FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-7567
URS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 94-1381538
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
100 California Street, Suite 500
San Francisco, California 94111-4529
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415-774-2700
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 5, 1998
- ----------------------------------- ---------------------------
Common stock, $.01 par value 14,995,866
URS CORPORATION AND SUBSIDIARIES
This Form 10-Q for the second quarter ended April 30, 1998 contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed here. Factors that
might cause such a difference include, but are not limited to, those discussed
elsewhere in this Form 10-Q and those incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1997
and Form S-4/A Registration Statement (File No. 333-37531), filed with the
Securities and Exchange Commission on October 10, 1997.
PART I. FINANCIAL INFORMATION:
In the opinion of management, the information furnished reflects all
adjustments, consisting only of normal recurring adjustments, which are
necessary for a fair statement of the interim financial information.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1997. The results of operations for the three and six month periods ended April
30, 1998 are not necessarily indicative of the operating results for the full
year.
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
April 30, 1998 and October 31, 1997.......................3
Consolidated Statements of Operations
Three and six months ended April 30,
1998 and 1997............................................4
Consolidated Statements of Cash Flows
Six months ended April 30, 1998 and 1997..................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............................................6
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a
Vote of Security Holders..................................9
Item 6. Exhibits and Reports on Form 8-K...........................10
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
April 30, October 31,
ASSETS 1998 1997
--------- ---------
(unaudited)
Current assets:
Cash $ 33,875 $ 22,134
Accounts receivable, less allowance for doubtful accounts
of $2,899 and $1,488 159,409 80,251
Costs and accrued earnings in excess of
billings on contracts in process, less
allowances for losses of $8,523 and $1,838 58,087 37,741
Deferred income taxes 954 3,843
Prepaid expenses and other assets 3,422 2,885
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Total current assets 255,747 146,854
Property and equipment at cost, net 30,486 17,848
Goodwill, net 119,209 42,485
Deferred income taxes 4,034 --
Other assets 8,239 2,904
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$ 417,715 $ 210,091
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 20,069 $ 4,775
Accounts payable 30,955 20,198
Accrued salaries and wages 23,732 17,769
Accrued expenses and other 28,263 17,863
Billings in excess of costs and accrued earnings on
contracts in process 36,119 23,013
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Total current liabilities 139,138 83,618
Long-term debt 103,589 41,448
Deferred compensation and other 25,772 7,874
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Total liabilities 268,499 132,940
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Stockholders' equity:
Common shares, par value $.01; authorized 20,000 shares;
issued 14,964 and 10,741 shares 149 107
Treasury stock (287) (287)
Additional paid-in capital 113,996 51,085
Retained earnings since February 21, 1990, date of
quasi-reorganization 35,358 26,246
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Total stockholders' equity 149,216 77,151
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$ 417,715 $ 210,091
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3
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended Six months ended
April 30, April 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(unaudited) (unaudited)
Revenues $195,182 $ 99,759 $381,338 $195,301
-------- -------- -------- --------
Expenses:
Direct operating 116,356 59,071 231,587 116,075
Indirect, general and
administrative 67,410 35,230 128,757 68,687
Interest expense, net 2,273 1,381 4,282 2,816
-------- -------- -------- --------
186,039 95,682 364,626 187,578
-------- -------- -------- --------
Income before taxes 9,143 4,077 16,712 7,723
Income tax expense 4,200 1,620 7,600 3,070
-------- -------- -------- --------
Net income $ 4,943 $ 2,457 $ 9,112 $ 4,653
======== ======== ======== ========
Net income per share:
Basic $ .33 $ .24 $ .61 $ .46
======== ======== ======== ========
Diluted $ .31 $ .24 $ .58 $ .46
======== ======== ======== ========
4
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
April 30,
--------------------
1998 1997
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(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,112 $ 4,653
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Adjustment to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 7,339 4,152
Allowance for doubtful accounts and losses 329 (1,350)
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings
in excess of billings on contracts in process 11,845 (7,899)
Prepaid expenses and other assets (104) (1,087)
Accounts payable, accrued salaries and wages
and accrued expenses (16,171) (2,546)
Billings in excess of costs and accrued earnings on
contracts in process 687 599
