Contacts:
Sard Verbinnen & Co
Hugh Burns/Jamie Tully
(212) 687-8080
URS Corporation
& Chief Financial Officer
URS CORPORATION REPORTS FISCAL 2006
YEAR-END RESULTS
Revenues Increased 8% from 2005
Company Provides Guidance For 2007
SAN FRANCISCO, CA - February 27, 2007 - URS Corporation (NYSE: URS) today reported its financial results for the fiscal year ended December 29, 2006. Revenues increased 8% to $4.24 billion from $3.92 billion in fiscal 2005. Net income for fiscal 2006 was $113.0 million, or $2.19 per share, fully diluted.
The Company’s net income and EPS for fiscal 2006 include an after tax impact of $10.6 million, or $0.20 per share, related to stock-based compensation expense under Statement of Financial Accounting Standards 123 (Revised) (“SFAS 123(R)”), which requires that costs of stock-based compensation be recognized as an expense in financial statements. Net income and EPS for fiscal 2005 were $82.5 million, or $1.72 per share, fully diluted, including an after-tax debt extinguishment charge of $19.1 million, or $0.42 per share, related to $127.2 million of note redemptions, the retirement of $10.0 million of the Company’s 12¼% notes and $1.8 million of its 6½% debentures, and the restructuring of its senior credit facility.
After adjusting for these items, net income and EPS for fiscal 2006 increased 28% and 13%, respectively, from fiscal 2005.
The Company repaid $150 million of debt during fiscal 2006. As a result, the Company’s debt to total capitalization ratio improved to 10% at December 29, 2006, from 19% at December 30, 2005.
As of December 29, 2006, the Company’s backlog was $4.64 billion, compared to $3.84 billion as of December 30, 2005.
Commenting on the Company’s financial results, Martin M. Koffel, Chairman and Chief Executive Officer, stated: “2006 was an outstanding year for URS, highlighted by growth in each of our market sectors and the highest revenue and net income in the Company’s history. Our results reflect the continued success of our diversified business portfolio and our strong relationships with private and public sector clients around the world.”
Mr. Koffel continued: “The outlook for our business remains positive, based on our record book of business and the favorable long-term trends across each of our market sectors. Federal spending for defense and homeland security remains strong, and the healthy state budget picture, along with recently-approved bond measures in our key states, are driving additional demand for state and local infrastructure improvement projects. In addition, our private sector business continues to benefit from our Master Service Agreement relationships, favorable economic conditions and our ability to help companies comply with more stringent environmental regulations in areas such as emissions control.”
Weighted-average shares outstanding for purposes of calculating diluted EPS were 51.7 million in fiscal 2006, compared with 47.8 million in fiscal 2005. The increase in weighted-average shares outstanding in 2006 is the result of additional shares issued pursuant to the Company’s 1999 Equity Incentive Plan and Employee Stock Purchase Plan, and the effect of the weighted average share impact resulting from the Company’s stock offering in June 2005.
For the fourth quarter of fiscal 2006, the Company reported revenues of $1.09 billion, net income of $26.3 million, and diluted EPS of $0.51. For the fourth quarter of fiscal 2005, the Company reported revenues of $1.07 billion, net income of $25.9 million, and diluted EPS of $0.51.
The Company’s net income and EPS for the fourth quarter of fiscal 2006 include an after tax impact of $3.4 million, or $0.06 per share, related to stock-based compensation expense under SFAS 123(R). Weighted-average shares outstanding for purposes of calculating diluted EPS were 52.0 million in the fourth quarter of fiscal 2006, compared with 50.4 million in the fourth quarter of fiscal 2005.
Business Segments
In addition to providing consolidated financial results, the Company provides separate financial information for its two segments: the URS Division and the EG&G Division. The URS Division includes the Company’s work in the state and local government market, the private sector and the international business. In addition, the URS Division includes a portion of the Company’s federal business, consisting primarily of facilities and environmental services. The EG&G Division primarily serves the federal government market, providing a range of operations and maintenance and technical support services.
URS Division. For fiscal 2006, the URS Division reported revenues of $2.80 billion and operating income of $191.7 million, including a pre-tax charge of $10.8 million related to stock-based compensation, compared to revenues of $2.56 billion and operating income of $194.2 million for fiscal 2005.
For the fourth quarter of fiscal 2006, the URS Division reported revenues of $741.7 million and operating income of $48.7 million, including a pre-tax charge of $2.7 million related to stock-based compensation, compared to revenues of $701.5 million and operating income of $56.6 million for the fourth quarter of fiscal 2005.
