MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

URS Corporation and Washington Group International, Inc. have agreed to a merger that combines URS and Washington Group, subject to approval of both companies’ stockholders. If the proposed merger is completed, each outstanding share of Washington Group common stock (other than those shares held by URS, any subsidiary of URS, Elk Merger Corporation or Bear Merger Sub and other than treasury shares and shares as to which a Washington Group stockholder has validly demanded and perfected appraisal rights under Delaware law) will be converted into the right to receive 0.772 of a share of URS common stock and $43.80 in cash, without interest. In the merger, URS expects to pay approximately $1.4 billion in cash and issue approximately 24.9 million shares of URS common stock, based on Washington Group’s shares of common stock and equity awards outstanding as of September 21, 2007. Washington Group stockholders are expected to own approximately 32% of the shares of URS common stock outstanding after the merger. The exchange ratio is fixed and will not be adjusted for changes in the stock prices of either company before the merger is consummated. URS stockholders will continue to own their existing shares of URS common stock, which generally should not be affected by the merger, other than by the dilution resulting from the issuance of URS common stock in the merger. URS common stock is traded on the New York Stock Exchange under the trading symbol “URS.” On September 21, 2007, URS common stock closed at $58.00 per share as reported on the New York Stock Exchange Composite Transaction Tape.

 

The merger cannot be completed unless URS stockholders approve the issuance of shares of URS common stock in the merger and Washington Group stockholders adopt the merger agreement and approve the merger. The boards of directors of URS and Washington Group unanimously recommend that their respective stockholders vote “FOR” these proposals.

 

The proposals are being presented to the respective stockholders of each company at their special meetings. The dates, times and places of the meetings are as follows:

 

 

This joint proxy statement/prospectus contains important information about URS, Washington Group, the merger agreement, the proposed merger and the special meetings of the respective stockholders of URS and Washington Group. We encourage you to read carefully this joint proxy statement/prospectus before voting, including the section entitled “Risk Factors” beginning on page 19.

 

Your vote is very important. Whether or not you plan to attend your company’s special meeting, please take the time to vote by completing and mailing to us the enclosed proxy card or, if the option is available to you, by granting your proxy electronically over the Internet or by telephone.

 

Sincerely,

 

 

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved of the transactions described in this joint proxy statement/prospectus or the securities to be issued pursuant to the merger or determined if the information contained in this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

 

This joint proxy statement/prospectus is dated September 28, 2007, and is being mailed to stockholders of URS and Washington Group on or about October 1, 2007.

 

 

URS CORPORATION
600 Montgomery Street, 26^th Floor
San Francisco, California 94111-2728

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON OCTOBER 30, 2007

 

 

To the Stockholders of URS Corporation:

 

We will hold a special meeting of stockholders of URS at the offices of Cooley Godward Kronish LLP, located at 101 California Street, 5th Floor, San Francisco, California 94111-5800 , on October 30, 2007, at 10:00 a.m., local time, for the following purposes:

 

1. To consider and vote upon a proposal to approve the issuance of shares of URS common stock pursuant to the Agreement and Plan of Merger, dated as of May 27, 2007, by and among URS, Elk Merger Corporation, a wholly owned subsidiary of URS, Bear Merger Sub, Inc., a wholly owned subsidiary of URS, and Washington Group International, Inc., pursuant to which Elk Merger Corporation will merge with and into Washington Group, and each outstanding share of Washington Group common stock, other than those shares held by URS, any subsidiary of URS, Elk Merger Corporation or Bear Merger Sub and other than treasury shares and shares as to which a Washington Group stockholder has validly demanded and perfected appraisal rights under Delaware law, will be converted into the right to receive 0.772 of a share of URS common stock and $43.80 in cash, without interest.

 

2. To consider and vote upon a proposal to authorize the proxyholders to vote to adjourn or postpone the special meeting, in their sole discretion, to solicit additional proxies if there are not sufficient votes in favor of the foregoing.

 

3. To transact any other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

 

These items of business are described in the attached joint proxy statement/prospectus. Only URS stockholders of record at the close of business on September 21, 2007, the record date for the special meeting, are entitled to notice of and to vote at the special meeting and any adjournments or postponements of the special meeting.

 

The URS board of directors unanimously recommends that you vote “FOR” the proposal to approve the issuance of shares of URS common stock pursuant to the merger agreement and “FOR” the proposal to authorize the adjournment or postponement of the URS special meeting.

 

A list of stockholders eligible to vote at the URS special meeting will be available for inspection at the special meeting, and at the executive offices of URS during regular business hours for a period of no less than ten days prior to the special meeting.

 

Your vote is very important. It is important that your shares be represented and voted whether or not you plan to attend the special meeting in person. Instructions regarding the different methods for voting your shares are provided under the section entitled “Questions And Answers About the Special Meetings of Stockholders of URS and Washington Group” on page iv.

 

By Order of the Board of Directors,

 

Martin M. Koffel

Chairman of the Board of Directors and

Chief Executive Officer

URS Corporation

 

September 28, 2007

 

WASHINGTON GROUP INTERNATIONAL, INC.
720 Park Boulevard, P.O. Box 73
Boise, Idaho 83729

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON OCTOBER 30, 2007

 

 

To the Stockholders of Washington Group International, Inc.:

 

We will hold a special meeting of stockholders of Washington Group at Washington Group’s offices located at 720 Park Boulevard, Boise, Idaho 83712, on October 30, 2007, at 11:00 a.m. local time, for the following purposes:

 

1. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of May 27, 2007, by and among URS, Elk Merger Corporation, a wholly owned subsidiary of URS, Bear Merger Sub, Inc., a wholly owned subsidiary of URS, and Washington Group, pursuant to which Elk Merger Corporation will merge with and into Washington Group, and each outstanding share of Washington Group common stock, other than those shares held by URS, any subsidiary of URS, Elk Merger Corporation or Bear Merger Sub and other than treasury shares and shares as to which a Washington Group stockholder has validly demanded and perfected appraisal rights under Delaware law, will be converted into the right to receive 0.772 of a share of URS common stock and $43.80 in cash, without interest, and approve such merger.

 

2. To consider and vote upon a proposal to authorize the proxyholders to vote to adjourn or postpone the special meeting, in their sole discretion, to solicit additional proxies if there are not sufficient votes in favor of the foregoing.

 

3. To transact any other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

 

These items of business are described in the attached joint proxy statement/prospectus. Only Washington Group stockholders of record at the close of business on September 21, 2007, the record date for the special meeting, are entitled to notice of and to vote at the special meeting and any adjournments or postponements of the special meeting.

 

The Washington Group board of directors has approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, and unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the merger and “FOR” the proposal to authorize the adjournment or postponement of the Washington Group special meeting.

 

A list of stockholders eligible to vote at the Washington Group special meeting will be available for inspection at the special meeting, and at the executive offices of Washington Group during regular business hours for a period of no less than ten days prior to the special meeting.

 

Your vote is very important. It is important that your shares be represented and voted whether or not you plan to attend the special meeting in person. Instructions regarding the different methods for voting your shares are provided under the section entitled “Questions And Answers About the Special Meetings of Stockholders of URS and Washington Group” on page iv.

 

By Order of the Board of Directors,

 

Stephen G. Hanks

President and Chief Executive Officer

Washington Group International, Inc.

 

September 28, 2007

ADDITIONAL INFORMATION

 

This joint proxy statement/prospectus incorporates by reference important business and financial information about URS and Washington Group from documents that are not included in or delivered with this joint proxy statement/prospectus. For a more detailed description of the information incorporated by reference into this joint proxy statement/prospectus and how you may obtain it, see “Additional Information — Where You Can Find More Information” on page 146.

 

You can obtain any of the documents incorporated by reference into this joint proxy statement/prospectus from URS or Washington Group, as applicable, or from the Securities and Exchange Commission, which is referred to as the SEC, through the SEC’s website at http://www.sec.gov. Documents incorporated by reference are available from URS and Washington Group without charge, excluding any exhibits to those documents, unless the exhibit is specifically incorporated by reference as an exhibit in this joint proxy statement/prospectus. URS stockholders and Washington Group stockholders may request a copy of such documents in writing or by telephone by contacting the applicable department at:

 

 

In addition, you may obtain copies of the information relating to URS, without charge, by sending an e-mail to investor_relations@urscorp.com. You may obtain copies of some of this information by making a request through the URS investor relations website at http://www.urscorp.com/investor.

 

You may also obtain copies of the information relating to Washington Group, without charge, by sending an e-mail to investor.relations@wgint.com. You may obtain copies of some of this information by making a request through the Washington Group investor relations website at http://investor.wgint.com.

 

We are not incorporating the contents of the websites of the SEC, URS, Washington Group or any other person into this joint proxy statement/prospectus. We are providing the information about how you can obtain certain documents that are incorporated by reference into this joint proxy statement/prospectus at these websites only for your convenience.

 

In order for you to receive timely delivery of the documents in advance of the respective URS and Washington Group special meetings, URS or Washington Group, as applicable, must receive your request no later than October 22, 2007.

 

For information about where to obtain copies of documents, see “Additional Information — Where You Can Find More Information” on page 146.

 

TABLE OF CONTENTS

 

 

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS OF STOCKHOLDERS

OF URS AND WASHINGTON GROUP

 

The following are some questions that you, as a stockholder of URS or Washington Group, may have regarding the respective special meetings of stockholders of URS and Washington Group and brief answers to those questions. For more detailed information about the matters discussed in these questions and answers, see “The URS Special Meeting,” beginning on page 43 and “The Washington Group Special Meeting,” beginning on page 47. URS and Washington Group urge you to read carefully the remainder of this joint proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the respective special meetings of stockholders. Additional important information is also contained in the Annexes to and the documents incorporated by reference in this joint proxy statement/prospectus.

 

 

 

 

 

 

 

 

if you are a URS stockholder:

 

 

if you are a Washington Group stockholder:

 

	•	In providing design and engineering services, Washington Group participates in the conceptualization and planning stages of projects that are part of Washington Group’s customers’ overall capital programs. Washington Group develops the physical designs and determines the technical specifications. Washington Group also devises project configurations to maximize both construction and operating efficiency.
	•	As a contractor, Washington Group is responsible for the construction and completion of each contract in accordance with its specifications and contracting terms (primarily schedule and total cost). In this capacity, Washington Group often manages the procurement of materials, subcontractors and craft labor. Depending on the project, Washington Group may function as the primary contractor or as a subcontractor to another firm.

	•	On some projects, Washington Group functions as a construction manager, engaged by the customer to oversee other contractors’ compliance with design specifications and contracting terms.
	•	Under operations and maintenance contracts, Washington Group provides staffing, technical support, repair, renovation, predictive and preventive services to customer facilities globally. Washington Group also offers other facility services, such as general building maintenance and asset management. In addition, Washington Group provides inventory and product logistics for manufacturing plants, information technology support, equipment servicing and tooling changeover.

