CH2M Hill Companies 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

OR

oTRANSITION 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 ¨ No x

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 o 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 a 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 July 28, 2009 was 32,030,162.

CH2M HILL COMPANIES, LTD.

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION
Item 1.	FINANCIAL INFORMATION	3
	Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008 (unaudited)	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2009 and 2008 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008  (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22
Item 4.	CONTROLS AND PROCEDURES	22
	PART II. OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	22
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	24
Item 6.	EXHIBITS	24
SIGNATURES		25

2

CH2M HILL COMPANIES, LTD.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

	June 30, 2009			December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	108,809		$	114,282
Available-for-sale securities	1,282			327
Receivables, net—
Client accounts	610,296			670,243
Unbilled revenue	445,367			446,763
Other	15,149			13,280
Deferred income taxes	53,183			50,246
Income tax receivable	41,364			16,837
Prepaid expenses and other current assets	71,405			65,558
Total current assets	1,346,855			1,377,536
Investments in unconsolidated affiliates	55,174			37,322
Property, plant and equipment, net	199,751			214,037
Goodwill	134,903			134,840
Intangible assets, net	71,335			88,819
Deferred income taxes	87,143			82,326
Other assets	39,127			36,961
Total assets	$	1,934,288		$	1,971,841
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	14,171		$	24,652
Accounts payable and accrued subcontractor costs	389,865			447,747
Billings in excess of revenue	290,716			289,230
Accrued payroll and employee related liabilities	248,973			278,684
Other accrued liabilities	104,612			93,309
Total current liabilities	1,048,337			1,133,622
Long-term employee related liabilities and other	317,713			300,247
Long-term debt	124,060			151,223
Total liabilities	1,490,110			1,585,092
Commitments and contingencies (Note 11)
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; 31,844,911 and 31,604,336 issued and outstanding at June 30, 2009 and December 31, 2008, respectively	318			316
Additional paid-in capital	22,573			9,947
Retained earnings	451,968			428,054
Accumulated other comprehensive loss	(47,979		)	(54,086		)
Total CH2M HILL common shareholders’ equity	426,880			384,231
Noncontrolling interests	17,298			2,518
Total equity	444,178			386,749
Total liabilities and shareholders’ equity	$	1,934,288		$	1,971,841

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

3

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,
	2009			2008			2009			2008
Gross revenue	$	1,341,082		$	1,308,007		$	2,645,064		$	2,534,958
Equity in earnings (losses) of joint ventures and affiliated companies	16,660			(915		)	27,528			11,054
Operating expenses:
Direct cost of services and overhead	(1,091,501		)	(1,058,888		)	(2,143,040		)	(2,043,115		)
General and administrative	(236,303		)	(235,515		)	(480,077		)	(477,969		)
Operating income	29,938			12,689			49,475			24,928
Other income (expense):
Interest income	250			1,379			446			2,288
Interest expense	(2,496		)	(4,224		)	(4,694		)	(8,344		)
Income before provision for income taxes from continuing operations	27,692			9,844			45,227			18,872
Provision for income taxes from continuing operations	(4,334		)	(3,465		)	(9,131		)	(6,355		)
Net income from continuing operations	23,358			6,379			36,096			12,517
Income from discontinued operations, net of tax	846			1,109			1,956			1,413
Net income	24,204			7,488			38,052			13,930
Less: Income attributable to noncontrolling interests	(8,619		)	(4,563		)	(14,138		)	(5,173		)
Net income attributable to CH2M HILL	$	15,585		$	2,925		$	23,914		$	8,757
Net income per common share:
Basic:
Net income from continuing operations	$	0.46		$	0.06		$	0.69		$	0.22
Net income from discontinued operations	$	0.03		$	0.03		$	0.06		$	0.04
Diluted:
Net income from continuing operations	$	0.45		$	0.05		$	0.67		$	0.21
Net income from discontinued operations	$	0.03		$	0.03		$	0.06		$	0.04
Weighted average number of common shares:
Basic	31,759,779			33,767,477			31,862,078			33,648,391
Diluted	32,408,799			34,692,905			32,533,341			34,568,167

