CH2M Hill Companies 10-Q 2011 Q1 Quarterly report

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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to

Commission File Number 000-27261

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

Oregon (State or other jurisdiction of incorporation or organization)	93-0549963 (I.R.S. Employer Identification No.)
9191 South Jamaica Street, Englewood, CO (Address of principal executive offices)	80112-5946 (Zip Code)

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

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

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

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

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

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

        The number of shares outstanding of the registrant's common stock as of April 27, 2011 was 30,647,290.

CH2M HILL COMPANIES, LTD.

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010 (unaudited)	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010 (unaudited)	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24
Item 4.	CONTROLS AND PROCEDURES	25
	PART II. OTHER INFORMATION
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25
Item 6.	EXHIBITS	26
SIGNATURES		27

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CH2M HILL COMPANIES, LTD.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

					March 31, 2011			December 31, 2010
ASSETS
Current assets:
	Cash and cash equivalents				$	234,445		$	290,405
	Available-for-sale securities					2,999			2,412
	Receivables, net—
		Client accounts				543,467			558,734
		Unbilled revenue				362,214			389,353
		Other				21,482			21,264
	Deferred income taxes					65,991			62,007
	Prepaid expenses and other current assets					47,950			44,498
				Total current assets		1,278,548			1,368,673
Investments in unconsolidated affiliates						103,249			82,982
Property, plant and equipment, net						164,500			169,261
Goodwill						130,354			130,354
Intangible assets, net						48,979			51,048
Deferred income taxes						119,503			112,919
Employee benefit plan assets and other						64,825			51,843
		Total assets			$	1,909,958		$	1,967,080
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Current portion of long-term debt				$	13,543		$	13,934
	Accounts payable and accrued subcontractor costs					383,670			407,694
	Billings in excess of revenue					219,291			237,053
	Accrued payroll and employee related liabilities					278,668			291,713
	Income tax payable					—			20,010
	Other accrued liabilities					152,036			163,396
			Total current liabilities			1,047,208			1,133,800
Long-term employee related liabilities and other						255,831			255,425
Long-term debt						19,771			23,687
		Total liabilities				1,322,810			1,412,912
Commitments and contingencies (Note 12)
Shareholders' equity:
	Preferred stock, $0.01 par value, 50,000,000 shares authorized; none issued					—			—
	Common stock, $0.01 par value, 100,000,000 shares authorized; 30,595,171and 30,527,473 issued and outstanding at March 31, 2011 and December 31, 2010, respectively					306			305
	Additional paid-in capital					—			—
	Retained earnings					595,323			563,343
	Accumulated other comprehensive loss					(15,065	)		(18,768	)
		Total CH2M HILL common shareholders' equity				580,564			544,880
	Noncontrolling interests					6,584			9,288
		Total equity				587,148			554,168
			Total liabilities and shareholders' equity		$	1,909,958		$	1,967,080

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

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CH2M HILL COMPANIES, LTD.

Consolidated Statements of Income

(Unaudited)

(In thousands, except share and per share data)

		Three Months Ended March 31,
		2011			2010
Gross revenue		$	1,268,095		$	1,235,579
Equity in earnings of joint ventures and affiliated companies			12,067			14,376
Operating expenses:
	Direct cost of services and overhead		(1,027,936	)		(1,002,955	)
	General and administrative		(209,937	)		(220,141	)
Operating income			42,289			26,859
Interest income (expense):
	Interest income and other		407			238
	Interest expense		(977	)		(1,353	)
Income before provision for income taxes			41,719			25,744
Provision for income taxes			(11,735	)		(6,136	)
	Net income		29,984			19,608
	Less: Income attributable to noncontrolling interests		(6,426	)		(5,276	)
Net income attributable to CH2M HILL		$	23,558		$	14,332
Net income attributable to CH2M HILL per common share:
	Basic	$	0.77		$	0.45
	Diluted	$	0.75		$	0.44
Weighted average number of common shares:
	Basic		30,709,778			31,544,626
	Diluted		31,362,420			32,305,524

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

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CH2M HILL COMPANIES, LTD.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

					Three Months Ended March 31,
					2011			2010
Cash flows from operating activities:
	Net income				$	29,984		$	19,608
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Depreciation and amortization				13,704			16,169
		Stock-based employee compensation expense				18,291			16,484
		Loss on disposal of property, plant and equipment				34			386
		Allowance for uncollectible accounts				1,336			597
		Deferred income taxes				(10,800	)		(5,812	)
		Undistributed earnings from unconsolidated affiliates				(12,067	)		(14,376	)
		Distributions of income from unconsolidated affiliates				2,127			21,417
		Change in assets and liabilities:
			Receivables and unbilled revenue			36,252			98,022
			Prepaid expenses and other			(16,752	)		4,746
			Accounts payable and accrued subcontractor costs			(22,283	)		(87,610	)
			Billings in excess of revenue			(17,177	)		(26,733	)
			Accrued payroll and employee related liabilities			5,647			(27,798	)
			Other accrued liabilities			(9,089	)		13,919
			Current income taxes payable			(23,347	)		3,928
			Long term employee related liabilities and other			3,744			(12,330	)
				Net cash (used in) provided by operating activities		(396	)		20,617
Cash flows from investing activities:
	Capital expenditures					(6,533	)		(4,609	)
	Investments in unconsolidated affiliates					(16,160	)		(11,373	)
	Distributions of capital from unconsolidated affiliates					6,765			8,967
	Cash increase from consolidation of variable interest entities					—			30,620
	Proceeds from sale of property, plant and equipment					563			39
			Net cash (used in) provided by investing activities			(15,365	)		23,644
Cash flows from financing activities:
	Borrowings on long-term debt					16			76
	Payments on line of credit and long-term debt					(4,344	)		(3,588	)
	Repurchases and retirements of common stock					(32,298	)		(36,325	)
	Excess tax benefits from stock-based compensation					3,740			2,505
	Net distributions to noncontrolling interests					(9,187	)		(7,429	)
			Net cash used in financing activities			(42,073	)		(44,761	)
Effect of exchange rates on cash						1,874			1,366
(Decrease) increase in cash and cash equivalents						(55,960	)		866
Cash and cash equivalents, beginning of period						290,405			169,717
Cash and cash equivalents, end of period					$	234,445		$	170,583
Supplemental disclosures:
	Cash paid for interest				$	683		$	2,021
	Cash paid for income taxes				$	38,800		$	10,691

