UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008

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

9191 South Jamaica Street,
Englewood, CO		80112-5946
(Address of principal executive offices)		(Zip Code)

(303) 771-0900

(Registrant’s telephone number, including area code)

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

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

Large Accelerated Filer o	Accelerated Filer x	Non-Accelerated Filer o	Smaller reporting company o
		(Do not check if smaller reporting company.)

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

The number of shares outstanding of the registrant’s common stock as of August 5, 2008 was 33,612,564.

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CH2M HILL COMPANIES, LTD.

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PART I. FINANCIAL INFORMATION

Item 1.	FINANCIAL INFORMATION
	Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007 (unaudited)	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20

Item 4.	CONTROLS AND PROCEDURES	20

PART II. OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	21

Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21

Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	21

Item 6.	EXHIBITS	23

SIGNATURES		24

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CH2M HILL COMPANIES, LTD.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

	June 30, 2008			December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	115,056		$	124,105
Available-for-sale securities	932			2,705
Receivables, net—
Client accounts	590,001			670,984
Unbilled revenue	444,581			391,502
Other	14,118			10,563
Current deferred income taxes	65,656			60,415
Prepaid expenses and other current assets	104,926			57,285
Total current assets	1,335,270			1,317,559
Investments in unconsolidated affiliates	39,026			35,285
Property, plant and equipment, net	214,415			214,348
Goodwill	132,712			126,690
Intangible assets, net	107,159			125,933
Deferred income taxes	29,497			26,968
Other assets	53,837			63,163
Total assets	$	1,911,916		$	1,909,946
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	24,072		$	12,458
Accounts payable and accrued subcontractor costs	320,725			401,511
Billings in excess of revenue	305,534			255,862
Accrued payroll and employee related liabilities	267,530			248,704
Current income tax payable	—			4,099
Other accrued liabilities	107,155			113,271
Total current liabilities	1,025,016			1,035,905
Long-term employee related liabilities and other	239,586			225,179
Long-term debt	188,427			185,329
Total liabilities	1,453,029			1,446,413
Commitments and contingencies
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; 33,605,206 and 33,158,068 issued and outstanding at June 30, 2008 and December 31, 2007, respectively	336			332
Additional paid-in capital	59,470			70,596
Retained earnings	404,755			395,998
Accumulated other comprehensive loss	(5,674		)	(3,393		)
Total shareholders’ equity	458,887			463,533
Total liabilities and shareholders’ equity	$	1,911,916		$	1,909,946

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 June 30,						Six Months Ended June 30,
	2008			2007			2008			2007

Gross revenue	$	1,339,640		$	1,000,755		$	2,594,293		$	1,959,846
Equity in earnings (losses) of joint ventures and affiliated companies	(915		)	6,740			11,054			12,242

Operating expenses:
Direct cost of services and overhead	(1,058,451		)	(799,507		)	(2,078,981		)	(1,560,722		)
General and administrative	(270,347		)	(185,483		)	(504,317		)	(376,790		)

Operating income	9,927			22,505			22,049			34,576

Other income (expense):
Interest income	1,379			1,012			2,288			2,744
Interest expense	(4,224		)	(144		)	(8,344		)	(280		)
Income before provision for income taxes	7,082			23,373			15,993			37,040
Benefit (provision) for income taxes	(4,157		)	1,312			(7,236		)	(4,346		)
Net income	$	2,925		$	24,685		$	8,757		$	32,694

Net income per common share:
Basic	$	0.09		$	0.75		$	0.26		$	1.00
Diluted	$	0.08		$	0.74		$	0.25		$	0.98
Weighted average number of common shares:
Basic	33,767,477			32,916,549			33,648,391			32,708,901
Diluted	34,692,905			33,479,231			34,568,167			33,254,136

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)

	Six Months Ended June 30,
	2008			2007
Cash flows from operating activities:
Net income	$	8,757		$	32,694
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	46,305			5,814
Stock-based employee compensation expense	19,081			21,702
Loss (gain) on disposal of property, plant and equipment	(212		)	864
Allowance for uncollectible accounts	797			2,468
Deferred income taxes	(8,184		)	(4,160		)
Undistributed earnings and losses of unconsolidated affiliates, net	10,673			(2,399		)
Change in assets and liabilities, net of businesses acquired:
Receivables and unbilled revenue	24,124			13,582
Prepaid expenses and other	(39,346		)	(17,261		)
Accounts payable and accrued subcontractor costs	(81,276		)	(11,717		)
Billings in excess of revenue	51,186			26,461
Employee related liabilities	19,959			5,849
Other accrued liabilities	(6,733		)	2,123
Current income taxes	(4,118		)	(70,118		)
Long term liabilities and other	13,907			3,382
Net cash provided by operating activities	54,920			9,284

Cash flows from investing activities:
Capital expenditures	(22,387		)	(9,604		)
Acquisitions and earnout payments, net of cash acquired	(5,670		)	(3,069		)
Investments in affiliates, net of distributions of capital received	(16,492		)	(4,982		)
Proceeds from sale of PP&E	642			—
Purchases of available-for-sale investments	—			(162,365		)
Proceeds from sale of available-for-sale investments	1,054			189,955
Net cash (used in) provided by investing activities	(42,853		)	9,935

Cash flows from financing activities:
Borrowings on line of credit and long-term debt	581,100			—
Payments on line of credit and long-term debt	(571,141		)	(225		)
Repurchases and retirements of stock	(32,274		)	(21,134		)
Excess tax benefits from stock-based compensation	3,928			1,895
Net cash used in financing activities	(18,387		)	(19,464		)

Effect of exchange rates on cash	(2,729		)	833

Increase (decrease) in cash and cash equivalents	(9,049		)	588

Cash and cash equivalents, beginning of period	124,105			105,205

Cash and cash equivalents, end of period	$	115,056		$	105,793

Supplemental disclosures:
Cash paid for interest	$	7,710		$	206
Cash paid for income taxes	$	26,740		$	79,002

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

June 30, 2008

(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 that was founded in 1946. CH2M HILL provides engineering, consulting, design, construction, procurement, operations and maintenance, and program and project management services to federal, state, municipal and local government entities and U.S. federal government agencies, as well as private industry, in the U.S. and internationally. CH2M HILL is an employee-owned Oregon corporation. A substantial portion of CH2M HILL’s professional fees arises 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 (GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information required by GAAP or 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 and 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 CH2M HILL’s Annual Report on Form 10-K for the year ended December 31, 2007. In the following text, the terms “we,” “our,” “our company,” and “us” may refer to CH2M HILL.