	•	vesting of all unvested Washington Group equity awards, including those held by Washington Group’s executive officers;
	•	vesting and cash out of all unvested Washington Group performance units, including those performance units held by Washington Group’s current executive officers;
	•	change-in-control severance agreements with Washington Group’s current executive officers that provide for payment of incentive compensation accrued as of the change-in-control date, as well as severance benefits in the event of certain qualifying terminations of employment in connection with or following the merger; and
	•	continued indemnification and insurance coverage as required under the merger agreement.

	•	the approval of the merger and adoption of the merger agreement by Washington Group stockholders and the approval of the issuance of shares of URS common stock in the merger by URS stockholders;
	•	the expiration or termination of the applicable waiting period and any extension of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which, together with the rules and regulations promulgated thereunder, is referred to as the HSR Act;
	•	the absence of any legal prohibition having the effect of preventing or prohibiting completion of the merger which prohibition continues to be in effect;
	•	the effectiveness, under the Securities Act of 1933, as amended, which is referred to as the Securities Act, of the registration statement of which this joint proxy statement/prospectus is a part and the absence of any pending or threatened proceeding related to the registration statement;
	•	the approval for listing on the NYSE of the shares of URS common stock to be issued in the merger, subject to official notice of issuance;
	•	the accuracy and correctness of representations and warranties of the other party, subject to certain qualifications described in the merger agreement;
	•	the other party’s having performed and complied with its covenants in the merger agreement in all material respects prior to the effective time of the merger, and the receipt of a certificate from the officers of the other party to that effect; and
	•	the receipt by each party of an opinion from the party’s counsel that the merger and the second merger, taken together, will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

	•	the merger is not consummated by December 27, 2007, unless that date is extended to May 27, 2008 on the terms provided in the merger agreement, and we refer to the December 27, 2007 date, as it may be extended, as the outside date;
	•	Washington Group stockholders fail to adopt the merger agreement and approve the merger at the Washington Group special meeting;
	•	URS stockholders fail to approve the issuance of shares of URS common stock in the merger at the URS special meeting; or
	•	any governmental entity prohibits the merger and that prohibition has become final and nonappealable, except that the party seeking to terminate the merger agreement must have used its reasonable best efforts to remove the prohibition.

	•	Washington Group breaches any representation, warranty, covenant or agreement made by Washington Group in the merger agreement or any representation and warranty made by Washington Group has become untrue or incorrect after the execution of the merger agreement, in each case, such that the conditions to the completion of the merger would not be satisfied and such breach or failure to be true is not cured within 30 days of notice by URS;
	•	prior to the URS stockholder meeting, URS receives an unsolicited bona fide written acquisition proposal (other than the merger agreement and the transaction) in compliance with the applicable provisions of the merger agreement that is a superior proposal and URS has complied with its obligations set forth in the merger agreement with respect to acquisition proposals; or
	•	prior to the Washington Group stockholder meeting, the Washington Group board of directors withdraws, qualifies, modifies its approval of the merger agreement or its recommendation to the stockholders of Washington Group, in each case, in a manner adverse to URS, or approves or recommends any acquisition proposal (other than the merger agreement and the transaction).

	•	URS breaches any representation, warranty, covenant or agreement made by URS in the merger agreement or any representation and warranty made by URS has become untrue or incorrect after the execution of the merger agreement, in each case, such that the conditions to the completion of the merger would not be satisfied and such breach or failure to be true is not cured within 30 days of notice by Washington Group;

	•	prior to the Washington Group stockholder meeting, Washington Group receives an unsolicited bona fide written acquisition proposal (other than the merger agreement and the transaction) in compliance with the applicable provisions of the merger agreement that is a superior proposal and Washington Group has complied with its obligations set forth in the merger agreement with respect to acquisition proposals;
	•	prior to the URS stockholder meeting, the URS board of directors withdraws, qualifies, modifies its approval of the merger agreement or its recommendation to the stockholders of URS, in each case, in a manner adverse to Washington Group, or approves or recommends any acquisition proposal (other than the merger agreement and the transaction); or
	•	URS does not effect the closing of the merger within five business days after notice by Washington Group to URS that the mutual conditions to each party’s obligation to consummate the merger and the conditions to URS’ obligations to consummate the merger are satisfied and all such conditions have, in fact, been satisfied (or, upon an immediate closing of the merger, would be satisfied as of such closing). (Note that the Merger Agreement refers to Washington Group’s (rather than URS’) obligations to consummate the merger, and the parties have agreed that this was a drafting error).

	•	will recognize gain (but not loss) with respect to its Washington Group common stock in an amount equal to the lesser of (i) any gain realized with respect to that stock or (ii) the amount of cash received with respect to that stock (other than any cash received instead of a fractional share of URS common stock); and
	•	will recognize gain (or loss) to the extent any cash received instead of a fractional share of URS common stock exceeds (or is less than) the basis of the fractional share.

		Six				Six
		Months				Months
		Ended				Ended				Year Ended				Year Ended				Two Months Ended
		June 29,				June 30,				December 29,				December 30,				December 31,								Years Ended October 31,
		2007				2006				2006				2005(1)				2004(1)				2003(1)				2004				2003				2002
		(Unaudited)				(Unaudited)																(Unaudited)
		(In thousands, except per share data)
Income Statement Data:
Revenues		$	2,382,393			$	2,068,140			$	4,240,150			$	3,917,565			$	566,997			$	489,665			$	3,381,963			$	3,186,714			$	2,427,827
Direct operating expenses			1,576,831				1,322,235				2,737,828				2,555,538				369,527				314,485				2,140,890				2,005,339				1,489,386
Gross profit			805,562				745,905				1,502,322				1,362,027				197,470				175,180				1,241,073				1,181,375				938,441
Indirect, general and administrative expenses(2,4)			679,414				636,045				1,283,533				1,187,605				188,400				153,609				1,079,088				999,977				790,099
Operating income			126,148				109,860				218,789				174,422				9,070				21,571				161,985				181,398				148,342
Interest expense			7,991				10,985				19,740				31,587				6,787				12,493				60,741				84,564				57,231
Income before income taxes and minority interest			118,157				98,875				199,049				142,835				2,283				9,078				101,244				96,834				91,111
Income tax expense			49,032				41,592				84,793				60,360				1,120				3,630				39,540				38,730				35,940
Minority interest in income of consolidated subsidiaries, net of tax			1,962				457				1,244				—				—				—				—				—				—
Net income			67,163				56,826				113,012				82,475				1,163				5,448				61,704				58,104				55,171
Preferred stock dividend			—				—				—				—				—				—				—				—				5,939
Net income after preferred stock dividend			67,163				56,826				113,012				82,475				1,163				5,448				61,704				58,104				49,232
Less: net income allocated to convertible participating preferred stockholders under the two-class method			—				—				—				—				—				—				—				894				907
Net income available for common stockholders		$	67,163			$	56,826			$	113,012			$	82,475			$	1,163			$	5,448			$	61,704			$	57,210			$	48,325
Earnings per share:
Basic		$	1.31			$	1.13			$	2.23			$	1.76			$	.03			$	.16			$	1.58			$	1.78			$	2.18
Diluted		$	1.28			$	1.11			$	2.19			$	1.72			$	.03			$	.16			$	1.53			$	1.76			$	2.03

		June 29,				December 29,				December 30,				December 31,								October 31,
		2007				2006				2005(1)				2004(1)				2003(1)				2004				2003				2002
		(Unaudited)																(Unaudited)
		(In thousands)
Balance Sheet Data:
Total assets		$	2,634,929			$	2,581,029			$	2,469,448			$	2,307,748			$	2,219,319			$	2,275,045			$	2,193,723			$	2,251,905
Total long-term debt		$	116,004			$	149,494			$	297,913			$	508,584			$	801,460			$	502,118			$	788,708			$	925,265
Preferred stock		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	46,733
Stockholders’ equity(3)		$	1,598,564			$	1,506,687			$	1,344,504			$	1,082,121			$	771,941			$	1,067,224			$	765,073			$	633,852

(1)		Effective January 1, 2005, URS adopted a 52/53-week fiscal year ending on the Friday closest to December 31st, with interim quarters ending on the Fridays closest to March 31st, June 30th, and September 30th. URS filed a transition report on Form 10-Q with the SEC for the two months ended December 31, 2004. URS’ 2005 fiscal year began on January 1, 2005 and ended on December 30, 2005.
(2)		Indirect, general and administrative expenses for the 2006 fiscal year included stock-based compensation expense of $6.6 million recorded in accordance with Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment.” There was no stock-based compensation expense related to employee stock options and employee stock purchases under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” which is referred to as SFAS 123, prior to fiscal year 2006 because URS did not adopt the recognition provisions of SFAS 123.
(3)		Stockholders’ equity for fiscal year 2006 included the incremental effect of applying and the effects of adopting Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” which is referred to as SFAS 158. During fiscal year 2006, URS adopted SFAS 158 and recognized additional pension liabilities of approximately $4.4 million. URS also reduced its stockholders’ equity by approximately $4.4 million on an after-tax basis.
(4)		Indirect, general and administrative expenses included charges of $0.2 million, $33.1 million and $28.2 million for costs incurred to extinguish URS’ debt during the years ended December 29, 2006, December 30, 2005, and October 31, 2004, respectively.

																														Predecessor
		Six Months				Six Months																				Eleven Months				Company Month
		Ended				Ended				Year Ended																Ended				Ended
		June 29,				June 30,				December 29,				December 30,				December 31,				January 2,				January 3,				February 1,
Income Statement Data:		2007				2006				2006				2005				2004				2004				2003				2002
		(Unaudited)				(Unaudited)
		(In thousands, except per share data)
Revenue		$	1,789,253			$	1,718,399			$	3,398,082			$	3,188,454			$	2,915,382			$	2,501,151			$	3,311,614			$	349,912
Gross profit			78,033				100,396				155,792				126,354				147,155				173,703				144,251				11,120
Equity in income of unconsolidated affiliates			12,934				16,816				35,816				29,596				26,917				25,519				27,342				3,109
Operating income			53,269				82,205				115,896				92,127				112,141				137,620				105,772				9,424
Extraordinary item — gain on debt discharge(1)			—				—				—				—				—				—				—				567,193
Net income		$	23,731			$	47,660			$	80,846			$	53,860			$	47,573			$	34,157			$	21,917			$	522,150
Income per share:
Basic		$	.83			$	1.67			$	2.83			$	2.07			$	1.88			$	1.37			$	.88			$	—	(2)
Diluted		$	.77			$	1.55			$	2.64			$	1.77			$	1.71			$	1.35			$	.88			$	—	(2)
Shares used to compute income per share:
Basic			28,742				28,575				28,605				26,037				25,281				25,007				25,000				—	(2)
Diluted			30,740				30,667				30,608				30,408				27,890				25,352				25,000				—	(2)

		June 29,				December 29,				December 30,				December 31,				January 2,				January 3,				February 1,
Balance Sheet Data:		2007				2006				2005				2004				2004				2003				2002
		(Unaudited)
		(In thousands)
Cash and cash equivalents		$	136,490			$	232,096			$	237,706			$	224,529			$	118,263			$	80,401			$	40,707
Current assets			1,032,968				1,125,160				1,027,620				949,272				789,011				731,094				1,072,410
Total assets			1,725,178				1,732,324				1,664,979				1,604,305				1,425,489				1,425,468				1,783,372
Current liabilities			654,288				718,024				704,366				620,253				540,095				605,356				972,588
Long-term debt			—				—				—				—				—				—				40,000
Minority interests			11,629				9,947				5,578				47,920				48,469				56,115				78,021
Stockholders’ equity			846,928				798,249				757,091				749,020				675,850				606,854				550,000

(1)		Extraordinary item consists of a gain on debt discharge of $1,460,732, less the value of common stock and warrants issued of $550,000, net of income tax of $343,539, upon emergence from bankruptcy.
(2)		Income per share is not presented for this period, as it is not meaningful because of the revised capital structure of the successor company.