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

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CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Summary of Business

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

Basis of Presentation

        The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial statements. Accordingly, these statements do not include all of the information required by GAAP or the Securities and Exchange Commission (SEC) rules and regulations for complete financial statements. The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions have been prepared on the basis of the most current and best available information. Actual results could differ from those estimates. Certain prior period amounts have been reclassified to conform to the current presentation.

        In the opinion of CH2M HILL's management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Revenue Recognition

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

        Change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to contract value and the amount can be estimated. Management evaluates when a change order is probable based upon its experience in negotiating change orders or

6

CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

the customer's written approval of such changes. Losses on construction and engineering contracts in process are recognized in their entirety when the loss becomes evident and the amount of loss can be reasonably estimated.

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

Available-for-Sale Securities

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

Unbilled Revenue and Billings in Excess of Revenue

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

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

Fair Value Measurements

        Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Assets and liabilities are valued based upon observable and non-observable inputs. Valuations using Level 1 inputs are based off of unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date. Level 2 inputs ultilize significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly; and valuations using Level 3 inputs are based off of significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment.

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CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Shareholders' Equity

        The changes in shareholders' equity for the three months ended March 31, 2011 are as follows (in thousands):

	Shares			Amount
Shareholders' equity, December 31, 2010		30,527		$	554,168
Net income attributable to CH2M HILL		—			23,558
Shares issued and to be issued in connection with stock-based compensation and employee benefit plans		622			40,721
Shares and share equivalents purchased, retired and cancelled		(554	)		(32,298	)
Other comprehensive income		—			3,760
Net income from noncontrolling interests		—			6,426
Net distributions to noncontrolling interests		—			(9,187	)
Shareholders' equity, March 31, 2011		30,595		$	587,148

Stock-Based Compensation Plans

        We measure the fair value of each stock option grant at the date of grant using a Black-Scholes option pricing model. The weighted-average grant date fair value of options granted during the three months ended March 31, 2011 was $7.42, compared to $6.90 for the same period in the prior year.

        We estimate the expected term of options granted by calculating the average of the vesting term and the contractual term of the option. We estimate the volatility of our common stock by using a weighted-average of historical volatility over the same period as the expected term of the option. We use the U.S. Treasury Bill issues for the risk-free interest rate in the option valuation model with original maturities similar to the expected term of the options. We do not anticipate paying any cash dividends on our common stock in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. The fair value of stock-based payment awards is amortized into stock-based compensation on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

        The total compensation cost recognized for share-based payments for stock options for the three months ended March 31, 2011 and 2010 was $1.2 million and $1.3 million, respectively.

Recently Adopted Accounting Standards

        In June 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-17,Consolidations (Topic 810)—Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, revising the existing guidance on the consolidation and disclosures of variable interest entities (VIEs) which was codified in Accounting Standards Codification (ASC) 810-10. Specifically, it changes how a

8

CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting rights should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity's purpose and design and the reporting entity's ability to direct the activities of the other entity that most significantly impact the other entity's economic performance. The guidance also requires additional disclosures about a company's involvement with VIEs and requires an entity to continually assess any significant changes in risk exposure as well as an entity's assessment of the primary beneficiary of the entity. ASC 810-10 became effective for us beginning January 1, 2010. For further discussion of the effect of the adoption, see Note 5.

(2) SEGMENT INFORMATION

        In order to improve our competitiveness, client service, and financial strength, effective January 1, 2011, we have reorganized our reporting structure under which our chief operating decision maker will be making strategic and operating decisions with regards to assessing performance and allocating resources. We believe this new organizational structure will help us deal with global economic and industry challenges, and better position us for a solid future. As a result, our Water business is reported with the Energy segment creating the Energy and Water segment. Additionally, our Industrial Systems business was divided based upon its operations and combined within our Environmental Services business and Water business and thus reflected in the GEN and Energy and Water segments, respectively. These changes began on January 1, 2011. Prior period amounts have been adjusted to conform to current year presentation.

