703,900 )   (27 )   (56,579 )   (62,148 )           (118,754 )
                               

Balance at December 31, 2010

    30,527,473     305         563,343     (18,768 )   9,288     554,168  

Net income

                      113,297           12,132     125,429  

Other comprehensive income:

                                           

Foreign currency translation adjustments

                    (15,185 )   133     (15,052 )

Benefit plan adjustments, net of tax

                    (26,868 )         (26,868 )

Unrealized loss on equity investments, net of tax

                    (34 )       (34 )
                               

Comprehensive income

                            83,475  

Distributions to affiliates, net

                        (11,799 )   (11,799 )

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

    1,535,357     16     115,239                 115,255  

Shares issued in connection with purchase of Halcrow Holdings, Ltd. 

    342,379     3     18,838                 18,841  

Shares purchased and retired

    (1,354,555 )   (13 )   (134,077 )   40,463             (93,627 )
                               

Balance at December 31, 2011

    31,050,654     311         717,103     (60,855 )   9,754     666,313  

Net income

                      92,976           5,321     98,297  

Other comprehensive income:

                                           

Foreign currency translation adjustments

                    13,383     1     13,384  

Benefit plan adjustments, net of tax

                    (83,066 )         (83,066 )

Unrealized loss on equity investments, net of tax

                    (133 )       (133 )
                               

Comprehensive income

                            28,482  

Distributions to affiliates, net

                        (2,028 )   (2,028 )

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

    1,236,561     12     81,142                 81,154  

Shares purchased and retired

    (2,442,025 )   (25 )   (81,142 )   (76,046 )           (157,213 )
                               

Balance at December 31, 2012

    29,845,190   $ 298   $   $ 734,033   $ (130,671 ) $ 13,048   $ 616,708  
                               

   

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

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Dollars in thousands)

 
  For The Years Ended  
 
  December 31,
2012
  December 31,
2011
  December 31,
2010
 

Cash flows from operating activities:

                   

Net income

  $ 98,297   $ 125,429   $ 117,715  

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

                   

Depreciation and amortization

    79,631     48,215     62,311  

Stock-based employee compensation

    61,390     71,495     50,603  

Loss on disposal of property, plant and equipment

    886     2,403     1,266  

Allowance for uncollectible accounts

    4,060     5,846     3,521  

Deferred income taxes

    (21,958 )   (22,107 )   (24,699 )

Gain on sale of investments

            (6,495 )

Undistributed earnings from unconsolidated affiliates

    (63,674 )   (64,477 )   (68,513 )

Distributions of income from unconsolidated affiliates

    42,449     57,597     71,181  

Contributions to defined benefit pension plans

    (34,034 )   (14,659 )   (8,073 )

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

                   

Receivables and unbilled revenue

    (216,070 )   25,513     72,921  

Prepaid expenses and other

    (33,676 )   (18,209 )   (2,465 )

Accounts payable and accrued subcontractor costs

    167,945     (34,605 )   (16,558 )

Billings in excess of revenues

    (8,717 )   85,775     (61,950 )

Accrued payroll and employee related liabilities

    36,034     28,814     29,517  

Other accrued liabilities

    (15,135 )   (12,420 )   32,530  

Current income taxes

    29,862     (68,279 )   41,486  

Long-term employee related liabilities and other

    6,901     41,069     (7,729 )
               

Net cash provided by operating activities

    134,191     257,400     286,569  

Cash flows from investing activities:

                   

Capital expenditures

    (46,710 )   (30,202 )   (26,884 )

Acquisitions, net of cash acquired

        (187,678 )    

Investments in unconsolidated affiliates

    (24,491 )   (29,162 )   (49,133 )

Distributions of capital from unconsolidated affiliates

    37,172     23,627     35,601  

Consolidation of previously unconsolidated variable interest entities

            32,651  

Proceeds from sale of operating assets

    956     6,415     2,961  

Purchases of investments

            (37,079 )

Proceeds from sale of investments

            43,573  
               

Net cash (used in) provided by investing activities

    (33,073 )   (217,000 )   1,690  

Cash flows from financing activities:

                   

Borrowings on long-term debt

    1,438,455     451,129     404,827  

Payments on long-term debt

    (1,279,010 )   (476,796 )   (419,056 )

Repurchases and retirements of common stock

    (157,213 )   (93,627 )   (137,208 )

Acquisition payments

    (9,174 )        

Excess tax benefits from stock-based compensation

    10,741     13,066     14,968  

Net distributions to noncontrolling interests

    (2,028 )   (11,799 )   (31,806 )
               

Net cash provided by (used in) financing activities

    1,771     (118,027 )   (168,275 )

Effect of exchange rate changes on cash

    (517 )   (4,512 )   704  
               

Increase (decrease) in cash and cash equivalents

    102,372     (82,139 )   120,688  

Cash and cash equivalents, beginning of year

    208,266     290,405     169,717  
               

Cash and cash equivalents, end of year

  $ 310,638   $ 208,266   $ 290,405  
               

Supplemental disclosures:

                   

Cash paid for interest

  $ 9,704   $ 3,994   $ 4,708  

Cash paid for income taxes

  $ 34,932   $ 113,426   $ 43,714  

   

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

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Summary of Business and Significant Accounting Policies

    Summary of Business

        CH2M HILL Companies, Ltd. and subsidiaries ("We","Our", "CH2M HILL" or the "Company") is a project delivery firm founded in 1946. We are a large employee-controlled professional engineering services firm providing engineering, construction, consulting, design, design-build, procurement, engineering-procurement-construction ("EPC"), operations and maintenance, program management and technical services to U.S. federal, state, municipal and local government agencies, national governments, as well as private industry and utilities, around the world. A substantial portion of our professional fees are derived from projects that are funded directly or indirectly by government entities.

        On November 10, 2011, we purchased all the share capital of Halcrow Holdings Limited ("Halcrow"). Halcrow is a United Kingdom-headquartered engineering, planning, design and management services firm specializing in developing infrastructure and buildings. Halcrow's 5,000 employees provide services to its clients in the United Kingdom, Middle East, Canada, the United States, China, India, Australia, South America, and Europe. See Note 6—Acquisitions for further details.

    Principles of Consolidation and Basis of Presentation

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

    Use of Estimates

        The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments, and assumptions. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Actual results could differ from our estimates.

    Capital Structure

        Our Company has authorized 100,000,000 shares of common stock, par value $0.01 per share, and 50,000,000 shares of Class A preferred stock, par value $0.01 per share. The bylaws and articles of incorporation provide for the imposition of certain restrictions on the stock including, but not limited to, the right but not the obligation to repurchase shares upon termination of employment or affiliation, the right of first refusal and ownership limits.

    Foreign Currency Translation

        All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars as of each balance sheet date. Translation gains and losses related to permanent investments in foreign subsidiaries are reflected in stockholders' equity as part of accumulated other comprehensive loss. Revenues and expenses are translated at the average exchange rate for the period and included in the

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Business and Significant Accounting Policies (Continued)

consolidated statements of income. Foreign currency transaction gains and losses are recognized as incurred in the consolidated statements of income.

    Revenue Recognition

        We earn revenue from different types of services performed under various types of contracts, including cost-plus, fixed-price and time-and-materials. We evaluate contractual arrangements to determine how to recognize revenue. We primarily perform engineering and construction related services and recognize revenue for these contracts on the percentage-of-completion method where progress towards completion is measured by relating the actual cost of work performed to date to the current estimated total cost of the respective contracts. In making such estimates, judgments are required to evaluate potential variances in schedule, the cost of materials and labor, productivity, liability claims, contract disputes, and achievement of contract performance standards.