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

4

CH2M HILL COMPANIES, LTD.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2009			2008
Cash flows from operating activities:
Net income from continuing operations	$	36,096		$	12,517
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Income from discontinued operations, net of tax	1,956			1,413
Depreciation and amortization	43,847			46,305
Stock-based employee compensation expense	32,597			19,081
Loss (gain) on disposal of property, plant and equipment	2,132			(212		)
Allowance for uncollectible accounts	8,885			797
Deferred income taxes	(8,274		)	(8,184		)
Undistributed earnings from unconsolidated affiliates, net	(27,528		)	(11,054		)
Distributions from unconsolidated affiliates	17,765			21,727
Change in assets and liabilities, net of businesses acquired:
Receivables and unbilled revenue	66,514			24,124
Prepaid expenses and other	(7,970		)	(39,346		)
Accounts payable and accrued subcontractor costs	(61,169		)	(81,276		)
Billings in excess of revenue	(252		)	51,186
Employee related liabilities	(11,336		)	19,959
Other accrued liabilities	11,302			(6,733		)
Income taxes receivable	(42,936		)	(4,118		)
Long term liabilities and other	29,573			7,330
Net cash provided by operating activities	91,202			53,516
Cash flows from investing activities:
Capital expenditures	(13,308		)	(22,387		)
Acquisitions and earn-out payments, net of cash acquired	—			(5,670		)
Investments in affiliates	(35,543		)	(38,983		)
Distributions of capital from affiliates	27,426			22,491
Proceeds from sale of property, plant and equipment	48			642
Proceeds from sale of investments	—			1,054
Net cash used in investing activities	(21,377		)	(42,853		)
Cash flows from financing activities:
Borrowings on line of credit and long-term debt	532,610			581,100
Payments on line of credit and long-term debt	(570,254		)	(571,141		)
Repurchases and retirements of stock	(43,107		)	(32,274		)
Excess tax benefits from stock-based compensation	3,875			3,928
Net contributions from noncontrolling interests	15			1,361
Net cash used in financing activities	(76,861		)	(17,026		)
Effect of exchange rates on cash	1,563			(2,686		)
decrease in cash and cash equivalents	(5,473		)	(9,049		)
Cash and cash equivalents, beginning of period	114,282			124,105
Cash and cash equivalents, end of period	$	108,809		$	115,056
Supplemental disclosures:
Cash paid for interest	$	5,146		$	7,710
Cash paid for income taxes	$	33,402		$	26,740

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

5

CH2M HILL COMPANIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

(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 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 CH2M HILL’s Annual Report on Form 10-K for the year ended December 31, 2008. In the following text, the terms “we,” “our,” “our company,” and “us” may refer to CH2M HILL.

Effective May 2009, we reorganized the business and began making strategic and operating decisions with regards to assessing performance and allocating resources based on a new segment structure. Results for 2008 have been adjusted to reflect the new structure and comparative information has been restated and presented consistent with the new organizational structure. Refer to Note 2 for a description of the segments.

Subsequent Events

We have evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through August 10, 2009, the day the financial statements were issued.

Revenue Recognition

CH2M HILL earns its revenue from different types of contracts, including cost-plus, fixed-price and time-and-materials. CH2M HILL evaluates each contractual arrangement to determine the appropriate authoritative literature to apply to recognize revenue. 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.

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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 estimated. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the customer’s written approval of such changes or separate documentation of change order costs that are identifiable. Losses on construction and engineering contracts in process are recognized in their entirety when the loss becomes evident and the amount of loss can be reasonably estimated.

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, service has begun, the price is fixed or determinable and collectability is reasonably assured.

Unbilled Revenue and Billings in Excess of Revenue

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

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

Shareholders’ Equity

The changes in shareholders’ equity for the six months ended June 30, 2009 are as follows (in thousands):

	Shares		Amount
Shareholders’ equity, December 31, 2008	31,604		$	386,749
Net income attributable to CH2M HILL	—		23,914
Shares issued and to be issued in connection with stock-based compensation and employee benefit plans	1,378		48,081
Shares and share equivalents purchased, retired and cancelled	(1,137	)	(35,453		)
Other comprehensive income	—		6,107
Noncontrolling interests	—		14,780
Shareholders’ equity, June 30, 2009	31,845		$	444,178

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, 2009 was $5.32 and $4.67, respectively, compared to $6.04 and $5.93 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 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, 2009 was $1.0 million and $2.0 million, respectively, compared to $1.1 million and $2.3 million for the three and six months ended June 30, 2008.

7

Recently Adopted 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 interests 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. CH2M HILL adopted SFAS 141(R) on January 1, 2009.