        Certain financial information relating to the three months ended March 31, 2011 and 2010 for each segment is provided below (in thousands):

Three Months Ended March 31, 2011	Energy and Water		Government, Environment and Nuclear		Facilities and Infrastructure		Corporate			Financial Statement Balances
Revenue from external customers	$	406,127	$	557,381	$	304,587	$	—		$	1,268,095
Equity in earnings of joint ventures and affiliated companies		1,579		7,698		2,790		—			12,067
Operating income (loss)		16,360		17,685		11,377		(3,133	)		42,289

Three Months Ended March 31, 2010	Energy and Water		Government, Environment and Nuclear		Facilities and Infrastructure		Corporate			Financial Statement Balances
Revenue from external customers	$	489,320	$	474,785	$	271,474	$	—		$	1,235,579
Equity in earnings of joint ventures and affiliated companies	$	1,408	$	7,511		5,457		—			14,376
Operating income (loss)		1,447		16,869		11,945		(3,402	)		26,859

        In addition to the operating segments, the Corporate category primarily includes corporate expenses which represent centralized management costs that are not allocable to individual operating

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CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(2) SEGMENT INFORMATION (Continued)

segments and primarily include expenses associated with administrative functions such as executive management, corporate development and initiatives, tax and investor relations.

(3) COMPREHENSIVE INCOME

        Comprehensive income includes foreign currency translation adjustments, benefit plan adjustments, and unrealized gains/losses on available-for-sale investments that have been reflected as a component of shareholders' equity and have not impacted net income. The following table summarizes the components of comprehensive income for the three months ended March 31, 2011 and 2010 (in thousands):

		Three Months Ended March 31,
		2011		2010
Net income attributable to CH2M HILL		$	23,558	$	14,332
Other comprehensive income attributable to CH2M HILL:
	Foreign currency translation adjustments		3,348		(350	)
	Unrealized gain on available-for-sale investments and other, net of tax		355		168
Comprehensive income attributable to CH2M HILL		$	27,261	$	14,150

(4) EARNINGS PER SHARE

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

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CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(4) EARNINGS PER SHARE (Continued)

        The following table is a reconciliation of basic and diluted EPS for the three months ended March 31, 2011 and 2010 (in thousands, except per share amounts):

		Three Months Ended March 31,
		2011		2010
Numerator:
	Net income attributable to CH2M HILL	$	23,558	$	14,332
Denominator:
	Basic income per share—weighted average common shares outstanding		30,710		31,545
	Dilutive effect of common stock equivalents		652		761
	Diluted income per share—adjusted weighted-average common shares outstanding, assuming conversion of common stock equivalents		31,362		32,306
Basic net income attributable to CH2M HILL per common share		$	0.77	$	0.45
Diluted net income attributable to CH2M HILL per common share		$	0.75	$	0.44

(5) EQUITY METHOD INVESTMENTS AND VARIABLE INTEREST ENTITIES

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

        We perform a qualitative assessment to determine whether our company is the primary beneficiary once an entity is identified as a VIE. A qualitative assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity's activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and how they were marketed, and the parties involved in the design of the entity. All of the variable interests held by parties involved with the VIE are identified and a determination of which activities are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities that are made. Most of the VIEs with which our company is involved have relatively few variable interests and are primarily related to our equity investment, subordinated financial support, and subcontracting arrangements. We consolidate those VIEs in which we have both the power to direct the activities of the VIE that most significantly impact the VIEs economic performance and the

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CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(5) EQUITY METHOD INVESTMENTS AND VARIABLE INTEREST ENTITIES (Continued)

obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE.

        Upon adoption of ASC 810-10, we consolidated certain VIEs that were previously unconsolidated. It was determined that our company is the primary beneficiary due to the ability to control the activities that most significantly impact the economic performance of the entity. These variable interest entities were previously not consolidated because no party absorbed the majority of the expected losses. Upon consolidation of these joint ventures, consolidated current assets increased by $35.8 million primarily related to cash and cash equivalents and accounts receivable. Current liabilities increased by $27.6 million primarily related to accounts payable, accrued subcontractor costs and billings in excess of revenue.

        As of March 31, 2011, total assets of VIEs that were consolidated were $85.8 million and total liabilities were $55.3 million.

        As of March 31, 2011 and December 31, 2010, we recorded investments in unconsolidated affiliates of $103.2 million and $83.0 million, respectively. Our proportionate share of net income or loss is included as equity in earnings of joint ventures and affiliated companies in the consolidated statements of income. In general, the equity investment in our unconsolidated affiliates is equal to our current equity investment plus those entities' undistributed earnings. We provide certain services, including engineering, construction management and computer and telecommunications support, to these unconsolidated entities. These services are billed to the joint ventures in accordance with the provisions of the agreements. Our company has significant variable interests in entities that are not consolidated.

        As of March 31, 2011, the total assets of VIEs that were not consolidated were $354.8 million and total liabilities were $254.7 million. The maximum exposure to losses is limited to the funding of any future losses incurred by those entities under their respective contracts with the project company.

(6) GOODWILL AND INTANGIBLE ASSETS

        Indefinite-lived intangible assets consist of the following (in thousands):

	March 31, 2011		December 31, 2010
Goodwill	$	130,354	$	130,354
Tradename		20,326		20,326
	$	150,680	$	150,680

        All finite-lived intangible assets are being amortized over their expected lives up to seven years. Our finite-lived intangibles consist of acquired customer relationships. The cost basis of customer relationships was $57.9 million at March 31, 2011 and December 31, 2010. The net value of customer relationships was $28.7 million and $30.7 million at March 31, 2011 and December 31, 2010, respectively. The amortization expense reflected in the accompanying consolidated statements of income was $2.1 million and $2.6 million for the three months ended March 31, 2011 and 2010, respectively. These intangible assets are expected to be fully amortized in 2014. The majority of

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CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(6) GOODWILL AND INTANGIBLE ASSETS (Continued)

goodwill, intangible assets and associated amortization expense are held in the Energy and Water segment.