        Change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to contract value and can be estimated. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the customer's written approval of such changes or separate documentation of change order costs that are identifiable. Losses on construction and engineering contracts in process are recognized in their entirety when the loss becomes evident and the amount of loss can be reasonably estimated.

        Performance incentive and award fee arrangements are included in total estimated contract revenue upon the achievement of some measure of contract performance in relation to agreed-upon targets. We adjust our project revenue estimate by the probable amounts of these performance incentives and award fee arrangements we expect to earn if we achieve the agreed-upon criteria.

        We also perform operations and maintenance services. Revenue is recognized on operations and maintenance contracts on a straight-line basis over the life of the contract once we have an arrangement, service has begun, the price is fixed or determinable and collectability is reasonably assured.

    Unbilled Revenue and Billings in Excess of Revenue

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

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

    Allowance for Uncollectible Accounts Receivable

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

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Business and Significant Accounting Policies (Continued)

    Fair Value Measurements

        Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Assets and liabilities are valued based upon observable and non-observable inputs. Valuations using Level 1 inputs are based off of unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date. Level 2 inputs utilize significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly; and valuations using Level 3 inputs are based off of significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. There were no significant transfers between levels during the year ended December 31, 2012.

    Income Taxes

        We account for income taxes utilizing an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax effects of events that have been recognized in the financial statements or tax returns. In estimating future tax consequences, we generally consider all expected future events other than enactment of changes in the tax laws or rates. Deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will not be realized. Annually, we determine the amount of undistributed foreign earnings invested indefinitely in our foreign operations. Deferred taxes are not provided on those earnings. In addition, the calculation of tax assets and liabilities involves uncertainties in the application of complex tax regulations. For income tax benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. We record reserves for uncertain tax positions that do not meet this criteria.

    Cash and Cash Equivalents

        We maintain a cash management system which provides for cash sufficient to pay checks as they are submitted for payment and we invest cash in excess of this amount in interest-bearing short-term investments such as certificates of deposit and commercial paper. Investments with original short-term maturities of less than three months are considered cash equivalents in the consolidated balance sheets and statements of cash flows. In addition, cash and cash equivalents on our consolidated balance sheets include cash held within our consolidated joint venture entities which is used for operating activities of those joint ventures. As of December 31, 2012 and 2011, cash and cash equivalents held in our consolidated joint ventures and reflected on the consolidated balance sheets totaled $118.8 million and $32.3 million, respectively.

    Available-for-Sale Securities

        Available-for-sale securities are carried at fair value, with unrecognized gains and losses reported in accumulated other comprehensive loss, net of taxes. Losses on available-for-sale securities are recognized when a loss is determined to be other than temporary or when realized. The fair value of available-for-sale securities is estimated using Level 1 inputs.

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Business and Significant Accounting Policies (Continued)

    Property, Plant and Equipment

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

        Depreciation for owned property is based on the estimated useful lives of the assets using the straight-line method for financial statement purposes. Useful lives for buildings range from 12 to 25 years. Furniture, fixtures, computers, software and other equipment are depreciated over their useful lives from 3 to 10 years. Leasehold improvements are depreciated over the shorter of their estimated useful life or the remaining term of the associated lease up to 11 years.

    Goodwill

        Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill acquired in a purchase business combination is not amortized, but instead is tested for impairment at least annually in accordance with the provisions of the FASB Accounting Standards Codification ("ASC") 350, Intangibles—Goodwill and Other ("ASC 350"), as amended under Accounting Standards Update 2011-08 ("ASU 2011-08"). In performing the annual impairment test, we evaluate our goodwill at the reporting unit level which we have determined based upon our various lines of business within each of our reporting segments. Under the guidance of ASC 350, we have the option to assess either quantitative or qualitative factors to determine if it is more likely than not that the fair values of our reporting units are less than their carrying amounts. If after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair values of our reporting units are less than their carrying amounts, then the next step of the impairment test is unnecessary. If we conclude otherwise, then we are required to test goodwill for impairment under the two-step process. The two-step process involves comparing the estimated fair value of each reporting unit to the unit's carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not considered impaired; therefore, the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, we would then perform a second step to measure the amount of goodwill impairment loss to be recorded. We determine the fair value of our reporting units using a market approach. Our market based valuation method provides estimates of the fair value of our reporting units based on applying a multiple to our estimate of a cash flow metric for each business unit. Our annual goodwill impairment test is conducted as of October 1st of each year.

        At our goodwill assessment date in 2012, we concluded that the two-step process was necessary to assess the goodwill associated with the Halcrow acquisition (see Note 6—Acquisitions for further details). Based on our assessment, using the market valuation approach described above, we concluded there was no indication of impairment of the goodwill in any of our reporting units. At our 2011 goodwill assessment date, our qualitative assessment determined there were no events or circumstances that lead us to believe it was more likely than not that the fair values of our reporting units were less than their carrying amounts.

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Business and Significant Accounting Policies (Continued)

    Other Long-Lived Assets

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

    Accumulated Other Comprehensive Loss

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

($ in thousands)
  Foreign
Currency
Translation
  Unrealized
Gains
(Losses) on
Equity
Investments
  Benefit
Plan
Adjustments
  Accumulated
Other
Comprehensive
Loss
 

Accumulated other comprehensive (loss) income, December 31, 2011

  $ (1,737 ) $ 987   $ (60,105 ) $ (60,855 )

Current period other comprehensive income (loss)

    13,383     (133 )   (83,066 )   (69,816 )
                   

Accumulated other comprehensive income (loss), December 31, 2012

  $ 11,646   $ 854   $ (143,171 ) $ (130,671 )
                   

    Derivative instruments

        We primarily enter into derivative financial instruments to mitigate exposures to changing foreign currency exchange rates. We are primarily subject to this risk on long term projects whereby the currency being paid by our client differs from the currency in which we incurred our costs, as well as, intercompany trade balances among our entities with differing currencies. We do not enter into derivative transactions for speculative or trading purposes. All derivatives are carried at fair value on the consolidated balance sheets in other receivables or other accrued liabilities as applicable. The periodic change in the fair value of the derivative instruments is recognized in earnings.

    Concentrations of Credit Risk

        Financial instruments which potentially subject our company to concentrations of credit risk consist principally of cash and cash equivalents, short term investments and trade receivables. Our cash is primarily held with major banks and financial institutions throughout the world and typically is insured up to a set amount. Accordingly, we believe the risk of any potential loss on deposits held in these institutions is minimal. Concentrations of credit risk relative to trade receivables are limited due to our diverse client base, which includes the U.S. federal government, various states and municipalities,

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Business and Significant Accounting Policies (Continued)

foreign government agencies, and a variety of U.S. and foreign corporations operating in a broad range of industries and geographic areas.

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

    Recent Accounting Standards

        In June 2009, the FASB issued Accounting Standards Update (ASU) 2009-17, Consolidations (Topic 810)—Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, revising the existing guidance on the consolidation and disclosures of variable interest entities ("VIEs") which was codified in Accounting Standards Codification ("ASC") 810-10. Specifically, it changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting rights should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the entity's purpose and design and the reporting entity's ability to direct the activities of the other entity that most significantly impact the other entity's economic performance. The guidance also requires additional disclosures about a company's involvement with VIEs and requires an entity to continually assess any significant changes in risk exposure as well as an entity's assessment of the primary beneficiary of the entity. ASC 810-10 became effective for us beginning January 1, 2010.