On January 1, 2009, CH2M HILL adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (SFAS 160). Noncontrolling interests are defined as the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. SFAS 160 establishes accounting and reporting standards for noncontrolling interests, the amount of consolidated net income attributable to the parent and to the noncontrolling interests, 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. We adopted the accounting provisions of SFAS 160 on a prospective basis as of the beginning of our 2009 fiscal year. The presentation and disclosure requirements of SFAS 160 were adopted on a retrospective basis, and resulted in a reclassification of minority interests to noncontrolling interests of $2.5 million at December 31, 2008.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financials statements are issued or are available to be issued. We adopted SFAS 165 on June 30, 2009. Adoption did not have a material impact on the consolidated financial statements.

Recently Issued Accounting Standards

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). SFAS 167 amends FASB Interpretation (FIN) No. 46(R), Consolidation of Variable Interest Entities, by altering how a company determines when an entity that is insufficiently capitalized or not controlled through voting should be consolidated. A company has to determine whether it should provide consolidated reporting of an entity based upon the entity’s purpose and design and the parent company’s ability to direct the entity’s actions. SFAS 167 is effective for CH2M HILL beginning January 1, 2010.

On July 1, 2009, the FASB released SFAS No. 168, The Accounting Standards Codification and the Hierarchy of Generally Accepted Account Principles (SFAS 168). The Codification will become the exclusive authoritative reference for nongovernmental U.S. GAAP for use in financial statements issued for interim and annual periods ending after September 15, 2009. SFAS 168 supersedes SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162), thereby eliminating the four-level GAAP hierarchy previously set forth. The Codification will supersede all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for CH2M HILL for our interim period ending September 30, 2009.

On December 30, 2008, the FASB issued FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (FSP 132R-1). The FSP amends SFAS 132 (revised 2003), to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP 132R-1 requires employers of entities to disclose more information about how investment allocation decisions are made, more information about major categories of plan assets, and the fair-value techniques and inputs used to measure plan assets. FSP 132R-1 is effective for CH2M HILL for the year ending December 31, 2009.

(2) SEGMENT INFORMATION

As discussed in Note 1, the chief operating decision maker began regularly reviewing operating results using a new segment structure effective in the second quarter 2009. In accordance with FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), we reviewed our reportable segments and determined that, based on the current business environment in which we operate, the economic characteristics of our operating segments, and management’s view of the business, a revision of our reportable segments was appropriate. Based on this determination, our new reportable segments are: Government, Environment and Nuclear (GEN), Facilities and Infrastructure, and Energy. The primary change from our previously reported segments is the former Civil Infrastructure and Industrial client groups have been strategically redeployed within the new segments.

8

In accordance with SFAS 131, we have restated prior period segment disclosures in these consolidated financial statements based on our new reportable segments. Certain financial information relating to the three and six months ended June 30, 2009 and 2008 for each segment is provided below (in thousands):

Three Months Ended June 30, 2009	Government, Environment and Nuclear		Facilities and Infrastructure		Energy			Other			Financial Statement Balances
Revenue from external customers	$	421,832	$	494,915	$	424,335		$	—		$	1,341,082
Equity in earnings (losses) of joint ventures and affiliated companies	7,809		9,153		(302		)	—			16,660
Operating income (loss)	7,782		18,217		14,436			(10,497		)	29,938

Three Months Ended June 30, 2008	Government, Environment and Nuclear		Facilities and Infrastructure			Energy		Other			Financial Statement Balances
Revenue from external customers	$	379,435	$	471,165		$	457,407	$	—		$	1,308,007
Equity in earnings (losses) of joint ventures and affiliated companies	10,919		(13,120		)	1,286		—			(915		)
Operating income (loss)	12,671		(5,478		)	18,389		(12,893		)	12,689

Six Months Ended June 30, 2009	Government, Environment and Nuclear		Facilities and Infrastructure		Energy		Other			Financial Statement Balances
Revenue from external customers	$	811,635	$	977,650	$	855,779	$	—		$	2,645,064
Equity in earnings of joint ventures and affiliated companies	15,025		11,871		632		—			27,528
Operating income (loss)	20,438		28,187		22,558		(21,708		)	49,475

Six Months Ended June 30, 2008	Government, Environment and Nuclear		Facilities and Infrastructure			Energy		Other			Financial Statement Balances
Revenue from external customers	$	727,990	$	939,581		$	867,387	$	—		$	2,534,958
Equity in earnings (losses) of joint ventures and affiliated companies	21,285		(12,271		)	2,040		—			11,054
Operating income (loss)	20,098		3,134			26,079		(24,383		)	24,928

A detailed discussion regarding the businesses that comprise the Company’s segments, the strategies of the Company and the businesses within the segments, business trends affecting the Company, and certain risks inherent in the Company’s business is included in “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