EG&G Division. For fiscal 2006, the EG&G Division reported revenues of $1.45 billion and operating income of $71.4 million, including a pre-tax charge of $2.2 million related to stock-based compensation, compared to revenues of $1.37 billion and operating income of $63.4 million for fiscal 2005.
For the fourth quarter of fiscal 2006, the EG&G Division reported revenues of $347.1 million and operating income of $14.0 million, including a pre-tax charge of $0.6 million related to stock-based compensation, compared to revenues of $372.8 million and operating income of $15.9 million for the fourth quarter of fiscal 2005.
Earnings Outlook
The Company expects its fiscal 2007 revenues to be approximately $4.65 billion. Assuming it meets this revenue expectation, the Company expects that net income will be approximately $128 million and EPS will be in the range of $2.40 to $2.45 for fiscal 2007. The Company expects that the distribution of EPS on a quarterly basis will approximate that of prior years.
In addition, the Company expects its effective tax rate in 2007 to be approximately 42.0%, compared to 42.6% in 2006. Finally, the Company’s weighted average shares outstanding for 2007 is expected to be 53.2 million, compared with 51.7 million in 2006.
This press release contains certain non-GAAP financial measures for net income and earnings per share showing the effects of the Company’s stock offerings, its note redemptions and refinancing, and the impact of SFAS 123(R), which are reconciled against the most directly comparable GAAP measure in the tables attached to the end of this press release.
Webcast Information
URS will host a dial-in conference call on Wednesday, February 28, 2007 at 11:00 a.m. (EST) to discuss its fourth quarter and year-end fiscal 2006 results. A live webcast of this call will be available on the investor relations portion of URS’ website at www.urscorp.com.
URS Corporation offers a comprehensive range of professional planning and design, systems engineering and technical assistance, program management, construction management, and operations and maintenance services for transportation, commercial/ industrial, facilities, environmental, water/wastewater, homeland security, installations and logistics, and defense systems. Headquartered in San Francisco, the Company operates in more than 20 countries with approximately 29,300 employees providing engineering and technical services to federal, state and local governmental agencies as well as private clients in the chemical, pharmaceutical, oil and gas, power, manufacturing, mining and forest products industries (www.urscorp.com).
TABLES TO FOLLOW
# # #
Statements contained in this earnings release that are not historical facts may constitute forward-looking statements, including statements relating to future revenues, future earnings, future tax rates, future outstanding shares, future debt repayment and future economic and industry conditions. The Company believes that its expectations are reasonable and are based on reasonable assumptions. However, such forward-looking statements by their nature involve risks and uncertainties that could cause actual results to differ materially from the results predicted. The potential risks and uncertainties include, but are not limited to: an economic downturn; changes in the Company’s book of business; the Company’s compliance with government contract procurement regulations; the Company’s ability to procure government contracts; the Company’s reliance on government appropriations; the ability of the government to unilaterally terminate the Company’s contracts; the Company’s ability to make accurate estimates and control costs; the Company’s ability to win or renew contracts; the Company’s and its partners’ ability to bid on, win, perform and renew contracts and projects; environmental issues and liabilities; liabilities for pending and future litigation; the impact of changes in laws and regulations; a decline in defense spending; industry competition; the Company’s ability to attract and retain key individuals; employee, agent or partner misconduct; risks associated with changes in equity-based compensation requirements; the Company’s leveraged position and ability to service its debt; risks associated with international operations; business activities in high security risk countries; third party software risks; terrorist and natural disaster risks; the Company’s relationships with its labor unions; the Company’s ability to protect its intellectual property rights; anti-takeover risks and other factors discussed more fully in the Company's Form 10-K for the fiscal year ended December 29, 2006, as well as in other reports subsequently filed from time to time with the Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statements.