		Six Months
		Ended				Year Ended
		June 29,				December 29,
		2007				2006
		(In thousands, except
		per share amounts)
Statements of Income Data:
Revenues		$	4,183,154			$	7,629,723
Operating income			186,708				312,617
Net income			65,965				119,850
Net income per share of common stock:
Basic		$	0.87			$	1.59
Diluted		$	0.85			$	1.57

		June 29,
		2007
		(In thousands)
Balance Sheet Data:
Cash and cash equivalents		$	63,511
Total assets			6,138,909
Long-term debt			1,370,201
Stockholders’ equity			2,808,300

														Pro Forma
		URS				Washington Group								Washington Group
		Historical				Historical				Pro Forma Combined				Equivalents(1)
Year Ended December 29, 2006
Net income per share:
Basic		$	2.23			$	2.83			$	1.59			$	1.22
Diluted		$	2.19			$	2.64			$	1.57			$	1.21
Six Months Ended June 29, 2007
Net income per share:
Basic		$	1.31			$	.83			$	0.87			$	0.67
Diluted		$	1.28			$	.77			$	0.85			$	0.66
As of June 29, 2007:
Book value per share		$	30.13			$	28.93			$	36.04			$	27.82

(1)		Washington Group equivalent per share amounts are calculated by multiplying pro forma per share amounts by the exchange ratio of 0.772, the portion of the acquisition consideration to be paid in shares of URS common stock.

		URS Common Stock
		High				Low				Dividends Paid
Fiscal Year 2005
First quarter		$	31.53			$	27.21				—
Second quarter		$	37.73			$	28.15				—
Third quarter		$	40.39			$	36.45				—
Fourth quarter		$	43.29			$	37.06				—
Fiscal Year 2006
First quarter		$	44.75			$	38.26				—
Second quarter		$	48.87			$	37.78				—
Third quarter		$	41.99			$	36.79				—
Fourth quarter		$	44.25			$	38.14				—
Fiscal Year 2007
First quarter		$	45.98			$	40.83				—
Second quarter		$	50.50			$	42.15				—
Third quarter (through September 21, 2007)		$	58.25			$	46.06				—

		Washington Group Common Stock
		High				Low				Dividends Paid
Fiscal Year 2005
First quarter		$	46.70			$	38.21				—
Second quarter		$	52.14			$	41.23				—
Third quarter		$	54.16			$	49.28				—
Fourth quarter		$	53.99			$	48.04				—
Fiscal Year 2006
First quarter		$	59.35			$	53.13				—
Second quarter		$	61.21			$	48.02				—
Third quarter		$	59.80			$	50.93				—
Fourth quarter		$	61.79			$	54.47				—
Fiscal Year 2007
First quarter		$	66.42			$	56.40				—
Second quarter		$	85.04			$	64.74				—
Third quarter (through September 21, 2007)		$	88.34			$	77.75				—

	•	the last reported sale price of a share of URS common stock, as reported on the NYSE; and
	•	the last reported sale price of a share of Washington Group common stock, as reported on the NYSE;

		URS				Washington Group
Date		Common Stock				Common Stock
May 25, 2007		$	46.89			$	69.97
September 27, 2007		$	56.80			$	87.68

 

RISK FACTORS

 

The merger involves risks for URS and Washington Group stockholders. Washington Group stockholders will be choosing to invest in URS common stock by voting in favor of the merger and URS stockholders will be choosing to permit significant dilution of their percentage ownership in URS by voting in favor of the issuance of stock in the merger. In addition to the other information included in this joint proxy statement/prospectus, including the matters addressed in “Cautionary Statement Concerning Forward-Looking Statements” on page 41, you should carefully consider the following risks before deciding whether to vote for adoption of the merger agreement and approval of the merger in the case of Washington Group stockholders, or for approval of the issuance of shares of URS common stock pursuant to the merger agreement, in the case of URS stockholders. In addition, you should read and consider the risks associated with each of the businesses of URS and Washington Group because these risks will also affect the combined company. These risks can be found below under “Risk Factors — Risks Related to URS” and “Risk Factors — Risks Related to Washington Group” beginning on pages 25 and 33, respectively, as well as in the URS Annual Report on Form 10-K for the fiscal year ended December 29, 2006, the URS Quarterly Report on Form 10-Q for the quarter ended June 29, 2007, the Washington Group Annual Report on Form 10-K, as amended on February 27, 2007, for the fiscal year ended December 29, 2006 and the Washington Group Quarterly Report on Form 10-Q for the quarter ended June 29, 2007, which are filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference in this joint proxy statement/prospectus. See “Additional Information — Where You Can Find More Information” beginning on page 146.

 

Risks Relating to the Merger

 

URS may not realize all of the anticipated benefits of the transaction.

 

The combined company’s ability to realize the anticipated benefits of the merger will depend, in part, on the ability of URS to integrate the businesses of Washington Group with URS. The combination of two independent companies is a complex, costly and time-consuming process. As a result, the combined company will be required to devote significant management attention and resources to integrating the diverse business practices and operations of URS and Washington Group. The integration process may disrupt the business of either or both of the companies and, if implemented ineffectively, preclude realization of the full benefits expected by URS and Washington Group. URS has not previously completed a merger or acquisition comparable in size or scope to the transaction. The failure of the combined company to meet the challenges involved in integrating successfully the operations of URS and Washington Group or otherwise to realize any of the anticipated benefits of the transaction could cause an interruption of, or a loss of momentum in, the activities of the combined company and could seriously harm its results of operations. In addition, the overall integration of the two companies may result in unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships, and diversion of management’s attention, and may cause the combined company’s stock price to decline. The difficulties of combining the operations of the companies include, among others:

 

 

In addition, even if the operations of URS and Washington Group are integrated successfully, the combined company may not realize the full benefits of the transaction, including the synergies, cost savings, or sales or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all. Further, because the businesses of URS and Washington Group differ, the results of operations of the combined company and the market price of URS common stock may be affected after the transaction by factors different from those affecting the shares of URS and Washington Group currently, and may suffer as a result of the transaction. As a result, URS and Washington Group cannot assure you that the combination of Washington Group with URS will result in the realization of the full benefits anticipated from the transaction.

 

To be successful, the combined company must retain and motivate key employees, and failure to do so could seriously harm the combined company.

 

To be successful, the combined company must retain and motivate executives and other key employees. As a professional and technical services company, the combined company will be labor intensive and, therefore, its ability to retain qualified senior management and professional, business development and technical staff will be particularly important to its future success. Employees of URS and Washington Group may experience uncertainty about their future roles with the combined company until or after strategies for the combined company are announced or executed. These circumstances may adversely affect the combined company’s ability to retain key personnel. The combined company also must continue to motivate employees and keep them focused on the strategies and goals of the combined company, which effort may be adversely affected as a result of the uncertainty and difficulties with integrating URS and Washington Group. If the combined company is unable to retain executives and other key employees, the roles and responsibilities of such executive officers and employees will need to be filled either by existing or new URS officers and employees, which may require the combined company to devote time and resources to identifying, hiring and integrating replacements for the departed executives of URS that could otherwise be used to integrate the businesses of URS and Washington Group or otherwise pursue business opportunities.

 

URS will have more indebtedness after the merger, which could adversely affect its cash flows and business.

 

In order to complete the merger, URS has obtained a commitment for the funding of approximately $2.1 billion of new term and revolving debt financing, with the option of adding up to $500.0 million in synthetic letter of credit financing and up to $300.0 million in additional term loans. Proceeds from the initial financing will be used, in part, to fund the cash portion of the consideration paid to Washington Group stockholders. URS’ debt outstanding as of June 29, 2007 was approximately $132.5 million, but immediately after the merger, the combined company’s debt is anticipated to be approximately $1.4 billion. As of June 29, 2007, URS’ debt service obligations, comprised of principal and interest (excluding capital leases and equipment notes), during the next twelve months would, in the absence of the merger, have been approximately $3.5 million. On a pro forma basis and based on assumed interest rates, leverage ratios and credit ratings, after incurring the debt financing to effect the merger, URS’ debt service obligations, comprised of principal and interest (excluding capital leases and equipment notes), during the twelve months following the merger will be approximately $161.2 million. If our credit ratings are lower, or our leverage ratio is higher, than assumed, our interest expenses, unused revolving line of credit fees and up-front fees may be greater. Based on then anticipated outstanding indebtedness of approximately $1.4 billion under the arranged credit facility, if market rates of interest were to average 1% higher or lower during that same twelve-month period, URS’ net-of-tax interest expense would increase or decrease by approximately $8.1 million. As a result of this increase in debt, demands on URS’ cash resources will increase after the completion of the merger. The increased levels of debt could, among other things:

 

 

 

If URS is unable to finance the merger through existing cash balances and debt financings, the completion of the merger will be jeopardized.

 

URS intends to finance the merger primarily with debt financing, existing cash balances and cash flow from operations. Although URS has entered into a financing commitment letter with MSSF and Wells Fargo, the financing commitment letter includes customary conditions to funding, including, without limitation, satisfaction of the conditions to closing of the merger as set forth in the merger agreement, the absence of any material adverse effect on Washington Group or its subsidiaries, taken as a whole, obtaining credit ratings, a maximum ratio of pro forma combined total debt to combined pro forma EBITDA of 3.50 to 1.00 on the closing date, the accuracy of certain representations and warranties of the parties, customary legal documentation, and repayment of Washington Group’s credit facilities. In the event that these conditions are not satisfied and URS is unable to finance the merger, but is still obligated to complete the merger, URS will have to adopt one or more alternatives, such as selling assets or restructuring debt, which may adversely affect URS’ business, financial condition and results of operations. Additionally, other financing may not be available on acceptable terms, in a timely manner or at all. If other financing becomes necessary and URS is unable to secure such additional financing, the completion of the merger will be jeopardized and URS could be in breach of the merger agreement.

 

If the combined company is unable to manage its growth, its business and financial results could suffer.