(3) COMPREHENSIVE INCOME

Comprehensive income includes foreign currency translation adjustments, benefit plan adjustments, and unrealized gains/losses on equity 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 and six months ended June 30, 2009 and 2008 (in thousands):

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	Three Months Ended June 30,					Six Months Ended June 30,
	2009		2008			2009		2008
Net income	$	24,204	$	7,488		$	38,052	$	13,930
Unrealized gains (losses) on equity investments and other, net of tax	250		(239		)	159		(1,195		)
Foreign currency translation adjustments	13,337		(2,132		)	6,576		(1,041		)
Comprehensive income	37,791		5,117			44,787		11,694
Comprehensive income attributable to noncontrolling interests	9,199		4,605			14,765		5,218
Comprehensive income attributable to CH2M HILL	$	28,592	$	512		$	30,022	$	6,476

(4) DISCONTINUED OPERATIONS

The Company entered into a purchase agreement on June 24, 2009 to sell the assets and liabilities of its information technology solutions division of the GEN segment. These services include information technology management consulting; enterprise spatial solutions; enterprise information technology collaboration solutions; integrated information security; hosting; and managed services. The sale is expected to close in August 2009.

The following table provides the carrying amount of the assets and liabilities included as part of the disposal group and the income statement activity related to the discontinued operations (in thousands):

Income Statement Summary	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Gross revenue	$	32,512	$	31,633	$	62,613	$	59,335
Income from discontinued operations before provision for income taxes	1,373		1,801		3,175		2,294
Provision for income taxes	527		692		1,219		881
Income from discontinued operations, net of tax	$	846	$	1,109	$	1,956	$	1,413

Balance Sheet Summary	June 30, 2009		December 31, 2008
Current assets of discontinued operations	$	17,479	$	17,099
Non-current assets of discontinued operations		6,191		7,117
Current liabilities of discontinued operations		17,167		12,921
Non-current liabilities of discontinued operations		799		799

(5) 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.

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The following table is a reconciliation of basic and diluted EPS for the three and six months ended June 30, 2009 and 2008 (in thousands, except per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Numerator:
Net income attributable to CH2M HILL from continuing operations	$	14,739	$	1,816	$	21,958	$	7,344
Net income from discontinued operations	$	846	$	1,109	$	1,956	$	1,413
Denominator:
Basic income per share — weighted average shares outstanding	31,760		33,767		31,862		33,648
Dilutive effect of common stock equivalents	649		926		671		920
Diluted income per share — adjusted weighted-average shares outstanding, assuming conversion of common stock equivalents	32,409		34,693		32,533		34,568
Basic net income per common share — continuing operations	$	0.46	$	0.06	$	0.69	$	0.22
Basic net income per common share — discontinued operations	$	0.03	$	0.03	$	0.06	$	0.04
Diluted net income per common share — continuing operations	$	0.45	$	0.05	$	0.67	$	0.21
Diluted net income per common share — discontinued operations	$	0.03	$	0.03	$	0.06	$	0.04

(6) INVESTMENTS IN AFFILIATES

CH2M HILL routinely enters into joint ventures to service the needs of its clients. Such arrangements are customary in the engineering and construction industry and generally are project specific and facilitate the completion of contracts that are jointly owned with CH2M HILL’s 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. 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.

CH2M HILL’s interests in certain joint ventures are considered variable interest entities (VIE’s) under Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities (revised December 2008)—an Interpretation of ARB No. 51 (FIN 46(R)). A VIE is an entity with one or more of the following characteristics, (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support; (b) as a group, the holders of the equity investment at risk lack the ability to make certain decisions, or (c) the equity investors have voting rights that are not proportional to their economic interests. FIN 46(R) requires a VIE to be consolidated in the financial statements of the entity that is determined to be the primary beneficiary of the VIE. For VIE’s where CH2M HILL is not the primary beneficiary and those entities which are unconsolidated voting interest entities, CH2M HILL accounts for its investments in affiliated unconsolidated companies primarily using the equity method of accounting.

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 that includes those entities which CH2M HILL was not required to consolidate. As of June 30, 2009, the assets and liabilities of VIE’s that were consolidated were $152.9 million and $108.7 million, respectively. As of June 30,

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2009, the assets and liabilities of the identified VIE’s that were not consolidated were $292.9 million and $232.3 million, respectively.

As of June 30, 2009 and December 31, 2008, the investments in unconsolidated affiliates were $55.2 million and $37.3 million, respectively. CH2M HILL’s proportionate share of net income or loss is included as equity in earnings of joint ventures and affiliated companies in the consolidated statements of income. In general, the equity investment in our joint ventures is equal to our current equity investment plus those entities’ undistributed earnings. CH2M HILL provides 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 joint venture agreements.