Revenue Recognition

CH2M HILL earns its revenue from different types of contracts, including cost-plus, fixed-price and time-and-materials. In recognizing revenue, CH2M HILL evaluates each contractual arrangement to determine the appropriate authoritative literature to apply. CH2M HILL primarily performs engineering and construction related services and recognizes 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 can be estimated. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the customer’s approval of such changes or separate documentation of change order costs that are identifiable. Losses on construction and engineering contracts in process are recognized in their entirety when the loss becomes evident and the amount of loss can be reasonably estimated.

CH2M HILL also performs operations and maintenance services. Revenue is recognized on operations and maintenance contracts on a straight-line basis over the life of the contract once CH2M HILL has an arrangement, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured.

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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.

Shareholders’ Equity

The significant changes in shareholders’ equity for the six months ended June 30, 2008 are as follows (in thousands):

	Shares		Amount
Shareholders’ equity, December 31, 2007	33,158		$	463,533
Net income	—		8,757
Shares issued and to be issued in connection with stock-based compensation and employee benefit plans	1,275		12,956
Shares and share equivalents purchased, retired and cancelled	(828	)	(26,348		)
Other comprehensive income	—		(2,283		)
Stock-based compensation and other	—		2,272
Shareholders’ equity, June 30, 2008	33,605		$	458,887

Stock-Based Compensation Plans

CH2M HILL accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)) using the prospective method. Under the prospective method, the provisions of SFAS 123(R) apply to new grants made on or after January 1, 2006. CH2M HILL measures the fair value of stock option grants 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 and six months ended June 30, 2008 was $6.04 and $5.93, respectively, compared to $4.50 and $4.44 for the same periods in the prior year.

CH2M HILL estimates the expected term of options granted by taking the average of the vesting term and the contractual term of the option. CH2M HILL estimates the volatility of its common stock by using a weighted-average of historical volatility over the same period as the expected term of the option. CH2M HILL uses 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. CH2M HILL does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. CH2M HILL is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. CH2M HILL uses historical data to estimate pre-vesting 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 during the three and six months ended June 30, 2008 was $1.1 million and $2.3 million, respectively, compared to $0.5 and $0.8 million for the three and six months ended June 30, 2007.

Recently Adopted Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, (SFAS 157). This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles in the United States, and expands disclosures about fair value measurements. The provisions of SFAS 157 apply under other accounting pronouncements that require or permit fair value measurements; it does not expand the use of fair value in any new circumstances. The provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. At the February 6, 2008 FASB meeting, they agreed to defer for one year the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or

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disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). CH2M HILL adopted SFAS 157 on January 1, 2008.

On December 31, 2007, CH2M HILL adopted SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of SFAS No. 87, 88, 106 and 132(R) (SFAS 158), which requires employers to recognize the funded status of pension and other postretirement benefit plans on the balance sheet and to recognize changes in the funded status through comprehensive income in the year in which the changes occur. SFAS 158 also requires plan assets and benefit obligations to be measured as of December 31, 2008. As a result, CH2M HILL will change the measurement date from October 31st to December 31st this year.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for CH2M HILL beginning January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for CH2M HILL beginning January 1, 2009.

In March 2008, the FASB issued SFAS No. 161, Disclosure About Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. SFAS 161 is effective for CH2M HILL beginning January 1, 2009.

In April 2008, the FASB issued FASB Staff Position (FSP) No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for CH2M HILL beginning January 1, 2009.

(2) SEGMENT INFORMATION

Certain financial information relating to the three and six months ended June 30, 2008 and 2007 for each segment is provided below (in thousands):

Three Months Ended June 30, 2008	Federal		Civil Infrastructure			Industrial			Other			Financial Statement Balances
Revenue from external customers	$	361,129	$	366,550		$	611,961		$	—		$	1,339,640
Equity in earnings (losses) of joint ventures and affiliated companies	10,919		(13,121		)	1,287			—			(915		)
Operating income (loss)	22,563		(1,363		)	(4,694		)	(6,579		)	9,927

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Three Months Ended June 30, 2007	Federal		Civil Infrastructure		Industrial			Other			Financial Statement Balances
Revenue from external customers	$	307,197	$	375,407	$	318,151		$	—		$	1,000,755
Equity in earnings of joint ventures and affiliated companies	5,746		905		89			—			6,740
Operating income (loss)	20,117		19,685		(2,466		)	(14,831		)	22,505

Six Months Ended June 30, 2008	Federal		Civil Infrastructure			Industrial			Other			Financial Statement Balances
Revenue from external customers	$	694,386	$	717,915		$	1,181,992		$	—		$	2,594,293
Equity in earnings (losses) of joint ventures and affiliated companies	21,287		(12,272		)	2,039			—			11,054
Operating income (loss)	37,866		15,557			(10,891		)	(20,483		)	22,049

Six Months Ended June 30, 2007	Federal		Civil Infrastructure		Industrial			Other			Financial Statement Balances
Revenue from external customers	$	573,660	$	742,805	$	643,381		$	—		$	1,959,846
Equity in earnings of joint ventures and affiliated companies	11,013		1,065		164			—			12,242
Operating income (loss)	29,370		33,867		(5,957		)	(22,704		)	34,576

During the three and six months ended June 30, 2008, compared to the same period in 2007, the increase in the Federal segment revenue and operating income was due primarily to a significant increase in work performed by the government facilities and infrastructure business on new international contingency and logistics projects. The increase in Industrial segment revenue during the same period was substantially the result of the acquisitions of VECO Corporation (VECO) and Trigon EPC, LLC (Trigon). These acquisitions contributed approximately $443.5 million of revenues during the first half of 2008.