URS CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)
| | | December 29, 2006 | | | December 30, 2005 | |
ASSETS | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents, including $44,557 and $61,319 of short-term money market funds, respectively | | $ | 89,502 | | $ | 101,545 | |
| Accounts receivable, including retainage of $37,368 and $37,280, respectively | | | 680,631 | | | 630,340 | |
| Costs and accrued earnings in excess of billings on contracts in process | | | 552,526 | | | 513,943 | |
| Less receivable allowances | | | (50,458 | ) | | (44,293 | ) |
| Net accounts receivable | | | 1,182,699 | | | 1,099,990 | |
| Deferred tax assets | | | 36,547 | | | 18,676 | |
| Prepaid expenses and other assets | | | 65,405 | | | 52,849 | |
| Total current assets | | | 1,374,153 | | | 1,273,060 | |
| Property and equipment at cost, net | | | 163,142 | | | 146,470 | |
| Goodwill | | | 989,111 | | | 986,631 | |
| Purchased intangible assets, net | | | 3,839 | | | 5,379 | |
| Other assets | | | 50,784 | | | 57,908 | |
| | | $ | 2,581,029 | | $ | 2,469,448 | |
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY | | | | | | | |
| Current liabilities: | | | | | | | |
| Book overdrafts | | $ | 3,334 | | $ | 1,547 | |
| Current portion of long-term debt | | | 19,120 | | | 20,647 | |
Accounts payable and subcontractors payable, including retainage of $19,515 and $13,323, respectively | | | 290,651 | | | 288,561 | |
| Accrued salaries and wages | | | 230,905 | | | 196,825 | |
| Accrued expenses and other | | | 73,704 | | | 82,404 | |
| Billings in excess of costs and accrued earnings on contracts in process | | | 168,271 | | | 108,637 | |
| Total current liabilities | | | 785,985 | | | 698,621 | |
| Long-term debt | | | 149,494 | | | 297,913 | |
| Deferred tax liabilities | | | 17,808 | | | 19,785 | |
| Other long-term liabilities | | | 117,586 | | | 108,625 | |
| Total liabilities | | | 1,070,873 | | | 1,124,944 | |
| Commitments and contingencies | | | | | | | |
| Minority interest | | | 3,469 | | | — | |
| Stockholders’ equity: | | | | | | | |
| Preferred stock, authorized 3,000 shares; no shares outstanding | | | — | | | — | |
| Common shares, par value $.01; authorized 100,000 shares; 52,309 and 50,432 shares issued, respectively; and 52,257 and 50,380 shares outstanding, respectively | | | 523 | | | 504 | |
| Treasury stock, 52 shares at cost | | | (287 | ) | | (287 | ) |
| Additional paid-in capital | | | 973,892 | | | 925,087 | |
| Accumulated other comprehensive income (loss) | | | (3,638 | ) | | (3,985 | ) |
| Retained earnings | | | 536,197 | | | 423,185 | |
| Total stockholders’ equity | | | 1,506,687 | | | 1,344,504 | |
| | | $ | 2,581,029 | | $ | 2,469,448 | |
URS CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)
| | | Three Months Ended | | Fiscal Year Ended | |
| | | December 29, 2006 | | December 30, 2005 | | December 29, 2006 | | December 30, 2005 | |
| | | (unaudited) | | | | | |
| | | | | | | | | | |
| Revenues | | $ | 1,086,406 | | $ | 1,071,009 | | $ | 4,240,150 | | $ | 3,917,565 | |
| Direct operating expenses | | | 706,669 | | | 718,883 | | | 2,737,828 | | | 2,555,538 | |
Gross profit | | | 379,737 | | | 352,126 | | | 1,502,322 | | | 1,362,027 | |
| Indirect, general and administrative expenses | | | 329,770 | | | 299,000 | | | 1,283,533 | | | 1,187,605 | |
| Operating income | | | 49,967 | | | 53,126 | | | 218,789 | | | 174,422 | |
| Interest expense | | | 3,994 | | | 5,472 | | | 19,740 | | | 31,587 | |
| Income before income taxes and minority interest | | | 45,973 | | | 47,654 | | | 199,049 | | | 142,835 | |
| Income tax expense | | | 18,883 | | | 21,720 | | | 84,793 | | | 60,360 | |
| Minority interest in income of consolidated subsidiaries, net of tax | | | 807 | | | — | | | 1,244 | | | — | |
| Net income | | | 26,283 | | | 25,934 | | | 113,012 | | | 82,475 | |
| Other comprehensive income (loss): | | | | | | | | | | | | | |
| Pension liability adjustments, net of tax (benefit) | | | 2,948 | | | (4,223 | ) | | 582 | | | (4,493 | ) |
Foreign currency translation adjustments | | | 516 | | | (1,900 | ) | | 4,122 | | | (5,910 | ) |