Summarized unaudited financial information for CH2M HILL’s unconsolidated affiliates for the three months and six months ended June 30, 2009 and 2008 is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
RESULTS OF OPERATIONS:
Revenue	$	559,306		$	623,255		$	1,031,838		$	1,100,993
Direct costs	(514,052		)	(644,697		)	(955,221		)	(1,082,163		)
Gross margin	45,254			(21,442		)	76,617			18,830
General and administrative expenses	(593		)	(2,000		)	(1,138		)	(2,848		)
Operating income (loss)	44,661			(23,442		)	75,479			15,982
Other expense, net	(6,016		)	(10,520		)	(5,859		)	(9,705		)
Net income (loss)	$	38,645		$	(33,962	)	$	69,620		$	6,277

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(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, 2009
Contracted backlog	$	58,871	$	(51,876	)	$	6,995
Customer relationships	57,922		(14,187		)	43,735
Non-compete agreements and other	1,100		(821		)	279
	$	117,893	$	(66,884	)	$	51,009
December 31, 2008
Contracted backlog	$	58,871	$	(38,038	)	$	20,833
Customer relationships	57,922		(10,651		)	47,271
Non-compete agreements and other	1,100		(711		)	389
	$	117,893	$	(49,400	)	$	68,493

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

	June 30, 2009		December 31, 2008
Goodwill	$	134,903	$	134,840
Tradename	20,326		20,326
	$	155,229	$	155,166

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 $8.7 million and $9.4 million for the three months ended June 30, 2009 and 2008, respectively, and $17.5 million and $18.2 million for the six months ended June 30, 2009 and 2008, respectively. These intangible assets are expected to be fully amortized in 2014.

(8) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following (in thousands):

	June 30, 2009			December 31, 2008
Land	$	22,477		$	25,409
Buildings	68,692			66,775
Furniture, fixtures and equipment	194,891			189,210
Leasehold improvements	51,798			44,387
	337,858			325,781
Less: Accumulated depreciation	(138,107		)	(111,744		)
Property, plant and equipment, net	$	199,751		$	214,037

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Depreciation expense reflected in the consolidated statements of income was $12.9 million and $6.1 million for the three months ended June 30, 2009 and 2008, respectively, and $26.3 million and $27.8 million for the six months ended June 30, 2009 and 2008, respectively. The majority of depreciation expense relates to property, plant and equipment held in the Energy segment.

(9) LINE OF CREDIT

CH2M HILL is party to a credit agreement which provides for a $500.0 million committed 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, 2009, CH2M HILL had $80.0 million in borrowings outstanding on the RLOC. Additionally, at the end of the current period, issued and outstanding letters of credit of $71.2 million were reserved against the borrowing base of the credit agreement, compared to $51.3 million at December 31, 2008. While the management of CH2M HILL continues to carefully monitor the unfolding global financial situation to assess any impacts this might have on our banks in the RLOC and their ability to meet their legal funding obligations to us, the RLOC is a committed facility and CH2M HILL believes the potential financial exposure is limited.

In the first quarter of 2008, 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, 2009, CH2M HILL had fixed its interest rate exposure on $50.0 million of the outstanding RLOC balance through these derivatives. The Company has not designated these derivative instruments as effective hedges as defined by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and 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 derivative assets are approximately $1.1 million at June 30, 2009.

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, 2009, CH2M HILL was in compliance with the covenants required by the credit agreement.

(10) PROVISION FOR INCOME TAXES

The effective tax rate from continuing operations for the three months ended June 30, 2009 was 22.7% compared to 65.6% for the same period in the prior year. The tax rate from continuing operations for the six months ended June 30, 2009 was 29.4% compared to the 46.4% for the same period in the prior year. The effective tax rate for the three and six months ended June 30, 2009 was favorably impacted by the recognition of domestic production activities deduction from prior periods and by certain foreign operating results. CH2M HILL’s 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 June 30, 2009 and December 31, 2008, we had $33.6 million and $25.4 million, respectively, recorded as a liability for uncertain tax positions. The increase is primarily the result of an additional liability for uncertainty related to research and experimentation credits for prior years.

CH2M HILL recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of June 30, 2009 and December 31, 2008, CH2M HILL had approximately $4.7 million and $3.8 million, respectively, of accrued interest and penalties related to uncertain tax positions.

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 2002.

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(11) 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.

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, 2008, filed with the SEC on February 24, 2009. 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, 2008.