During the second quarter of 2008, the civil infrastructure segment recognized a significant loss on a transportation project within one of its joint ventures. The loss was a result of significant cost increases related to design modifications, project delivery issues, and material subcontractor change orders. This project is expected to be completed in the first half of 2009. Additionally, in June 2008, management approved a plan to downsize a portion of the Company’s foreign operations and terminate approximately 160 individuals. Severance costs totaling $6.2 million will be incurred in connection with this plan. This charge was recognized in direct cost of services in the Industrial segment, resulting in an operating loss for the three months ended June 30, 2008. Nearly all of these costs are expected to be paid in the third quarter of 2008.

Total assets increased by $629.5 million during the period from June 30, 2007 to June 30, 2008. Approximately $569.4 million of this increase relates to the assets of VECO and Trigon which were acquired in the third and fourth quarters of 2008, respectively. These assets are included in the Industrial segment.

(3) COMPREHENSIVE INCOME

Comprehensive income includes unrealized gains and losses on equity investments and foreign currency translation gains and losses 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 and six months ended June 30, 2008 and 2007 (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2008			2007		2008			2007
Net income	$	2,925		$	24,685	$	8,757		$	32,694
Unrealized gains (losses) on equity investments and other	(239		)	544		(1,195		)	146
Foreign currency translation gains (losses)	(2,174		)	2,820		(1,086		)	(261		)
Comprehensive income	$	512		$	28,049	$	6,476		$	32,579

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(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 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 shares and common stock equivalents outstanding during the period.

The following table is a reconciliation of basic and diluted EPS for the three and six months ended June 30, 2008 and 2007 (in thousands, except per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007

Numerator:
Net income	$	2,925	$	24,685	$	8,757	$	32,694

Denominator:
Basic income per share – weighted average shares outstanding	33,767		32,917		33,648		32,709
Dilutive effect of common stock equivalents	926		562		920		545
Diluted income per share – adjusted weighted-average shares outstanding, assuming conversion of common stock equivalents	34,693		33,479		34,568		33,254

Basic net income per common share	$	0.09	$	0.75	$	0.26	$	1.00
Diluted net income per common share	$	0.08	$	0.74	$	0.25	$	0.98

(5) INVESTMENTS IN UNCONSOLIDATED AFFILIATES

CH2M HILL routinely enters into joint ventures to service the needs of its clients. These joint ventures are formed to leverage the skills of the respective partners and include consulting, construction, design, project management and operations and maintenance contracts. Such arrangements are customary in the engineering and construction industry and generally are project specific. CH2M HILL’s risk of loss on joint ventures is similar to what the risk of loss would be if the project was self-performed, other than the fact that the risk is shared with CH2M HILL’s partner(s).

CH2M HILL’s interests in certain joint ventures are considered variable interest entities (VIE’s) under FASB Interpretation No. (FIN) 46 - -revised, Consolidation of Variable Interest Entities (FIN 46(R)). CH2M HILL has classified entities identified as VIE’s into two groups, the first of which includes those entities that CH2M HILL has consolidated under the guidance of FIN 46(R), as CH2M HILL is considered the primary beneficiary, and the second group which includes those entities which CH2M HILL was not required to consolidate. As of June 30, 2008, the assets and liabilities of the identified VIE’s that were not consolidated were $368.0 million and $350.7 million, respectively, compared to $317.2 million and $293.1 million, respectively, at December 31, 2007.

For VIE’s where CH2M HILL is not the primary beneficiary and those entities which are not VIE’s, CH2M HILL accounts for its investments in affiliated unconsolidated companies using the equity method of accounting. As of June 30, 2008 and December 31, 2007, the investments in unconsolidated affiliates were $39.0 million and $35.3 million, respectively. CH2M HILL’s proportionate share of net income or loss is included as equity in earnings of joint ventures and affiliated companies on the accompanying consolidated statements of income. In general, the equity investment in CH2M HILL’s joint ventures is equal to those entities’ undistributed earnings.

Summarized unaudited financial information for CH2M HILL’s unconsolidated affiliates for the three and six months ended June 30, 2008 and 2007 is as follows (in thousands):

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	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
RESULTS OF OPERATIONS:
Revenue	$	623,255		$	427,453		$	1,100,993		$	1,096,599
Direct costs	(644,697		)	(407,966		)	(1,082,163		)	(1,051,916		)
Gross margin	(21,442		)	19,487			18,830			44,683
General and administrative expenses	(2,000		)	(2,259		)	(2,848		)	(3,109		)
Operating income	(23,442		)	17,228			15,982			41,574
Other income (expense), net	(10,520		)	1,489			(9,705		)	1,069
Net income	$	(33,962	)	$	18,717		$	6,277		$	42,643

(6) ACQUISITIONS

On September 7, 2007, CH2M HILL purchased all of the outstanding stock of VECO and substantially all of VECO’s operating businesses for $258.8 million as part of a strategic initiative to expand operations into the energy industry. The results of VECO have been included in the consolidated financial statements since that date and are included in the Industrial operating segment. VECO’s 4,000 employees provide engineering, construction and field support services to the energy, resource and process industries in Alaska, Canada, the United States, Russia and the Middle East.

In the fourth quarter of 2007, CH2M HILL acquired the assets and liabilities of Trigon EPC, LLC (Trigon). Trigon is an engineering consulting firm that provides engineering services for pipeline and related facilities, specializing in projects for the crude oil, refined products, natural gas and energy industries. The operating results of Trigon are included in the Industrial operating segment.

On February 29, 2008, CH2M HILL acquired Goldston Inc., a consulting engineering company providing marine, coastal, and municipal and transportation engineering services. The results of operations for this acquisition are reported in the Civil Infrastructure operating segment. The cost of this acquisition was approximately $3.2 million.