        In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which amends current guidance to result in common fair value measurement and disclosures between accounting principles generally accepted in the United States and International Financial Reporting Standards. The amendments explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuations standards or affect valuation practices outside of financial reporting. The amendments in ASU 2011-04 became effective for our interim and annual periods beginning January 1, 2012. The adoption of the provisions of ASU 2011-04 did not have a material impact on our consolidated financial position or results of operations.

        In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which changes the financial reporting of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of changes in stockholders' equity. The amendments in this standard require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this standard do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU 2011-05 became effective for our interim and annual periods beginning January 1, 2012 and have been applied retrospectively.

        In December 2011, the FASB issued ASU 2011-11 Balance Sheet Topic 210, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires that an entity disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Business and Significant Accounting Policies (Continued)

of those arrangements on its financial position. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013 and will be applied retrospectively.

        In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 allows entities testing an indefinite-lived intangible asset other than goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of the asset. If it is determined, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more likely than not greater than the carrying amount, no further testing is necessary. ASU 2012-02 is effective for interim and annual impairment tests performed for fiscal years beginning after September 15, 2012. We do not believe that the adoption of ASU 2012-02 will have a material effect on its consolidated financial statements.

(2) Receivables, net

        Receivables are stated at net realizable values and consist of receivables billed to clients as well as receivables for which revenue has been earned but has not yet been billed. The U.S. federal government accounted for approximately 16% and 21% of our net receivables at December 31, 2012 and 2011, respectively. No other customer exceeded 10% of total receivables at December 31, 2012 or 2011.

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

($ in thousands)
  2012   2011   2010  

Balance at beginning of year

  $ 7,520   $ 12,076   $ 13,190  

Provision charged to expense

    4,060     5,846     3,521  

Accounts written off

    (579 )   (9,576 )   (3,614 )

Other

    (929 )   (826 )   (1,021 )
               

Balance at end of year

  $ 10,072   $ 7,520   $ 12,076  
               

(3) Variable Interest Entities and Equity Method Investments

        We routinely enter into teaming arrangements to perform projects for our clients. Such arrangements are customary in the engineering and construction industry and generally are project specific. The arrangements facilitate the completion of projects that are jointly contracted with our partners. These arrangements are formed to leverage the skills of the respective partners and include consulting, construction, design, design-build, program management and operations and maintenance contracts. Our risk of loss on these arrangements is usually shared with our partners. The liability of each partner is usually joint and several, which means that each partner may become liable for the entire risk of loss on the project.

        We perform a qualitative assessment to determine whether our company is the primary beneficiary once an entity is identified as a variable interest entity ("VIE"). A qualitative assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity's activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and how they were marketed, and the parties involved in the design of the entity. All of the variable interests held by parties involved with the VIE are identified and a determination of which activities

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(3) Variable Interest Entities and Equity Method Investments (Continued)

are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities is made. Most of the VIEs with which our company is involved have relatively few variable interests and are primarily related to our equity investments, subordinated financial support, and subcontracting arrangements. We consolidate those VIEs in which we have both the power to direct the activities of the VIE that most significantly impact the VIEs economic performance and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE. As of December 31, 2012, total assets of VIEs that were consolidated were $168.9 million and total liabilities were $128.1 million.

        We held investments in unconsolidated affiliates of $118.0 million and $103.9 million for the years ended December 31, 2012 and 2011, respectively. Our proportionate share of net income or loss is included as equity in earnings of joint ventures and affiliated companies in the consolidated statements of income. In general, the equity investment in our unconsolidated affiliates is equal to our current equity investment plus those entities' undistributed earnings. We provide certain services, including engineering, construction management and computer and telecommunications support, to these unconsolidated entities. These services are billed to the joint ventures in accordance with the provisions of the agreements.

        As of December 31, 2012, the total assets of VIEs that were not consolidated were $420.9 million and total liabilities were $343.7 million. The maximum exposure to losses is limited to the funding of any future losses incurred by those entities under their respective contracts.

        Summarized financial information for our unconsolidated VIEs and equity method investments as of and for the years ended December 31 is as follows:

($ in thousands)
  2012   2011  

FINANCIAL POSITION:

             

Current assets

  $ 802,755   $ 740,365  

Noncurrent assets

    48,623     51,867  
           

Total assets

  $ 851,378   $ 792,232  
           

Current liabilities

  $ 522,152   $ 491,126  

Noncurrent liabilities

    22,755     20,227  

Partners'/Owners' equity

    306,471     280,879  
           

Total liabilities and equity

  $ 851,378   $ 792,232  
           

CH2M HILL's share of equity

  $ 118,008   $ 103,871  
           

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Notes to Consolidated Financial Statements (Continued)

(3) Variable Interest Entities and Equity Method Investments (Continued)

 

($ in thousands)
  2012   2011   2010  

RESULTS OF OPERATIONS:

                   

Revenue

  $ 2,787,830   $ 3,037,595   $ 2,814,824  

Direct costs

    (2,513,302 )   (2,779,990 )   (2,598,872 )
               

Gross margin

    274,528     257,605     215,952  

General and administrative expenses

    (39,408 )   (50,307 )   (13,603 )
               

Operating income

    235,120     207,298     202,349  

Other (loss) income, net

    (15,095 )   130     458  
               

Net income

  $ 220,025   $ 207,428   $ 202,807  
               

CH2M HILL's share of net income

  $ 63,674   $ 64,477   $ 68,513  
               

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(3) Variable Interest Entities and Equity Method Investments (Continued)

        We have the following significant investments in affiliated unconsolidated companies:

 
  % Ownership  

Domestic:

       

AGVIQ—CH2M HILL Joint Venture III

    49.0 %

Americas Gateway Builders

    40.0 %

CH2M / WG Idaho, LLC

    50.5 %

Clark-Nexsen/CH2M HILL

    50.0 %

Clark-Nexsen/CH2M HILL—Norfolk

    50.0 %

Coastal Estuary Services

    49.9 %

Connecting Idaho Partners

    49.0 %

IAP-Hill, LLC

    25.0 %

National Security Technologies, LLC

    10.0 %

Parsons CH2M HILL Program Management Consultants, Joint Venture

    47.5 %

Savannah River Remediation LLC

    15.0 %

URS/CH2M OAK RIDGE LLC

    45.0 %

Washington Closure, LLC

    30.0 %

Foreign:

       

A-one+ Integrated Highway Services. 

    33.3 %

Babcock Dounreay Partnership, Ltd. 

    30.0 %

CH2M HILL BECA, Ltd. 

    50.0 %

CH2M HILL—Kunwon PMC

    54.0 %

CH2M Olyan

    50.0 %

CLM Delivery Partner, Limited

    37.5 %

Consorcio Integrador Rio de Janeiro

    49.0 %

CPG Consultants—CH2M HILL NIP Joint Venture

    50.0 %

ECC-VECO, LLC

    50.0 %

HWC Treatment Program Alliance Joint Venture

    50.0 %

Luggage Point Alliance

    50.0 %

OMI BECA, Ltd. 