(7) PROPERTY, PLANT AND EQUIPMENT

        Property, plant and equipment consists of the following:

		March 31, 2011			December 31, 2010
($ in thousands)
Land		$	27,725		$	27,337
Buildings			80,296			80,183
Furniture, fixtures and equipment			202,374			199,199
Leasehold improvements			68,433			67,690
			378,828			374,409
Less: Accumulated depreciation			(214,328	)		(205,148	)
	Property, plant and equipment, net	$	164,500		$	169,261

        Depreciation expense reflected in the consolidated statements of income was $11.6 million and $13.6 million for the three months ended March 31, 2011 and 2010, respectively. The majority of depreciation expense relates to property, plant and equipment held in the Energy and Water segment.

(8) FAIR VALUE OF FINANCIAL INSTRUMENTS

        Cash and cash equivalents, receivables, unbilled revenue, accounts payable and billings in excess of revenue are carried at cost, which approximates fair value due to their short maturities. Fair value of marketable securities classified as available-for-sale, which totaled $3.0 million and $2.4 million at March 31, 2011 and December 31, 2010, respectively, were valued based on Level 1 inputs whereby a readily determinable market value exists for the specific asset.

        Fair value of long-term debt, including the current portion, is estimated based on Level 2 inputs. Fair value is determined by discounting future cash flows using interest rates available for issues with similar terms and average maturities.

        The estimated fair values of our company's financial instruments where carrying values do not approximate fair value are as follows:

		March 31, 2011				December 31, 2010
		Carrying Amount		Fair Value		Carrying Amount		Fair Value
($ in thousands)
	Mortgage notes payable	$	14,884	$	11,945	$	15,253	$	12,403
	Equipment financing		18,292		17,545		22,227		21,439
	Shareholder notes payable		138		125		141		98

13

CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(9) EMPLOYEE BENEFIT PLAN ASSETS

        We have investments that support deferred compensation arrangements and other employee benefit plans. These assets are recorded at fair market value primarily using Level 1 and Level 2 inputs. The assets are invested in various non-exchange traded mutual funds, which are measured using quoted market prices of underlying assets in accessible active markets. As of March 31, 2011 and December 31, 2010, the fair market value of these assets were $60.2 million and $47.0 million, respectively.

(10) LINE OF CREDIT AND LONG TERM DEBT

        On December 6, 2010, we entered into a Credit Agreement (the "Credit Agreement") providing for an unsecured revolving credit facility in an amount of up to $600.0 million. Subject to certain conditions, at any time prior to the date that is thirty days before the maturity date of the Credit Agreement, we will be able to invite existing and new lenders to increase the size of the revolving credit facility by up to $100.0 million, for a maximum aggregate revolving credit facility of $700.0 million. The revolving credit facility has a subfacility for the issuance of standby letters of credit in a face amount up to $300.0 million and a subfacility of up to $300.0 million for multicurrency borrowings. Revolving loans under the Credit Agreement bear interest, at our option, at a rate equal to either (i) the base rate plus a margin based on our consolidated leverage ratio or (ii) the LIBOR rate, based on interest periods of one, two, three or six months, plus a margin based on our consolidated leverage ratio. The base rate is equal to the greater of (i) the Federal Funds Rate, as published from time to time by the Federal Reserve Bank of New York, plus 0.5%, (ii) the lender's prime rate in effect from time to time, or (iii) the one-month LIBOR rate in effect from time to time, plus 1.0%. Our consolidated leverage ratio on any date is the ratio of our consolidated total funded debt to its consolidated earnings before interest, taxes, depreciation and amortization for the preceding four fiscal quarters. There were no outstanding borrowings on the Credit Agreement as of March 31, 2011. If we had borrowed under the Credit Agreement on March 31, 2011 the rate of interest charged on that balance would have been 1.80%. At March 31, 2011, issued and outstanding letters of credit of $100.1 million were reserved against the borrowing base of the Credit Agreement, compared to $89.4 million at December 31, 2010.

        The Credit Agreement contains customary representations and warranties and conditions to borrowing. The Credit Agreement also includes customary affirmative and negative covenants, including covenants that limit or restrict our Company and its subsidiaries' ability to incur indebtedness and other obligations, grant liens to secure their obligations, make investments, merge or consolidate, dispose of assets outside the ordinary course of business, enter into transactions with affiliates, and make certain kinds of payments, in each case subject to customary exceptions for a credit facility of this size and type. We are also required to comply with a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio. As of March 31, 2011, we were in compliance with the covenants required by the Credit Agreement.