CH2M HILL is in the process of evaluating the fair value of the assets acquired and liabilities assumed on these acquisitions. The Company performed a preliminary purchase price allocation based on our current assessment of fair values. CH2M HILL is diligently completing post acquisition procedures including searches for unrecognized liabilities, final tax returns and other items that may affect the allocation of the purchase price. As such, the purchase price allocations are subject to change as these valuations are completed.

(7) GOODWILL AND INTANGIBLE ASSETS

Intangible assets with finite lives consist of the following:

($ in thousands)	Cost		Accumulated Amortization			Net finite-lived intangible assets
June 30, 2008
Contracts-in-place	$	2,513	$	(2,513	)	$	—
Contracted backlog	58,871		(23,910		)	34,961
Customer relationships	57,922		(6,553		)	51,369
Non-compete agreements and other	1,065		(562		)	503
	$	120,371	$	(33,538	)	$	86,833
December 31, 2007
Contracts-in-place	$	2,513	$	(2,513	)	$	—
Contracted backlog	58,871		(9,679		)	49,192
Customer relationships	58,162		(2,338		)	55,824
Non-compete agreements and other	1,065		(474		)	591
	$	120,611	$	(15,004	)	$	105,607

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Indefinite-lived intangible assets consist of the following:

($ in thousands)	June 30, 2008		December 31, 2007
Goodwill	$	132,712	$	126,690
Tradename	20,326		20,326
	$	153,038	$	147,016

In addition to the acquisitions discussed in Note 6, CH2M HILL recorded additional goodwill as a result of earn-out targets being achieved on a prior acquisition which were paid during the first half of 2008 and 2007.

All finite lived intangible assets are being amortized over their expected lives up to seven years. The amortization expense reflected in the accompanying consolidated statements of income was $9.4 million and $0.2 million for the three months ended June 30, 2008 and 2007, respectively, and $18.2 and $0.4 million for the six months ended June 30, 2008, and 2007, respectively. These intangible assets are expected to be fully amortized in 2014.

(8) LINE OF CREDIT

CH2M HILL is party to a credit agreement which provides for a $500.0 million revolving credit facility (RLOC) which expires on August 31, 2012. The credit agreement includes an option to increase the initial borrowing capacity by up to an additional $250.0 million. The credit agreement has been used for general corporate purposes and permitted acquisitions. It also provides that up to $250.0 million is available for the issuance of letters of credit to support various operating activities. At CH2M HILL’s option, the credit agreement bears interest at a rate equal to either the London InterBank Offered Rate (LIBOR) plus 0.75% to 1.50%, or the lender’s applicable base rate less a discount rate up to 0.25% based on CH2M HILL’s ratio of funded debt to earnings before interest, taxes, depreciation and amortization. A commitment fee of approximately 0.10% to 0.25% per year on the unused portion of the line of credit is payable based on CH2M HILL’s ratio of funded debt to earnings before interest, taxes, depreciation and amortization. As of June 30, 2008, CH2M HILL had $133.0 million in borrowings outstanding on the RLOC. Additionally, at the end of the current period, issued and outstanding letters of credit of $83.2 million were reserved against the borrowing base of the credit agreement, compared to $65.7 million at December 31, 2007. In the first quarter, CH2M HILL entered into two derivative financial transactions to reduce the effects of interest rate changes on cash flows due to changes in interest rates on its outstanding debt. As of June 30, 2008, CH2M HILL had fixed its interest rate exposure on $50.0 million of the outstanding RLOC balance. As of June 30, 2008, the Company had not designated these derivative instruments as effective hedges as defined by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Therefore, interest expense related to periodic settlements on these interest rate swaps and the change in fair value of these swap agreements is recognized in earnings in the current period. These interest rate swaps mature in March 2010. The fair value of these derivatives is not significant.

The RLOC agreement contains financial and other covenants, as well as limitations on other indebtedness, liens, acquisitions, mergers and dispositions. The credit agreement also contains customary events of default, including a default of covenant, a material inaccuracy of representations or warranties, bankruptcy events, and a change in control. As of June 30, 2008, CH2M HILL was in compliance with the covenants required by the credit agreement.

(9) PROVISION FOR INCOME TAXES

The effective tax rate for the three months ended June 30, 2008 was 58.7% compared to a benefit of 5.6% for the same period in the prior year. The tax rate for the six months ended June 30, 2008 was 45.2% compared to 11.7% for the same period in the prior year. The June 30, 2008 effective tax rate for the three and six months ended June 2008 was negatively impacted by foreign operating losses which do not meet the more likely than not recognition criteria. In addition, in June 2007, CH2M HILL reached a settlement on research and experimentation tax credits with the Internal Revenue Service (IRS) resulting in the recognition of net tax benefits of $8.7 million as a discrete item in the second quarter of 2007. CH2M HILL’s effective tax rate continues to be negatively impacted by the effect of state income taxes, non-deductible foreign net operating losses and disallowed portions of meals and entertainment expenses.

CH2M HILL files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States and Canada. With few exceptions, CH2M HILL is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities in major tax jurisdictions for years before 2000.

(10) COMMITMENTS AND CONTINGENCIES

CH2M HILL is party to various contractual guarantees and legal actions arising in the normal course of business. Because a large portion of CH2M HILL’s business comes from federal, state and municipal sources, CH2M HILL’s procurement practices at times are also subject to review and occasional investigations 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. Damages assessed in connection with and the cost of defending any such actions could be substantial. While the outcomes of pending proceedings are often difficult to predict, CH2M HILL’s management estimates that the levels of insurance coverage (after retentions and deductibles) are generally adequate to cover CH2M HILL’s liabilities, if any, with regard to such claims. Any amounts that are probable of payment by CH2M HILL are accrued when such amounts are estimable.

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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 including:

· Factors affecting our business

· Our revenue and operating income

· The sources of our revenue and operating income

· Variations of revenue and operating income from period to period

· Cash sources and utilizations

· The impact of the above on our overall financial condition

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

The following discussion and information contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, statements containing the words “believes,” “anticipates,” “expects” and words of similar import and statements regarding our strategy, financial performance and operations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described under Item 1A, Risk Factors (which is expressly incorporated herein by reference) of our Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on February 29, 2008. You should review this section in conjunction with our financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Our reports are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC. Our website address is www.ch2m.com. Our SEC filings, which include our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to such filings, are located in the About Us/Employee Ownership section of our website.