Deferred taxes (177) 103
Other, net 1,287 (859)
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Total adjustments 5,035 (8,887)
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Net cash (used) provided by operating activities 14,147 (4,234)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition, net of cash acquired (36,937) --
Capital expenditures (3,122) (1,737)
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Net cash (used) by investing activities (40,059) (1,737)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 110,000 --
Principal payments on long-term debt (73,356) (11,065)
Proceeds from sale of common shares 755 444
Proceeds from exercise of stock options 254 152
Proceeds from exercise of warrants -- 3,895
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Net cash (used) provided by financing activities 37,653 (6,574)
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Net increase in cash 11,741 (12,545)
Cash at beginning of period 22,134 22,370
--------- ---------
Cash at end of period $ 33,875 $ 9,825
========= =========
SUPPLEMENTAL INFORMATION:
Interest paid $ 4,587 $ 2,993
========= =========
Taxes paid $ 8,496 $ 4,450
========= =========
Equipment subject to capital lease obligations $ 1,128 $ 1,556
========= =========
Noncash purchase allocation adjustment $ 13,600 $ 3,000
========= =========
Retirement of debt, related parties $ -- $ 3,028
========= =========
Issuance of common stock in business acquisition $ 61,936 $ --
========= =========
5
URS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company reports the results of its operations on a fiscal year which
ends on October 31. This Management Discussion and Analysis (MD&A) should be
read in conjunction with the MD&A and the footnotes to the Consolidated
Financial Statements included in the Annual Report on Form 10-K for the fiscal
year ended October 31, 1997 which was previously filed with the Securities and
Exchange Commission.
Reclassifications
Certain reclassifications have been made to the 1997 financial statements
to conform to the 1998 presentation with no effect on net income as previously
reported.
Income Per Common Share
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share, effective
November 1, 1997. SFAS 128 requires the presentation of basic and diluted income
per common share. Basic income per common share is computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted income per common share is computed
giving effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares consist of the incremental
common shares issuable upon the exercise of stock options and warrants for all
periods. All prior period income per common share amounts have been restated to
comply with SFAS 128.
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted income per
common share is provided as follows (in thousands, except per share amounts):
Three Months Ended April 30,
----------------------------
1998 1997
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Numerator - Basic
Net Income $ 4,943 $ 2,457
======= =======
Denominator - Basic
Weighted average common stock outstanding 14,907 10,226
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Basic income per share $ .33 $ .24
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Numerator - Diluted
Net Income $ 4,943 $ 2,457
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Denominator - Diluted
Weighted average common stock outstanding 14,907 10,226
Effect of dilutive securities:
Stock options 816 541
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15,723 10,767
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Diluted income per share $ .31 $ .24
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6
Six Months Ended April 30,
--------------------------
1998 1997
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Numerator - Basic
Net Income $ 9,112 $ 4,653
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Denominator - Basic
Weighted average common stock outstanding 14,870 9,430
======= =======
Basic income per share $ .61 $ .49
======= =======
Numerator - Diluted
Net Income $ 9,112 $ 4,653
======= =======
Denominator - Diluted
Weighted average common stock outstanding 14,870 9,430
Effect of dilutive securities:
Stock options 808 497
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15,678 9,927
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Diluted income per share $ .58 $ .46
======= =======
Stock options to purchase 394,000 shares of common stock at prices ranging
from $9.13 to $31.25 per share were outstanding at April 30, 1997, but were not
included in the computation of diluted income per share because the exercise
price was greater than the average market value of the common shares.
Convertible subordinated debt was not included in the computation of diluted
income per share because it would be anti-dilutive.
Stock options to purchase 210,000 shares of common stock at prices ranging
from $15.06 to $31.25 per share were outstanding at April 30, 1998, but were not
included in the computation of diluted income per share because the exercise
price was greater than the average market value of the common shares.
Convertible subordinated debt was not included in the computation of diluted
income per share because it would be anti-dilutive.
Acquisition
On November 14, 1997, the Company acquired Woodward-Clyde Group, Inc., a
Denver, Colorado, engineering services firm ("W-C"), for
approximately $110,000,000.