    50.0 %

SMNM/VECO Joint Venture

    50.0 %

Sydney Water Corporation-Odour Management Program Alliance

    50.0 %

Transcend Partners, Ltd

    40.0 %

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(4) Property, Plant and Equipment

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

($ in thousands)
  2012   2011  

Land

  $ 23,012   $ 22,615  

Building and land improvements

    111,233     107,466  

Furniture and fixtures

    25,963     20,679  

Computer and office equipment

    102,591     89,345  

Field Equipment

    124,123     110,885  

Leasehold improvements

    85,893     78,874  
           

    472,815     429,864  

Less: Accumulated depreciation

    (260,808 )   (225,462 )
           

Net property, plant and equipment

  $ 212,007   $ 204,402  
           

        Depreciation expense is reflected in the consolidated statements of income in direct costs and general and administrative costs depending on the intended use of the asset and totaled $41.0 million, $37.1 million and $52.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

(5) Employee Benefit Plan Assets

        We have investments that support deferred compensation arrangements and other employee benefit plans. These assets are recorded at fair market value primarily using Level 2 inputs. As of December 31, 2012 and 2011, the fair market value of these assets was $66.3 million and $53.0 million, respectively, and are included in employee benefit plan assets and other on the consolidated balance sheets.

(6) Acquisitions

        On July 29, 2011, we acquired Booz Allen Hamilton's State and Local Government Transportation and Consulting ("BAH") business. The purchase price was $28.5 million adjusted for working capital and other purchase price adjustments and was paid in cash. We performed an analysis of the fair market value of the tangible assets acquired and liabilities assumed as well as any identifiable intangible assets purchased. Included in the intangible assets acquired are the estimated fair value of customer relationships of $8.8 million and contracted backlog of $1.2 million, with useful lives of seven and three years, respectively. In addition, we recorded $10.5 million in goodwill related to the acquisition. The results of operations for this acquisition are reported in the Government, Environment and Infrastructure operating segment after the date of the acquisition.

        On November 10, 2011, we purchased all the share capital of Halcrow for approximately £124.0 million ($197.3 million). Halcrow is a United Kingdom-headquartered engineering, planning, design and management services firm specializing in developing infrastructure and buildings. Halcrow has 5,000 employees who provide services to our clients in the United Kingdom, Middle East, Canada, the United States, China, India, Australia, South America, and Europe. Halcrow's clients include public and private-sector organizations around the world, including local, regional and national governments, asset owners, international funding agencies, regulators, financial institutions, contractors, developers and operators.

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Notes to Consolidated Financial Statements (Continued)

(6) Acquisitions (Continued)

        The purchase price was paid to the selling stockholders of Halcrow in the form of $41.7 million of cash, $18.8 million of common stock of CH2M HILL, based on the stock price on the closing date, and $136.8 million of notes payable which were satisfied in full in December 2011.

        The following table summarizes the amounts of identified assets acquired and liabilities assumed at the acquisition date of November 10, 2011. During the measurement period, net adjustments of $43.9 million were made to the fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. These adjustments are summarized in the measurement period adjustments column.

($ in thousands)
  Provisional
Fair Value
as of
Acquisition Date
  Measurement
Period
Adjustments
  Final Fair
Value as of
Acquisition Date
 

Current assets

  $ 249,117   $ (10,708 ) $ 238,409  

Property, plant and equipment, net

    27,294     25,728     53,022  

Intangible assets, net

    114,100     2,734     116,834  

Goodwill

    375,807     43,944     419,751  

Other long-term assets

    8,493         8,493  
               

Total assets acquired

    774,811     61,698     836,509  

Current liabilities

   
(180,124

)
 
(4,072

)
 
(184,196

)

Debt

    (80,874 )       (80,874 )

Pension liabilities

    (293,819 )   5,582     (288,237 )

Other long-term liabilities

    (22,736 )   (63,208 )   (85,944 )
               

Total liabilities assumed

    (577,553 )   (61,698 )   (639,251 )
               

Net assets acquired

  $ 197,258   $   $ 197,258  
               

        Included in the intangible assets acquired is the fair value for customer relationships, contracted backlog and the tradename valued at $93.5 million, $19.1 million and $4.2 million, respectively. Customer relationships, contracted backlog and the tradename will be amortized over their useful lives of six, four and three years, respectively.

        Certain changes to prior year balance sheet amounts and the corresponding footnotes have been made in accordance with the accounting standard for business combinations to reflect adjustments made during the measurement period to the provisional amounts for assets acquired and liabilities

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Notes to Consolidated Financial Statements (Continued)

(6) Acquisitions (Continued)

assumed in the Halcrow acquisition. The following table summarizes the effect these measurement period adjustments had on the December 31, 2011 consolidated balance sheet as previously reported.

($ in thousands)
  Consolidated
Balance Sheet
as Reported
December 31, 2011
  Measurement
Period
Adjustments
  Consolidated
Balance Sheet
Retrospectively
Adjusted
December 31, 2011
 
 
  (a)
  (b)
   
 

Assets:

                   

Other receivables, net

  $ 39,095   $ (21,940 ) $ 17,155  

Income tax receivable

    43,324     (6,487 )   36,837  

Prepaid expenses and other current assets

    48,622     18,155     66,777  

Property, plant and equipment, net

    179,722     24,680     204,402  

Goodwill

    503,289     42,154     545,443  

Intangible assets, net

    159,777     2,622     162,399  

Liabilities:

                   

Accrued payroll and employee related liabilities

    315,650     (10,101 )   305,549  

Other accrued liabilities

    227,539     14,007     241,546  

Long-term employee related liabilities

    466,939     (5,356 )   461,583  

Other long-term liabilities

    133,520     60,634     194,154  
(a)
As previously reported in the Company's 2011 Annual Report on Form 10-K.

(b)
These measurement period adjustments were recorded to reflect changes in the estimated fair value of certain assets and liabilities. These adjustments were primarily made to reflect better market participant assumptions about facts and circumstances existing as of the acquisition date and reflect the tax impact of the adjustments. The measurement period adjustments did not result from intervening events subsequent to the acquisition date.

(7) Goodwill and Intangible Assets

        The following table presents the changes in goodwill during the years ended December 31:

($ in thousands)
  2012   2011  

Balance at beginning of year

  $ 545,443   $ 130,354  

Acquisitions

        430,211  

Foreign currency translation

    17,018     (15,122 )
           

Balance at end of year

  $ 562,461   $ 545,443  
           

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Notes to Consolidated Financial Statements (Continued)

(7) Goodwill and Intangible Assets (Continued)

        Intangible assets with finite lives consist of the following:

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

December 31, 2012

                   

Contracted backlog

  $ 81,014   $ (64,850 ) $ 16,164  

Customer relationships

    160,651     (62,386 )   98,265  

Tradename

    24,862     (5,634 )   19,228  
               

Total finite-lived intangible assets

  $ 266,527   $ (132,870 ) $ 133,657  
               

December 31, 2011

                   

Contracted backlog

  $ 79,834   $ (59,737 ) $ 20,097  

Customer relationships

    155,358     (37,433 )   117,925  

Tradename

    4,095     (45 )   4,050  

Non-compete agreements and other

    902     (902 )    
               

Total finite-lived intangible assets

  $ 240,189   $ (98,117 ) $ 142,072  
               

        All intangible assets are being amortized over their expected lives of between three and seven years. Included in the December 31, 2012 balance above is a tradename valued at $20.3 million which we began amortizing in 2012 over a period of five years due to a change in estimate of the useful life of the tradename. This tradename was classified as an indefinite-lived intangible asset as of December 31, 2011 and therefore was not included in the table above as of that date.