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, operations, maintenance, project management and related technical services to municipal, state, federal and private sector clients worldwide. Founded in 1946, we operate in more than 80 countries and have more than 25,000 employees worldwide.

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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.

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.

During the second quarter, our Chief Executive Officer began making strategic and operating decisions with regards to assessing performance and allocating resources based on a new segment structure. We now operate under the following segments—Government, Environment and Nuclear (GEN), Facilities and Infrastructure, and Energy—which are aligned with the types of clients we serve. Our GEN segment generally provides a comprehensive range of services to the U.S. Federal government as well as services to international governments and industry. Our Facilities and Infrastructure segment generally provides a comprehensive range of services to various industry segments, and state, local and provincial governments. Our Energy segment generally provides a comprehensive range of services to private sector clients.

Results of Operations

Revenue and Operating Income of our Reportable Segments

The results of operations for the three and six months ended June 30, 2009 and 2008 by operating segment were as follows (in millions):

Three Months Ended June 30, 2009 and 2008

	2009								2008								Change
	Revenue		Equity in Earnings			Operating Income (Loss)			Revenue		Equity in Earnings			Operating Income (Loss)			Revenue					Equity in Earnings			Operating Income (Loss)
Government, Environment and Nuclear	$	421.8	$	7.8		$	7.8		$	379.4	$	10.9		$	12.7		$	42.4		11.2	%	$	(3.1	)	$	(4.9	)	(38.6	)%
Facilities and Infrastructure	494.9		9.2			18.2			471.2		(13.1		)	(5.5		)	23.7			5.0	%	22.3			23.7			n/a
Energy	424.3		(0.4		)	14.4			457.4		1.2			18.4			(33.1		)	(7.2	)%	(1.6		)	(4.0		)	(21.7	)%
Other	—		—			(10.5		)	—		—			(12.9		)	—			—		—			2.4			18.6	%
Total	$	1,341.0	$	16.6		$	29.9		$	1,308.0	$	(1.0	)	$	12.7		$	33.0				$	17.6		$	17.2
Six Months Ended June 30, 2009 and 2008
	2009								2008								Change
	Revenue		Equity in Earnings			Operating Income (Loss)			Revenue		Equity in Earnings			Operating Income (Loss)			Revenue					Equity in Earnings			Operating Income (Loss)
Government, Environment and Nuclear	$	811.6	$	15.0		$	20.4		$	728.0	$	21.3		$	20.1		$	83.6		11.5	%	$	(6.3	)	$	0.3		1.5	%
Facilities and Infrastructure	977.6		11.9			28.2			939.6		(12.3		)	3.1			38.0			4.0	%	24.2			25.1			n/a
Energy	855.8		0.6			22.6			867.4		2.0			26.1			(11.6		)	(1.3	)%	(1.4		)	(3.5		)	(13.4	)%
Other	—		—			(21.7		)	—		—			(24.3		)	—					—			2.6			10.7	%
Total	$	2,645.0	$	27.5		$	49.5		$	2,535.0	$	11.0		$	25.0		$	110.0				$	16.5		$	24.5

Government, Environment and Nuclear

Revenue from this segment increased for the three and six months ended June 30, 2009, compared to the same periods in the prior year by $42.4 million or 11.2%, and $83.6 million or 11.5%, respectively. The increase in revenue is substantially due to higher volume of work in Texas supporting Hurricane Ike recovery, partially offset by

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delays in finalizing newly awarded governmental contracts in our continental U.S. design build markets. Also contributing to the increase in revenues is the award of a domestic nuclear contract and the award of a program management project in the United Arab Emirates.

Operating income decreased for the three months ended June 30, 2009 compared to the same period in the prior year by $4.9 million or 38.6% and remained relatively unchanged for the six months ended June 30, 2009 compared to the same period in the prior year. The decrease for the three months ended June 30, 2009 compared to the same period in the prior year is primarily due to the substantial completion of two nuclear projects.

Facilities and Infrastructure

Revenue from our Facilities and Infrastructure segment increased for the three and six months ended June 30, 2009, compared to the same periods in 2008 by $23.7 million or 5.0%, and $38.0 million or 4.0%, respectively. The increase is largely attributable to two projects in our transportation business which began during 2008, as well as growth in our North American consulting and international markets. North American consulting growth is due in part to design and program management services for municipal clients in the northeast and southwest United States, while international growth was driven primarily by large program management projects located in the United Kingdom and United Arab Emirates. Revenues increased in our operations and maintenance business due to two municipal services projects in the southern United States that started in the third quarter of 2008.