Overview

We are one of the largest engineering services firms worldwide and are employee-owned. Our business provides engineering, construction, operation, project management and related technical services to municipal, state, federal and private sector clients worldwide. Founded in 1946, we operate in approximately 40 countries and have approximately 23,500 employees worldwide.

We believe we provide our clients with innovative project delivery using cost-effective approaches and advanced technologies. 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. We believe that we are well positioned geographically, technically and financially to compete worldwide in the key markets we have elected to pursue and the clients we serve.

The engineering and construction industry continues to undergo substantial change as public and private clients privatize and outsource many of the services that were formerly provided internally. Numerous mergers and acquisitions in the industry have resulted in a group of larger firms that offer a full complement of single-source services including studies, designs, construction, operations, maintenance and in some instances, facility ownership. Included in the current trend is the movement towards longer-term contracts for the expanded array of services, e.g., 5 to 20 year contracts. These larger, longer, more full-service contracts require us to have substantially greater financial capital than has historically been necessary to remain competitive.

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We provide services to our clients through three operating segments — Federal, Civil Infrastructure and Industrial — which are aligned with the types of clients we serve. The structure provides for better decision making on an enterprise-wide basis. Our Federal segment generally provides a comprehensive range of services to the U.S. Federal government as well as services to international governments. Our Civil Infrastructure segment generally provides a comprehensive range of services to various state, local and provincial governments. Our Industrial segment generally provides a comprehensive range of services to private sector clients.

Acquisitions

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. During 2007 and the first quarter of 2008, we completed several acquisitions that we expect will expand our services into new markets and new geographical locations. Two of the acquisitions are part of our strategic initiative to expand operations into the energy industry. These services include engineering, construction and field support services, as well as engineering services for pipeline and related facilities.

The most significant of the transactions was the acquisition of VECO Corporation (VECO), which occurred on September 7, 2007. CH2M HILL purchased the outstanding stock of VECO and substantially all of VECO’s operating businesses. The results of VECO have been included in the consolidated financial statements since that date and are included in the Industrial operating segment.

Additionally, on February 29, 2008, we acquired a consulting engineering company providing marine, coastal and municipal and transportation engineering services. The results of operations for this acquisition are reported in the Civil Infrastructure operating segment. The cost of this acquisition was approximately $3.2 million.

Results of Operations

Revenue and Operating Income of our Reportable Segments

The results of operations for the three and six months ended June 30, 2008 and 2007 by operating segment were as follows (in millions):

Three Months Ended June 30, 2008 and 2007

	2008									2007							Change
			Equity in																			Equity in
($ in millions)	Revenue		Earnings (Losses)				Operating Income (Loss)			Revenue		Equity in Earnings		Operating Income (Loss)			Revenue					Earnings (Losses)			Operating Income (Loss)
Federal	$	361.1	$		10.9		$	22.6		$	307.2	$	5.7	$	20.1		$	53.9		17.5	%	$	5.2		$	2.5		12.4	%
Civil Infrastructure	366.5		(13.0			)	(1.4		)	375.4		0.9		19.7			(8.9		)	(2.4	)%	(13.9		)	(21.1		)	(107.1	)%
Industrial	612.0		1.2				(4.7		)	318.2		0.1		(2.5		)	293.8			92.3	%	1.1			(2.2		)	(88.0	)%
Corporate	—		—				(6.6		)	—		—		(14.8		)	—			—		—			8.2			55.4	%
Total	$	1,339.6	$	(0.9		)	$	9.9		$	1,000.8	$	6.7	$	22.5		$	338.8				$	(7.6	)	$	(12.6	)

Six Months Ended June 30, 2008 and 2007

	2008								2007							Change
			Equity in																		Equity in
($ in millions)	Revenue		Earnings (Losses)			Operating Income (Loss)			Revenue		Equity in Earnings		Operating Income (Loss)			Revenue					Earnings (Losses)			Operating Income (Loss)
Federal	$	694.4	$	21.3		$	37.9		$	573.7	$	10.9	$	29.4		$	120.7		21.0	%	$	10.4		$	8.5		28.9	%
Civil Infrastructure	717.9		(12.3		)	15.6			742.8		1.1		33.9			(24.9		)	(3.4	)%	(13.4		)	(18.3		)	(54.0	)%
Industrial	1,182.0		2.0			(11.0		)	643.4		0.2		(6.0		)	538.6			83.7	%	1.8			(5.0		)	(83.3	)%
Corporate	—		—			(20.5		)	—		—		(22.7		)	—			—		—			2.2			9.7	%
Total	$	2,594.3	$	11.0		$	22.0		$	1,959.9	$	12.2	$	34.6		$	634.4				$	(1.2	)	$	(12.6	)

Federal

Revenue from our Federal segment increased for the three and six months ended June 30, 2008, compared to the same periods in the prior year by $53.9 million or 17.5% and $120.7 million or 21.0%, respectively. The increase was due to a significant increase in work performed by our government facilities and infrastructure business attributable to several new domestic and international logistics projects and an increase in operations and maintenance offerings of this business. Additionally, our environmental services business reported an increase in revenues attributable to our North American consulting and full-service markets. The positive results were partially offset by lower volumes in our Nuclear business as well as the completion of certain nuclear projects in 2008.

Operating income increased for the three and six months ended June 30, 2008, compared to the same periods in the prior year by $2.5 million and $8.5 million, respectively. The increase in operating income for the quarter was primarily associated with the increased revenues discussed above however, these profits have been partially offset by project delivery issues in our environmental

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services group as well as the completion of profitable nuclear projects in the beginning of 2008. Federal segment profit was also favorably impacted by our performance related to the London 2012 Olympic Delivery Authority project.