        The amortization expense reflected in the consolidated statements of income totaled $38.6 million, $11.1 million and $10.2 million for the years ended December 31, 2012, 2011 and 2010, respectively. These intangible assets are expected to be fully amortized in 2018. At December 31, 2012, the future estimated amortization expense related to these intangible assets is (in thousands):

Year Ending:
   
 

2013

  $ 36,424  

2014

    33,642  

2015

    25,596  

2016

    21,402  

2017

    15,858  

Thereafter

    735  
       

  $ 133,657  
       

(8) Fair Value of Financial Instruments

        Cash and cash equivalents, receivables, unbilled revenue, accounts payable and accrued subcontractor costs and billings in excess of revenue are carried at cost, which approximates fair value due to their short maturities. Fair value of long-term debt, including the current portion, is estimated based on Level 2 inputs, except the amount outstanding on the revolving credit facility for which the carrying value approximates fair value. Fair value is determined by discounting future cash flows using

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Notes to Consolidated Financial Statements (Continued)

(8) Fair Value of Financial Instruments (Continued)

interest rates available for issues with similar terms and average maturities. The estimated fair values of our financial instruments where carrying values do not approximate fair value are as follows:

 
  2012   2011  
($ in thousands)
  Carrying Amount   Fair Value   Carrying Amount   Fair Value  

Mortgage notes payable

  $ 12,159   $ 10,718   $ 13,750   $ 12,207  

Equipment financing

    4,348     3,716     13,764     12,923  

Stockholder notes payable

    322     303     294     272  

        The fair value of marketable securities classified as available-for-sale, which totaled $2.1 million and $2.4 million at December 31, 2012 and 2011, respectively, were valued based on Level 1 inputs whereby a readily determinable market value exists for the specific asset.

        We primarily enter into derivative financial instruments to mitigate exposures to changing foreign currency exchange rates. These currency derivative instruments are carried on the balance sheet at fair value and are typically based upon Level 2 inputs including third party quotes. At December 31, 2012, we had forward foreign exchange contracts on major world currencies with varying durations, none of which extend beyond five years. At December 31, 2012, there were no foreign exchange contracts outstanding. At December 31, 2011, derivative assets and liabilities recorded amounted to $6.7 million and $6.6 million, respectively.

(9) Line of Credit and Long-Term Debt

        On December 6, 2010, we entered into a Credit Agreement providing for an unsecured revolving Credit Facility (the "Credit Facility") in an amount up to $600.0 million. We entered into an amendment to the original Credit Agreement on September 27, 2011 which provided modifications to certain covenants and other provisions of the Credit Agreement to take into account the acquisition of Halcrow. On April 19, 2012, we amended and restated this agreement for the purposes of increasing the size of the Credit Facility to $900.0 million, extending the maturity to April 19, 2017, increasing the capacity of certain subfacilities as well as improving our borrowing rates. Under the terms of the revised agreement we may be able to invite existing and new lenders to increase the amount available to be borrowed under the agreement by up to $200.0 million. The revised credit facility has a subfacility for the issuance of standby letters of credit in a face amount up to $500.0 million, compared to $300.0 million in the original agreement and a subfacility up to $300.0 million for multicurrency borrowings, which is unchanged from the original agreement.

        Revolving loans under the Credit Facility bear interest, at our option, at a rate equal to either (i) the base rate plus a margin based on our consolidated leverage ratio or (ii) the eurodollar rate, based on interest periods of one, two, three or six months, plus a margin based on our consolidated leverage ratio. The base rate is defined as the highest of (i) the "Federal Funds Rate," as published from time to time by the Federal Reserve Bank of New York, plus 0.5%, (ii) the Agent's "prime rate" in effect from time to time, and (iii) the one month LIBOR rate in effect from time to time, plus 1.0%. Our "consolidated leverage ratio" on any date is the ratio of our consolidated total funded debt to our consolidated adjusted earnings before interest, taxes, depreciation and amortization for the preceding four fiscal quarters. The definition of consolidated adjusted earnings before interest, taxes, depreciation and amortization was amended to allow for the addition of, among other things, all expenses associated with the non-cash portion of all stock-based compensation. We are also obligated

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Notes to Consolidated Financial Statements (Continued)

(9) Line of Credit and Long-Term Debt (Continued)

to pay other closing fees, commitment fees and letter of credit fees customary for a credit facility of this size and type. Under the terms of the revised agreement, the margin added to either the base rate or the eurodollar rate has decreased, which provides us with access to capital at lower overall borrowing rates.

        Both the original and revised credit agreements contain customary representations and warranties and conditions to borrowing. They also include customary affirmative and negative covenants, including covenants that limit or restrict our ability to incur indebtedness and other obligations, grant liens to secure their obligations, make investments, merge or consolidate, dispose of assets outside the ordinary course of business, enter into transactions with affiliates, and make certain kinds of payments, in each case subject to customary exceptions for credit facilities of this size and type. We are also required to comply with a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio. As of December 31, 2012, we were in compliance with the covenants required by the Credit Agreement. The remaining borrowing capacity available under the Credit Facility was $504.3 million as of December 31, 2012.

        Our nonrecourse and other long-term debt, as of December 31 consist of the following:

($ in thousands)
  2012   2011  

Nonrecourse:

             

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

  $ 10,374   $ 11,429  

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

    1,785     2,321  
           

    12,159     13,750  

Other:

             

Revolving credit facility

  $ 235,500   $ 65,000  

Equipment financing, due in monthly installments to December 2015, secured by equipment. These notes bear interest ranging from 4.00% to 8.00%

    4,348     13,764  

Stockholder notes payable

    322     294  
           

Total debt

    252,329     92,808  

Less current portion of debt

    3,497     11,334  
           

Total long-term portion of debt

  $ 248,832   $ 81,474  
           

        At December 31, 2012, future principal payments on long-term debt are as follows (in thousands):

Year Ending:
   
 

2013

  $ 3,497  

2014

    3,355  

2015

    3,112  

2016

    1,338  

2017

    236,885  

Thereafter

    4,142  
       

  $ 252,329  
       

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(10) Operating Lease Obligations

        We have entered into certain noncancellable leases, which are being accounted for as operating leases. At December 31, 2012, future minimum lease payments, without consideration of sublease income, are as follows (in thousands):

Year Ending:
   
 

2013

  $ 106,328  

2014

    86,495  

2015

    73,785  

2016

    58,418  

2017

    49,052  

Thereafter

    85,031  
       

  $ 459,109  
       

        Rental expense charged to operations, net of sublease income, was $125.8 million, $121.5 million and $126.7 million during the years ended December 31, 2012, 2011 and 2010, respectively, including amortization of a deferred gain of $4.3 million in each of the years ended December 31, 2012 and 2011, and 2010 related to the sale-leaseback of our corporate offices. Certain of our operating leases contain provisions for a specific rent-free period and escalation clauses. We accrue rental expense during the rent-free period based on total expected rent payments to be made over the life of the related lease.