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CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(10) LINE OF CREDIT AND LONG TERM DEBT (Continued)

        Our nonrecourse and other long-term debt consists of the following:

($ in thousands)		March 31, 2011		December 31, 2010
Nonrecourse:
	Mortgage payable in monthly installments to July 2020, secured by real estate, rents and leases. The note bears interest at 5.35%	$	12,183	$	12,430
	Mortgage payable in monthly installments to December 2015, secured by real estate. The note bears interest at 6.59%		2,701		2,823
			14,884		15,253
Other:
	Equipment financing, due in monthly installments to December 2014, secured by equipment. These notes bear interest ranging from 6.00% to 8.00%		18,292		22,227
	Shareholder notes payable		138		141
Total debt			33,314		37,621
Less current portion of debt			13,543		13,934
Total long-term portion of debt		$	19,771	$	23,687

(11) PROVISION FOR INCOME TAXES

        The effective tax rate for the three months ended March 31, 2011 was 33.3% compared to 30.0% for the same period in the prior year. The effective tax rate for 2011 is higher in comparison to the effective tax rate in 2010 primarily due to a 2010 state tax settlement. The March 31, 2011 rate was favorably impacted by strong foreign operating results and the impacts these had on deferred tax assets. However, our effective tax rate continues to be negatively impacted by the effect of state income taxes, non-deductible foreign net operating losses, the disallowed portion of executive compensation, and disallowed portions of meals and entertainment expenses.

        As of March 31, 2011 and December 31, 2010, we had $18.8 million and $18.3 million, respectively, recorded as a liability for uncertain tax positions. We recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2011 and December 31, 2010, we had approximately $3.1 million and $3.0 million, respectively, of accrued interest and penalties related to uncertain tax positions.

        We file income tax returns in the U.S. and various state jurisdictions and non-U.S. jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States and Canada. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years before 2003.

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CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2011

(Unaudited)

(12) COMMITMENTS AND CONTINGENCIES

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

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

        In 2010, we were notified that the U.S. Attorney's Office is investigating potential overtime irregularities on our DOE Hanford tank farms contract which we completed in 2008. We are cooperating with the investigation but given its early stages, we are not yet in a position to ascertain the strength of potential claims or quantify their possible impact. Based on currently available information, management believes that the investigation would not result in a material impact on our results of operations or financial condition, even if the final outcome is adverse to our company.

(13) SUBSEQUENT EVENTS

        During May 2011, we entered into an agreement with a consulting firm to acquire certain assets in their state and local transportation business. The purchase price is subject to certain adjustments, and closing is contingent on events including the transfer of certain contracts. We expect the transaction to close in the third quarter of this year. The business to be acquired provides consulting and other professional services related primarily to transit and rail agencies in the U.S.

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Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations as a whole and for each of our operating segments.

        In the following text, the terms, "we," "our," "our company," and "us" may refer to CH2M HILL.

        Certain statements throughout Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report are forward looking and thus reflect our current expectations and beliefs with respect to certain current and future events and financial performance. Such forward looking statements are and will be subject to many risks and uncertainties relating to our operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward looking statements. Words such as "believes," "anticipates," "expects," "will," "plans" and similar expressions are intended to identify forward looking statements.

        Additionally, forward looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law.

        The Company's actual results could differ materially from these forward looking statements due to numerous factors including, without limitation, the following: the continuance of, and funding for certain governmental regulation and enforcement programs which create demand for our services; our ability to attract and perform large, longer-term projects; our ability to insure against or otherwise cover the liability risks inherent in our business including environmental liabilities and professional engineering liabilities; our ability to manage the risks inherent in the government contracting business and the delivery of lump sum projects; our ability to manage the costs associated with our fixed price contracts; our ability to manage the risks inherent in international operations, including operations in war and conflict zones, our ability to identify and successfully integrate acquisitions; our ability to attract and retain professional personnel; changes in global business, economic, political and social conditions; intense competition in the global engineering, procurement and construction industry; civil unrest, security issues and other unforeseeable events in countries in which we do business; our failure to receive anticipated new contract awards; difficulties or delays incurred in the execution of contracts; and other risks and uncertainties set forth under Item 1A., Risk Factors in the Annual Report on Form 10-K for the year ended December 31, 2010, as well as other risks and uncertainties set forth from time to time in the reports the Company files with the SEC. Consequently, forward looking statements should not be regarded as representation or warranties by the Company that such matters will be realized.

Overview

        We are a large employee-owned professional engineering services firm providing engineering, construction, consulting, design, design-build, procurement, operations and maintenance, program management and technical services to U.S. federal, state, municipal and local government agencies, national governments, as well as private industry, around the world. Founded in 1946, we have approximately 23,000 employees in offices worldwide.

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

        Our revenues are dependent upon our ability to attract and retain qualified and productive employees, identify business opportunities, allocate our labor resources to profitable markets, secure new contracts, execute existing contracts, and maintain existing client relationships. Moreover, as a professional services company, the quality of the work generated by our employees is integral to our revenue generation.

        We continuously monitor acquisition and investment opportunities that will expand our portfolio of services, add value to the projects undertaken for clients, or enhance our capital strength. Mergers and acquisitions in our industry have resulted in a group of larger firms that offer a full complement of single-source services including studies, designs, engineering, construction, procurement, design-build operations, maintenance and in some instances, facility ownership. We have also seen movement towards longer-term contracts for the expanded array of services, e.g., 5 to 20 year contracts. These larger, longer, full-service contracts require us to have substantially greater financial capital than has historically been necessary to remain competitive. There can be no assurances that we can continue to be successful when competing against companies in our industry who have greater access to capital. We expect to continue to see consolidation of our competitors which may result in challenges for our business in the future.