 

The combined company’s future financial results will depend in part on its ability to profitably manage its core businesses, including any growth that the combined company may be able to achieve. Over the past several years, each of URS and Washington Group has engaged in the identification of, and competition for, growth and expansion opportunities. In order to achieve those initiatives, the combined company will need to maintain existing customers and attract new customers, recruit, train, retain and effectively manage employees, as well as expand operations, customer support and financial control systems. If the combined company is unable to manage its businesses effectively and profitably, any growth that the combined company may be able to achieve, its business and financial results could suffer.

 

The issuance of shares of URS common stock to Washington Group stockholders in the merger will substantially reduce the percentage ownership interests of URS stockholders.

 

If the transaction is completed, URS and Washington Group expect that, based on Washington Group’s shares of common stock and equity awards outstanding as of September 21, 2007, URS will pay approximately $1.4 billion in cash and issue approximately 24.9 million shares of URS common stock in the merger. Washington Group stockholders are expected to own approximately 32% of the shares of URS common stock outstanding after the merger. URS stockholders will continue to own their existing shares of URS common stock, which will not be affected by the merger, other than by the dilution resulting from the issuance of URS common stock in the merger. The issuance of approximately 24.9 million shares of URS common stock to Washington Group stockholders and holders of equity-based incentive awards will cause a significant reduction in the relative percentage interests of current URS stockholders in earnings, voting, liquidation value and book and market value.

The price of URS common stock might decline prior to the completion of the merger, which would decrease the value of the stock portion of the merger consideration to be received by Washington Group stockholders in the merger. Further, at the Washington Group special meeting, Washington Group stockholders will not know the exact value of URS common stock that will be issued in the merger.

 

The market price of URS common stock at the time of completion of the merger may vary significantly from the price on the date of the merger agreement or from the price on the dates of the URS and Washington Group stockholder meetings. URS common stock has historically experienced volatility. On May 25, 2007, the last full trading day prior to the public announcement of the proposed merger, URS common stock closed at $46.89 per share as reported on the New York Stock Exchange Composite Transaction Tape. From May 29, 2007, through September 27, 2007, the trading price of URS common stock ranged from a closing high of $58.25 per share to a closing low of $46.06 per share.

 

Under the merger agreement, each outstanding share of Washington Group common stock will be converted into the right to receive, upon completion of the merger and in addition to the cash consideration, stock consideration equal to 0.772 of a share of URS common stock (other than those shares held by URS, any subsidiary of URS, Elk Merger Corporation or Bear Merger Sub, Inc. and other than shares as to which a Washington Group stockholder has validly demanded and perfected appraisal rights under Delaware law). The exchange ratio is fixed and will not be adjusted for changes in the stock prices of either company before the merger is consummated. As a result, any changes in the market price of URS common stock will have a corresponding effect on the value of the consideration that URS pays to Washington Group stockholders in the merger. Neither party, however, has a right to terminate the merger agreement based solely upon changes in the market price of URS or Washington Group common stock.

 

URS and Washington Group are working to complete the transaction as quickly as possible. However, the time period between the stockholder votes taken at the special meetings and the completion of the transaction will depend upon, among other things, the timing of receipt of financing proceeds, which must be obtained prior to the completion of the transaction. There is no way to predict how long it will take to obtain the required financing. Because the date when the transaction is completed may be later than the date of the special meetings, URS and Washington Group stockholders may not know the exact value of the URS common stock that will be issued in the merger at the time they vote on the merger proposals. As a result, if the market price of URS common stock at the completion of the merger is lower than the market price on the date of the Washington Group special meeting, the value of the merger consideration received by Washington Group stockholders in the merger will be lower than the value of the merger consideration at the time of vote by the Washington Group stockholders. Moreover, during this interim period, events, conditions or circumstances could arise that could have a material impact or effect on URS, Washington Group or their respective industries.

 

The pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the transaction.

 

The pro forma financial statements contained in this joint proxy statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger for several reasons. The pro forma financial statements have been derived from the historical financial statements of URS and Washington Group and adjustments and assumptions have been made regarding the combined company after giving effect to the transaction. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the transaction. For example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the pro forma financial statements. As a result, the actual financial condition and results of operations of the combined company following the merger may not be consistent with, or evident from, these pro forma financial statements.

 

The assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition or results of operations following the transaction.

Any decline or potential decline in the combined company’s financial condition or results of operations may cause significant variations in the stock price of the combined company. See “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 120.

 

The financial forecasts involve risks, uncertainties and assumptions, many of which are beyond the control of URS and Washington Group. As a result, they may not prove to be accurate and are not necessarily indicative of current values or future performance.

 

The financial forecasts of URS and Washington Group contained in this joint proxy statement/prospectus involve risks, uncertainties and assumptions and are not a guarantee of performance. The future financial results of URS, Washington Group and, if the merger is completed, the combined company, may materially differ from those expressed in the financial forecasts due to factors that are beyond URS’ and/or Washington Group’s ability to control or predict. Neither URS nor Washington Group can provide any assurance that their respective financial forecasts will be realized or that their respective future financial results will not materially vary from the financial forecasts. Since the financial forecasts cover multiple years, the information by its nature becomes less reliable with each successive year. The financial forecasts do not take into account any circumstances or events occurring after the date they were prepared.

 

More specifically, the financial forecasts:

 

 

The financial forecasts were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC or the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or GAAP and do not reflect the effect of any proposed or other changes in GAAP that may be made in the future. In addition, the financial forecasts were developed from historical financial statements, do not give effect to any changes or expenses as a result of the merger or any other effects of the merger.

 

Some of the conditions to the merger may be waived by URS or Washington Group without resoliciting stockholder approval of the merger agreement.

 

Some of the conditions set forth in the merger agreement may be waived by URS or Washington Group, subject to the agreement of the other party in specific cases. See “The Merger Agreement — Conditions to Completion of the Merger” on page 103. If any conditions are waived, URS and Washington Group will evaluate whether amendment of this joint proxy statement/prospectus and resolicitation of proxies is warranted. In the event that the board of directors of URS or Washington Group determines that resolicitation of stockholders is not warranted, the applicable company will have the discretion to complete the transaction without seeking further stockholder approval.

 

Provisions of the merger agreement may deter alternative business combinations and could negatively impact the stock prices of URS and Washington Group if the merger agreement is terminated in certain circumstances.

 

Restrictions in the merger agreement on solicitation generally prohibit URS and Washington Group from soliciting any acquisition proposal or offer for a merger or business combination with any other party, including a proposal that might be advantageous to the stockholders of URS or Washington Group when compared to the terms and conditions of the merger described in this joint proxy statement/prospectus. In addition, if the merger agreement

is terminated, Washington Group may be required in specified circumstances to pay a termination fee of $70.0 million to URS, and URS may be required in specified circumstances to pay a termination fee of $70.0 million to Washington Group. These provisions may deter third parties from proposing or pursuing alternative business combinations that might result in greater value to URS or Washington Group stockholders than the transaction. In the event the merger is terminated by URS or Washington Group in circumstances that obligate either party to pay the termination fee to the other party, including where either party terminates the merger agreement because the other party’s board of directors withdraws its support of the merger, the trading price of URS’ and/or Washington Group’s stock may decline.

 

Directors and executive officers of Washington Group have interests in the transaction that may be different from, or in addition to, the interests of Washington Group stockholders.

 

In considering the recommendation of the Washington Group board of directors, Washington Group stockholders should be aware that Washington Group’s directors and executive officers have interests in the merger and have arrangements that are different from, or in addition to, those of Washington Group’s stockholders generally. These interests and arrangements may create potential conflicts of interest.

 

These interests and arrangements include:

 

 

As a result of these interests, directors and officers of Washington Group could be more likely to vote, and, in the case of directors, recommend to stockholders that they vote, to adopt the merger agreement and approve the merger than if they did not hold these interests, and may have reasons for doing so that are not the same as the interests of other Washington Group stockholders. For a full description of the interests of directors and executive officers of Washington Group in the merger, see “The Merger — Interests of Washington Group’s Directors and Executive Officers in the Merger” on page 95.

 

The merger will result in substantial goodwill for the combined company. If the combined company’s goodwill or intangible assets become impaired, then the profits of the combined company may be significantly reduced or eliminated.

 

Because URS has grown through acquisitions, goodwill and other intangible assets represent a substantial portion of its assets. URS’ goodwill and net purchased intangible assets were $1.0 billion as of June 29, 2007 and the amount of the combined company’s goodwill and other net purchased intangible assets are expected to increase substantially as a result of the merger. On a pro forma basis, after giving effect to the merger and related events and applying the assumptions set forth in the unaudited pro forma condensed combined financial statements, the combined company’s pro forma goodwill as of June 29, 2007 is estimated to be approximately $2.6 billion, and the combined company’s pro forma net purchased intangible assets, which will be amortized over a period ranging from approximately four months to fifteen years, is estimated to be approximately $517.9 million. If any of the combined company’s goodwill or intangible assets were to become impaired, the combined company would be required to write off the impaired amount, which may significantly reduce or eliminate its profits.

 

Risks Relating to URS

 

Demand for URS’ services is cyclical and vulnerable to economic downturns. If the economy weakens, then URS’ revenues, profits and financial condition may deteriorate.

 

Demand for URS’ services in its infrastructure and defense markets is cyclical and vulnerable to sudden economic downturns, which may result in clients delaying, curtailing or canceling proposed and existing projects. For example, there was a decrease in the URS Division revenues of $77.9 million, or 3.4%, in fiscal year 2002 compared to fiscal year 2001 as a result of the general economic decline. URS’ clients may demand better pricing terms and their ability to pay URS’ invoices may be affected by a weakening economy. URS’ government clients may face budget deficits that prohibit them from funding proposed and existing projects. URS’ business traditionally lags the overall recovery in the economy; therefore, its business may not recover immediately when the economy improves. If the economy weakens, then URS’ revenues, net income and overall financial condition may deteriorate.

 

URS may not realize the full amount of revenues reflected in its book of business, which could harm its operations and significantly reduce its future revenues.

 

URS accounts for all contract awards that may eventually be recognized as revenues as its “book of business,” which includes backlog, designations, option years and indefinite delivery contracts, which are referred to as IDCs. URS’ backlog consists of the amount billable at a particular point in time, including task orders issued under IDCs. As of June 29, 2007, its backlog was approximately $5.7 billion. Its designations consist of projects that clients have awarded URS, but for which URS does not yet have signed contracts. URS’ option year contracts are multi-year contracts with base periods, plus option years that are exercisable by its clients without the need for URS to go through another competitive bidding process. URS’ IDCs are signed contracts under which it performs work only when its clients issue specific task orders. URS’ book of business estimates may not result in actual revenues in any particular period because clients may modify or terminate projects and contracts and may decide not to exercise contract options or issue task orders. If URS does not realize a substantial amount of its book of business, its operations could be harmed and its future revenues could be significantly reduced.

 

As a government contractor, URS is subject to a number of procurement laws, regulations and government audits; a violation of any such laws and regulations could result in sanctions, contract termination, forfeiture of profit, harm to URS’ reputation or loss of URS’ status as an eligible government contractor.