(11) Income Taxes

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

($ in thousands)
  2012   2011   2010  

U.S. income

  $ 137,033   $ 146,721   $ 135,915  

Foreign income

    8,009     22,506     11,584  
               

Income before taxes

  $ 145,042   $ 169,227   $ 147,499  
               

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes (Continued)

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

($ in thousands)
  2012   2011   2010  

Current income tax expense:

                   

Federal

  $ 49,468   $ 55,576   $ 55,835  

Foreign

    19,098     13,016     11,729  

State and local

    7,556     7,839     10,939  
               

Total current income tax expense

    76,122     76,431     78,503  

Deferred income tax benefit:

                   

Federal

    (22,481 )   (17,619 )   (17,280 )

Foreign

    2,810     (806 )   (4,771 )

State

    (4,385 )   (2,076 )   (2,648 )
               

Total deferred income tax benefit

    (24,056 )   (20,501 )   (24,699 )
               

Total income tax expense

  $ 52,066   $ 55,930   $ 53,804  
               

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

($ in thousands)
  2012   2011   2010  

Pretax income

  $ 145,042   $ 169,227   $ 147,499  

Federal statutory rate

    35 %   35 %   35 %
               

Expected tax expense

    50,765     59,229     51,625  

Reconciling items:

                   

State income taxes, net of federal benefit

    4,200     6,402     5,640  

Nondeductible meals and entertainment

    2,452     2,466     3,082  

Section 199—Domestic manufacturer deduction

    (4,263 )   (5,472 )   (3,686 )

Subsidiary earnings

    (7,001 )   (6,126 )   (5,358 )

Permanent expenses

    (5,124 )   (3,091 )   (2,824 )

Foreign tax rate differential

    (8,436 )   (3,593 )   226  

Tax credits

    (5,387 )   (9,071 )   (13,617 )

Change in valuation allowance

    17,685     2,140     2,566  

Foreign permanent expenses and other

    8,746     13,722     16,788  

Other

    (1,571 )   (676 )   (638 )
               

Provision for income taxes

  $ 52,066   $ 55,930   $ 53,804  
               

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes (Continued)

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

($ in thousands)
  2012   2011  

Deferred tax assets:

             

Net foreign operating loss carryforwards

  $ 46,743   $ 45,690  

Deferred gain, insurance and other

    29,829     32,878  

Investments in affiliates

    1,909      

Accrued employee benefits

    282,974     266,122  
           

Total deferred tax assets

    361,455     344,690  

Valuation allowance

    (116,986 )   (99,301 )
           

Net deferred tax assets

    244,469     245,389  

Deferred tax liabilities:

             

Investments in affiliates

        (13,685 )

Depreciation and amortization

    (13,663 )   (33,591 )
           

Net deferred tax liabilities

    (13,663 )   (47,276 )
           

Net deferred tax assets

  $ 230,806   $ 198,113  
           

        A valuation allowance is required to be established for those deferred tax assets where it is more likely than not that they will not be realized. The above valuation allowances relate primarily to operating loss carryforwards from foreign operations and employee benefits of $498.0 million and $460.0 million for the years ended December 31, 2012 and 2011, respectively. The foreign net operating losses can be carried forward for varying terms depending on the foreign jurisdiction between three years and an unlimited carry forward period.

        Undistributed earnings of our foreign subsidiaries amounted to approximately $160.5 million at December 31, 2012. These earnings are considered to be permanently reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been made. If these earnings were repatriated as of December 31, 2012, approximately $41.5 million of income tax expense would be incurred. Cash held in international accounts at December 31, 2012 and 2011 was $260.0 million and $140.7 million, respectively.

        The tax benefit from stock-based compensation awards for the years ended December 31, 2012, 2011 and 2010 was $10.7 million, $13.1 million and $15.0 million, respectively. These amounts are reflected as additional paid-in capital in the consolidated statements of stockholders' equity and comprehensive income and are reported as financing activities in the consolidated statements of cash flows.

        As of December 31, 2012 and 2011, we had $30.2 million and $29.9 million, respectively, recorded as a liability for uncertain tax positions and accrued interest. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2012 and 2011, we had approximately $5.4 million and $4.6 million, respectively, of accrued interest and penalties related to

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Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes (Continued)

uncertain tax positions. A reconciliation of the beginning and ending amount of uncertain tax positions as of December 31, 2011 and December 31, 2012 is as follows (in thousands):

Balance at December 31, 2010

  $ 15,338  

Additions for current year tax positions

    9,802  

Additions for prior year tax positions

    1,862  

Reductions for prior year tax positions

    (1,129 )

Settlement with taxing authorities

     

Reductions as a result of lapse of applicable statue of expirations

    (564 )
       

Balance at December 31, 2011

  $ 25,309  

Additions for current year tax positions

    1,349  

Additions for prior year tax positions

    1,002  

Reductions for prior year tax positions

    (866 )

Settlement with taxing authorities

    (168 )

Reductions as a result of lapse of applicable statue of expirations

    (1,866 )
       

Balance at December 31, 2012

  $ 24,760  
       

        If recognized, the $24.8 million in uncertain tax positions would affect the effective tax rate. It is also possible that the reserve could change within twelve months of the reporting date related to the state research and experimentation credit as a result of tax authority settlement. The estimated range of unrecognized change is zero to $1.3 million at December 31, 2012.

        We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S., Canada, and the United Kingdom. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities in major tax jurisdictions for years before 2006.

(12) Earnings Per Share

        Basic earnings per share ("EPS") excludes the dilutive effect of common stock equivalents and is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of common stock equivalents, which consists of stock options, and is computed using the weighted-average number of common shares and common stock equivalents outstanding during the period.

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Notes to Consolidated Financial Statements (Continued)

(12) Earnings Per Share (Continued)

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

($ in thousands)
  2012   2011   2010  

Numerator:

                   

Net income attributable to CH2M HILL

  $ 92,976   $ 113,297   $ 93,695  
               

Denominator:

                   

Basic weighted-average common shares outstanding

    31,082     30,824     31,458  

Dilutive effect of common stock equivalents

    402     604     705  
               

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

    31,484     31,428     32,163  
               

Basic net income per common share

  $ 2.99   $ 3.68   $ 2.98  
               

Diluted net income per common share

  $ 2.95   $ 3.60   $ 2.91  
               

(13) Employee Benefit Plans

    Deferred Compensation Plans

        In 2010, we amended and restated the CH2M HILL Companies, Ltd. Deferred Compensation Retirement Plan ("DCRP") to form the CH2M HILL Supplemental Executive Retirement and Retention Plan ("SERRP"). The Plan is intended to be unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Title I of the Employee Retirement Income Security Act ("ERISA"). Under this plan, each participant's account consists of various contributions made to the account by our Company on behalf of the participant. The SERRP was amended effective January 1, 2013 to, in general, allow participants to select the investment vehicles available under the plan. The plan can be used to provide additional retirement benefits for certain of our senior executives at the Company's discretion. Compensation expense was $2.0 million, $3.9 million, $0.6 million for the years ended December 31, 2012, 2011 and 2010, respectively.

        In addition to the SERRP, we have a nonqualified deferred compensation plan that provides benefits payable to officers and certain highly compensated employees at specified future dates, or upon retirement, disability or death. In 2011, we amended and restated the Deferred Compensation Plan and Executive Deferred Compensation Plan to combine both plans into a single plan. The plan allows eligible participants to defer up to a certain amount of base compensation and incentive compensation received, in cash or common stock. It also allows a more select group of eligible participants, whose 401(k) Plan contributions are limited by the ERISA, to defer additional base compensation to which we may make a matching contribution. The plan is also used to provide additional retirement benefits for certain of our senior executives at levels to be determined from time-to-time by the Compensation Committee of the Board of Directors.

        The Deferred Compensation Plans are unfunded; therefore, benefits are paid from the general assets of our company. The participant's cash deferrals earn a return based on the participant's selection of investments in several hypothetical investment options. All deferrals of common stock must remain invested in common stock and are distributed in common stock. As of December 31, 2012 and 2011, amounts due under the Deferred Compensation Plans were $75.2 and $58.8, respectively.

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Notes to Consolidated Financial Statements (Continued)

(13) Employee Benefit Plans (Continued)

        Compensation expense for the two nonqualified plans was $2.7 million, $4.1 million and $2.8 million for the years ended December 31, 2012, 2011 and 2010, respectively.