Civil Infrastructure

Revenue from our Civil Infrastructure segment decreased for the three and six months ended June 30, 2008, compared to the same periods in 2007 by $8.9 million or 2.4% and $24.9 million or 3.4%, respectively. The decrease in the period can be primarily attributed to water and transportation consulting and design build projects delayed or cancelled due to revenue shortfall or uncertainty with local and state clients. Revenue decreases are also associated with existing large transportation projects ending in late 2007 and beginning 2008. Part of the revenue reduction was offset by growth in our international markets including Australia and United Arab Emirates related to the start up of large design-build projects and major program management assignments in those locations. Our operations and maintenance business partially offset this decline in revenues due to two new municipal service projects in the southern United States as well as increased scope of work on existing projects.

Operating income decreased for the three and six months ended June 30, 2008, compared to the same periods in the prior year by $21.1 million or 107.1% and $18.3 million or 54.0%, respectively. This decrease was attributable to the overall decrease in revenues noted above as well as various project delivery issues and cost escalation in our design build projects. In the second quarter of 2008, we also recognized a significant loss on a transportation project held within one of our joint ventures. See discussion below in Equity in Earnings of Joint Ventures and Affiliated Companies. This decline in operating profit was partially offset by increased earnings on our operations and maintenance business achieving operating efficiencies on existing projects as well as the completion of certain lower margin projects at the beginning of 2008.

Industrial

Revenue increased for the three and six months ended June 30, 2008, compared to the same periods in the prior year by $293.8 million or 92.3% and $538.6 million or 83.7%, respectively. Approximately $443.5 million of the increase in the six month period was the result of revenues recognized from the operations of VECO and Trigon EPC, LLC (Trigon), which were acquired in September and October 2007, respectively. We expect to see continued revenue growth in 2008 compared to the same periods in 2007 due to these acquisitions.

We also experienced significant revenue growth in our power business driven by five significant engineering, procurement and construction (“EPC”) contracts with major utility companies in the United States. This revenue growth was partially offset by the manufacturing and life sciences business which experienced a decrease in service revenue due to the completion of several large projects late in the prior year that had provided significant revenue combined with a decline in full-service work. In addition, the downturn in the United States economy is affecting the capital spending of some of our significant industrial clients.

The Industrial segment had an operating loss of $4.7 million and $11.0 million for the three and six months ended June 30, 2008, respectively, compared to an operating loss of $2.5 million and $6.0 million for the same periods in the prior year. The decrease in Industrial earnings are largely related to a change in the mix of services between consulting and full-service. For the first half of 2008, while VECO and Trigon reported strong operating performance, operating results were impacted by $38.3 million of additional amortization and depreciation related to the fair value of the assets acquired. The operating income of VECO and Trigon will continue to be affected by these non-cash costs for another six years; however, the adverse affect on operating income will decrease each year as the amortization and depreciation expense decreases. In addition, the increase in the year to date operating loss is attributable to the lower volume of work in the manufacturing and life sciences business as well as lower full-service margins and higher overhead costs. We also experienced lower margins in 2007 and recognized a charge in the second quarter of 2008 related to the downsizing of a portion of our foreign operations. In June 2008, we completed and approved a plan to downsize a portion of our Spanish industrial operations and terminate approximately 160 individuals. Severance costs totaling $6.2 million was accrued in connection with this plan. Nearly all of these costs are expected to be paid in the third quarter of 2008.

Equity in Earnings of Joint Ventures and Affiliated Companies

For the three months ended June 30, 2008 we reported total equity in losses of joint ventures and affiliated companies of $0.9 million compared to equity in earnings for the six months ended June 30, 2008 of $11.0 million. For the three and six months ended June 30, 2007, we reported total equity in earnings of joint ventures and affiliated companies of $6.7 million and $12.2 million, respectively. During the second quarter of 2008, the Civil Infrastructure segment recognized a significant loss related to a fixed price transportation project within one of its joint ventures. The loss was a result of significant cost increases related to design modifications, project delivery issues, and material subcontractor change orders. This project is expected to be completed in the first half of 2009. This loss was partially offset by earnings on our large nuclear projects within our Federal operating segment. The loss in our Civil Infrastructure segment was partially offset by earnings on the London 2012 Olympic Delivery Authority project within our Federal operating segment.

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Corporate Expenses

Corporate expenses represent centralized management costs that are not allocable to individual operating segments and primarily include expenses associated with administrative functions such as executive management, legal, treasury, accounting and tax. Corporate expenses for the three and six months ended June 30, 2008 were $6.6 million and $20.5 million, respectively, compared to $14.8 million and $22.7 million for the same period in the prior year. The decrease in expense for 2008 compared to the same period in the prior year was primarily due to a decrease in work performed on a significant business development opportunity as well as administrative cost reduction efforts being implemented through out the organization.

Provision for Income Taxes

Our effective tax rate for the three months ended June 30, 2008 was 58.7% compared to a benefit of 5.6% for the same period in the prior year. Our tax rate for the six months ended June 30, 2008 was 45.2% compared to 11.7% for the same period in the prior year. The June 30, 2008 effective tax rate for the three and six months ended June 2008 was negatively impacted by foreign operating losses which currently do not meet the more likely than not recognition criteria. In addition, in June 2007, we reached a settlement on research and experimentation tax credits with the Internal Revenue Service (IRS) resulting in the recognition of net tax benefits of $8.7 million as a discrete item in the second quarter of 2007. Our effective tax rate continues to be negatively impacted by the effect of state income taxes, non-deductible foreign net operating losses and disallowed portions of meals and entertainment expenses.

As of January 1, 2008 and June 30, 2008, we had $10.6 million and $14.6 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 June 30, 2008 and December 31, 2007, we had approximately $1.9 million and $1.5 million, respectively, of accrued interest and penalties related to uncertain tax positions.

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States and Canada. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities in major tax jurisdictions for years before 2000.

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. Net income for the six months ended June 30, 2008 was significantly less than the comparable period due in part to additional depreciation and amortization of approximately $40.5 million and other non-cash expenses recognized in the current period. During the six months ended June 30, 2008, we generated $54.9 million of cash in our operations compared to cash from operating activities of $9.3 million in the same period last year. One of the primary causes for the improvement in operating cash flow during the current period was the improved management of our working capital.