 

URS is affected by and must comply with federal, state, local and foreign laws and regulations relating to the formation, administration and performance of government contracts. For example, URS must comply with the Federal Acquisition Regulation, which is referred to as the FAR, the Truth in Negotiations Act, the Cost Accounting Standards, which are referred to as the CAS, the Services Contract Act and the U.S. Department of Defense security regulations, as well as many other laws and regulations. These laws and regulations affect how URS transacts business with its clients and in some instances, impose additional costs on URS’ business operations. Even though URS takes precautions to prevent and deter fraud, misconduct and non-compliance, URS faces the risk that its employees or outside partners may engage in misconduct, fraud or other improper activities. Government agencies, such as the U.S. Defense Contract Audit Agency, which is referred to as the DCAA, routinely audit and investigate government contractors. These government agencies review and audit a government contractor’s performance under its contracts, direct and indirect cost structure, and compliance with applicable laws, regulations and standards. For example, during the course of its audits, the DCAA may question URS’ incurred project costs, and if the DCAA believes URS has accounted for such costs in a manner inconsistent with the requirements for the FAR or CAS, the DCAA auditor may recommend to URS’ U.S. government corporate administrative contracting officer to disallow such costs. Historically, URS has not experienced significant disallowed costs as a result of government audits. However, URS can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future. Government contract violations could result in the imposition of civil and criminal penalties or sanctions, contract termination, forfeiture of profit, and/or suspension of payment, any of which could make URS lose its status as an eligible government contractor. URS could also suffer serious harm to its reputation.

Because URS depends on federal, state and local governments for a significant portion of its revenue, URS’ inability to win or renew government contracts during regulated procurement processes could harm its operations and significantly reduce or eliminate its profits.

 

Revenues from federal government contracts and state and local government contracts represented approximately 41% and 22%, respectively, of URS’ total revenues for the six months ended June 29, 2007. Government contracts are awarded through a regulated procurement process. The federal government has increasingly relied upon multi-year contracts with pre-established terms and conditions, such as IDCs, that generally require those contractors who have previously been awarded the IDC to engage in an additional competitive bidding process before a task order is issued. The increased competition, in turn, may require URS to make sustained efforts to reduce costs in order to realize revenues and profits under government contracts. If URS is not successful in reducing the amount of costs URS incurs, its profitability on government contracts will be negatively impacted. Moreover, even if URS is qualified to work on a government contract, URS may not be awarded the contract because of existing government policies designed to protect small businesses and underrepresented minority contractors. URS’ inability to win or renew government contracts during regulated procurement processes could harm its operations and significantly reduce or eliminate its profits.

 

Each year some government contracts may be dependent on the legislative appropriations process. If legislative appropriations are not made in subsequent years of a multiple-year government contract, then URS may not realize all of its potential revenues and profits from that contract.

 

Each year the funding for some of URS’ government contracts may be dependent on the legislative appropriations process. For example, the passage of the SAFETEA-LU highway and transit bill in August of 2005 has provided additional funding for state transportation projects in which URS provides services. Legislatures may appropriate funds for a given project on a year-by-year basis, even though the project may take more than one year to perform. As a result, at the beginning of a project, the related contract may only be partially funded, and additional funding is committed only as appropriations are made in each subsequent year. These appropriations, and the timing of payment of appropriated amounts, may be influenced by, among other things, the state of the economy, competing political priorities, curtailments in the U.S. of government contracting firms, rise in raw material costs, delays associated with a lack of a sufficient number of government staff to oversee contracts, budget constraints, the timing and amount of tax receipts and the overall level of government expenditures. If appropriations are not made in subsequent years of a multiple-year contract, URS may not realize all of its potential revenues and profits from that contract.

 

URS’ government contracts may give the government the right to modify, delay, curtail or terminate URS’ contracts at their convenience at any time prior to their completion and, if URS does not replace these contracts, then URS may suffer a decline in revenues.

 

Government projects in which URS participates as a contractor or subcontractor may extend for several years. Generally, government contracts include the right for the government to modify, delay, curtail or terminate contracts and subcontracts at their convenience any time prior to their completion. Any decision by a government client to modify, delay, curtail or terminate URS’ contracts at their convenience may result in a decline in revenues.

 

If URS is unable to accurately estimate and control its contract costs, then URS may incur losses on its contracts, which could decrease its operating margins and significantly reduce or eliminate its profits.

 

It is important for URS to control its contract costs so that it can maintain positive operating margins. URS generally enters into three principal types of contracts with its clients: cost-plus, fixed-price and time-and-materials. Under cost-plus contracts, which may be subject to contract ceiling amounts, URS is reimbursed for allowable costs and fees, which may be fixed or performance-based. If its costs exceed the contract ceiling or are not allowable under the provisions of the contract or any applicable regulations, URS may not be reimbursed for all of the costs it incurs. Under fixed-price contracts, URS receives a fixed price regardless of what its actual costs will be. Consequently, URS realizes a profit on fixed-price contracts only if it controls its costs and prevents cost over-runs on the contracts. Under time-and-materials contracts, URS is paid for labor at negotiated hourly billing rates and for other expenses. Profitability on URS’ contracts is driven by billable headcount and its ability to manage costs.

Under each type of contract, if URS is unable to control costs, URS may incur losses on its contracts, which could decrease its operating margins and significantly reduce or eliminate its profits.

 

URS’ actual results could differ from the estimates and assumptions that it uses to prepare its financial statements, which may significantly reduce or eliminate its profits.

 

To prepare financial statements in conformity with GAAP, management is required to make estimates and assumptions as of the date of the financial statements, which affect the reported values of assets and liabilities and revenues and expenses and disclosures of contingent assets and liabilities. Areas requiring significant estimates by URS’ management include:

 

 

URS’ actual results could differ from those estimates, which may significantly reduce or eliminate its profits.

 

URS’ use of the “percentage-of-completion” method of accounting could result in reduction or reversal of previously recorded revenues and profits.

 

A substantial portion of URS’ revenues and profits are measured and recognized using the “percentage-of-completion” method of accounting. URS’ use of this accounting method results in recognition of revenues and profits ratably over the life of a contract, based generally on the proportion of costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions to revenues and estimated costs are recorded when the amounts are known or can be reasonably estimated. Such revisions could occur in any period and their effects could be material. URS estimates the extent of progress towards completion of long-term engineering, program management, construction management or construction contracts in process, but due to uncertainties inherent in the estimating process, it is possible for actual costs to vary materially from estimates, including reductions or reversals of previously recorded revenues and profits.

 

URS’ failure to successfully bid on new contracts and renew existing contracts with private and public sector clients could adversely reduce or eliminate its profitability.

 

URS’ business depends on its ability to successfully bid on new contracts and renew existing contracts with private and public sector clients. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which are affected by a number of factors, such as market conditions, financing arrangements and required governmental approvals. For example, a client may require URS to provide a bond or letter of credit to protect the client should URS fail to perform under the terms of the contract. If negative market conditions arise, or if URS fails to secure adequate financial arrangements or the required governmental approval, it may not be able to pursue particular projects, which could adversely reduce or eliminate its profitability.

If URS fails to timely complete, miss a required performance standard or otherwise fail to adequately perform on a project, then URS may incur a loss on that project, which may reduce or eliminate its overall profitability.

 

URS may commit to a client that it will complete a project by a scheduled date. URS may also commit that a project, when completed, will achieve specified performance standards. If the project is not completed by the scheduled date or fails to meet required performance standards, URS may either incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failure to achieve the required performance standards. The uncertainty of the timing of a project can present difficulties in planning the amount of personnel needed for the project. If the project is delayed or canceled, URS may bear the cost of an underutilized workforce that was dedicated to fulfilling the project. In addition, performance of projects can be affected by a number of factors beyond URS’ control, including unavoidable delays from weather conditions, unavailability of vendor materials, changes in the project scope of services requested by clients or labor disruptions. In some cases, should URS fail to meet required performance standards, it may also be subject to agreed-upon financial damages, which are determined by the contract. To the extent that these events occur, the total costs of the project could exceed URS’ estimates and URS could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate its overall profitability.

 

If URS’ partners fail to perform their contractual obligations on a project, URS could be exposed to liability, loss of reputation or reduced or eliminated profits.

 

URS sometimes enters into subcontracts, joint ventures and other contractual arrangements with outside partners to jointly bid on and execute a particular project. The success of these joint projects depends upon, among other things, the satisfactory performance of the contractual obligations of URS’ partners. If any of URS’ partners fails to satisfactorily perform its contractual obligations, URS may be required to make additional expenditures and provide additional services to complete the project. If URS is unable to adequately address its partner’s performance issues, then its client could terminate the joint project, exposing URS to liability, loss of reputation or reduced or eliminated profits.

 

URS may be subject to substantial liabilities under environmental laws and regulations.

 

A portion of URS’ environmental business involves the planning, design, program management, construction management and operation and maintenance of pollution control facilities, hazardous waste or Superfund sites and military bases. In addition, URS has contracts with U.S. governmental entities to destroy hazardous materials, including chemical agents and weapons stockpiles. These activities may require URS to manage, handle, remove, treat, transport and dispose of toxic or hazardous substances. URS must comply with a number of governmental laws that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances. Under the Comprehensive Environmental Response, Compensation, and Liability Act, which is referred to as CERCLA, and comparable state laws, URS may be required to investigate and remediate regulated hazardous materials. CERCLA and comparable state laws typically impose strict, joint and several liabilities without regard to whether a company knew of or caused the release of hazardous substances. The liability for the entire cost of clean up can be imposed upon any responsible party. Other principal federal environmental, health and safety laws affecting URS include, but are not limited to, the Resource Conservation and Recovery Act, the National Environmental Policy Act, the Clean Air Act, the Clean Air Interstate Rule, the Clean Air Mercury Rule, the Occupational Safety and Health Act, the Toxic Substances Control Act and the Superfund Amendments and Reauthorization Act. URS’ business operations may also be subject to similar state and international laws relating to environmental protection. Liabilities related to environmental contamination or human exposure to hazardous substances, or a failure to comply with applicable regulations could result in substantial costs to URS, including clean-up costs, fines and civil or criminal sanctions, third party claims for property damage or personal injury or cessation of remediation activities. URS’ continuing work in the areas governed by these laws and regulations exposes URS to the risk of substantial liability; however, URS is currently not subject to any material claims under environmental laws and regulations.

URS may become subject to civil or criminal legal actions that may adversely affect its operations; liabilities resulting from such actions may exceed URS’ insurance coverage.