Results of Operations

Revenue and Operating Income of our Reportable Segments

        In order to improve our competitiveness, client service, and financial strength, effective January 1, 2011, we have reorganized our reporting structure under which our chief operating decision maker will be making strategic and operating decisions with regards to assessing performance and allocating resources. We believe this new organizational structure will help us deal with global economic and industry challenges, and better position us for a solid future. As a result, our Water business is now reported with the Energy segment creating the Energy and Water segment. Additionally, our Industrial Systems business was split based upon its operations and combined within our Environmental Services business and Water business and thus reflected in the GEN and Energy and Water segments, respectively. These changes began on January 1, 2011. Prior period amounts have been adjusted to conform to current year presentation.

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        The results of operations for the three months ended March 31, 2011 and 2010 by operating segment were as follows (in millions):

Three Months Ended March 31, 2011 and 2010

	2011							2010							Change
($ in millions)	Revenue		Equity in Earnings		Operating Income (Loss)			Revenue		Equity in Earnings		Operating Income (Loss)			Revenue					Equity in Earnings			Operating Income (Loss)
Energy and Water	$	406.1	$	1.6	$	16.3		$	489.3	$	1.4	$	1.4		$	(83.2	)	(17.0	)%	$	0.2		$	14.9		1,064.3	%
Government, Environment and Nuclear		557.4		7.7		17.7			474.8		7.5		16.9			82.6		17.4	%		0.2			0.8		4.7	%
Facilities and Infrastructure		304.6		2.8		11.4			271.5		5.5		11.9			33.1		12.2	%		(2.7	)		(0.5	)	(4.2	)%
Corporate		—		—		(3.1	)		—		—		(3.4	)		—					—			0.3		8.8	%
Total	$	1,268.1	$	12.1	$	42.3		$	1,235.6	$	14.4	$	26.8		$	32.5		2.6	%	$	(2.3	)	$	15.5		57.8	%

Energy and Water

        Revenue from our Energy and Water segment decreased by $83.2 million, or 17.0% for the three months ended March 31, 2011, compared to the same period in the prior year. The overall decrease in revenue is primarily attributable to the completion and near completion of a few large power projects during 2010. The decrease is also attributable to a decrease in activity in the oil and gas business due primarily to constrained capital spending within the oil and gas industry and a highly competitive market. The decrease is partially offset by the increase in demand in our water consulting business in North America, the Middle East and Europe

        Operating income increased for the three months ended March 31, 2011 compared to the same period in the prior year by $14.9 million. Despite the decrease in revenue attributable to the oil and gas business, operating income increased in our energy and chemicals business due to stronger performance in the operations and maintenance services in addition to significantly lower overhead. Additionally, operating income increased due to the expiration of certain customer warranty obligations within our power design build projects as well as improved performance on a water design build project in the northwest.

Government, Environment and Nuclear

        Revenue from our Government, Environment and Nuclear segment increased for the three months ended March 31, 2011, compared to the same period in the prior year by $82.6 million, or 17.4%. The increase in revenue is primarily due to an increased volume of contracts in our nuclear market largely generated as a result of the American Recovery and Reinvestment Act (ARRA) to accelerate environmental cleanups. The increase is partially offset by reduced volumes in our domestic and international design-build business due to the effect of the current recession and contracting delays. Revenue volumes in our environmental markets remained relatively consistent with those in the prior year.

        Operating income increased for the three months ended March 31, 2011 compared to the same period in the prior year by $0.8 million or 4.7%. The increase is primarily attributable to award fees earned in our international government facilities and infrastructure business in addition to a favorable settlement on a contract claim in our environmental business. The increase is partially offset by lower rates associated with the ARRA contracts as well as increased costs incurred on a U.S. government military base facilities project.

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Facilities and Infrastructure

        Revenue from our Facilities and Infrastructure segment increased for the three months ended March 31, 2011, compared to the same period in 2010 by $33.1 million or 12.2%. The increase in revenue is primarily attributable to higher volume in our industrial and advanced technology (I&AT) business due to increased capital spending in the sector. The increase in revenue is also attributable to increased volumes in our operations and management (O&M) business due to the transition of certain design-build-operate water projects into the operation phases of the projects. The increase is partially offset by reduced workload in our transportation consulting markets due to the current economic environment of federal and state govenrments.

        Operating income decreased for the three months ended March 31, 2011, compared to the same period in the prior year by $0.5 million or 4.2%. The decrease is primarily attributable to a decrease in operating income related to the London 2012 Olympic Delivery Authority project as a result of the timing of award fees. The decrease is offset by the increase in revenues related to our I&AT business.

Corporate

        In addition to the operating segments, the Corporate category primarily includes corporate expenses which represent centralized management costs that are not allocable to individual operating segments and primarily include expenses associated with administrative functions such as executive management, corporate development and initiatives, tax and investor relations. The decrease of $0.3 million for the three months ended March 31, 2011 compared to the same period in the prior year is due to continued cost reduction efforts.

Provision for Income Taxes

        The effective tax rate for the three months ended March 31, 2011 was 33.3% compared to 30.0% for the same period in the prior year. The effective tax rate for 2011 is higher in comparison to the effective tax rate in 2010 primarily due to a non-recurring 2010 state tax settlement. The March 31, 2011 rate was favorably impacted by strong foreign operating results and the impacts these had on deferred tax assets. However, our effective tax rate continues to be negatively impacted by the effect of state income taxes, non-deductible foreign net operating losses, the disallowed portion of executive compensation, and disallowed portions of meals and entertainment expenses.