We continuously monitor collection efforts and assess the allowance for doubtful accounts. Based on our assessment at June 30, 2008, we have deemed the allowance for doubtful accounts to be adequate; however, future economic conditions may adversely impact some of our clients’ ability to pay our bills or the timeliness of their payments. Consequently, the timing of the receipt of cash may impact our ability to meet our operating needs.

Cash used in investing activities was $42.9 million in the six months ended June 30, 2008 compared to $9.9 million generated by investing activities for the same period in 2007. Net cash provided by the sale of securities during the six months ended June 30, 2008 was $1.1 million compared to $27.6 million in the prior period, a net decrease in cash inflow of $26.5 million. Capital expenditures during the six months ended June 30, 2008, were $22.4 million. Historically, as a professional services organization, we have not had significant outflows of cash for capital expenditures. However, as discussed below, we expect capital expenditures to increase significantly in future periods from prior year levels. We also have a formal operating lease program under which a portion of our computers and related equipment is procured on an ongoing basis. Additionally, during the first two quarters this year we invested a net amount of $16.5 million in our affiliate companies and spent an additional $5.7 million on direct costs and earnout payments on acquisitions.

We finance our operations, acquisitions and capital expenditures using a variety of capital vehicles. 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 revolving line of credit facility (RLOC), or other debt. In some instances we may use a combination of one or more of these financing mechanisms. As of June 30, 2008, our outstanding debt obligations were approximately $212.5 million. The majority of the funds from these obligations financed our recent acquisitions,

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including the assumption and issuance of notes payable and mortgages related to property, plant and equipment.

We have a credit agreement which provides for a $500.0 million RLOC that expires on August 31, 2012. The credit agreement includes an option to increase the initial borrowing capacity by up to an additional $250.0 million. The RLOC is used for general corporate purposes and permitted acquisitions. It also provides that up to $250.0 million is available for the issuance of letters of credit to support various operating activities. At our option, the credit agreement bears interest at a rate equal to either the London InterBank Offered Rate (LIBOR) plus 0.75% to 1.50%, or the lender’s applicable base rate less a discount rate up to 0.25% based on our ratio of funded debt to earnings before interest, taxes, depreciation and amortization. A commitment fee of approximately 0.10% to 0.25% per year on the unused portion of the line of credit is payable based on our ratio of funded debt to earnings before interest, taxes, depreciation and amortization. During the first quarter, we entered into derivative financial transactions to reduce the effects of interest rate changes on cash flows due to changes in interest rates on our outstanding debt. As of June 30, 2008, we had fixed our interest rate exposure on $50.0 million of the outstanding RLOC balance. We do not enter into derivative transactions for speculative purposes. As of June 30, 2008, we had not designated these derivative instruments as effective hedges as defined by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Therefore, interest expense related to periodic settlements on these interest rate swaps and the change in fair market value of these interest rate swaps are recognized in earnings in the current period. These interest rate swaps expire in March 2010. The fair value of these derivatives is not significant.

As of June 30, 2008, we had $133.0 million in borrowings outstanding on the RLOC. Additionally we had issued and outstanding letters of credit of $83.2 million reserved against the RLOC’s borrowing base.

The following table reflects our available capacity under the RLOC as of June 30, 2008 (in millions):

Cash on hand				$	115.1
Available for sale securities				0.9
Line of credit capacity	$	500.0
Outstanding borrowings	(133.0		)
Issued letters of credit	(83.2		)
Net credit capacity available				283.8
Total capacity				$	399.8

Based on our total cash and credit capacity at June 30, 2008 of $399.8 million, we believe we have sufficient resources to fund our operations and repurchases of stock presented on our internal market, should we choose to do so, for the next 12 months and beyond. If and when we identify potential business acquisition candidates or incur additional capital expenditures we will determine the combination of financing options that provides us the most efficient cost of capital.

Our RLOC agreement contains financial and other covenants, as well as limitations on other indebtedness, liens, acquisitions, mergers and dispositions. The credit agreement also contains customary events of default, including a default of covenant, a material inaccuracy of representations or warranties, bankruptcy events, and a change in control. As of June 30, 2008, we were in compliance with the covenants required by the credit agreement.

We finance capital expenditures used in our operations through operating leases, long-term debt and other credit arrangements. The available terms, the length of time we expect to use the asset and the expected residual value of the asset are factors we evaluate in determining the best ways to finance these purchases. As of June 30, 2008, we have financed over $9.9 million of capital expenditures using a combination of debt vehicles. Last year we refinanced $48.5 million of debt related to equipment owned by VECO. In most cases these notes are secured by the assets purchased. Depending on the conditions of these financing arrangements, if we are in default, the lender may have the right to take control of the collateralized assets or require full payment of the outstanding principal balance owed, or both. We anticipate using operating leases or debt vehicles of this nature to finance much of our future capital expenditures.

Historically, we have not owned the real estate that supports our operations. However, as part of the acquisition of VECO, we assumed three mortgages related to buildings and property. As of June 30, 2008, approximately $29.4 million of these mortgages were outstanding. Two of the mortgages pertain to offices in Anchorage, Alaska and the third relates to a building used for warehousing spare parts. Two of the mortgages are secured by buildings and real estate. One of the mortgages is secured by investments, whose maturities meet the debt service requirements of that mortgage.

Off-Balance Sheet Arrangements

CH2M HILL leases the buildings on its Denver campus under an operating lease agreement. The initial term of the lease is ten years, with an option to extend the term twice for either a ten or five year period. Rental payments under the lease are approximately

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$0.8 million per month, or approximately $10.0 million in the first year, escalating over time up to approximately $1.0 million per month, or approximately $11.7 million in the tenth year. We also lease a significant portion of our information systems under various operating lease agreements.