Operating income increased significantly for the three and six months ended June 30, 2009, compared to the same periods in the prior year by $23.7 million and $25.1 million, respectively. The increase in operating income compared to the prior year is partly attributable to the increased volume within our transportation business discussed above. During the second quarter of 2008, a significant loss was recognized on a transportation project within one of its joint ventures. The increase in operating income is partially offset by schedule and cost impacts on two projects in the Middle East within our transportation and water business.

Energy

Revenue from our Energy segment decreased by $33.1 million or 7.2% for the three months ended June 30, 2009. The revenue for the six months ended June 30, 2009 compared to the same period in the prior year remained relatively unchanged. The decrease in revenue is primarily attributable to a decrease in full service revenue due to a general decline in business due to a slow down in economic activity and depressed oil and gas prices. Also contributing to the decrease were delays and contract value reduction in certain businesses and the cancellation of a project in Canada. The decrease is partially offset by increased volume in Alaska and the related work on the North Slope within our energy and chemicals business as well as two engineering-procurement-construction (EPC) projects awarded during 2007 that are now in the peak of their construction cycles within our power business.

Operating income decreased for the three months ended June 30, 2009 compared to the same period in the prior year by $4.0 million or 21.7%. The operating income for the six months ended June 30, 2009 compared to the same period in the prior year decreased $3.5 million or 13.4%. The decrease in operating income is primarily attributable to the delays, contract value reduction and cancellation as discussed above. The decrease was partially offset by proactive management of overhead. Further, the two EPC projects discussed above contribute to the increased operating income.

Other

Other 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, legal, treasury, accounting and tax, and general business development efforts. The decrease of $2.4 million and $2.6 million for the three and six months ended June 30, 2009, respectively, compared to the same periods in the prior year is due to a decrease in expenditures related to overhead cost reduction efforts and strategic initiatives, which is partially offset by an increase in benefit plans expenses.

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Provision for Income Taxes

Our effective tax rate from continuing operations for the three months ended June 30, 2009 was 22.7% compared to 65.6% for the same period in the prior year. Our effective tax rate from continuing operations for the six months ended June 30, 2009 was 29.4% compared to 46.4% for the same period in the prior year. The effective tax rate for the three and six months ended June 30, 2009 was favorably impacted by the recognition of domestic production activities deduction from prior periods and by certain foreign operating results. CH2M HILL’s 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.

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 six months ended June 30, 2009, we generated $91.2 million of cash from our operations compared to $53.5 million of cash provided by operating activities in the same period last year. The improvement in operating cash flow during the current period was due to an increase in cash collections of accounts receivable as well as higher earnings.

We continuously monitor collection efforts and assess the allowance for doubtful accounts. Based on our assessment at June 30, 2009, 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. Consequently, the timing of the receipt of cash may impact our ability to meet our operating needs.

Cash used in investing activities was $21.4 million in the six months ended June 30, 2009 compared to $42.9 million used in investing activities for the same period in 2008. The majority of cash used in our investing activities relates to payments made for the purchase of property, plant, and equipment and investments in our joint ventures. We spent $13.3 million and $22.4 million on capital expenditures in the six months ended June 30, 2009 and 2008, respectively. The cash flows used in our investments in affiliates (net of distributions of capital received) changed from period to period primarily due to investments in a significant transportation unconsolidated affiliate.

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, 2009, our outstanding debt obligations were approximately $138.2 million. The majority of the funds from these obligations financed our recent acquisitions, including the assumption and issuance of notes payable and mortgage notes 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

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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. While we continue to carefully monitor the unfolding global financial situation to assess any impacts this might have on our banks in the RLOC and their ability to meet their legal funding obligations to us, the RLOC is a committed facility and we believe the potential financial exposure is limited.

During 2008, 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, 2009, we had fixed our interest rate exposure on $50.0 million of the outstanding RLOC balance through these derivatives. We do not enter into derivative transactions for speculative purposes. As of June 30, 2009, 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, 2009, we had $80.0 million in borrowings outstanding on the RLOC. Additionally we had issued and outstanding letters of credit of $71.2 million reserved against the RLOC’s borrowing base. Based on our total cash and credit capacity at June 30, 2009, 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, 2009, we were in compliance with the covenants required by the credit agreement.

We pay for capital expenditures used in our operations through operating leases, long-term debt and other credit arrangements and from cash flow. 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. 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.