 

In performing its services, URS may be exposed to criminal or civil proceedings in connection with personal injury claims, property damage, cost overruns, labor shortages or disputes, weather problems and foreseen or unforeseen engineering, architectural, environmental and geological problems. URS’ services frequently require URS to make judgments and recommendations about environmental, structural, geotechnical and other physical conditions at project sites. If URS’ performance, judgments and recommendations are later found to be incomplete or incorrect, then URS may be liable for the resulting damages. Various legal proceedings are pending against URS in connection with the performance of its professional services and other actions by URS. For example, federal and state investigators are reviewing URS’ engineering analysis of the Interstate 35W bridge in Minneapolis that URS was performing at the time of the bridge’s collapse in August 2007 and URS’ construction management services relating to the demolition of the Deutsche Bank building located at the World Trade Center where a fire that resulted in accidental fatalities occurred in August 2007. The resolution of these investigations, and any outstanding claims, is subject to inherent uncertainty, and it is reasonably possible that any resolution could have an adverse effect on URS’ operations. URS does not know the extent of any claims that may be made regarding these matters. It is not possible to provide an estimate of any potential loss.

 

In certain cases, parties may seek damages (or liabilities may be found) that may exceed URS’ insurance coverage. Currently, URS has limits of $125.0 million per loss and $125.0 million in the aggregate for general liability, professional errors and omissions liability and contractor’s pollution liability insurance (in addition to other policies for some specific projects). The general liability policy includes a self-insured claim retention of $4.0 million (or $10.0 million in some circumstances). The professional errors and omissions liability and contractor’s pollution liability insurance policies include a self-insured claim retention amount of $10.0 million for each covered claim. If URS sustains damages that exceed its insurance coverage or for which it is not insured, URS’ results of operations and financial condition could be materially adversely impacted.

 

Changes in environmental laws, regulations and programs could reduce demand for URS’ environmental services, which could in turn negatively impact its revenues.

 

URS’ environmental services business is driven by federal, state, local and foreign laws, regulations and programs related to pollution and environmental protection. On the other hand, a relaxation or repeal of these laws and regulations, or changes in governmental policies regarding the funding, implementation or enforcement of these programs, could result in a decline in demand for environmental services, which could in turn negatively impact URS’ revenues.

 

A decline in U.S. defense spending or a change in budgetary priorities could harm URS’ operations and significantly reduce its future revenues.

 

Revenues under contracts with the U.S. Department of Defense and other defense-related clients represented approximately 36% and 33% of URS’ total revenues for the fiscal year ended December 29, 2006 and six months ended June 29, 2007, respectively. While spending authorization for defense-related programs has increased significantly in recent years due to greater homeland security and foreign military commitments, as well as the trend to outsource federal government jobs to the private sector, these spending levels may not be sustainable. For example, the U.S. Department of Defense budget declined in the late 1980s and the early 1990s, resulting in U.S. Department of Defense program delays and cancellations. Future levels of expenditures and authorizations for defense-related programs, including foreign military commitments, may decrease, remain constant or shift to programs in areas where URS does not currently provide services. As a result, a general decline in U.S. defense spending or a change in budgetary priorities could harm URS’ operations and significantly reduce URS’ future revenues.

 

URS’ overall revenues will decline if it is unable to compete successfully in its industry.

 

URS’ industry is highly fragmented and intensely competitive. According to the publication Engineering News-Record, based on information voluntarily reported by 500 design firms, the top ten engineering design firms

only accounted for approximately 32% of the total design firm revenues in 2005. URS’ competitors are numerous, ranging from small private firms to multi-billion dollar companies. In addition, the technical and professional aspects of URS’ services generally do not require large upfront capital expenditures and provide limited barriers against new competitors.

 

Some of URS’ competitors have achieved greater penetration in some of the markets in which URS competes and have substantially more financial resources and/or financial flexibility than URS does. As a result of the number of competitors in the industry, URS’ clients may select one of its competitors on a project due to competitive pricing or a specific skill set. If URS is unable to maintain its competitiveness, its revenues will decline. These competitive forces could have a material adverse effect on its business, financial condition and results of operations by reducing URS’ relative share in the markets it serves.

 

URS’ failure to attract and retain key employees could impair its ability to provide services to its clients and otherwise conduct its business effectively.

 

As a professional and technical services company, URS is labor intensive, and therefore its ability to attract, retain and expand its senior management and its professional and technical staff is an important factor in determining its future success. From time to time, it may be difficult to attract and retain qualified individuals with the expertise and in the timeframe demanded by URS’ clients. For example, some of URS’ government contracts may require URS to employ only individuals who have particular government security clearance levels. In addition, URS relies heavily upon the expertise and leadership of its senior management. The failure to attract and retain key individuals could impair URS’ ability to provide services to its clients and conduct its business effectively.

 

Employee, agent, or partner misconduct or URS’ failure to comply with laws or regulations could weaken URS’ ability to win contracts with government clients, which could result in decreasing revenues.

 

As a federal, state and local government contractor, misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of URS’ employees, agents, or partners could have a significant negative impact on URS’ business and reputation. Such misconduct could include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, laws regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, environmental laws and any other applicable laws or regulations. For example, URS regularly provides services that may be highly sensitive or that relate to critical national security matters; if a security breach were to occur, URS’ ability to procure future government contracts could be severely limited. Other examples of potential misconduct include time card fraud and violations of the Anti-Kickback Act. The precautions URS takes to prevent and detect these activities may not be effective, and URS could face unknown risks or losses. URS’ failure to comply with applicable laws or regulations or acts of misconduct could subject URS to fines and penalties, loss of security clearance and suspension or debarment from contracting, which could weaken URS’ ability to win future contract with government clients.

 

Recent changes in accounting for equity-related compensation have impacted URS’ financial statements and could negatively impact its ability to attract and retain key employees.

 

URS adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” on December 31, 2005. At that time, URS evaluated its current stock-based compensation plans and employee stock purchase plans. In order to minimize the volatility of its stock-based compensation expense, URS is currently issuing restricted stock awards and units to selected employees rather than granting stock options. URS also revised its employee stock purchase plan from a 15% discount on its stock price at the beginning or the end of the six-month offering period, whichever is lower, to a 5% discount on its stock price at the end of the six-month offering period. These changes to URS’ equity-related compensation may negatively impact its ability to attract and retain key employees.

Because URS is a holding company, URS may not be able to service its debt if URS’ subsidiaries do not make sufficient distributions to URS.

 

URS has no direct operations and no significant assets other than investments in the stock of its subsidiaries. Because URS conducts its business operations through its operating subsidiaries, URS depends on those entities for payments and dividends to generate the funds necessary to meet its financial obligations. Legal restrictions, including local regulations and contractual obligations associated with secured loans, such as equipment financings, could restrict its subsidiaries’ ability to pay dividends or make loans or other distributions to URS. The earnings from, or other available assets of, these operating subsidiaries may not be sufficient to make distributions to enable URS to pay interest on its debt obligations when due or to pay the principal of such debt at maturity. As of June 29, 2007, URS’ debt service obligations, comprised of principal and interest (excluding capital leases and equipment notes), during the next twelve months would, in the absence of the merger, have been approximately $3.5 million. On a pro forma basis and based on assumed interest rates, leverage ratios and credit ratings, after incurring the debt financing to effect the merger, URS’ debt service obligations, comprised of principal and interest (excluding capital leases and equipment notes), during the twelve months following the merger will be approximately $161.2 million. If our credit ratings are lower, or our leverage ratios are higher, than assumed, our interest expenses, unused revolving line of credit fees and up-front fees may be greater. Based on then anticipated outstanding indebtedness of approximately $1.4 billion under the arranged credit facility, if market rates were to average 1% higher or lower during that same twelve-month period, URS’ net of tax interest expense would increase or decrease by approximately $8.1 million.

 

URS’ international operations are subject to a number of risks that could harm its operations and significantly reduce its future revenues.

 

As a multinational company, URS has operations in over 20 countries and it derived 10% and 9% of its revenues from international operations for the six months ended June 29, 2007 and June 30, 2006, respectively. International business is subject to a variety of risks, including:

 

 

These and other risks associated with international operations could harm URS’ overall operations and significantly reduce its future revenues. In addition, services billed through foreign subsidiaries are attributed to the international category of URS’ business, regardless of where the services are performed and conversely, services billed through domestic operating subsidiaries are attributed to a domestic category of clients, regardless of where the services are performed. As a result, URS’ international risk exposure may be more or less than the percentage of revenues attributed to its international operations.

 

URS’ business activities may require its employees to travel to and work in high security risk countries, which may result in employee death or injury, repatriation costs or other unforeseen costs.

 

As a multinational company, URS’ employees often travel to and work in high security risk countries around the world that are undergoing political, social and economic upheavals resulting in war, civil unrest, criminal activity or acts of terrorism. For example, URS has employees working in high security risk countries located in the Middle East and Southwest Asia. As a result, URS may be subject to costs related to employee death or injury, repatriation or other unforeseen circumstances.

URS relies on third-party software to run its critical accounting, project management, and financial information systems, and as a result, any sudden loss, disruption or unexpected costs to maintain such systems could significantly increase URS’ operational expense as well as disrupt the management of its business operations.

 

URS relies on third-party software to run its critical accounting, project management and financial information systems. For example, URS relied on one software vendor’s products to process approximately 68% of its total revenues as of June 29, 2007. URS also depends on its third party software vendors to provide long-term software maintenance support for its information systems. Software vendors may decide to discontinue further development, integration or long-term software maintenance support for its information systems, in which case URS may need to abandon one or more of its current information systems and migrate some or all of its accounting, project management and financial information to other systems, thus increasing its operational expense as well as disrupting the management of URS’ business operations.

 

Force majeure events, including natural disasters and terrorists’ actions have negatively impacted and could further negatively impact the economies in which URS operates, which may affect its financial condition, results of operations or cash flows.

 

Force majeure events, including natural disasters, such as Hurricane Katrina that affected the Gulf Coast in August 2005 and terrorist attacks, such as those that occurred in New York and Washington, D.C. on September 11, 2001, could negatively impact the economies in which URS operates. For example, Hurricane Katrina caused several of URS’ Gulf Coast offices to close, interrupted a number of active client projects and forced the relocation of URS’ employees in that region from their homes. In addition, during the September 11, 2001 terrorist attacks, several of URS’ offices were shut down due to terrorist attack warnings.

 

URS typically remains obligated to perform its services after a terrorist action or natural disaster unless the contract contains a force majeure clause relieving URS of its contractual obligations in such an extraordinary event. If URS is not able to react quickly to force majeure, URS’ operations may be affected significantly, which would have a negative impact on its financial condition, results of operations or cash flows.

 

Negotiations with labor unions and possible work actions could divert management attention and disrupt operations. In addition, new collective bargaining agreements or amendments to agreements could increase URS’ labor costs and operating expenses.

 

As of June 29, 2007, approximately 8% of URS’ employees were covered by collective bargaining agreements. The outcome of any future negotiations relating to union representation or collective bargaining agreements may not be favorable to URS. URS may reach agreements in collective bargaining that increase its operating expenses and lower its net income as a result of higher wages or benefits expenses. In addition, negotiations with unions could divert management attention and disrupt operations, which may adversely affect URS’ results of operations. If URS is unable to negotiate acceptable collective bargaining agreements, URS may have to address the threat of union-initiated work actions, including strikes. Depending on the nature of the threat or the type and duration of any work action, these actions could disrupt URS’ operations and adversely affect its operating results.