| Comprehensive income | | $ | 29,747 | | $ | 19,811 | | $ | 117,716 | | $ | 72,072 | |
| Earnings per share: | | | | | | | | | | | | | |
| Basic | | $ | .52 | | $ | .52 | | $ | 2.23 | | $ | 1.76 | |
| Diluted | | $ | .51 | | $ | .51 | | $ | 2.19 | | $ | 1.72 | |
| Weighted-average shares outstanding: | | | | | | | | | | | | | |
| Basic | | | 50,938 | | | 49,459 | | | 50,705 | | | 46,742 | |
| Diluted | | | 51,992 | | | 50,401 | | | 51,652 | | | 47,826 | |
| | | | | | | | | | | | | | |
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | Three Months Ended | | Fiscal Year Ended | |
| | | December 29, 2006 | | December 30, 2005 | | December 29, 2006 | | December 30, 2005 | |
| | | (unaudited) | | | |
| Cash flows from operating activities: | | | | | | | | | | | | | |
| Net income | | $ | 26,283 | | $ | 25,934 | | $ | 113,012 | | $ | 82,475 | |
| Adjustments to reconcile net income to net cash from operating activities: | | | | | | | | | | | | | |
| Depreciation and amortization | | | 9,772 | | | 9,323 | | | 37,980 | | | 38,548 | |
| Amortization of debt issuance costs | | | 439 | | | 462 | | | 1,821 | | | 3,777 | |
| Costs incurred for extinguishment of debt | | | — | | | 6 | | | 162 | | | 33,131 | |
| Provision for doubtful accounts | | | 2,525 | | | 2,229 | | | 8,259 | | | 10,094 | |
| Deferred income taxes | | | (7,697 | ) | | 1,505 | | | (8,708 | ) | | 8,721 | |
| Stock-based compensation | | | 5,684 | | | 1,640 | | | 18,395 | | | 6,148 | |
| Excess tax benefits from stock-based compensation | | | (2,903 | ) | | — | | | (6,045 | ) | | — | |
| Tax benefit of stock compensation | | | 1,404 | | | 5,700 | | | 6,455 | | | 14,969 | |
| Minority interest in net income of consolidated subsidiaries | | | 807 | | | — | | | 1,244 | | | — | |
| Changes in assets and liabilities: | | | | | | | | | | | | | |
| Accounts receivable and costs and accrued earnings in excess of billings on contracts in process | | | (49,029 | ) | | (75,803 | ) | | (89,628 | ) | | (161,632 | ) |
Prepaid expenses and other assets | | | 14,551 | | | (4,909 | ) | | (12,378 | ) | | (30,441 | ) |
| Accounts payable, accrued salaries and wages and accrued expenses | | | 28,932 | | | 108,746 | | | 26,792 | | | 179,525 | |
| Billings in excess of costs and accrued earnings on contracts in process | | | 18,528 | | | (2,624 | ) | | 59,614 | | | 22,453 | |
| Distributions of earnings from unconsolidated affiliates, net | | | 2,755 | | | 3,867 | | | 26,562 | | | 12,394 | |
| Other long-term liabilities | | | (9,850 | ) | | 3,525 | | | (2,190 | ) | | 10,842 | |
| Other assets, net | | | (2,045 | ) | | (13,118 | ) | | (16,341 | ) | | (30,567 | ) |
| Total adjustments and changes | | | 13,873 | | | 40,549 | | | 51,994 | | | 117,962 | |
| Net cash from operating activities | | | 40,156 | | | 66,483 | | | 165,006 | | | 200,437 | |
| Cash flows from investing activities: | | | | | | | | | | | | | |
Net payment for business acquisitions, net of cash acquired | | | — | | | (14 | ) | | (5,028 | ) | | (1,367 | ) |
| Proceeds from disposal of property and equipment | | | — | | | 54 | | | — | | | 2,236 | |
| Capital expenditures, less equipment purchased through capital leases | | | (8,481 | ) | | (6,113 | ) | | (29,314 | ) | | (23,010 | ) |
| Net cash from investing activities | | | (8,481 | ) | | (6,073 | ) | | (34,342 | ) | | (22,141 | ) |
| Cash flows from financing activities: | | | | | | | | | | | | | |
| Long-term debt principal payments | | | (40,305 | ) | | (42,212 | ) | | (163,317 | ) | | (578,131 | ) |
| Long-term debt borrowings | | | — | | | 34 | | | 552 | | | 351,410 | |
| Net borrowings (payments) under lines of credit and short-term notes | | | (1,639 | ) | | (3,856 | ) | | 1,433 | | | (20,502 | ) |
| Net change in book overdrafts | | | (13,803 | ) | | (5,733 | ) | | 1,787 | | | (69,324 | ) |
| Capital lease obligation payments | | | (3,384 | ) | | (2,170 | ) | | (13,019 | ) | | (13,354 | ) |
| Excess tax benefits from stock-based compensation | | | 2,903 | | | — | | | 6,045 | | | — | |
| Proceeds from common stock offering, net of related expenses | | | — | | | (6 | ) | | — | | | 130,251 | |