    Death Benefit Only Plan

        Effective as of September 13, 2012, we amended and restated the CH2M HILL Companies, Ltd. Death Benefit Only Plan. The plan provides for a payment of five times the base salary (pre-tax) in a lump sum to the beneficiary of select executives (including the named executive officers) upon his or her death. This is a pre-retirement employment benefit similar to term life insurance while the executive remains a CH2M HILL employee.

    Stock Option Plans

        In 2009, the Board of Directors and stockholders approved the CH2M HILL Companies, Ltd. 2009 Stock Option Plan ("2009 Stock Option Plan") which reserved 3,000,000 shares of our common stock for issuance upon exercise of stock options granted. Effective May 7, 2012, the 2009 Stock Option Plan was amended and restated to increase the number of reserved shares to 5,500,000. All options outstanding under the previously cancelled plans ("1999 and 2004 Stock Option Plans"), that expired or for any other reason cease to be exercisable, were rolled into the 2009 Stock Option Plan and are available for grant in addition to the 5,500,000 options reserved.

        Stock options are granted at an exercise price equal to the fair market value of our common stock at the date of grant. Stock options granted generally become exercisable 25%, 25% and 50% after one, two and three years, respectively, and have a term of five years from the date of grant. The following table summarizes the activity relating to the 2009 Stock Option Plan during 2012:

Stock Options:
  Number of Shares   Weighted Average Exercise Price  

Outstanding at December 31, 2011

    2,913,658   $ 37.18  

Granted

    739,037   $ 54.37  

Exercised

    (832,972 ) $ 27.30  

Forfeited

    (149,540 ) $ 49.62  

Expired

    (49,646 ) $ 26.48  
             

Outstanding at December 31, 2012

    2,620,537   $ 44.65  
             

Exercisable at December 31, 2012

    1,145,755   $ 36.98  
             

Available for future grants

    5,859,834        
             

        The weighted-average remaining contractual term for all options outstanding at December 31, 2012 and 2011 was 2.7 years and 2.6 years, respectively. The aggregate intrinsic value of all options outstanding was $26.7 million and $54.0 million, at December 31, 2012 and 2011, respectively. The weighted-average remaining contractual term for options vested and exercisable at December 31, 2012 and 2011 was 1.5 years and 1.4 years, respectively. The aggregate intrinsic value for the vested and exercisable options was $20.3 million and $37.8 million, at December 31, 2012 and 2011, respectively. The remaining unrecognized compensation expense related to nonvested awards as of December 31, 2012 is $5.7 million. We expect to recognize this compensation expense over the weighted average remaining recognition period of 1.6 years, subject to forfeitures that may occur during that period.

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Notes to Consolidated Financial Statements (Continued)

(13) Employee Benefit Plans (Continued)

        We received $5.2 million, $4.6 million and $3.7 million from options exercised during the years ended December 31, 2012, 2011 and 2010, respectively. Our stock option plans also allow participants to satisfy the exercise price and participant tax withholding obligation by tendering shares of company stock that have been owned by the participants for at least six months. The intrinsic value associated with exercises was $18.0 million, $16.4 million and $16.3 million during the years ended December 31, 2012, 2011 and 2010, respectively.

        We measure the fair value of each stock option grant at the date of grant using a Black-Scholes option pricing model. The weighted average grant date fair value of options granted during the years ended December 31, 2012 and 2011 was $5.85 and $7.40, respectively. The following assumptions were used in determining the fair value of options granted during 2012 and 2011:

 
  2012   2011  

Risk-free interest rate

    0.62 %   1.15 %

Expected dividend yield

    0.00 %   0.00 %

Expected option life

    4.2 Years     4.2 Years  

Expected stock price volatility

    11.72 %   15.63 %

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

        The total compensation expense recognized for stock options granted for the years ended December 31, 2012, 2011 and 2010 was $2.1 million, $4.8 million and $4.8 million, respectively.

    Payroll Deduction Stock Purchase Plan

        In November 1999, we established the Payroll Deduction Stock Purchase Plan ("PDSPP") which provides for the purchase of common stock at 90% of the market value as of the date of purchase through payroll deductions by participating employees. Eligible employees may purchase common stock totaling up to 15% of an employee's compensation through payroll deductions. An employee cannot purchase more than $25,000 of common stock under the PDSPP in any calendar year. The PDSPP is intended to qualify under Section 423 of the Internal Revenue Code ("IRC"). The PDSPP is not intended to qualify under Section 401(a) of the IRC and is not subject to ERISA. The PDSPP is non-compensatory since the plan is available to all stockholders and incorporates no option features such as a look-back period. Accordingly, no compensation expense is recognized in the financial statements for the PDSPP. During the years ended December 31, 2012, 2011 and 2010, a total of 540,134 shares, 527,503 shares and 569,788 shares, respectively, were issued under the PDSPP, for total proceeds of $26.3 million, $24.4 million and $22.2 million, respectively.

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Notes to Consolidated Financial Statements (Continued)

(13) Employee Benefit Plans (Continued)

    Phantom Stock Plan

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

        During the years ended December 31, 2012, 2011 and 2010, a total of 711 units, 731 units and 6,136 units, respectively, were granted under the Phantom Stock Plan. The fair values of the units granted under the Phantom Stock Plan during 2012, 2011 and 2010 were $57.01, $49.90 and $40.52, respectively. Compensation expense related to the Phantom Stock Plan during 2012, 2011 and 2010 was zero, $0.6 million and $0.5 million, respectively.

        The following table summarizes the activity relating to the Phantom Stock Plan during 2012:

 
  Number of Units  

Balance at December 31, 2011

    32,487  

Granted

    711  

Exercised

    (4,627 )

Cancelled

    (1,139 )
       

Balance at December 31, 2012

    27,432  
       

    Stock Appreciation Rights Plan

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

        Compensation expense related to the SARs Plan during 2012, 2011 and 2010 was $0.1 million, $0.1 million and $0.2 million for the years ended December 31, 2012, 2011 and 2010, respectively.

        The following table summarizes the activity relating to the SARs Plan during 2012:

 
  Number
of
Rights
  Weighted Average
Exercise Price
 

Balance at December 31, 2011

    21,145   $ 39.90  

Granted

    6,367   $ 53.81  

Exercised

    (5,650 ) $ 29.95  

Cancelled

    (3,273 ) $ 48.00  
             

Balance at December 31, 2012

    18,589   $ 46.26  
             

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Notes to Consolidated Financial Statements (Continued)

(13) Employee Benefit Plans (Continued)

    Incentive Plans

        The Annual Incentive Plan ("AIP") aids in the recruitment, motivation, and retention of employees. Management determines which employees participate in the AIP. During the years ended December 31, 2011 and 2010, a total of 58,045 shares and 369,566 shares, respectively, were issued under the AIP. The fair values of the shares issued under the AIP were $46.75 and $40.52, for the years ended December 31, 2011 and 2010, respectively. We accrued compensation expense related to common stock awards under the AIP in the amount of $2.7 million for the year ended December 31, 2011. All of the 2012 awards were paid in cash. Therefore no stock-based compensation was recognized in 2012 or 2010.