Our nonrecourse debt consists of two mortgage notes related to buildings and property. As of June 30, 2009, approximately $16.9 million of these mortgages were outstanding. One of the mortgage notes pertains to offices in Anchorage, Alaska and the second relates to a building used for warehousing spare parts. Both of the mortgage notes are secured by buildings and real estate.

Off-Balance Sheet Arrangements

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.

As noted above, 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. The fair value of these derivatives is not significant.

There were no substantial changes to other off-balance sheet arrangements or contractual commitments in the three months ended June 30, 2009, when compared to the disclosures provided in our Annual Report on Form 10-K for the year ended December 31, 2008.

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.

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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, 2008.

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 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 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 do not meet the more likely than not recognition criteria.

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 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

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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 No. 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), 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 changed its measurement date from October 31st to December 31st in 2008 in accordance with SFAS 158.

Recently Adopted 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.

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). Non-controlling interests are defined as the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. SFAS 160 establishes accounting and reporting standards for noncontrolling interests, 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 May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financials statements are issued or are available to be issued.

Recently Issued Accounting Standards

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). SFAS 167 amends FASB Interpretation (FIN) No. 46(R), Consolidation of Variable Interest Entities, by altering how a company determines when an entity that is insufficiently capitalized or not controlled through voting should be consolidated. A company has to determine whether it should provide consolidated reporting of an entity based upon the entity’s purpose and design and the parent company’s ability to direct the entity’s actions. SFAS 167 is effective for CH2M HILL beginning January 1, 2010.

On July 1, 2009, the FASB released SFAS No. 168, The Accounting Standards Codification and the Hierarchy of Generally Accepted Account Principles (SFAS 168). The Codification will become the exclusive authoritative reference for nongovernmental U.S. GAAP for use in financial statements issued for interim and annual periods ending after September 15, 2009. SFAS 168 supersedes SFAS 162, thereby eliminating the four-level GAAP hierarchy previously set forth. The Codification will supersede all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for CH2M HILL for our interim period ending on September 30, 2009.

On December 30, 2008, the FASB issued FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (FSP 132R-1). The FSP amends SFAS 132 (revised 2003), to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP 132R-1 requires employers of entities to disclose more information about how investment allocation decisions are made, more information about major categories of plan assets, and the fair-value techniques and inputs used to measure plan assets. FSP FAS 132R-1 is effective for CH2M HILL for the year ending December 31, 2009.

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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 $80.0 million and approximately $51.9 million outstanding under the unsecured revolving credit agreement and holdback contingency, respectively, at June 30, 2009. 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 $1.3 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 June 30, 2009 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.

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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.

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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)	6,550	$	30.80	—	—
May(a)	—	—		—	—
June(b)	376,415	32.54		—	—
Total	382,965	32.51		—	—

(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 4, 2009, CH2M HILL held its 2009 Annual Meeting of Shareholders.  At this meeting, the following three matters were submitted to a vote of CH2M HILL shareholders:

1.	A proposal to elect four directors (Robert W. Bailey, Lee A. McIntire, Nancy R. Tuor, and Barry L. Williams) 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, 2009. This proposal was approved at the annual meeting.
3.	A proposal to approve the revisions to the CH2M HILL Stock Option Plan. This proposal was approved at the annual meeting.

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 W. Bailey	25,000,566	—	842,838	—	—
Lee A. McIntire	25,106,181	—	737,223	—	—
Nancy R. Tuor	25,073,398	—	770,006	—	—
Barry L. Williams	25,365,286	—	478,118	—	—
Ratification of KPMG LLP	25,316,502	307,102	—	219,800	—
Amendment of the CH2M HILL Stock Option Plan	23,723,306	966,591	—	1,153,507	—

In addition to the above directors, Robert G. Card, William T. Dehn, Jerry D. Geist, Garry M. Higdem, David B. Price, Jacqueline C. Rast, M. Catherine Santee, Michael A. Szomjassy,  and Barry L. Williams continue to serve as directors of CH2M HILL following the annual meeting.

Item 6.  EXHIBITS

In accordance with Regulation S-X 3-09, within six months following the end of its fiscal year, the Company was required to file certain financial statements for CLM Delivery Partner, Limited (a significant unconsolidated foreign filer subsidiary). At this time, these financial statements have not yet been filed, however, pending resolution of differences in accounting standards between the U.S. and the United Kingdom where CLM Delivery Partner, Limited does business, we expect that these financials statements will be filed with the SEC in the near future.

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 10, 2009	/s/ M. CATHERINE SANTEE
	M. Catherine Santee
	Chief Financial Officer
	/s/ JOANN SHEA
	JoAnn Shea
	Vice President and Chief Accounting Officer

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