| Proceeds from employee stock purchases and exercise of stock options | | | 1,508 | | | 8,255 | | | 23,974 | | | 38,942 | |
| Tender and call premiums paid for debt extinguishment | | | — | | | (5 | ) | | (162 | ) | | (19,426 | ) |
| Payment of debt issuance costs | | | — | | | 5 | | | — | | | (4,624 | ) |
| Net cash from financing activities | | | (54,720 | ) | | (45,688 | ) | | (142,707 | ) | | (184,758 | ) |
| Net increase (decrease) in cash and cash equivalents | | | (23,045 | ) | | 14,722 | | | (12,043 | ) | | (6,462 | ) |
| Cash and cash equivalents at beginning of year | | | 112,547 | | | 86,823 | | | 101,545 | | | 108,007 | |
| Cash and cash equivalents at end of year | | $ | 89,502 | | $ | 101,545 | | $ | 89,502 | | $ | 101,545 | |
URS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | |
| | | Three Months Ended | | Fiscal Year Ended | |
| | | December 29, 2006 | | December 30, 2005 | | December 29, 2006 | | December 30, 2005 | |
| | | (unaudited) | | | | | |
| Supplemental information: | | | | | | | | | | | | | |
| Interest paid | | $ | 3,373 | | $ | 4,363 | | $ | 17,099 | | $ | 29,974 | |
| Taxes paid | | $ | 19,826 | | $ | 20,137 | | $ | 58,583 | | $ | 48,422 | |
| Equipment acquired with capital lease obligations | | $ | 4,008 | | $ | 5,379 | | $ | 23,512 | | $ | 20,270 | |
| | | | | | | | | | | | | | |
| Supplemental schedule of noncash investing and financing activities: | | | | | | | | | | | | | |
| Fair value of assets acquired | | $ | — | | $ | — | | $ | 7,683 | | $ | 1,823 | |
| Cash paid for capital stock | | | — | | | — | | | 2,655 | | | 456 | |
| Liabilities assumed | | $ | — | | $ | — | | $ | 5,028 | | $ | 1,367 | |
URS CORPORATION AND SUBSIDIARIES
RECONCILIATION SCHEDULE OF NET INCOME AND EARNINGS PER SHARE BEFORE ACCOUNTING FOR CERTAIN TRANSACTIONS
In our earnings release for the fiscal year ended December 29, 2006, we presented the impacts of the charges related to SFAS 123(R) on fiscal year and fourth quarter 2006 net income and earnings per share (“EPS”) and compared the fiscal year 2006 amounts to comparable fiscal year 2005 results. Net income and EPS amounts, excluding the effects of SFAS 123(R) expense, are not computed in accordance with generally accepted accounting principles (“GAAP”). We presented these amounts to demonstrate the recent impact of SFAS 123(R) on our financial statements. For comparison, the fiscal year 2005 net income and EPS amounts excluded the effects of (1) the additional four million shares resulting from the Company’s stock offering; (2) the $19 million charge, net of tax, related to the costs of the Company’s note redemptions; and (3) the $5 million, net of tax, in interest savings the Company realized during fiscal year 2005 as a result of the note redemptions. These non-GAAP measures, which provide comparability to prior year amounts, are used by investors to evaluate and measure the underlying performance of our business. Net income and EPS excluding the effects of these items should not be used as a substitute for net income and earnings per share prepared in conformity with GAAP, or as a GAAP measure of profitability.
Net income and EPS excluding the effects of these non-GAAP measures are calculated as follows:
Fiscal Year Ended December 29, 2006 | |
| | | Net Income | | Weighted Average Shares Outstanding | | Earnings per Share | |
| | | (In millions, except per share data) | |
| Amount reported under GAAP | | $ | 113 | | | 52 | | $ | 2.19 | |
| Effect of stock option expense under SFAS 123(R) | | | 11 | | | 52 | | | 0.20 | |
| Amounts excluding the effects above | | $ | 124 | | | | | $ | 2.39 | |
Fiscal Year Ended December 30, 2005 | |
| | | Net Income | | Weighted Average Shares Outstanding | | Earnings per Share | |
| | | (In millions, except per share data) | |
| Amount reported under GAAP | | $ | 82 | | | 48 | | $ | 1.72 | |
| Effect of public stock offering | | | — | | | 50 | | | 0.08 | |
| Effect of charges related to note redemption and refinancing of our credit facility | | | 19 | | | 46 | | | 0.42 | |
| Effect of interest savings due to note redemptions | | | (5 | ) | | 48 | | | (0.10 | ) |
| Amounts excluding the effects above | | $ | 96 | | | | | $ | 2.12 | |