        The Long Term Incentive Plan ("LTIP") rewards certain executives and senior leaders for the creation of value in the organization through the achievement of specific long-term (3 year) goals of earnings growth and strategic initiatives. The Compensation Committee of the Board reviews and endorses participation in the LTIP in any program year and a new program is established each year. During the years ended December 31, 2012, 2011 and 2010, a total of 304,736 shares, 219,087 shares and 279,447 shares, respectively, were issued under the LTIP at a fair value of $57.01, $46.75 and $40.52 per share, respectively. Compensation expense for common stock awards under the LTIP amounted to $7.2 million, $11.8 million and $15.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.

    Restricted Stock Plan

        In 2000, we established the Restricted Stock Policy and Administration Plan (as amended and restated in 2011) which provides eligible individuals with added incentives to continue in the long-term service of our company. The awards are made for no consideration, vest over various periods, and may include performance requirements, but are considered outstanding at the time of grant. During the years ended December 31, 2012, 2011 and 2010, a total of 163,469 shares, 136,696 shares and 186,396 shares, respectively, were granted under the Restricted Stock Policy and Administration Plan.

        We recognize compensation costs, net of forfeitures, over the vesting term based on the fair value of the restricted stock at the date of grant. The amount of compensation expense recognized under the Restricted Stock Policy and Administration Plan was $6.7 million, $5.5 million and $4.8 million for the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, there was $6.0 million of unrecognized compensation expense related to non-vested restricted stock grants. The expense is expected to be recognized over a weighted average period of 1.91 years.

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(13) Employee Benefit Plans (Continued)

        The following table summarizes the activity relating to the Restricted Stock Policy and Administration Plan during 2012:

 
  Non-vested Shares   Weighted Average Grant Date Fair Value  

Balance at December 31, 2011

    394,287   $ 39.04  

Granted

    163,469   $ 54.96  

Vested

    (90,765 ) $ 44.16  

Cancelled and expired

    (122,773 ) $ 37.15  
             

Balance at December 31, 2012

    344,218   $ 45.92  
             

        The weighted-average fair values of the shares granted under the Restricted Stock Plan during 2012, 2011 and 2010 were $54.96, $50.37 and $42.32, respectively.

(14) Employee Retirement Plans

    Retirement and Tax-Deferred Savings Plan

        The Retirement and Tax-Deferred Savings Plan ("401(k) Plan") is a profit sharing plan that includes a cash or deferred arrangement that is intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. Employees are eligible to participate in the 401(k) Plan on the first date of hire with respect to employee contributions and matching contributions. Each eligible employee begins to participate in the 401(k) Plan with respect to defined contributions as of the first day of the first month that begins on or after the eligible employee completes a twelve-month period of service during which the employee is credited with at least 1,000 hours of service.

        The 401(k) Plan allows for matching contributions to be made in both cash and stock. Matching contributions may be made in an amount that is based on a percentage of the employee's contributions for the calendar quarter up to 4% of the employee's base compensation. Participants of the 401(k) Plan are, at all times, 100% vested in the employee contribution account. Employer contributions allocated to a participant's account generally vest over six years of completed service. Expenses related to matching contributions, made in common stock, for the 401(k) Plan for 2012, 2011 and 2010 were $27.0 million, $24.8 million and $20.6 million, respectively. In addition, expenses related to defined contributions made in common stock for the 401(k) Plan for 2012, 2011 and 2010 were $18.5 million, $20.0 million and $16.6 million, respectively.

        In September, 2012, our Board of Directors approved the CH2M HILL Companies, Ltd. Amended and Restated 401(k) Plan which becomes effective January 1, 2013 and allows for matching contributions to be made based on a percentage of the employee's contributions up to 6% of the employee's base compensation, although specific subsidiaries or business groups may have different limits on employer matching. The matching contributions may still be made in both cash and stock. Employer defined contributions will no longer be made under the amended and restated 401(k) Plan and a five-year vesting schedule for employer matching contributions, with 20% vesting per year beginning at the end of the first year of service, will be implemented.

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(14) Employee Retirement Plans (Continued)

    Defined Benefit Plans

        We sponsor several defined benefit pension plans primarily in the United States and the United Kingdom.

        In the U.S., we have three noncontributory defined benefit pension plans. Plan benefits in two of the plans are frozen while one plan remains active. Effective December 31, 2010, the active plan was amended to change the calculation of future benefits. Benefits are generally based on years of service and compensation during the span of employment.

        In the U.K., we assumed several defined benefit plans as part of our acquisition of Halcrow on November 10, 2011, of which the largest is the Halcrow Pension Scheme. These defined benefit plans have been closed to new entrants for many years. The information related to these plans is presented in the Non-U.S. Pension Plans columns of the tables below.

    Benefit Expense

        The weighted average actuarial assumptions used to compute the net periodic pension expense are based upon information available as of the beginning of the year, as presented in the following table.

 
  U.S. Pension
Plans
  Non-U.S.
Pension Plans
 
 
  2012   2011   2010   2012  

Discount rate

    5.30 %   5.80 %   5.90 %   4.90 %

Expected long-term rate of return on plan assets

    7.50 %   7.50 %   7.50 %   5.81 %

Rate of compensation increase

    3.00 %   3.00 %   4.00 %   4.10 %

        The components of the net periodic pension expense for the years ended December 31 are detailed below:

 
  U.S. Pension
Plans
  Non-U.S.
Pension Plans
 
($ in thousands)
  2012   2011   2010   2012   2011  

Service cost

  $ 3,532   $ 3,666   $ 5,579   $ 2,350   $ 320  

Interest cost

    10,592     10,585     10,692     45,628     5,969  

Expected return on plan assets

    (10,756 )   (10,462 )   (9,149 )   (36,647 )   (5,674 )

Amortization of prior service cost (credits)

    (781 )   (783 )   92          

Recognized net actuarial loss

    5,546     3,549     4,058          
                       

Net expense included in current income

  $ 8,133   $ 6,555   $ 11,272   $ 11,331   $ 615  
                       

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(14) Employee Retirement Plans (Continued)

    Benefit Obligations

        The measurement date used for the U.S. and non-U.S. defined benefit pension plans is December 31. The significant actuarial weighted average assumptions used to compute the projected benefit obligations for the defined benefit pension plans at December 31 are as follows:

 
  U.S. Pension
Plans
  Non-U.S.
Pension Plans
 
 
  2012   2011   2012   2011  

Discount rate

    4.20 %   5.30 %   4.50 %   4.94 %

Rate of compensation increase

    3.00 %   3.00 %   4.00 %   4.10 %

        The discount rate assumption for the U.S. and U.K. defined benefit pension plans was determined using an actuarial bond model. The model assumes we purchase high quality, Aa-rated or better, corporate bonds such that the expected cash flow from the selected bond portfolio generally matches the timing of our projected benefit payments. The model develops the average yield on this portfolio of bonds as of the measurement date. This average yield is used as the discount rate.

        The following table summarizes the change in the projected benefit obligation and plan assets for the defined benefit pension plans for the years ended December 31:

 
  U.S. Pension
Plans
  Non-U.S.
Pension Plans
 
($ in thousands)
  2012   2011   2012   2011  

Benefit obligation at beginning of year

  $ 205,750   $ 187,595   $ 922,259   $  

Service cost

    3,532     3,666     2,350     320  

Interest cost

    10,592     10,585     45,628     5,969  

Actuarial loss

    34,584     12,313     82,069     21,060  

Participant contributions

            347      

Currency translation

            43,707     (34,494 )

Benefits paid

    (9,381 )   (8,409 )   (32,408 )   (3,262 )

Liabilities assumed from the Halcrow acquisition and other

                932,666  
                   

Benefit obligation at end of year

  $ 245,077   $ 205,750   $ 1,063,952   $ 922,259