We have interests in multiple joint ventures, some of which are considered variable interest entities under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN46 (R)). These entities facilitate the completion of contracts that are jointly owned with our joint venture partners. These joint ventures are formed to leverage the skills of the respective partners and include consulting, construction, design, project management and operations and maintenance contracts. Our risk of loss on joint ventures is similar to what the risk of loss would be if the project was self-performed, other than the fact that the risk is shared with our partners.

Aggregate Contractual Obligations

We maintain a variety of commercial commitments that are generally made available to provide support for various provisions in engineering and construction contracts. Letters of credit are 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 and are subject to full or partial forfeiture for failure to perform obligations arising from a successful bid.

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, 2007.

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. In recognizing revenue, we evaluate each contractual arrangement to determine the appropriate authoritative literature to apply. 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.

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 collectibility is reasonably assured.

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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 deferred tax assets. Deferred 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 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 benefits involves dealing with uncertainties in the application of complex tax regulations. For income tax benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

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.

On December 31, 2007, the Company adopted Statement of Accounting Standard 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (SFAS 158). According to SFAS 158, the funded status of a benefit plan is measured as the difference between plan assets at fair value and the benefit obligation. In accordance with SFAS 158, we recorded long-term assets for overfunded plans and liabilities for underfunded plans, with a corresponding entry recorded to accumulated other comprehensive loss, net of tax, at December, 31, 2007. For underfunded plans, the estimated liability to be payable in the next twelve months is recorded as a current liability, with the remaining portion recorded as long-term. As a result of adopting SFAS 158, we will change the measurement date from October 31st to December 31^st this year.

Recently Adopted Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, (SFAS 157). This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles in the United States, and expands disclosures about fair value measurements. The provisions of SFAS 157 apply under other accounting pronouncements that require or permit fair value measurements; it does not expand the use of fair value in any new circumstances. The provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. At the February 6, 2008 FASB meeting, the FASB agreed to defer for one year the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). CH2M HILL adopted SFAS 157 on January 1, 2008.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141 (R) is effective for us beginning January 1, 2009.

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ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for us beginning January 1, 2009.

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 international business operations. Our investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. Although historically we have not, we may engage in forward foreign exchange contracts to reduce our economic exposure to changes in exchange 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.

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. There was $133.0 million and approximately $61.2 million outstanding under the unsecured revolving credit agreement and holdback contingency, respectively, at June 30, 2008. 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 $1.9 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.

On September 7, 2007, we completed the acquisition of VECO. As permitted by the SEC, we excluded the VECO business from our assessment of the effectiveness of internal control over financial reporting for the year ended December 31, 2007. Management is documenting and evaluating the acquired company’s internal control over financial reporting, and is integrating many of its processes, systems and controls. Changes will continue to be made to our internal control over financial reporting until the integration of the acquired company is complete.

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Other than the acquisition mentioned above, there have been no changes in our internal control over financial reporting during the quarter ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are a party to various contractual guarantees and legal actions arising in the normal course of our business. From time to time, agencies of the U.S. government investigate whether we conduct our operations in accordance with applicable regulatory requirements. Because a large portion of our business comes from federal, state, and municipal sources, our procurement practices at times also are subject to review and occasional investigations 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. These investigations often take years to complete and many result in no adverse action. Damages assessed in connection with and the cost of defending any such actions could be substantial. While the outcomes of pending proceedings are often difficult to predict, as of the date of this filing, our management believes that no ongoing litigation or investigation is likely to result in a material adverse impact on our consolidated financial statements.

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 CH2M HILL 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
April (a)	5,584	$	25.70	—	—
May (a)	11,857	31.31		—	—
June (b)	276,889	31.31		—	—
Total	294,330	31.20		—	—

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

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

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On May 6, 2008, CH2M HILL held its 2008 Annual Meeting of Shareholders (the “Annual Meeting”). At this meeting, the following three matters were submitted to a vote of CH2M HILL shareholders:

1. A proposal to elect four directors (Robert G. Card, William T. Dehn, David B. Price, and Jacqueline C. Rast) to serve a three year term as members of CH2M HILL’s Board of Directors. This proposal was approved at the Annual Meeting.

2. A proposal to ratify the selection of KPMG LLP as CH2M HILL’s independent auditors for the year ending December 31, 2008. This proposal was approved at the Annual Meeting.

3. A proposal to approve an amendment to CH2M HILL’s Restated Articles of Incorporation to convert the existing authority to issue preferred stock to an authority to issue undesignated preferred stock. This proposal was approved at the Annual Meeting.

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Below is a table setting forth the voting results with respect to each of these proposals:

Matter	Votes For	Votes Against	Votes Withheld	Abstentions	Broker Non-Votes
Election of Directors:
Robert G. Card	27,732,842	—	672,102	—	—
William T. Dehn	27,605,012	—	799,932	—	—
David B. Price	27,622,631	—	782,313	—	—
Jacqueline C. Rast	27,253,618	—	1,151,326	—	—
Ratification of KPMG LLP	27,846,428	253,450	—	305,066	—
Amendment of Restated Articles of Incorporation	26,288,465	1,199,386	—	917,092	—

In addition to the above directors, Carolyn Chin, Jerry D. Geist, Garry M. Higdem, Mark A. Lasswell, Joan M. Miller, Ralph R. Peterson, M. Catherine Santee, Michael A. Szomjassy and Barry L. Williams continue to serve as directors of CH2M HILL following the Annual Meeting.

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Item 6. EXHIBITS

Index of Exhibits

*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)

*Filed herewith

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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: August 8, 2008	/s/ M. Catherine Santee
	M. Catherine Santee
	Senior Vice President and Chief Financial Officer


	/s/ JoAnn Shea
	JoAnn Shea
	Vice President and Chief Accounting Officer

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CH2M Hill Companies Inactive 10-Q2008 Q2 Quarterly report

Content analysis

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

Federal

Civil Infrastructure

Industrial

Equity in Earnings of Joint Ventures and Affiliated Companies

Corporate Expenses

Provision for Income Taxes

Revenue Recognition

Income Taxes

Pension and Postretirement Employee Benefits

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 4. CONTROLS AND PROCEDURES

Part II. OTHER INFORMATION