The purchase was partially financed by a $110,000,000 term loan payable
over six years beginning April 1998. The loan bears interest based on rate
indexes selected by the Company, with variable spreads over the selected index
based on loan maturity and the Company's financial performance. At April 30,
1998, the interest rate on this loan was based on the London Interbank Offered
Rate ("LIBOR") of 5.625%, plus a spread of 1.500%.
7
The acquisition has been accounted for by the purchase method of
accounting and the excess of the fair value of the net assets acquired over the
purchase price has been allocated to goodwill. The excess purchase price over
net assets acquired resulting from the acquisition will be amortized on a
straight-line basis over thirty years. The operating results of W-C are included
in the Company's results of operations from November 1, 1997.
The purchase price consisted of: (in thousands)
Cash paid $ 16,866
Term debt 31,198
Common Stock 61,936
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$ 110,000
=========
Purchase price
(net of prepaid loan fees of $4.0 million) $ 106,000
Fair value of assets acquired (40,194)
----------
Excess purchase price over net assets acquired $ 65,806
=========
The following unaudited pro forma summary presents the consolidated
results of operations as if the W-C acquisition had occurred at the beginning of
the periods presented and does not purport to indicate what would have occurred
had the acquisition been made as of those dates or of results which may occur in
the future.
Three Months Ended Six Months Ended
April 30, 1997 April 30, 1997
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(in thousands, except per share amounts)
Revenues $179,072 $345,523
=======
Net income $ 4,124 $ 6,444
======= =======
Net income per share $ .38 $ .61
======= =======
8
Results of Operations
Second quarter ended April 30, 1998 vs. April 30, 1997.
The Company's revenues were $195,182,00 for the quarter ended April 30,
1998, an increase of $95,423,000, or 96%, over the amount reported for the same
period last year. The growth in revenue is primarily attributable to the
acquisition of W-C, the results of which are included commencing November 1,
1997, and to a minor extent due to an increase in demand for the Company's
on-going services on both infrastructure and environmental projects.
Direct operating expenses for the quarter ended April 30, 1998, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $57,285,000, a 97% increase over the amount reported for the
same period last year. This increase is primarily due to the addition of the
direct operating expenses of W-C.
Indirect, general and administrative expenses for the quarter ended April
30, 1998 increased $32,180,000, or 91%, over the amount reported for the same
period last year as a result of the W-C acquisition as well as an increase in
business activity.
The Company earned $9,143,000 before income taxes for the quarter ended
April 30, 1998 compared to $4,077,000 for the same period last year. The
Company's effective income tax rate for the quarters ended April 30, 1998 and
1997 was approximately 46% and 40%, respectively. The increase in the effective
income tax rate for the quarter ended April 30, 1998, is due to operating in
countries outside the United States with higher tax rates.
The Company reported net income of $4,943,000, or $.31 per share, for the
second quarter ended April 30, 1998, compared with $2,457,000, or $.24 per
share, for the same period last year.
9
Six months ended April 30, 1998 vs. April 30, 1997
The Company's revenues were $381,338,000 for the six months ended April
30, 1998, an increase of $186,037,000, or 95%, over the amount reported for the
same period last year. The growth in revenues is primarily attributable to the
W-C acquisition and, to a lesser extent, all areas of the Company's business
including infrastructure projects involving transportation systems,
institutional and commercial facilities and environmental projects.
Direct operating expenses for the six months ended April 30, 1998, which
consist of direct labor and other direct expenses including subcontractor costs,
increased $115,512,000, or 100%, over the amount reported in the same period
last year. This increase is attributable to the W-C acquisition, as well as the
overall increase in the Company's business as compared to the same period last
year. Indirect, general and administrative expenses were $128,757,000 for the
six months ended April 30, 1998, an increase of $60,070,000, or 87%, over the
amount reported for the same period last year. The increase in indirect, general
and administrative expenses is due to the addition of the W-C overhead and, to a
lesser extent, an increase in business activity.
The Company earned $16,712,000 before income taxes for the six months
ended April 30, 1998 compared to $7,723,000 for the same period last year. The
Company's effective income tax rate for the six months ended April 30, 1998 and
1997 was approximately 45% and 40% respectively. The increase in the effective
income tax rate for the six months ended April 30, 1998 is due to operating in
countries outside the United States with higher tax rates.