        As of March 31, 2011 and December 31, 2010, we had $18.8 million and $18.3 million, respectively, recorded as a liability for uncertain tax positions. We recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2011 and December 31, 2010, we had approximately $3.1 million and $3.0 million, respectively, of accrued interest and penalties related to uncertain tax positions.

        We file income tax returns in the U.S. and various state jurisdictions and non-U.S. jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States and Canada. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years before 2003.

Liquidity and Capital Resources

        Our primary sources of liquidity are cash flows from operations, borrowings under our revolving line of credit and other financing arrangements. Our primary uses of cash are to fund our working capital, acquisitions, capital expenditures and repurchases of stock presented on our internal market. During the three months ended March 31, 2011, cash used in operations was $0.4 million compared to $20.6 million provided by operations in the same period last year. The decrease in operating cash flow during the current period was partially attributable to the increase in cash paid for income taxes and

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payment of 2010 short-term bonuses in cash. The decrease in operating cash flows is partially offset by a reduction in cash payments for employee related liabilities due mainly to the timing of the remittance of employee related tax payments.

        We continuously monitor collection efforts and assess the allowance for doubtful accounts. Based on our assessment at March 31, 2011, we have deemed the allowance for doubtful accounts to be adequate; however, economic conditions may adversely impact some of our clients' ability to pay our bills or the timeliness of their payments.

        Cash used in investing activities was $15.4 million in the three months ended March 31, 2011 compared to $23.6 million provided by investing activities for the same period in 2010. The majority of cash used in our investing activities relates to increasing our investments in affiliates (net of distributions of capital received) by approximately $7.0 million. We spent $6.5 million and $4.6 million on capital expenditures in the three months ended March 31, 2011 and 2010, respectively. Historically as a professional services organization, we have not had significant outflows of cash for capital expenditures. The majority of the cash provided by investing activities in the three months ended March 31, 2010 related to an increase of cash upon the consolidation of variable interest entities that we had previously accounted for as unconsolidated affiliates.

        We finance our operations, acquisitions and capital expenditures using a variety of capital vehicles. On December 6, 2010, we entered into a Credit Agreement (the "Credit Agreement") providing for an unsecured revolving credit facility in an amount of up to $600 million. Subject to certain conditions, at any time prior to the date that is thirty days before the maturity date of the Credit Agreement, we will be able to invite existing and new lenders to increase the size of the revolving credit facility by up to $100 million, for a maximum aggregate revolving credit facility of $700 million. The revolving credit facility has a subfacility for the issuance of standby letters of credit in a face amount up to $300 million and a subfacility of up to $300 million for multicurrency borrowings. Revolving loans under the Credit Agreement bear interest, at the Company's option, at a rate equal to either (i) the base rate plus a margin based on our consolidated leverage ratio or (ii) the LIBOR rate, based interest periods of one, two, three or six months, plus a margin based on the ratio of our consolidated leverage ratio. The base rate is equal to the greater of (i) the Federal Funds Rate, as published from time to time by the Federal Reserve Bank of New York, plus 0.5%, (ii) the lender's prime rate in effect from time to time, or (iii) the one-month LIBOR rate in effect from time to time, plus 1.0%. Our consolidated leverage ratio on any date is the ratio of our consolidated total funded debt to our consolidated earnings before interest, taxes, depreciation and amortization for the preceding four fiscal quarters. There can be no assurance that the capacity under the credit facility will be adequate to fund future operations or acquisitions the Company may pursue from time to time.

        Depending on the applicable terms and conditions on new debt or equity offerings compared to the opportunity cost of using our internally generated cash, we may either choose to finance new opportunities using leverage in the form of our Credit Agreement, or other debt. In some instances we may use a combination of one or more of these financing mechanisms. As of March 31, 2011, our total outstanding debt obligations were approximately $33.3 million. There was not an outstanding balance on the Credit Agreement as of March 31, 2011. The majority of these obligations relate to the issuance of notes payable and mortgages related to property, plant and equipment.

        At March 31, 2011, issued and outstanding letters of credit of $100.1 million were reserved against the borrowing base of the Credit Agreement, compared to $78.5 million at December 31, 2010.

        For the three months ended March 31, 2011, repurchases of stock were $32.3 million compared to $36.3 million for the same period in the prior year. Additionally, the net repayments of debt were approximately $4.3 million during 2011 compared to approximately $3.5 million during the three months ended March 31, 2010.

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Off-Balance Sheet Arrangements

        We have interests in multiple teaming arrangements, some of which are considered variable interest entities. These entities facilitate the completion of contracts that are jointly entered into with our partners. These entities are formed to leverage the skills of the respective partners and include consulting, construction, design, engineering, procurement, program management and operations and maintenance contracts. Our risk of loss in these arrangements is usually shared with our partners. The liability of each partner usually is joint and several, which means that each joint venture partner may become liable for the entire risk of loss on the project.

        There were no substantial changes to other off-balance sheet arrangements or contractual commitments in the three months ended March 31, 2011, when compared to the disclosures provided in our Annual Report on Form 10-K for the year ended December 31, 2010.