 

URS has only a limited ability to protect its intellectual property rights, which are important to its success. URS’ failure to protect its intellectual property rights could adversely affect its competitive position.

 

URS’ success depends, in part, upon URS’ ability to protect its proprietary information and other intellectual property. URS relies principally on trade secrets to protect much of its intellectual property where URS does not believe that patent or copyright protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although URS’ employees are subject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation of its confidential information. In addition, URS may be unable to detect unauthorized use of its intellectual property or otherwise take appropriate steps to enforce its rights. Failure to obtain or maintain trade secret protection would adversely affect URS’ competitive business position. In addition, if

URS is unable to prevent third parties from infringing or misappropriating URS’ trademarks or other proprietary information, URS’ competitive position could be adversely affected.

 

Delaware law and URS’ charter documents may impede or discourage a merger, takeover or other business combination even if the business combination would have been in the best interests of URS’ current stockholders

 

URS is a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of URS, even if a change-in-control would be beneficial to its existing stockholders. In addition, URS’ board of directors has the power, without stockholder approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock, which could be used defensively if a takeover is threatened. URS’ incorporation under Delaware law, the ability of URS’ board of directors to create and issue a new series of preferred stock and provisions in URS’ certificate of incorporation and bylaws could impede a merger, takeover or other business combination involving URS or discourage a potential acquirer from making a tender offer for shares of URS common stock, even if the business combination would have been in the best interests of URS’ current stockholders.

 

Risks Relating to Washington Group

 

Economic downturns and reductions in government funding could have a negative impact on Washington Group’s businesses.

 

Demand for the services offered by Washington Group has been, and is expected to continue to be, subject to significant fluctuations due to a variety of factors beyond Washington Group’s control, including economic conditions. During economic downturns, the ability of both private and governmental entities to make expenditures may decline significantly. Washington Group cannot be certain that economic or political conditions will be generally favorable or that there will not be significant fluctuations adversely affecting Washington Group’s industry as a whole or key markets targeted by Washington Group. In addition, Washington Group’s operations are, in part, dependent upon government funding. Significant changes in the level of government funding could have an unfavorable impact on Washington Group’s business, financial position, results of operations and cash flows.

 

Washington Group’s success depends on attracting and retaining qualified personnel in a competitive environment.

 

Washington Group is dependent upon its ability to attract and retain highly qualified managerial, technical and business development personnel. Competition for key personnel is intense. Washington Group cannot be certain that it will retain its key managerial, technical and business development personnel or that Washington Group will attract or assimilate key personnel in the future. Failure to retain or attract such personnel could adversely affect Washington Group’s businesses, financial position, results of operations and cash flows.

 

Washington Group is engaged in highly competitive businesses and must bid against competitors to obtain engineering, construction and service contracts.

 

Washington Group is engaged in highly competitive businesses in which customer contracts are awarded through competitive bidding processes. Washington Group competes with other general and specialty contractors, both foreign and domestic, including large international contractors and small local contractors. Some competitors have greater financial and other resources than Washington Group does, which, in some instances, could give them a competitive advantage over Washington Group.

 

Washington Group’s fixed-price contracts subject it to the risk of increased project costs.

 

Washington Group’s fixed-price contracts involve risks relating to its inability to receive additional compensation in the event the costs of performing those contracts prove to be greater than anticipated. Washington Group’s cost of performing the contracts may be greater than anticipated due to uncertainties inherent in estimating contract completion costs, contract modifications by customers resulting in claims, failure of subcontractors and joint venture partners to perform and other unforeseen events and conditions. As of June 29, 2007, approximately

16%, or $1.0 billion, of Washington Group’s backlog represented fixed-price and fixed-unit-price contracts. Any one or more of these risks could result in reduced profits or increased losses on a particular contract or contracts.

 

Washington Group has seen an increase in its claims against project owners for payment and Washington Group’s failure to recover adequately on these and future claims could have a material effect on it.

 

Washington Group has over the past few years seen an increase in the volume and the amount of claims brought by Washington Group against project owners for additional costs exceeding the contract price or for amounts not included in the original contract price. These types of claims occur due to matters such as owner-caused delays or changes from the initial project scope, both of which may result in additional costs, both direct and indirect. Often, these claims can be the subject of lengthy arbitration or litigation proceedings, and it is difficult to accurately predict when these claims will be fully resolved. When these types of events occur and unresolved claims are pending, Washington Group has used significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. A failure to promptly recover on these types of claims could have a negative impact on Washington Group’s liquidity and financial condition.

 

The U.S. government can audit and disallow costs reimbursed under Washington Group’s government contracts and can terminate those contracts without cause.

 

Government contracts, primarily with the U.S. Departments of Energy and Defense, are, and are expected to continue to be, a significant part of Washington Group’s business. Washington Group derived approximately 51% of its consolidated revenue in 2006 from contracts funded by the U.S. government. Allowable costs under government contracts are subject to audit by the U.S. government. To the extent that these audits result in determinations that costs claimed as reimbursable are not allowable costs or were not allocated in accordance with federal government regulations, Washington Group could be required to reimburse the U.S. government for amounts previously received. In addition, if Washington Group were to lose and not replace its revenue generated by one or more of the U.S. government contracts, Washington Group’s businesses, financial condition, results of operations and cash flows could be adversely affected.

 

Washington Group has a number of contracts and subcontracts with agencies of the U.S. government, principally for environmental remediation, threat reduction, restoration and operations work, which extend beyond one year and for which government funding has not yet been approved. Washington Group cannot be certain that funding will be approved. All contracts with agencies of the U.S. government and some commercial and foreign contracts are subject to unilateral termination at the convenience of the customer. In the event of a termination, Washington Group would not receive projected revenue or profits associated with the terminated portion of those contracts.

 

In addition, government contracts are subject to specific procurement regulations, contract provisions and a variety of other socioeconomic requirements relating to the formation, administration, performance and accounting for these contracts. Many of these contracts include express or implied certifications of compliance with applicable laws and contract provisions. As a result of Washington Group’s government contracting, claims for civil or criminal fraud may be brought by the government for violations of these regulations, requirements or statutes. Washington Group may also be subject to qui tam litigation brought by private individuals on behalf of the government under the Federal Civil False Claims Act, which could include claims for up to treble damages. Further, if Washington Group fails to comply with any of these regulations, requirements or statutes, its existing government contracts could be terminated, Washington Group could be suspended from government contracting or subcontracting, including federally funded projects at the state level, and Washington Group’s ability to participate in foreign projects funded by the U.S. government could be adversely affected. If one or more of Washington Group’s government contracts are terminated for any reason, or if Washington Group is suspended from government work, Washington Group could suffer a significant reduction in expected revenue and earnings.

 

Washington Group’s dependence on one or a few customers could adversely affect it.

 

One or a few clients have in the past and may in the future contribute a significant portion of Washington Group’s consolidated revenue in any one year or over a period of several consecutive years. In 2006, approximately

27% of Washington Group’s revenue was from the U.S. Department of Defense and approximately 23% of Washington Group’s revenue was from the U.S. Department of Energy. As Washington Group’s backlog frequently reflects multiple projects for individual clients, one major customer may comprise a significant percentage of Washington Group’s backlog at any point in time. For example, the U.S. Department of Defense, with which Washington Group has 77 contracts, represented an aggregate of 18% of Washington Group’s backlog at June 29, 2007, and the U.S. Department of Energy, with which Washington Group has 175 contracts, represented an aggregate of 15% of Washington Group’s backlog at June 29, 2007.

 

Because these significant customers generally contract with Washington Group for specific projects, Washington Group may lose these customers from year to year as their projects with it are completed. If Washington Group does not replace them with other customers or other projects, Washington Group’s business could be materially adversely affected.

 

Additionally, Washington Group has long-standing relationships with many of its significant customers. Washington Group’s contracts with these customers, however, are on a project-by-project basis, and the customers may unilaterally reduce or discontinue their purchases at any time. The loss of business from any one of such customers could have a material adverse effect on Washington Group’s business or results of operations.

 

Changes in environmental laws, regulations and programs, could reduce demand for Washington Group’s environmental services, which could negatively impact its revenue.

 

Washington Group’s environmental business is driven by federal, state, local and foreign laws, regulations and programs related to pollution and environmental protection. Accordingly, a relaxation or repeal of these laws and regulations, or changes in governmental policies regarding the funding, implementation or enforcement of these programs, could result in a decline in demand for environmental services that could negatively impact Washington Group’s revenue.

 

Washington Group’s backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of its future earnings.

 

As of June 29, 2007, Washington Group’s backlog was approximately $6.2 billion. Washington Group cannot assure that the revenue projected in its backlog will be realized or, if realized, will result in profits. Projects may remain in Washington Group’s backlog for an extended period of time prior to project execution and, once project execution begins, Washington Group may occur unevenly over the current and multiple future periods. Although Washington Group has not experienced any significant cancellations, project terminations, suspensions or reductions in scope, these could occur from time to time with respect to contracts reflected in Washington Group’s backlog. Such backlog reductions would adversely affect the revenue and profit Washington Group actually receives from contracts reflected in its backlog.

 

Washington Group’s businesses involve many project-related and contract-related risks.

 

Washington Group’s businesses are subject to a variety of project-related risks, including changes in political and other circumstances, particularly since contracts for major projects are performed over extended periods of time. These risks include the failure of applicable governing authorities to take necessary actions, opposition by third parties to particular projects and the failure by customers to obtain adequate financing for particular projects. Due to these factors, losses on a particular contract or contracts could occur, and Washington Group could experience significant changes in operating results on a quarterly or annual basis.

 

Washington Group may also be adversely affected by various risks and hazards, including industrial accidents, labor disputes, geological conditions, environmental hazards, acts of terrorism or war, weather and other natural phenomena such as earthquakes and floods.

 

Washington Group could be subject to liabilities as a result of its performance.

 

The nature of Washington Group’s engineering and construction businesses exposes it to potential liability claims and contract disputes that may reduce its profits.

Washington Group engages in engineering and construction activities for large industrial facilities where design, construction or systems failures can result in substantial injury or damage to third parties. Currently, Washington Group has limits of $500 million per loss and $500 million in the aggregate for general liability insurance and contractor’s pollution liability insurance and a sublimit of $225 million for its professional errors and omissions liability insurance (in addition to other policies for certain projects). Washington Group’s general liability, professional errors and omissions liability, and contractor’s pollution liability insurance policies include a self-insured claim retention amount of $2.0 million per claim. Any liability in excess of Washington Group’s insurance limits at locations designed or constructed by it, where Washington Group’s products are installed or where its services are performed, could result in significant liability claims against Washington Group, which claims may reduce its earnings. In addition, if a customer disputes its performance of project services, the customer may decide to delay or withhold payment to Washington Group. If Washington Group were ultimately unable to collect on these payments, its profits would be reduced.