The Company reported net income of $9,112,000 or $.58 per share, for the
six months ended April 30, 1998, compared with $4,653,000, or $.46 per share for
the same period last year.
The Company's backlog at April 30, 1998 was $681,707,000, as compared to
$470,400,000 at October 31, 1997. This increase is due to the W-C acquisition.
10
Liquidity and Capital Resources
At April 30, 1998, the Company had working capital of $116,609,000, an
increase of $53,373,000 from October 31, 1997, due primarily to the W-C
acquisition.
The Company's current revolving line of credit is $40,000,000, of which,
after issuance of letters of credit aggregating $3,000,000, $37,000,000 was
available at April 30, 1998. The Company had no borrowings on its revolving line
of credit during the six months ended April 30, 1998.
The Company's credit agreement requires compliance with certain financial
and other covenants. The Company was in compliance with such covenants at April
30, 1998.
The Company believes that its existing financial resources, together with
its planned cash flow from operations and its unused bank line of credit, will
provide sufficient capital to fund its operations and capital expenditure needs
for the foreseeable future.
11
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's regularly scheduled annual stockholders meeting, held on
March 24, 1998, the stockholders (i) ratified the selection of Coopers & Lybrand
L.L.P. as the Company's independent auditors for the 1998 fiscal year, with
stockholders holding 13,677,297 shares voting in favor, stockholders holding
18,458 shares voting against, stockholders holding 39,419 shares abstaining from
voting, and 1,066,100 broker non-votes, (ii) approved the amendment to the URS
Corporation Employee Stock Purchase Plan, with stockholders holding 12,182,253
shares voting in favor, stockholders holding 119,749 shares voting against,
stockholders holding 28,718 shares abstaining from voting and 2,470,554 broker
non-votes, (iii) approved the amendment to the URS Corporation 1991 Stock
Incentive Plan, with stockholders holding 9,607,348 shares voting in favor,
stockholders holding 2,681,149 shares voting against, stockholders holding
42,230 shares abstaining from voting and 2,470,547 broker non-votes, and (iv)
elected each of the following nominees as directors of the Company by the
following vote:
For Withheld
Richard C. Blum 13,690,153 45,022
Robert L. Costello 13,671,666 63,509
Armen Der Marderosian 13,693,675 41,500
Admiral S. Robert Foley, Jr., USN (Ret.) 13,693,660 41,515
Robert D. Glynn, Jr. 13,693,675 41,500
Senator J. Bennett Johnston 13,693,530 41,645
Martin M. Koffel 13,671,732 63,443
Richard B. Madden 13,693,639 41,536
Jean-Yves Perez 13,607,097 128,078
Richard Q. Praeger 13,693,256 41,919
Irwin L. Rosenstein 13,680,028 55,147
Frank S. Waller 13,626,515 108,660
William D. Walsh 13,693,465 41,710
No stockholders abstained from voting in this election of directors and
there were 1,006,099 broker non-votes.
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are furnished in accordance with the
provisions of Item 601 of Regulation S-K:
Exhibit Number Exhibit
-------------- -------
10.1 Employment Agreement dated November 1, 1997 between
Woodward-Clyde Group, Inc. and Jean- Yves Perez.
FILED HEREWITH.
10.2 Employment Agreement dated March 17, 1998 between
Woodward-Clyde Group, Inc. and Robert K. Wilson.
FILED HEREWITH.
27 Financial Data Schedule (electronic format only).
99.1 1991 Stock Incentive Plan, as amended effective
December 18, 1997, filed as Appendix A to the
Company's definitive proxy statement for its 1998
Annual Meeting of Stockholders, filed with the
Securities and Exchange Commission on February 17,
1998 and incorporated herein by reference.
99.2 Employee Stock Purchase Plan, as amended effective
December 18, 1997, filed as Appendix B to the
Company's definitive proxy statement for its 1998
Annual Meeting of Stockholders, filed with the
Securities and Exchange Commission on February 17,
1998 and incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended April
30, 1998.
13
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.
Dated June 12, 1998
URS CORPORATION
/s/ Kent Ainsworth
- --------------------------------
Kent P. Ainsworth
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
14