Aggregate Contractual Obligations

        We are committed to provide support for various provisions in engineering and construction contracts. Letters of credit are available to clients in the ordinary course of the contracting business in lieu of retention or for performance and completion guarantees on engineering and construction contracts. We also post surety bonds, which are contractual agreements issued by a surety, for the purpose of guaranteeing our performance on contracts. Bid bonds are also issued by a surety to protect owners against our failure to perform obligations arising from a successful bid. Bid bonds are subject to full or partial forfeiture if we fail to enter into contracts under terms provided on our bids.

Critical Accounting Policies

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

        The accounting policies that we believe are most critical to the understanding of our financial condition and results of operations and require complex management judgment are summarized below. Further detail and information regarding our critical accounting policies and estimates are included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Revenue Recognition

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

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

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

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

Income Taxes

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

        In addition, the calculation of our income tax provision involves uncertainties in the application of complex tax regulations. For income tax benefits to be recognized, a tax position must be more likely than not to be sustained upon ultimate settlement.

Pension and Postretirement Employee Benefits

        We have two frozen and one active noncontributory defined benefit pension plans, a medical benefit plan for retired employees and other benefit plans. The determination of pension plan expense and the requirements for funding our pension plans are based on a number of actuarial assumptions. These valuations include many assumptions, but the two most critical assumptions are the discount rate and the expected long-term rate of return on plan assets. For our medical benefit plan, which provides certain health care benefits to qualified retired employees, critical assumptions in determining the employee benefit expense are the discount rate applied to benefit obligations and the assumed health care cost trend rates used in the calculation of benefit obligations. We use judgment in selecting these assumptions each year because we have to consider not only current market conditions, but also make judgments about future market trends, changes in the interest rates and equity market performance. We also have to consider factors like the timing and amounts of expected contributions to the plans and benefit payments to plan participants.

        The funded status of a benefit plan is measured as the difference between plan assets at fair value and the benefit obligation. We record an asset for overfunded plans and a liability for underfunded plans, with a corresponding entry recorded to accumulated other comprehensive loss, net of tax.

Recently Adopted Accounting Standards

        In June 2009, the FASB issued ASU 2009-17,Consolidations (Topic 810)—Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, revising the existing guidance on the consolidation and disclosures of variable interest entities which was codified in ASC 810-10.

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Specifically, it changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting rights should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity's purpose and design and the reporting entity's ability to direct the activities of the other entity that most significantly impact the other entity's economic performance. The guidance also requires additional disclosures about a company's involvement with VIEs and requires us to continually assess any significant changes in risk exposure as well as our assessment of the primary beneficiary of the entity. ASC 810-10 is effective for us beginning January 1, 2010. For further discussion of the effect of the adoption, see Note 5 of the footnotes to the consolidated financial statements.

Commitments and Contingencies

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

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

        In 2010, we were notified that the U.S. Attorney's Office is investigating potential overtime irregularities on our DOE Hanford tank farms contract which we completed in 2008. We are cooperating with the investigation but given its early stages, we are not yet in a position to ascertain the strength of potential claims or quantify their possible impact. Based on currently available information, management believes that the investigation would not result in a material impact on our results of operations or financial condition, even if the final outcome is adverse to our company.

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

        Foreign currency exchange rates.    We are exposed to foreign currency exchange risks in the normal course of our business operations outside of the U.S. Our investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. From time to time we engage in forward foreign exchange contracts to selectively manage these exposures through the use of derivative instruments to mitigate our market risk from these exposures. The objective of our risk management is to protect our cash flows related to sales of services from market fluctuations in current rates. A five percent change in foreign currency rates would not have a significant impact on our financial position, results of operations or cash flows.

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        Interest rates.    Our interest rate exposure is generally limited to our unsecured revolving credit agreement, purchase of interest bearing short-term investments and the holdback contingency balance outstanding related to our acquisition of VECO. As of March 31, 2011, there was not a balance on the unsecured revolving credit agreement, but there was approximately $46.7 million outstanding on the holdback contingency. We have assessed the market risk exposure on these financial instruments and determined that any significant changes to the fair value of these instruments would not have a material impact on our consolidated results of operations, financial position or cash flows. Based upon the amount outstanding under the unsecured revolving credit agreement and the holdback contingency, a one percentage point change in the assumed interest rate would change our annual interest expense by approximately $0.5 million.

Item 4.    CONTROLS AND PROCEDURES

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

        There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

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

Issuer Purchases of Equity Securities

        The following table covers the purchases of our common shares by our company during the period covered by this report.

Period		Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January(a)			1,311	$	45.53		—		—
February			—		—		—		—
March(b)			510,031		46.75		—		—
	Total		511,342		46.74		—		—

(a)

Shares purchased by our company from terminated employees.

(b)

Shares purchased by our company in the Internal Market.

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Item 6.    EXHIBITS

Exhibit Index

*10.1	Addendum to Contract with Neidiger, Tucker, Bruner, Inc. dated as of February 11, 2011 (Commission File No. 000-27261)
*31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1	Certification of Chief Executive Officer pursuant to the requirements set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)
*32.2	Certification of Chief Financial Officer pursuant to the requirements set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)
**101.INS	XBRL Instance Document
**101.SCH	XBRL Taxonomy Extension Schema Document
**101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
**101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
**101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
**101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

*

Filed herewith

**

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

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SIGNATURES

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

	CH2M HILL Companies, Ltd.
Date: May 4, 2011	/s/ MICHAEL A. LUCKI Michael A. Lucki Senior Vice President and Chief Financial Officer (principal financial officer)

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