 

Washington Group’s dependence on subcontractors and equipment manufacturers could adversely affect it.

 

Washington Group relies on third-party subcontractors as well as third-party equipment manufacturers to complete its projects. To the extent that Washington Group cannot engage subcontractors or acquire equipment or materials, its ability to complete a project in a timely fashion or at a profit may be impaired. If the amount Washington Group is required to pay for these goods and services exceeds the amount it has estimated in bidding for fixed-price, fixed-unit-price or target-price contracts, Washington Group could experience reduced profit or 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, Washington Group may be required to purchase the services, equipment or materials from another source at a higher price. This may reduce the profit to be realized or result in a loss on a project for which the services, equipment or materials were needed.

 

Strikes, work stoppages and other similar events, as well as resulting increases in operating costs, would have a negative impact on Washington Group’s operations and financial results.

 

Washington Group is a party to several regional labor agreements that expire between June 2007 and June 2010, as well as project-specific labor agreements that commit Washington Group to use union building trades on certain projects. If Washington Group were unable to negotiate with any of the unions, it could result in strikes, work stoppages or increased operating costs as a result of higher than anticipated wages or benefits. If the unionized workers engage in a strike or other work stoppage, or other employees become unionized, Washington Group could experience a disruption of its operations and higher ongoing labor costs, which could adversely affect portions of its business, and its financial position, results of operations and cash flows.

 

If Washington Group guarantees to a customer the timely completion or performance standards of a project, Washington Group could incur additional costs to meet its guarantee obligations.

 

In certain instances, including in some of Washington Group’s fixed-price contracts, Washington Group guarantees a customer that it will complete a project by a scheduled date. Washington Group sometimes also provides that the project, when completed, will achieve certain performance standards. If Washington Group subsequently fails to complete the project as scheduled, or if the project subsequently fails to meet the guaranteed performance standards, Washington Group may be held responsible for cost impacts to the client resulting from any delay or the costs incurred by the project to achieve the performance standards. In most cases where Washington Group fails to meet contract-defined performance standards, Washington Group may be subject to agreed-upon liquidated damages. To the extent that these events occur, the total costs for the project would exceed Washington Group’s original estimates and it could experience reduced profits or in some cases a loss for that project.

 

The success of Washington Group’s joint ventures is dependent on the performance of its joint venture partners of their contractual obligations.

 

Washington Group enters into various joint ventures as part of its engineering and construction business and project-specific joint ventures. Success of these joint ventures depends largely on the satisfactory performance by

Washington Group’s partners of their contractual obligations. If Washington Group’s joint venture partners fail to perform their contractual obligations as a result of financial or other difficulties, Washington Group may be required to make additional investments and provide additional services to ensure the adequate performance and delivery of the contracted services. These additional obligations could result in reduced profits or in losses for Washington Group.

 

Washington Group’s international operations involve special risks.

 

Washington Group pursues project opportunities internationally through foreign and domestic subsidiaries as well as through agreements with domestic and foreign joint venture partners. Washington Group’s international operations accounted for approximately 21% of its revenue in 2006, including 10% from work performed in Iraq. Washington Group’s foreign operations are subject to special risks, including:

 

 

Events outside of Washington Group’s control may limit or disrupt operations, restrict the movement of funds, result in the deprivation of contract rights, increase foreign taxes or limit repatriation of earnings. In addition, in some cases, applicable law and joint venture or other agreements may provide that each joint venture partner is jointly and severally liable for all liabilities of the venture.

 

Washington Group’s international operations may require its employees or subcontractors to travel to high security risk countries, which may result in employee injury, repatriation costs or other unforeseen costs.

 

As a global provider of engineering, construction and management services, Washington Group dispatches employees and subcontractors to various countries around the world. A country may represent a high security risk because of its political, social or economic upheaval such as war, civil unrest or ongoing acts of terrorism. Senior level employees and other key employees and subcontractors have been, and may continue to be, deployed to provide services in high security risk countries. As a result, it is possible that Washington Group’s employees or subcontractors may suffer injury or death, repatriation problems or other unforeseen costs and risks in the course of their international responsibilities, which could negatively impact its operations.

 

Actual results could differ from the estimates and assumptions used to prepare Washington Group’s financial statements.

 

In order to prepare financial statements in conformity with GAAP, Washington Group’s management is required to make estimates and assumptions as of the date of the financial statements. These estimates and assumptions affect the reported values of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. Areas requiring significant estimates by Washington Group’s management include:

 

 

 

Washington Group’s use of percentage-of-completion accounting could result in a reduction or elimination of previously reported profits.

 

Approximately 40% of Washington Group’s revenue during fiscal year 2006 was recognized using the percentage-of-completion method of accounting. Generally, the percentage-of-completion accounting practices Washington Group utilizes result in Washington Group recognizing contract revenues and earnings ratably, based on the proportion of costs incurred to total estimated contract costs or on the proportion of labor hours or labor costs incurred to total estimated labor hours or labor costs. For some long-term contracts, completion is measured on estimated physical completion or units of production.

 

The cumulative effect of revisions to contract revenue and estimated completion costs, including incentive awards, penalties, change orders, claims and anticipated losses, is recorded in the accounting period in which the amounts become known and can be reasonably estimated. Such revisions could occur at any time and the effects could be material. A change order is included in total estimated contract revenue when it is probable that the change order will result in a bona fide addition to contract value and can be reliably estimated. Estimated contract revenue associated with change orders may include amounts in excess of costs (profit) when appropriate. Claims are included in total estimated contract revenue, only to the extent that contract costs related to the claim have been incurred, when it is probable that the claim will result in a bona fide addition to contract value and can be reliably estimated, which generally occurs when amounts have been received or awarded.

 

Washington Group estimates the extent of progress towards completion of contract revenue and of contract completion costs on Washington Group’s long-term engineering and construction contracts, but due to uncertainties inherent in the estimation process it is possible that actual completion costs may vary from estimates, and it is possible that such variances could be material to Washington Group’s operating results.

 

If Washington Group has to write off a significant amount of intangible assets, its earnings will be negatively impacted.

 

Goodwill and other intangible assets totaling $118.4 million are included in Washington Group’s consolidated balance sheet as of June 29, 2007. Washington Group must evaluate its goodwill and other intangible assets for impairment at least annually. If Washington Group’s goodwill and other intangible assets were to become impaired, Washington Group would be required to write-off the impaired amount. The write-off would negatively impact Washington Group’s earnings; however, it would not impact its cash flows. As of June 29, 2007, all of Washington Group’s goodwill and other intangible assets relate to its Defense and Energy & Environment business units, which are almost entirely dependent on continued spending by the U.S. government.

 

The significant demands on Washington Group’s cash resources could affect its ability to achieve its business plan.

 

Washington Group has substantial demands on its cash resources in addition to operating expenses, principally capital expenditures. Washington Group’s ability to fund working capital requirements will depend upon its future operating performance, which, in turn, will be affected by prevailing economic conditions and financial, business

and other factors, many of which are beyond its control. If Washington Group is unable to fund its businesses, Washington Group will be forced to adopt an alternative strategy that may include:

 

 

Washington Group cannot provide assurances that any of these strategies could be affected on favorable terms or at all.

 

If Washington Group experiences delays and/or defaults in customer payments, Washington Group could suffer liquidity problems or it could be unable to recover all expenditures.

 

Because of the nature of its contracts, at times Washington Group commits resources to projects prior to receiving payments from the customer in amounts sufficient to cover expenditures on client projects as they are incurred. Delays in customer payments may require Washington Group to make a working capital investment. If a customer defaults in making its payments on a project in which Washington Group has devoted significant resources, it could have an adverse effect on its financial position, results of operations and cash flows.

 

Washington Group could be subject to liability under environmental laws and regulations.

 

Washington Group is subject to a variety of environmental, health and safety laws and regulations governing, among other things, discharges to air and water, the handling, storage and disposal of hazardous or solid waste materials and the remediation of contamination associated with releases of hazardous substances. These laws and regulations and the risk of attendant litigation can cause significant delays to a project and add significantly to its cost. Violations of these environmental, health and safety laws and regulations could subject Washington Group and its management to civil and criminal penalties and other liabilities. These laws and regulations may become more stringent, or be more stringently enforced, in the future.

 

Various federal, state and local environmental laws and regulations, as well as common law, may impose liability for property damage and costs of investigation and cleanup of hazardous or toxic substances on property currently or previously owned by Washington Group or arising out of its waste management or environmental remediation activities. These laws may impose responsibility and liability without regard to knowledge of or causation of the presence of contaminants. The liability under these laws is joint and several. Washington Group has potential liabilities associated with its past waste management and contract mining activities and with its current and prior ownership of various properties.

 

Adequate bonding is necessary for Washington Group to successfully win new work awards on some types of contracts.

 

In line with industry practice, Washington Group is often required, primarily in its Infrastructure business unit, to provide performance and surety bonds to customers under fixed-price contracts. These bonds indemnify the customer should Washington Group fail to perform its obligations under the contract. If a bond is required for a particular project and Washington Group is unable to obtain an appropriate bond, Washington Group cannot pursue that project. Washington Group has bonding capacity but, as is typically the case, the issuance of a bond is at the surety’s sole discretion. Moreover, due to events that affect the insurance and bonding markets generally, bonding may be more difficult to obtain in the future or may only be available at significant additional cost. There can be no assurance that bonds will continue to be available to Washington Group on reasonable terms. Washington Group’s inability to obtain adequate bonding and, as a result, to bid on new work could have a material adverse effect on Washington Group’s businesses, financial condition, results of operations and cash flows. Of $4.2 billion of new work awarded during 2006, 2% required bonding.

Unavailability of insurance coverage could have a negative impact on Washington Group’s operations and results.

 

Washington Group maintains insurance coverage as part of its overall risk management strategy and due to requirements to maintain specific coverage in its financing agreements and in most of its construction contracts. Although Washington Group has been able to obtain insurance coverage to meet its requirements in the past, there is no assurance that such insurance coverage will be available in the future.

 

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

 

Statements contained in this joint proxy statement/prospectus that are not historical facts may constitute forward-looking statements, including statements relating to timing of and satisfaction of conditions to the merger, whether any of the anticipated benefits of the merger will be realized, future revenues, future net income, future cash flows, financial forecasts, future competitive positioning and business synergies, future acquisition cost savings, future expectations that the merger will be accretive to GAAP and cash earnings per share, future market demand, future benefits to stockholders, future debt payments and future economic and industry conditions. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “expect,” “plan,” “may,” “will,” “could,” “should,” “believe,” “predict,” “potential,” “continue” and similar expressions are also intended to identify forward-looking statements. URS and Washington Group believe that their expectations are reasonable and are based on reasonable assumptions. However, such forward-looking statements by their nature involve risks and uncertainties that could cause actual results to differ materially from the results predicted or implied by the forward-looking statement. The potential risks and uncertainties include, but are not limited to: