FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year Ended October 31, 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
(Exact name of registrant as specified in its charter)
Delaware 94-1381538
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
100 California Street, Suite 500,
San Francisco, California 94111-4529
(Address of principal executive offices) (Zip Code)
(415) 774-2700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Shares, par value $.01 per share New York Stock Exchange
Pacific Exchange
8 5/8% Senior Subordinated Debentures New York Stock Exchange
due 2004 Pacific Exchange
6 1/2% Convertible Subordinated Debentures New York Stock Exchange
due 2012 Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [X]
On December 18, 1998, there were 15,279,048 Common Shares outstanding,
and the aggregate market value of the shares of Common Stock of URS Corporation
held by nonaffiliates was approximately $295.2 million based on the closing
sales price as reported in the consolidated transaction reporting system.
Documents Incorporated by Reference
Items 10, 11, and 12 of Part III incorporate information by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on March 23, 1999.
This Annual Report on Form 10-K 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 Annual Report on Form
10-K.
ITEM 1. BUSINESS
URS Corporation (the "Company") is a professional services firm
which provides a broad range of planning, design, applied science, and program
and construction management services. The Company provides these services in
seven markets: surface transportation, air transportation, railroads/transit,
commercial/industrial, facilities, water/wastewater and hazardous waste
management. The Company provides services to local, state, and federal
government agencies, as well as private clients in the chemical, pharmaceutical,
manufacturing, forest products, energy, oil, gas, mining, health care, water
supply, retail and commercial development, telecommunications, and utilities
industries.
The Company conducts business through 130 offices located
throughout the world, including the United States, Europe, and the Asia/Pacific
region. The Company has approximately 6,600 employees, many of whom hold
advanced degrees and have extensive experience in technical disciplines
applicable to the Company's business. The Company believes that it has the
technical resources and geographic presence to compete for local, regional,
national, and multinational projects worldwide.
Acquisitions
In March 1996, the Company acquired, for $78.8 million, publicly
held Greiner Engineering, Inc., an Irving, Texas engineering and architectural
design services firm ("Greiner"). For a complete discussion of the impact of the
Greiner acquisition upon the operations of the Company, see Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
In November 1997, the Company acquired, for $132.4 million,
privately-held Woodward-Clyde Group, Inc. ("W-C") of Denver, Colorado, a firm
specializing in geotechnical and environmental engineering. For a complete
discussion of the impact of the W-C acquisition upon the operations of the
Company, see Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Services
The Company provides professional services through 130 principal
offices in four major areas: planning, design, applied sciences, and program and
construction management. Each of these offices is responsible for obtaining
local or regional contracts, and multiple offices often work together to pursue
large national or multinational contracts. Because the Company can draw from its
large and diverse network of professional and technical resources, the Company
has the capability to market and perform large multidisciplinary projects
throughout the world.
1
Planning. Planning covers a broad range of assignments ranging from
conceptual design and technical and economic feasibility studies to community
involvement programs and archaeological investigations. In many instances, the
planning process is used to develop the blueprint, or overall scheme, for the
project. Planning analyses and reports are used to identify and evaluate
alternatives, estimate usage levels, determine financial feasibility, assess
available technology, ascertain economic and environmental impacts, and
recommend optimal courses of action. Projects can include master planning, land
use planning, feasibility studies, transportation planning, zoning, permitting,
and compliance with applicable regulations.
Design. The Company's professionals provide a broad range of design
and design-related services. Representative services include: architectural and
interior design and civil, structural, mechanical, electrical, sanitary,
environmental, water resources, geotechnical/underground, dam, mining, and
seismic engineering design. For each project, the Company identifies the project
requirements and then integrates and coordinates the various design elements.
The result is a set of contract documents that may include plans,
specifications, and cost estimates that are used to build a project. These
documents detail design characteristics and set forth for the contractor the
material which should be used and the schedule for construction. Other critical
tasks in the design process may include value analysis and the assessment of
construction and maintenance requirements.
Applied Sciences. Applied sciences encompass diverse services for the
natural and built environment. These services are typically provided to protect
or restore the environment or to plan and design underground or earth-based
structures. Services include waste management and remediation engineering to
characterize waste or contamination, develop alternative remedies, and design
and implement optimum solutions; environmental management including the
development of pollution prevention programs and environmental mitigation plans;
and civil and geo-engineering including foundation engineering for all types of
manmade, earth-based structures, underground construction; and engineering
geology applied to natural hazard assessment and mitigation such as landslides,
active faults, and earthquakes.
Program and Construction Management. The Company's program and
construction management services include master scheduling of both the design
and construction phases, construction and life-cycle cost estimating, cash flow
analysis, value engineering, constructability reviews, and bid management. Once
construction has begun, the Company oversees and coordinates the activities of
construction contractors. This frequently involves acting as the owner's
representative for on-site supervision and inspection of the contractor's work.
In this role, the Company's objective is to monitor a project's schedule, cost,
and quality. The Company generally does not take contractual responsibility for
the contractor's risks and methods, nor for site safety conditions.
2
Markets
The Company's strategy is to focus on the infrastructure market
which includes surface, air and rail transportation systems,
commercial/industrial and facilities projects, and environmental programs
involving water/wastewater and hazardous waste management.
Surface Transportation. The Company provides a full range of
services for all types of surface transportation systems and networks, including
highways, interchanges, bridges, tunnels, toll facilities, intelligent
transportation systems, parking facilities, and ports and marine structures.
Historically, the Company's emphasis has been on the design of new
transportation systems, but in recent years the rehabilitation of existing
systems has become a major focus.
Air Transportation. The Company provides comprehensive services
for the development of new airports and the modernization and expansion of
existing facilities. Assignments have included terminals, hangars, air cargo
buildings, runways, taxiways, aprons, air traffic control towers, and baggage,
communications, security, and fueling systems, as well as supporting
infrastructure such as peoplemover systems, roadways, parking garages, and
utilities. Projects have been completed at both general aviation and large-hub
international airports, as well as for airlines, the military, and the Federal
Aviation Administration.
Rail. In this market, the Company serves freight and passenger
railroads and urban mass transit agencies. The Company has planned, designed,
and managed the construction of commuter rail systems, freight rail systems,
heavy and light rail transit systems, and high speed rail. These capabilities
are complemented by specialized expertise in transportation structures,
including terminals, stations, parking facilities, bridges, tunnels, and power,
signals, and communications systems.
Commercial/Industrial. For industrial and commercial clients,
the Company provides expertise in facility siting and permitting, environmental
management and pollution control, waste management and remediation engineering,
and property redevelopment. The Company has developed engineering and
environmental solutions for clients in such major industries as aerospace,
electronics, chemicals, forest products, manufacturing, mining, natural gas,
oil, petrochemical, pharmaceutical, and power.
Facilities. The Company's architects and engineers specialize
in the design of new buildings and the rehabilitation and expansion of existing
facilities. The facility design practice covers a broad range of building types,
including facilities for education, criminal justice, healthcare, commerce,
industry, government, the military, transportation, sports, and recreation. With
the increased interest in historic preservation, adaptive reuse, and seismic
safety, a significant portion of the Company's practice focuses on facility
assessments, code and structural evaluations, and renovation projects to
maintain aging building infrastructure.
Water/Wastewater. The Company provides services for the
planning, design, and construction of all types of water and wastewater
facilities to ensure that the quality and quantity of the world's water supply
is maintained. Services include water quality studies; new and expanded water
supply, storage, distribution, and treatment systems; municipal wastewater
3
treatment plants and sewer systems; watershed and stormwater management; and
flood control. The Company also responds to this market with specialized
expertise in the design and seismic retrofit of earth, rockfill and
roller-compacted concrete dams, as well as the design of reservoirs,
impoundments (including mine tailings disposal), and large outfall structures.
Hazardous Waste Management. In this market segment, the Company
conducts initial site investigations, designs remedial actions for site
clean-up, and provides construction management services during site clean-up.
This market involves identifying and developing measures to dispose of hazardous
and toxic waste effectively at contaminated sites. The Company also provides air
quality monitoring and designs modifications required to meet national and local
air quality standards. This work requires specialized knowledge of, and
compliance with, complex applicable regulations, as well as the permitting and
approval processes.
4
Clients
General
The Company's clients include local, state and Federal government
agencies, as well as private sector and international businesses. The Company's
revenues from local, state and Federal government agencies and private and
international businesses for the last five fiscal years are as follows:
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(In thousands)
Domestic:
Local and
state
agencies $346,072 43% $255,423 63% $198,472 65% $ 99,871 56% $ 88,207 54%
Federal
agencies 116,340 14 67,042 17 64,226 21 58,751 33 59,611 36
Private
businesses 288,067 36 83,986 20 42,772 14 21,147 11 16,270 10
International 55,467 7 - - - - - - - -
-------- --- -------- --- -------- --- -------- --- -------- ---
Total $805,946 100% $406,451 100% $305,470 100% $179,769 100% $164,088 100%
======== === ======== === ======== === ======== === ======== ===
Contract Pricing and Terms of Engagement
The Company primarily conducts its business through cost-plus,
fixed-price, and time-and-materials contracts.
Under its cost-plus contracts, the Company charges clients negotiated
rates based on the Company's direct and indirect costs. Labor costs and
subcontractor services are the principal components of the Company's direct
costs. Federal Acquisition Regulations, which are applicable to all Federal
government contracts and which are partially incorporated in many local and
state agency contracts, limit the recovery of certain specified indirect costs
on contracts subject to such regulations. In negotiating a cost-plus contract,
the Company estimates all recoverable direct and indirect costs and then adds a
profit component, which is either a percentage of total recoverable costs or a
fixed negotiated fee, to arrive at a total dollar estimate for the project. The
Company receives payment based on the total actual number of labor hours
expended. If the actual total number of labor hours is lower than estimated, the
revenues from that project will be lower than estimated. If the actual labor
hours expended exceed the initial negotiated amount, the Company must obtain a
contract modification to receive payment for such overage. The Company's profit
margin will increase to the extent the Company is able to reduce actual costs
below the estimates used to produce the negotiated fixed prices on contracts not
covered by Federal Acquisition Regulations; conversely, the Company's profit
margin will decrease and the Company may realize a loss on the project if the
Company does not control
5
costs and exceeds the overall estimates used to produce the negotiated price.
Cost-plus contracts covered by Federal Acquisition Regulations require an audit
of actual costs and provide for upward or downward adjustments if actual
recoverable costs differ from billed recoverable costs. The Defense Contract
Audit Agency, auditors for the Department of Defense and other Federal agencies,
has completed incurred cost audits of the Company's Federal contracts for fiscal
years ended through October 31, 1988, resulting in immaterial adjustments. In
addition, local and state agencies perform cost audits which historically have
resulted in immaterial adjustments.
Under its fixed-price contracts, the Company receives an agreed sum
negotiated in advance for the specified scope of work. Under fixed-price
contracts, no payment adjustments are made if the Company over-estimates or
under-estimates the number of labor hours required to complete the project,
unless there is a change of scope in the work to be performed. Accordingly, the
Company's profit margin will increase to the extent the number of labor hours
and other costs are below the contracted amounts. The profit margin will
decrease and the Company may realize a loss on the project if the number of
labor hours required and other costs exceed the estimates.
Under its time-and-materials contracts, the Company negotiates hourly
billing rates and charges its clients based on actual time expended. In
addition, it is reimbursed for the actual out-of-pocket costs of materials and
other direct incidental expenditures incurred in connection with performing the
contract. The Company's profit margins on time-and-materials contracts fluctuate
based on actual labor and overhead costs directly charged or allocated to
contracts compared with negotiated billing rates.
The Company currently earns approximately 7% of its revenues from
international operations, substantially all of which derives from the former W-C
business. The focus of the Company's international business is in Australia, New
Zealand, and continental Europe.
Backlog, Project Designations and Indefinite Delivery Contracts
The Company's contract backlog was $675 million at October 31, 1998,
compared to $470.4 million at October 31, 1997. The Company's contract backlog
consists of the amount billable at a particular point in time for future
services under executed funded contracts. Indefinite delivery contracts, which
are executed contracts requiring the issuance of task orders, are included in
contract backlog only to the extent the task orders are actually issued and
funded. Of the contract backlog of $675 million at October 31, 1998,
approximately 30%, or $200 million, is not reasonably expected to be filled
within the next fiscal year ending October 31, 1999.
The Company has also been designated by customers as the recipient of
certain future contracts. These "designations" are projects that have been
awarded to the Company but for which contracts have not yet been executed. Task
orders under executed indefinite delivery contracts which are expected to be
issued in the immediate future are included in designations. Total contract
designations were estimated to be $504 million at October 31, 1998, as compared
to $446 million at October 31, 1997. Typically, a significant portion of
designations are converted into signed contracts. However, there is no assurance
this will continue to occur in the future.
6
Indefinite delivery contracts are signed contracts pursuant to which
work is performed only when specific task orders are issued by the client.
Generally these contracts exceed one year and often indicate a maximum term and
potential value. Certain indefinite delivery contracts are for a definite time
period with renewal option periods at the client's discretion. While the Company
believes that it will continue to get work under these contracts over their
entire term, because of renewals and the necessity for issuance of individual
task orders, continued work by the Company and the realization of their
potential maximum values under these contracts are not assured. However, because
of the increasing frequency with which the Company's government and private
sector clients use this contracting method, the Company believes their potential
value should be disclosed along with backlog and designations as an indicator of
the Company's future business. When the client notifies the Company of the scope
and pricing of task orders, the estimated value of such task orders is added to
designations. When such task orders are signed and funded, their value goes into
backlog. At October 31, 1998, the potential value of the Company's five largest
indefinite delivery contracts was as follows:
At October 31, 1998
-------------------------------------
Total Revenues Estimated
Potential recognized thru Funded Estimated Remaining
Contract Term Values October 31, 1998 Backlog Designations Values
- -------- ---- ------------ ----------------- ------- ------------ ------------
(In millions)
"METRIC"(1) 1997-2004 $190.0 $ 1.6 $ 8.7 $ 3.1 $176.6
"Navy CLEAN"(2) 1989-1999 166.0 146.4 4.7 0.5 14.4
"MRS OAMS"(3) 1997-2003 150.0 0.6 5.1 0.5 143.8
"EPA RAC 9"(4) 1998-2008 140.0 - - - 140.0
"EPA RAC 10"(5) 1998-2008 100.0 - - - 100.0
------ ------- ----- ----- ------
Total $746.0 $148.6 $18.5 $4.1 $574.8
====== ======= ===== ===== ======
Competition
The industry is highly fragmented and very competitive. As a result, in
each specific market area the Company competes with many engineering and
consulting firms, several of which are substantially larger than the Company and
possess greater financial resources. No firm currently dominates any significant
portion of the Company's market areas. Competition is based on quality of
service, expertise, price, reputation, and local presence, or the ability to
provide services globally. The Company believes that it competes favorably with
respect to each of these factors in the market areas it serves.
- -----------------
The names of the clients and the complete titles of the contracts listed in the
table above are:
1. Department of the Air Force, McClellan Environmental Remediation
Implementation Contract.
2. Department of the Navy, Comprehensive Long-Term Environmental Action -
Navy.
3. Department of the Air Force, McClellan Remedial Systems Operations and
Maintenance Services.
4. United States Environmental Protection Agency, Response Action Contract,
Region 9.
5. United States Environmental Protection Agency, Response Action Contract,
Region 10.
7
Employees
The Company has approximately 6,600 employees, many of whom hold
advanced or technical degrees and have extensive experience in a variety of
disciplines applicable to the Company's business. The Company also employs, at
various times on a temporary basis, up to several hundred additional persons to
meet contractual requirements. Nineteen of the Company's employees are covered
by a collective bargaining agreement. The Company has never experienced a strike
or work stoppage. The Company believes that employee relations are good.
ITEM 2. PROPERTIES
The Company leases office space in 130 principal locations throughout
the world. Most of the leases are written for a minimum term of three years with
options for renewal, sublease rights, and allowances for improvements.
Significant lease agreements expire at various dates through the year 2007. The
Company believes that its current facilities are sufficient for the operation of
its business and that suitable additional space in various local markets is
available to accommodate any needs that may arise.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company or its
subsidiaries alleging breaches of contract or negligence in connection with the
Company's performance of professional services. In some actions, damages
(including punitive or treble damages) are sought which substantially exceed the
Company's insurance coverage. Based upon management's experience that most legal
proceedings settle for less than any claimed damages, at this time management
does not believe that any of such proceedings are likely to result in a judgment
against, or settlement by, the Company materially exceeding the Company's
insurance coverage or have a material adverse effect on the consolidated
financial position and operations of the Company.
8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended October 31, 1998.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position Held Age
- ---- ------------- ---
Martin M. Koffel.............Chief Executive Officer, President 59
and Director of the Company
from May 1989; Chairman of the
Board from June 1989.
Kent P. Ainsworth............Executive Vice President from April 1996, 52
Vice President and Chief Financial Officer
of the Company from January 1991;
Secretary of the Company
from May, 1994.
Robert L. Costello . . . . Executive Vice President, URS Greiner 47
Woodward Clyde ("URSGWC"),
the Company's principal operating division,
since November 1998; Executive Vice
President, URS Greiner ("URSG"), the
Company's former principal operating division,
from November 1997 to October 1998;
President of Greiner Engineering, Inc., a
division of the Company from April 1996 to
to October 1997; Vice President and
Director of the Company since
April 1996; President and Chief Executive
Officer of Greiner Engineering, Inc., from
August 1995 to March 1996 and Director of same
August 1995 to March 1996; President and
Chief Operating Officer of same from
February 1994 to August 1995;
Executive Vice President and
Chief Financial Officer of same from
August 1988 to August 1994.
9
Name Position Held Age
- ---- ------------- ---
Joseph Masters...............Vice President and General Counsel 42
of the Company since July 1997,
Vice President, Legal, from
April 1994 to June 1997; Vice President
and Associate General Counsel of
URS Consultants, Inc. from
May 1992 to April 1994;
outside counsel to the Company
from January 1990 to May 1992.
Irwin L. Rosenstein . . . President of URSGWC, the Company's 62
principal operating division, since November
1998; President of URSG from November
1997 to October 1998, President of
URS Consultants, Inc., the Company's
former principal operating division,
from February 1989 to November 1997;
Director of the Company since February
1989; Vice President of the Company
since 1987.
Jean-Yves Perez . . . . . . Director of the Company and Executive 53
Vice President of URSGWC, the
Company's principal operating division,
since November 1998; President of
Woodward-Clyde Group, Inc. ("W-C"),
a division of the Company from November 1997
to October 1998; Director of the
Company since November 1997; President
and Chief Executive Officer of W-C
from 1987 to October 1997.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The shares of the Company's common stock are listed on the New York
Stock Exchange and the Pacific Exchange (under the symbol "URS"). At December
18, 1998, the Company had approximately 3,000 stockholders of record. The
following table sets forth the high and low closing sale prices of the Company's
common stock, as reported by The Wall Street Journal for the periods indicated.
MARKET PRICE
------------------------------
LOW HIGH
--- ----
Fiscal Period:
1997:
First Quarter $ 7.75 $ 10.38
Second Quarter $ 9.50 $ 10.88
Third Quarter $ 9.63 $ 15.06
Fourth Quarter $ 13.13 $ 18.81
1998:
First Quarter $ 12.13 $ 16.38
Second Quarter $ 13.00 $ 16.50
Third Quarter $ 16.00 $ 18.81
Fourth Quarter $ 14.06 $ 17.94
1999:
First Quarter $ 17.94 $ 23.25
(through December 18, 1998)
The Company has not paid cash dividends since 1986 and, at the present
time, management of the Company does not anticipate paying dividends in the near
future. Further, the Company is precluded from paying dividends on its
outstanding common stock pursuant to its senior secured revolving credit
facility with its lender and the Indenture governing the 85/8% Debentures. See
Item 8, Consolidated Financial Statements and Supplementary Data, Note 8, Notes
Payable and Long Term Debt and Note 11, Stockholders' Equity.
ITEM 6. SUMMARY OF SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial data of the Company
for the five years ended October 31, 1998. The data presented below should be
read in conjunction with the Consolidated Financial Statements of the Company
including the notes thereto.
11
SUMMARY OF SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
Years Ended October 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------
Income Statement Data:
Revenues $805,946 $406,451 $305,470 $179,769 $164,088
-------- -------- -------- -------- --------
Operating expenses:
Direct operating 478,640 241,002 187,129 108,845 102,500
Indirect, general and
administrative 277,065 141,442 102,389 63,217 55,455
-------- -------- -------- -------- --------
Total operating expenses 755,705 382,444 289,518 172,062 157,955
-------- -------- -------- -------- --------
Operating income 50,241 24,007 15,952 7,707 6,133
Interest expense, net 8,774 4,802 3,897 1,351 1,244
-------- -------- -------- -------- --------
Income before income taxes 41,467 19,205 12,055 6,356 4,889
Income tax expense 18,800 7,700 4,700 1,300 450
-------- -------- -------- -------- --------
Net income $ 22,667 $ 11,505 $ 7,355 $ 5,056 $ 4,439
======== ======== ======== ======== ========
Net income per share:
Basic $ 1.51 $ 1.15 $ .92 $ .72 $ .63
======== ======== ======== ======== ========
Diluted $ 1.43 $ 1.08 $ . 81 $ .66 $ .57
======== ======== ======== ======== ========
Weighted average shares:
Basic 14,963 10,018 8,020 7,000 7,080
Diluted 15,808 10,665 9,067 7,618 7,746
As of October 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $130,969 $ 63,236 $ 57,570 $ 36,307 $ 33,674
Total assets 451,704 210,091 194,932 75,935 65,214
Total debt 116,016 48,049 61,263 9,999 9,270
Stockholders' equity $166,360 $ 77,151 $ 56,694 $ 39,478 $ 33,973
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1998 Compared with Fiscal 1997
Revenues in fiscal 1998 were $805.9 million, or 98% over the amount
reported in fiscal 1997. The growth in revenues is primarily attributable to the
acquisition and integration of W-C, the results of which are included commencing
November 1, 1997. The integration of W-C's corporate management, administration,
human resources, accounting and finance, information systems and, to a lesser
extent, marketing and sales functions, immediately followed the acquisition.
Direct operating expenses, which consist of direct labor and direct
expenses including subcontractor costs, increased $237.6 million, or 99%, over
the amount reported in fiscal 1997. The increase is due to the addition of the
direct operating expenses of W-C and to increases in subcontractor costs and
direct labor costs as well. Indirect general and administrative expenses
("IG&A") increased to $277.1 million in fiscal 1998 from $141.4 million in
fiscal 1997 as a result of the addition of the W-C overhead as well as an
increase in business activity. Expressed as a percentage of revenues, IG&A
expenses decreased slightly from 35% in fiscal 1997 to 34% in fiscal 1998. The
Company attributes this stability to the cost controls exercised by the Company.
Net interest expense increased to $8.8 million in fiscal 1998 from $4.8 million
in fiscal 1997 as a result of increased borrowings incurred in connection with
the acquisition of W-C.
With an effective income tax rate of 45% in 1998, the Company earned
net income of $22.7 million while in 1997 net income was $11.5 million after an
effective income tax rate of 40%. The increase in the effective tax rate was
primarily due to the consolidation of W-C and to nondeductible goodwill, state
taxes, and operating in countries outside the United States with higher tax
rates. The Company earned $1.43 per share on a diluted basis in fiscal 1998
compared to $1.08 per share in fiscal 1997.
The Company's backlog of signed and funded contracts at October 31,
1998, was $675 million as compared to $470.4 million at October 31, 1997. The
value of the Company's designations was $504 million at October 31, 1998, as
compared to $446 million at October 31, 1997.
13
Fiscal 1997 Compared with Fiscal 1996
Revenues in fiscal 1997 were $406.5 million, or 33% over the amount
reported in fiscal 1996. The growth in revenues is primarily attributable to the
acquisition of Greiner, the results of which are included commencing April 1,
1996. Accordingly, in fiscal 1997 the results of operations of Greiner were
included for twelve months compared to only seven months in fiscal 1996.
Direct operating expenses, which consist of direct labor and direct
expenses including subcontractor costs, increased $53.9 million, or 29%, over
the amount reported in fiscal 1996. The increase is due to the addition of the
direct operating expenses of Greiner and to increases in subcontractor costs and
direct labor costs as well. IG&A expenses increased to $141.4 million in fiscal
1997 from $102.4 million in fiscal 1996 as a result of the addition of the
Greiner overhead as well as an increase in business activity. Expressed as a
percentage of revenues, IG&A expenses increased slightly from 34% in fiscal 1996
to 35% in fiscal 1997. The Company attributes this stability to the cost
controls exercised by the Company. Net interest expense increased to $4.8
million in fiscal 1997 from $3.9 million in fiscal 1996 as a result of increased
borrowings incurred in connection with the acquisition of Greiner.
With an effective income tax rate of 40% in 1997, the Company earned
net income of $11.5 million while in 1996 net income was $7.4 million after an
effective income tax rate of 39%. The Company earned $1.08 per share on a
diluted basis in fiscal 1997 compared to $.81 per share in fiscal 1996.
The Company's backlog of signed and funded contracts at October 31,
1997, was $470.4 million as compared to $399.2 million at October 31, 1996. The
value of the Company's designations was $446 million at October 31, 1997, as
compared to $295.9 million at October 31, 1996.
Income Taxes
The Company currently has $4.6 million net operating loss ("NOL")
carryforwards which are limited to $750,000 per year, pursuant to Section 382 of
the Internal Revenue Code, related to its October 1989 quasi-reorganization. The
Company also has available $7.8 million of foreign NOLs. These NOLs are
available only to offset income earned in foreign jurisdictions.
The Company has recorded deferred tax liabilities. The deferred tax
liability increased primarily because of nondeductible goodwill and other
liabilities related to the acquisition of W-C. The valuation allowance was
increased by a net of a decrease of $260,000 due to the utilization of net
operating losses and an increase of $2.1 million resulting from the W-C
acquisition.
14
Liquidity and Capital Resources
The Company's liquidity and capital measurements are set forth below:
October 31,
---------------------------------------------
1998 1997 1996
---------------------------------------------
Working capital $130,969,000 $63,236,000 $57,570,000
Working capital ratio 1.8 to 1 1.7 to 1 1.7 to 1
Average days to convert billed
accounts receivable to cash 72 71 85
Percentage of debt to equity 69.7% 62.2% 107.7%
Cash and cash equivalents amounted to $36.5 million at October 31,
1998, an increase of $14.4 million from the prior fiscal year-end, principally
as a result of the increase in cash generated by domestic operations. During
fiscal year 1998, the Company repaid debt of $83.2 million, which included
scheduled principal payments on long-term debt of $12.3 million and loan payoffs
of $65.2 million. The Company also funded other operating requirements.
During fiscal 1998, cash flow provided by operating activities
totaled $32 million. This represented an increase of $20 million from 1997,
primarily due to the addition of W-C's contracts in process. The majority of the
operating cash flow was generated by domestic operations. The Company's working
capital has increased primarily due to the acquisitions of W-C and Greiner. The
Company intends to satisfy its working capital needs primarily through internal
cash generation.
During fiscal 1998, the Company paid $132 million for the purchase of
W-C, and incurred new borrowings of $110 million from establishing a long-term
Credit Agreement with a syndicate of banks led by Wells Fargo Bank, N.A. ("the
Bank"). The net proceeds of the debt were incurred to fund a portion of the W-C
acquisition and refinance bank debt previously incurred in the acquisition of
Greiner. The Company will be expected to pay scheduled principal installments of
$16.4 million on its term debt with the Bank annually through fiscal 2004. The
Company expects to make such payments from internally generated cash.
The Company is a professional services organization and, as such, is
not capital intensive. Capital expenditures during fiscal years 1998, 1997, and
1996 were $12.2 million, $5.1 million, and $3 million, respectively. The
expenditures were principally for computer-aided design and general purpose
computer equipment to accommodate the Company's growth.
On February 12, 1997, the Bank exercised the 435,562 warrants held by
the Bank at $4.34 per share, resulting in the issuance of an additional 435,562
shares to the Bank and additional paid-in capital of approximately $1.9 million.
On February 14, 1997, various partnerships managed by Richard C. Blum &
Associates, Inc. ("RCBA") exercised the 1,383,586 warrants held by such entities
at $4.34 per share. The exercise price of these warrants was paid by a
combination of cash and the cancellation of the $3 million face amount of debt
drawn under the Company's line of credit with certain RCBA entities. The
exercise resulted in the issuance of an additional 1,383,586 shares to the RCBA
entities and additional paid-in capital of approximately $5 million.
15
At October 31, 1998, the Company's senior secured revolving credit
facility with the Bank provides for advances up to $40 million. Also at October
31, 1998, the Company had outstanding letters of credit totaling $3 million
which reduced the amount available to the Company under its revolving credit
facility to $37 million.
The Company believes that its existing financial resources, together
with its planned cash flow from operations and its existing credit facilities,
will provide sufficient capital to fund its combined operations and capital
expenditure needs for the foreseeable future.
Cash paid during the period for:
Years Ended October 31,
-----------------------
1998 1997 1996
---- ---- ----
(In thousands)
Interest $ 7,857 $5,181 $4,142
Income taxes $18,398 $8,780 $6,483
Acquisitions
In March 1996, the Company acquired all of the capital stock of
Greiner for $78.8 million, comprising cash and debt of $69.3 million and 1.4
million shares of the Company's common stock.
(In thousands)
Purchase price of Greiner
(net of prepaid loan fees of $1.6 million) $77,184
Fair value of assets acquired (39,510)
-------
Excess purchase price over net assets acquired $37,674
=======
In November 1997, the Company acquired W-C for common stock, cash,
and debt of $132.4 million.
(In thousands)
Purchase price of W-C
(net of prepaid loan fees of $4 million) $128,366
Fair value of assets acquired (36,194)
--------
Excess purchase price over net assets acquired $ 92,172
========
16
Factors Affecting Operating Results
In addition to the other information included or incorporated by reference
in this Form 10-K, the following factors could affect the Company's actual
results:
Dependence Upon Government Programs and Contracts
The Company derives more than 50% of its revenue from local, state and
Federal government agencies. Therefore, the demand for the Company's services is
directly related to legislative decisions about funding. These decisions, in
turn, depend on public concern with rebuilding and expanding the nation's
infrastructure and addressing various environmental problems. The Company is
very dependent upon the existence of these government programs and upon its
ability to participate in such programs. There is no assurance that public
pressure for these programs will continue, that governments will have the
available resources to fund such programs (especially in light of budget
constraints), that such programs will continue to be funded even if governments
have available financial resources, or that the Company will continue to be
awarded contracts under such programs. More than 50% of the Company's current
and anticipated work is related to government contracts. Some of these contracts
are subject to renewal or extension annually, so continued work by the Company
under these contracts in future periods is not assured. Contracts with
government agencies are subject to termination for convenience by the agency.
Contracts with government agencies that have adopted Federal Acquisition
Regulations are subject to an audit of actual costs incurred and provide for
upward or downward adjustment of payments if audited costs differ from billed
costs.
Pricing Risks
The Company's services are billed on a "cost-plus," "fixed-price," or
"time-and-materials" basis. Under cost-plus contracts, the rates for the
Company's direct and indirect costs are negotiated and fixed before work
commences. Under fixed-price contracts, the entire contract price is fixed
before work commences. Frequently, the Company submits proposals on extremely
complex projects to be performed over several years, which makes the accurate
forecasting of costs very difficult. In the past, the Company experienced low
profit margins or losses on certain of both its cost-plus and fixed-price
contracts because overhead and general and administrative costs were excessive
and could not be factored into contract proposals. The Company subsequently
reduced its overhead and general and administrative costs. However, to the
extent the Company does not control overhead, general and administrative and
other costs, or underestimates such costs, the Company may have low profit
margins, or may incur losses.
Environmental and Professional Liability Exposure; Adequacy of Insurance
Coverage
The Company's business involves the planning, design and program and
construction management of a wide variety of complex projects. If problems
develop with these projects, either while under construction or after they have
been completed, claims may be made against the Company alleging breach of
contract or negligence in the performance of its professional services. In
addition, the Company's professional services involve the planning, design and
program and construction management of waste management and pollution control
facilities. Federal laws, such as the Resource Conservation and Recovery Act of
1976 ("RCRA") and the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), and various state and local laws, strictly
regulate the handling, removal, treatment and transportation of toxic and
hazardous substances and impose liability for environmental contamination caused
by such substances. Moreover, so-called "toxic tort" litigation has increased
markedly in recent years as those injured by hazardous substances seek recovery
for personal injuries or property damage under common law theories. While the
Company does not directly handle,
17
remove, treat or transport toxic or hazardous substances, some of the Company's
contracts require the Company to design systems for those functions or to
subcontract for or supervise such work. The Company may therefore be exposed to
claims for damages caused by environmental contamination arising from projects
on which the Company has worked.
The Company currently maintains an insurance program which includes
insurance coverage for primary professional liability and errors and omissions
("E&O") claims and environmental impairment liability claims, excess E&O
coverage, and both primary and excess comprehensive general liability insurance
coverage, all up to specified coverage limits and with a variety of standard
exclusions. While the Company believes that its insurance program currently is
adequate, there can be no assurance that the Company can maintain its existing
insurance coverage, that insurance coverage will be available under the
Company's existing or previous insurance programs with respect to claims made
against the Company, or that claims will not exceed the amount of any insurance
coverage which is available.
Various legal proceedings are pending against the Company or its
subsidiaries alleging breaches of contract or negligence in connection with the
performance of professional services. In some actions punitive or treble damages
are sought which substantially exceed the Company's insurance coverage. The
Company's management does not believe that any of such proceedings will have a
material adverse effect on the consolidated financial position and operations of
the Company.
Attraction and Retention of Qualified Professionals
Whether the Company can retain and expand its staff of qualified
technical professionals will help determine the Company's future success. There
can be shortages of qualified technical professionals in various fields. The
market for engineering and environmental professionals is competitive and there
can be no assurance that the Company will be successful in attracting and
retaining such professionals. In addition, the Company relies heavily upon the
experience and ability of its senior executive staff and the loss of a
significant portion of such individuals could have a material adverse effect on
the Company.
Principal Stockholders; Concentration of Stock Ownership
A significant portion of the Company's common stock is held by a small
number of institutional investors. RCBA is the sole general partner of Richard
C. Blum & Associates, L.P. ("RCBA"), which, as the sole general partner or the
investment advisor to certain entities, has voting and dispositive control with
respect to an aggregate of 2,933,888 shares of common stock, or approximately
19% of the outstanding common stock. Richard C. Blum, Vice Chairman of the Board
of Directors of the Company, is the majority stockholder of RCBA and directly
owns 22,982 shares of common stock, is the beneficiary of a Keogh Plan which
holds 2,454 shares of common stock, and holds options to purchase 10,000 shares
of common stock, all of which are currently exercisable. In addition, Heartland
Advisors, Inc. and FMR Corp. hold an aggregate of 3,407,995 shares of common
stock, or approximately 22% of the outstanding common stock. A sale by one or
more institutional investors of their common stock could materially adversely
affect its market price. A significant decline in the price of the common stock
due to these or other factors might make it more difficult for the Company to
sell equity securities or equity-related securities in the future at a time and
price that the Company deems appropriate.
Volatility; Market for the Shares
The Company's common stock is listed for trading on the New York Stock
Exchange and the Pacific Exchange. The stock has been thinly traded, which may
have caused substantial fluctuations in its market price. Fluctuations in
quarterly financial results and general economic conditions such as recessions
or high interest rates may also cause the market price of the stock to fluctuate
substantially.
18
Competition
The architectural and engineering services industry is highly
fragmented and very competitive. As a result, in each specific market area, the
Company competes with many engineering and consulting firms, several of which
are substantially larger than the Company and which possess greater financial
resources. Competition is based upon reputation, quality of service, price,
expertise and local presence.
Year 2000 Compliance
Generally. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in the computer shutting down or
performing incorrect computations. As a result, before December 31, 1999,
computer systems and software used by many companies may need to be upgraded to
comply with such "Year 2000" requirements.
The Company's Year 2000 Issues; State of Readiness. Year 2000 issues
which may affect the Company fall into two basic categories:
1. Business Disruption Issues. In certain situations, a Year
2000 problem could interfere with the operation of the Company's business. For
example, a Year 2000 problem could adversely impact: (a) the Company's ability
to interface with third parties, such as receiving payments from clients or
supplies from vendors on a timely basis, (b) the reliability of the Company's
internal information management systems, such as accounting systems, or (c) the
physical operation of systems used by the Company which have embedded
technology, such as elevator and telephone systems, security systems and other
physical office infrastructure. Such business disruption issues could arise from
internal Year 2000 problems in software used by the Company or from external
Year 2000 problems encountered by third parties.
The Company has commenced a Year 2000 compliance program to address
such issues:
Third Party Interfaces: The Company is discussing with its clients and
vendors the potential impact the Year 2000 issue will have on
their systems, including possible delays in receiving payment from
clients resulting from Year 2000 problems affecting such clients'
accounting and payables systems. As the Company assesses these
issues, it expects to develop contingency plans against such
payment delays and other Year 2000 problems which may include, for
example, holding additional cash reserves.
Internal Information Systems: The Company has completed an inventory of
its internal hardware and software and is currently performing a
Year 2000 readiness assessment and impact analysis for these
systems. Year 2000 issues for many of the Company's critical
internal information systems have been or are being addressed as
part of the previously planned upgrade of such systems following
the Company's acquisition of W-C. For example, the Company
believes that its e-mail software is currently Year 2000 compliant
and anticipates that in the near future its upgraded company-wide
accounting and financial reporting system and its payroll and
human resources system will be Year 2000 compliant.
Embedded Technology Systems: The Company currently is examining
infrastructure issues on an office-by-office basis. As the Company
renegotiates its office leases or enters into new leases, it is
incorporating language designed to protect the Company against
potential business
19
interruption stemming from Year 2000 problems. The Company expects
to develop contingency plans to address any such embedded
technology issues as they are identified.
2. Client Deliverables. A limited number of projects undertaken by the
Company include the specification of computer-based components as part of the
work delivered to clients, and an even fewer number of projects involve the
actual development of software and hardware. The Company is implementing a plan
of action related to such client deliverables, which includes developing an
inventory of affected projects and contacting affected clients and offering
assistance with their Year 2000 compliance issues. However, because the Company
generally has not manufactured or designed this hardware or software, it
anticipates that the responsibility for any Year 2000 problems associated with
these deliverables ultimately will rest with the hardware or software
manufacturer. The Company also has drafted contract clauses to address Year 2000
issues which have been distributed to all officers with contracting authority
for insertion in the Company's future client contracts.
Costs. The Company has not incurred substantial incremental costs in
connection with its Year 2000 compliance programs. For example, the Company has
been working on integrating its internal information management systems after
the acquisition of W-C regardless of the Year 2000 issue and did not accelerate
the replacement of such systems due to Year 2000 compliance issues. The Company
has, however, devoted internal resources and hired some external resources to
assist with the implementation and monitoring of its Year 2000 compliance
programs. Such costs are not significant.
Risks. At this time, the Company does not anticipate that costs of its
Year 2000 compliance program or the risks to the Company which might arise from
the Year 2000 problem are likely to be material. However, because the Company
has no control over third parties' products or services, the Company cannot
ensure Year 2000 compliance by third parties. Problems encountered by the
Company's clients and vendors arising from the Year 2000 issue could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, if the Company's plans to address the Year
2000 issue are not successfully or timely implemented, the Company may need to
devote more resources to the process and additional costs may be incurred, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The costs of the Company's Year 2000 compliance programs and the
timetable on which the Company plans to complete such programs are based on
management's best estimates, and reflect assumptions regarding the availability
and cost of personnel trained in this area, the compliance plans of third
parties and similar uncertainties. However, due to the complexity and
pervasiveness of the Year 2000 issue, and in particular the uncertainty
regarding the compliance programs of third parties, no assurance can be given
that these estimates will be achieved, and actual results could differ
materially from those anticipated.
20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of URS Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
URS Corporation and its subsidiaries at October 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers L.L.P.
--------------------------------------------
PRICEWATERHOUSECOOPERS L.L.P
San Francisco, California
December 18, 1998
21
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
October 31,
--------------------------
1998 1997
----- -----
ASSETS
Current assets:
Cash and cash equivalents $ 36,529 $ 22,134
Accounts receivable, including retainage amounts of $16,101 and $9,191, less
allowance for doubtful accounts of $7,206 and $1,488 161,742 80,251
Costs and accrued earnings in excess of billings on contracts in process, less
allowance for losses of $6,896 and $1,838 77,881 37,741
Deferred income taxes -- 3,843
Prepaid expenses and other assets 10,033 2,885
-------- --------
Total current assets 286,185 146,854
Property and equipment at cost, net 29,517 17,848
Goodwill, net 129,748 42,485
Other assets 6,254 2,904
-------- --------
$451,704 $210,091
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 16,400 $ 4,775
Notes payable 1,943 --
Accounts payable 37,236 20,198
Accrued salaries and wages 34,797 17,769
Accrued expenses and other 29,385 17,863
Billings in excess of costs and accrued earnings on contracts in process 35,455 23,013
-------- --------
Total current liabilities 155,216 83,618
Long-term debt 94,957 41,448
Deferred income taxes 5,377 --
Deferred compensation and other 29,794 7,874
-------- --------
Total liabilities 285,344 132,940
-------- --------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common shares, par value $.01; authorized 20,000 shares;
issued 15,206 and 10,741 shares, respectively 152 107
Treasury stock (287) (287)
Additional paid-in capital 117,842 51,085
Retained earnings since February 21, 1990, date of quasi-reorganization 48,653 26,246
-------- --------
Total stockholders' equity 166,360 77,151
-------- --------
$451,704 $210,091
======== ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
22
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended October 31,
--------------------------------
1998 1997 1996
---- ---- ----
Revenues $805,946 $406,451 $305,470
-------- -------- --------
Expenses:
Direct operating 478,640 241,002 187,129
Indirect, general and administrative 277,065 141,442 102,389
Interest expense, net 8,774 4,802 3,897
-------- -------- --------
764,479 387,246 293,415
-------- -------- --------
Income before taxes 41,467 19,205 12,055
Income tax expense 18,800 7,700 4,700
-------- -------- --------
Net income $ 22,667 $ 11,505 $ 7,355
======== ======== ========
Net income per share:
Basic $ 1.51 $ 1.15 $ .92
======== ======== ========
Diluted $ 1.43 $ 1.08 $ .81
======== ======== ========
See Notes to Consolidated Financial Statements
23
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Common Shares Additional Total
---------------------- Treasury Paid-in Retained Stockholders'
Number Amount Stock Capital Earnings Equity
-------- -------- -------- -------- -------- --------
Balances, October 31, 1995 7,167 $ 71 $ (287) $ 31,791 $ 7,901 $ 39,476
Employee stock purchases 72 1 -- 399 -- 400
Issuance of 1,401,983
shares in connection with
the Greiner acquisition 1,401 14 -- 9,449 -- 9,463
Quasi-reorganization
NOL carryforward -- -- -- 255 (255) --
Net income -- -- -- -- 7,355 7,355
-------- -------- -------- -------- -------- --------
Balances, October 31, 1996 8,640 86 (287) 41,894 15,001 56,694
Employee stock purchases 282 3 -- 2,026 -- 2,029
Issuance of 1,819,148
shares in connection with the
exercise of warrants 1,819 18 -- 6,905 -- 6,923
Quasi-reorganization
NOL carryforward -- -- -- 260 (260) --
Net income -- -- -- -- 11,505 11,505
-------- -------- -------- -------- -------- --------
Balances, October 31, 1997 10,741 107 (287) 51,085 26,246 77,151
Employee stock purchases 420 4 -- 4,601 -- 4,605
Issuance of 4,044,804
shares in connection with
the Woodward-Clyde acquisition 4 ,045 41 -- 61,896 -- 61,937
Quasi-reorganization
NOL carryforward -- -- -- 260 (260) --
Net income -- -- -- -- 22,667 22,667
-------- -------- -------- -------- -------- --------
Balances, October 31, 1998 15,206 $ 152 $ (287) $117,842 $ 48,653 $166,360
======== ======== ======== ======== ======== ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
24
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Years Ended October 31,
------------------------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income $ 22,667 $ 11,505 $ 7,355
--------- --------- ---------
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 14,556 7,927 5,295
Allowance for doubtful accounts and losses (2,351) 1,540 (3,596)
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings in excess
of billings on contracts in process (12,961) (14,193) (14,539)
Prepaid expenses and other assets (4,730) 461 1,411
Accounts payable, accrued salaries and wages and accrued
expenses 2,186 3,426 6,777
Billings in excess of costs and accrued earnings on contracts in process 23 4,839 18,174
Deferred income taxes 12,695 322 (4,164)
Other, net -- (3,292) 7,801
--------- --------- ---------
Total adjustments 9,418 1,030 17,159
--------- --------- ---------
Net cash provided by operating activities 32,085 12,535 24,514
--------- --------- ---------
Cash flows from investing activities:
Payment for business acquisition, net of cash acquired (36,937) -- (56,354)
Capital expenditures (12,201) (5,127) (2,962)
--------- --------- ---------
Net cash (used) by investing activities (49,138) (5,127) (59,316)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt 110,000 -- 50,000
Principal payments on long-term debt (83,157) (13,568) (2,056)
Proceeds from sale of common shares 2,622 1,028 389
Proceeds from exercise of stock options 1,983 1,001 11
Proceeds from exercise of warrants -- 3,895 --
Other, net -- -- (8)
--------- --------- ---------
Net cash provided (used) by financing activities 31,448 (7,644) 48,336
--------- --------- ---------
Net increase (decrease) in cash 14,395 (236) 13,534
Cash at beginning of year 22,134 22,370 8,836
--------- --------- ---------
Cash at end of year $ 36,529 $ 22,134 $ 22,370
========= ========= =========
<FN>
See Notes to Consolidated Financial Statements
</FN>
25
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of URS
Corporation and its subsidiaries (the "Company"), all of which are wholly owned.
All significant intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements account for the acquisition
of Greiner Engineering, Inc. ("Greiner") and Woodward-Clyde Group, Inc. ("W-C")
in March, 1996 and November, 1997, respectively, as purchases. See Note 3,
Acquisitions.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from contract services is recognized by the
percentage-of-completion method and includes a proportion of the earnings
expected to be realized on a contract in the ratio that costs incurred bear to
estimated total costs. Revenue on cost reimbursable contracts is recorded as
related contract costs are incurred and includes estimated earned fees in the
proportion that costs incurred to date bear to total estimated costs. The fees
under certain government contracts may be increased or decreased in accordance
with cost or performance incentive provisions which measure actual performance
against established targets or other criteria. Such incentive fee awards or
penalties are included in revenue at the time the amounts can be reasonably
determined. Revenue for additional contract compensation related to unpriced
change orders is recorded when realization is probable. Revenue from claims by
the Company for additional contract compensation is recorded when agreed to by
the customer. If estimated total costs on any contract indicate a loss, the
Company provides currently for the total loss anticipated on the contract.
Costs under contracts with the United States Government are subject to
government audit upon contract completion. Therefore, all contract costs,
including direct and indirect, general and administrative expenses, are
potentially subject to adjustment prior to final reimbursement. Management
believes that adequate provision for such adjustments, if any, has been made in
the accompanying consolidated financial statements. All overhead and general and
administrative expense recovery rates for fiscal 1989 through fiscal 1998 are
subject to review by the United States Government.
26
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large numbers of customers comprising the Company's customer base and
their dispersion across different business and geographic areas. As of October
31, 1998 and 1997, the Company had no significant concentrations of credit risk.
The Company maintains reserves for potential credit losses and such losses have
been within management's expectations. Substantially all cash balances are held
in one financial institution and at times exceed federally insured limits.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments
including cash, accounts receivable, accounts payable and other liabilities
approximate fair value due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
values of long-term debt approximate fair value.
Income Taxes
The Company uses an asset and liability approach for financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable for the period plus or minus the change in deferred tax assets and
liabilities during the period.
Property and Equipment
Property and equipment are stated at cost. In the year assets are
retired or otherwise disposed of, the costs and related accumulated depreciation
are removed from the accounts and any gain or loss on disposal is included in
income. Depreciation is provided on the straight-line method using composite
estimated lives ranging from 5 to 10 years for property and equipment. Leasehold
improvements are amortized over the length of the lease or estimated useful
life, whichever is less.
27
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 data):
Years Ended October 31,
---------------------------
1998 1997 1996
---- ---- ----
Numerator - Basic
Net income $22,667 $11,505 $ 7,355
======= ======= =======
Denominator - Basic
Weighted-average common stock outstanding 14,963 10,018 8,020
======= ======= =======
Basic income per share $ 1.51 $ 1.15 $ .92
======= ======= =======
Numerator - Diluted
Net income $22,667 $11,505 $ 7,355
======= ======= =======
Denominator - Diluted
Weighted-average common stock outstanding 14,963 10,018 8,020
Effect of dilutive securities:
Stock options 845 647 1,047
------- ------- -------
15,808 10,665 9,067
======= ======= =======
Diluted income per share $ 1.43 $ 1.08 $ .81
======= ======= =======
Stock options to purchase 199,535 shares of common stock at prices
ranging from $7.38 to $31.25 per share were outstanding at October 31, 1996, 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 13,525 shares of common stock at prices
ranging from $13.63 to $31.25 per share were outstanding at October 31, 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 7,000 shares of common stock at prices
ranging from $16.13 to $31.25 per share were outstanding at October 31, 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.
28
Industry Segment Information
The Company's single business segment, consulting, provides engineering
and architectural services to local and state governments, the Federal
government, the private sector and international businesses. The Company's
services are primarily utilized for planning, design and program and
construction management of infrastructure projects.
The Company's revenues from local, state and Federal government
agencies, private businesses and internationally for the last three fiscal years
are as follows:
Years Ended October 31,
-----------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------
(In thousands)
Domestic:
Local and state agencies $346,072 43% $255,423 63% $198,472 56%
Federal agencies 116,340 14 67,042 17 64,226 33
Private businesses 288,067 36 83,986 20 42,772 11
International 55,467 7 - - - -
-------- --- -------- --- -------- ---
Total $805,946 100% $406,451 100% $305,470 100%
======== === ======== === ======== ===
Adoption of Statements of Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), which is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years is to be
restated. SFAS 131 need not be applied to interim financial statements in the
initial year of its application, but comparative information for interim periods
in the initial year of application is to be reported in financial statements for
interim periods in the second year of application. The Company will adopt SFAS
131 effective for its fiscal year beginning November 1, 1998. SFAS 131 requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. The Company does not expect that adoption of SFAS 131 will have a
material adverse effect on its financial position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments, including derivative instruments that are
embedded in other contracts, and for hedging activities. SFAS 133 is effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999. The
Company will adopt SFAS 133 effective for its fiscal quarter and year ending
October 31, 1999. The Company does not believe that adoption of SFAS 133 will
have a material adverse effect on its financial position or results of
operations.
29
Reclassifications
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the 1998 presentation with no effect on net income as
previously reported.
NOTE 2. QUASI-REORGANIZATION
In conjunction with a restructuring completed in fiscal year 1990, the
Company, with the approval of its Board of Directors, implemented a
quasi-reorganization effective February 21, 1990 and revalued certain assets and
liabilities to fair value as of that date.
The fair values of the Company's assets and liabilities at the date of
the quasi-reorganization were determined by management to approximate their
carrying value and no further adjustment of historical bases was required. No
assets were written-up in conjunction with the revaluation. As part of the
quasi-reorganization, the deficit in retained earnings of $92.5 million was
eliminated against additional paid-in capital. The balance in retained earnings
at October 31, 1998, represents the accumulated net earnings subsequent to the
date of the quasi- reorganization.
NOTE 3. ACQUISITIONS
During the year ended October 31, 1996, the Company acquired Greiner
for an aggregate purchase price of $78.8 million, comprising cash and debt of
$69.3 million and 1.4 million shares of the Company's common stock. 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 operating results of Greiner are included in the
Company's results of operations from the date of purchase.
The purchase price consisted of:
(In thousands)
Cash paid $19,321
Term debt 50,000
Common stock 9,463
-------
$78,784
=======
The purchase price of Greiner (net of prepaid loan fees of $1.6 million) $77,184
Fair value of assets acquired (39,510)
-------
Excess purchase price over net assets acquired (goodwill) $37,674
=======
During the year ended October 31, 1998, the Company acquired W-C for
an aggregate purchase price of $132.4 million, comprising cash of $39.2 million,
assumption of debt, and 4 million shares of the Company's common stock.
30
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 operating results of W-C are
included in the Company's results of operations from the date of purchase.
The purchase price consisted of:
(In thousands)
Cash paid $ 39,232
Term debt 31,198
Common stock 61,936
--------
$132,366
========
The purchase price of W-C (net of prepaid loan fees of $4 million) $128,366
Fair value of assets acquired (36,194)
--------
Excess purchase price over net assets acquired (goodwill) $ 92,172
========
The following unaudited pro forma summary presents the consolidated
results of operations as if the W-C acquisition had occurred at the beginning of
fiscal year end October 31, 1997, and does not purport to indicate what would
have occurred had the acquisition been made as of that date or of results which
may occur in the future.
Fiscal Year Ended October 31:
1997
----
(In thousands, except per share data)
Revenues $753,430
Net income $ 16,211
Net income per share $ 1.09
31
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
October 31,
-----------
1998 1997
---- ----
(In thousands)
Equipment $ 55,628 $ 29,871
Furniture and fixtures 17,417 5,335
Leasehold improvements 7,773 2,249
-------- --------
80,818 37,455
Less: accumulated depreciation
and amortization (51,301) (19,607)
-------- --------
Net property and equipment $ 29,517 $ 17,848
======== ========
NOTE 5. GOODWILL
Goodwill represents the excess of the purchase price over the fair
value of the net tangible assets of various operations acquired by the Company.
Accumulated amortization at October 31, 1998 and 1997, was $14.8 million and
$9.7 million, respectively. Goodwill is amortized on the straight-line method
over 30 years.
32
NOTE 6. INCOME TAXES
The components of income tax expense applicable to the operations each
year are as follows:
Years Ended October 31,
--------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Current:
Federal $11,170 $ 7,580 $ 5,020
State and local 1,920 1,860 1,560
Foreign 220 -- --
------- ------- -------
Subtotal 13,310 9,440 6,580
------- ------- -------
Deferred:
Federal 5,320 (1,450) (1,320)
State and local 170 (290) (560)
------- ------- -------
Subtotal 5,490 (1,740) (1,880)
------- ------- -------
Total tax provision $18,800 $ 7,700 $ 4,700
======= ======= =======
As of October 31, 1998, the Company has available net operating loss
("NOL") carryforwards for Federal income tax and financial statement purposes of
$4.6 million. The Company's NOL utilization is limited to $750,000 per year
pursuant to section 382 of the Internal Revenue Code, related to the Company's
October 1989 quasi-reorganization. The Company also has available $7.8 million
of foreign NOLs. These NOLs are available only to offset income earned in
foreign jurisdictions.
While the Company had available NOL carryforwards which partially
offset otherwise taxable income for Federal income tax purposes, for state tax
purposes such amounts are not necessarily available to offset income subject to
tax.
33
The significant components of the Company's deferred tax assets and
liabilities as of October 31 are as follows:
Deferred tax assets/(liabilities) - due to:
1998 1997
---- ----
(In thousands)
Allowance for doubtful accounts $ 861 $ 400
Other accruals and reserves 14,425 6,620
Net operating loss 4,330 1,840
-------- --------
Total 19,616 8,860
Valuation allowance (4,330) (2,460)
-------- --------
Deferred tax asset 15,286 6,400
-------- --------
Accrual to cash (4,384) --
Revenue retentions (3,614) --
Acquisition liabilities (3,097) --
Other (5,436) --
Deferred gain and unamortized bond premium (1,269) (1,447)
Mark to market (2,645) --
Depreciation and amortization (218) (1,110)
-------- --------
Deferred tax liability (20,663) (2,557)
-------- --------
Net deferred tax asset/(liability) $ (5,377) $ 3,843
======== ========
The net change in the total valuation allowance for the year ended
October 31, 1998 was a decrease of $260,000 due to the utilization of net
operating losses and an increase of $2.1 million resulting from the W-C
acquisition.
34
The difference between total tax expense and the amount computed by
applying the statutory Federal income tax rate to income before taxes is as
follows:
Years Ended October 31,
----------------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Federal income tax expense based upon
Federal statutory tax rate of 35% $ 14,520 $6,720 $4,100
Nondeductible goodwill amortization 1,460 620 400
Nondeductible expenses 830 480 240
NOL carryforwards utilized (260) (260) (250)
State taxes, net of Federal benefit 1,890 1,120 660
Adjustment due to change in Federal and state rates (420) (610) -
Utilization of deferred tax allowance and other
adjustments 780 (370) (450)
------- ------- -----
Total taxes provided $18,800 $7,700 $4,700
======= ====== ======
NOTE 7. RELATED PARTY TRANSACTIONS
Interest paid to related parties was $131,068 and $260,712 in fiscal
1997 and 1996, respectively. See Note 8, Notes Payable and Long-Term Debt.
The Company has agreements for business consulting services to be
provided by Richard C. Blum & Associates, Inc. ("RCBA") and Richard C. Blum, a
Director of the Company. Under these agreements, the Company paid $90,000 and
$60,000 to RCBA and Richard C. Blum, respectively, during each of fiscal 1998,
1997 and 1996. Richard C. Blum also received an additional cash amount of
$21,500, $15,000 and $23,000 for his services as a Director of the Company in
fiscal 1998, 1997 and 1996, respectively.
35
NOTE 8. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable to banks consist of the following:
October 31,
------------------
1998 1997
---- ----
(In thousands)
Foreign collateralized lines of credit $920 $ --
==== =====
The Company maintains two foreign lines of credit which are
collateralized by assets of foreign subsidiaries having a carrying value of
approximately $4.7 million at October 31, 1998. The interest rates for both of
the foreign lines of credit was the prime commercial rate plus .75% consistent
with market conditions in the respective countries at October 31, 1998. The
approximate weighted average interest rates on the foreign lines of credit
ranged from 7.38% to 9.75% at October 31, 1998.
Long-term debt consists of the following:
October 31,
-----------------------------
1998 1997
---- ----
(In thousands)
Third party:
Bank term loan, payable in quarterly installments $97,778 $35,655
6 1/2% Convertible Subordinated Debentures due
2012 (net of bond issue costs of $34 and $36) 2,003 2,108
85/8% Senior Subordinated Debentures due 2004 (net of discount
and bond issue costs of $3,162 and $3,437)
(effective interest rate on date of
restructuring was 25%) 3,293 3,018
10.95% note payable, due in annual installments
through 2001 (net of issue costs of $52) 1,951 -
Obligations under capital leases 10,071 7,268
-------- -------
115,096 48,049
Less:
Current maturities of long-term debt 16,501 4,775
Current maturities of notes payable 599 -
Current maturities of capital leases 3,039 1,826
-------- -------
$ 94,957 $41,448
======== =======
36
At October 31, 1998, the Company's senior secured revolving credit
facility with Wells Fargo Bank, N.A. (the "Bank") provides for advances up to
$40 million and expires October 31, 2003. Borrowings on the revolving credit
facility bear interest at the option of the Company 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 October 31, 1998, the
interest rate was based on the London Interbank Offered Rate ("LIBOR") of 5.97%,
plus a spread of 1.395% . At October 31, 1998, the Company had outstanding
letters of credit totaling $3 million which reduced the amount available to the
Company under its revolving credit facility to $37 million.
Also at October 31, 1998, the Company had outstanding with the Bank
$97.8 million of senior secured term loans payable over seven years beginning
October 1997. The loans bear 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 October 31, 1998, the interest rate
was based on the LIBOR of 5.97%, plus a spread of 1.375%.
Related Parties
On February 12, 1997, the Bank exercised the 435,562 warrants held by
the Bank at $4.34 per share, resulting in the issuance of an additional 435,562
shares to the Bank and an additional paid-in capital of approximately $1.9
million.
On February 14, 1997, various partnerships managed by RCBA exercised
1,383,586 warrants held by such entities at $4.34 per share. The exercise price
of these warrants was paid by a combination $2 million of cash and the
cancellation of the $3 million amount of debt drawn under the Company's line of
credit with certain RCBA entities. The exercise resulted in the issuance of an
additional 1,383,586 shares to the RCBA entities. These equity transactions are
reflected in the Company's financial statements.
Debentures
The Company's 6-1/2% Convertible Subordinated Debentures due 2012 are
convertible into the Company's common shares at the rate of $206.30 per share.
Sinking fund payments calculated to retire 70% of the debentures prior to
maturity began in February 1998. Interest is payable semiannually in February
and August. Interest is payable semiannually in January and July on the
Company's 8-5/8% Senior Subordinated Debentures due 2004 ("8-5/8% Debentures").
Both the 6-1/2% Convertible Subordinated Debentures and the 8-5/8% Debentures
are subordinate to all debt to the Bank.
Maturities
The amounts of long-term debt outstanding at October 31, 1998, maturing
in the next five years are as follows:
(In thousands)
1999 $17,101
2000 17,114
2001 17,239
2002 16,501
2003 16,501
Thereafter 20,569
Amounts payable under capitalized lease agreements are excluded from the above
table.
37
NOTE 9. OBLIGATIONS UNDER LEASES
Total rental expense included in operations for operating leases for
the fiscal years ended October 31, 1998, 1997 and 1996, amounted to $30.6
million, $14.9 million and $10.9 million, respectively. Certain of the lease
rentals are subject to renewal options and escalation based upon property taxes
and operating expenses. These operating lease agreements expire at varying dates
through 2007.
Obligations under noncancelable lease agreements are as follows:
Capital Operating
Leases Leases
------- ---------
(In thousands)
1999 $ 3,239 $22,443
2000 2,561 19,455
2001 2,315 14,767
2002 1,445 10,341
2003 511 6,769
Thereafter - 10,718
------- -------
Total minimum lease payments $10,071 $84,493
=======
Less amounts representing
interest 1,978
-----
Present value of net minimum
lease payments $ 8,093
=======
NOTE 10. COMMITMENTS AND CONTINGENCIES
Currently, the Company has $51 million per occurrence and $52 million
aggregate commercial general liability insurance coverage. The Company is also
insured for professional errors and omissions ("E&O") and contractor pollution
liability ("CPL") claims with an aggregate limit of $50 million after a
self-insured retention of $.5 million. The E&O and CPL coverages are on a
"claims made" basis, covering only claims actually made during the policy period
currently in effect. Thus, if the Company does not continue to maintain this
policy, it will have no coverage under the policy for claims made after its
termination date even if the occurrence was during the term of coverage. It is
the Company's intent to maintain this type of coverage, but there can be no
assurance that the Company can maintain its existing coverage, that claims will
not exceed the amount of insurance coverage or that there will not be claims
relating to prior periods that were subject only to "claims made" coverage.
Various legal proceedings are pending against the Company or its
subsidiaries alleging breaches of contract or negligence in connection with the
performance of professional services. In some actions punitive or treble damages
are sought which substantially exceed the Company's insurance coverage. The
Company's management does not believe that any of such proceedings will have a
material adverse effect on the consolidated financial position and operations of
the Company.
38
NOTE 11. STOCKHOLDERS' EQUITY
Declaration of dividends, except common stock dividends, is restricted
by the senior secured credit facility with the Bank and the Indenture governing
the 8-5/8% Debentures. Further, declaration of dividends may be precluded by
existing Delaware law.
On March 26, 1991, the stockholders approved the 1991 Stock Incentive
Plan ("1991 Plan"). The 1991 Plan provides for the grant not to exceed 3,250,000
Restricted Shares, Stock Units and Options. As of October 31,1998, the Company
had issued 96,200 shares of Restricted Stock under the 1991 Plan.
Under the Employee Stock Purchase Plan ("ESP Plan") implemented in
September 1985, employees may purchase shares of common stock through payroll
deductions of up to 10% of the employee's base pay. Contributions are credited
to each participant's account on the last day of each six-month participation
period of the ESP Plan (which commences on January 1 and July 1 of each year).
The purchase price for each share of common stock shall be the lower of 85% of
the fair market value of such share on the last trading day before the
participation period commences or 85% of the fair market value of such share on
the last trading day in the participation period. Employees purchased 209,482
shares under the ESP Plan in fiscal 1998 and 140,469 shares in fiscal 1997.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its 1991 Plan.
Accordingly, no compensation cost has been recognized for its 1991 Plan. Had
compensation cost for the Company's 1991 Plan been determined consistent with
SFAS Statement No. 123, "Accounting for Stock-Based Compensation", the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
Years Ended October 31,
-----------------------
1998 1997 1996
---- ---- ----
(In thousands, except per share data)
Net income: As reported $22,667 $11,505 $7,355
Pro forma $22,343 $11,237 $7,223
Basic earnings As reported $ 1.51 $ 1.15 $ .92
per share: Pro forma $ 1.49 $ 1.04 $ .81
Diluted earnings As reported $ 1.43 $ 1.08 $ .81
per share: Pro forma $ 1.41 $ 1.04 $ .78
39
A summary of the status of the stock options granted under the
Company's 1991 Plan for the years ended October 31, 1998, 1997 and 1996, is
presented below:
1998 1997 1996
-------------------------- -------------------------- ------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of
year 1,508,280 $ 7.70 1,382,434 $ 6.64 1,160,900 $6.61
Granted 644,500 $ 14.63 280,000 $ 10.63 242,900 $6.76
Exercised (98,356) $ 7.07 (138,287) $ 7.52 (2,000) $5.63
Forfeited ( 23,330) $ 14.40 (15,867) $ 7.68 (19,366) $6.89
--------- ---------- ---------
Outstanding at end of year 2,031,094 $ 11.12 1,508,280 $ 7.70 1,382,434 $6.64
========= ========= =========
Options exercisable at year- 1,154,388 $ 6.96 1,064,683 $ 6.50 1,029,733 $6.66
end
Weighted-average fair value
of options granted during
the year $3.55 $3.30 $2.02
The following table summarizes information about stock options outstanding at October
31, 1998:
Outstanding Exercisable
- ------------------------------------------------------------------------------------------ -------------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
$3.00 - $8.00 1,017,650 5.5 years $ 6.00 955,111 $5.94
$8.01 - $17.06 1,013,444 8.7 years $ 13.11 199,277 $9.71
---------- ----------
2,031,094 1,154,388
========== ==========
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
1998 1997 1996
---- ---- ----
Risk-free interest rates 4.43 % - 5.79% 5.81% - 6.53% 5.46% - 6.53%
Expected life 4 years 4 years 4 years
Volatility 28.30% 24.73% 24.73%
Expected dividends None None None
40
NOTE 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Years Ended October 31,
----------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Interest $ 7,857 $5,181 $4,142
Income taxes $18,398 $8,780 $6,483
In February 1997, RCBA exercised certain warrants. The exercise price
of these warrants was paid by a combination of $2 million of cash and the
cancellation of $3 million of debt drawn under the Company's line of credit with
certain RCBA entities.
Equipment purchased through capital lease obligations was $12.2
million, $4.3 million and $1.5 million for the years ended October 31, 1998,
1997 and 1996.
In March 1996, the Company acquired all of the capital stock of Greiner
for $78.8 million.
(In thousands)
Purchase price of Greiner
(net of prepaid loan fees of $1.6 million) $77,184
Fair value of assets acquired (39,510)
-------
Excess purchase price over net assets acquired $37,674
=======
In November 1997, the Company acquired all of the capital stock of
W-C for $132.4 million.
(In thousands)
Purchase price of W-C
(net of prepaid loan fees of $4 million) $128,366
Fair value of assets acquired (36,194)
--------
Excess purchase price over net assets acquired (goodwill) $ 92,172
========
NOTE 13. DEFINED CONTRIBUTION PLAN
The Company has a defined contribution retirement plan under Internal
Revenue Code Section 401(k). The plan covers all full-time employees who are at
least 18 years of age. Contributions by the Company are made at the discretion
of the Board of Directors. Contributions in the amount of $4.9 million, $2
million and $1.6 million were made to the plan in fiscal 1998, 1997 and 1996,
respectively.
41
NOTE 14. VALUATION AND ALLOWANCE ACCOUNTS
Additions
Charged to Deductions
Beginning Costs and from Ending
Balance Expenses Reserves Balance
------- -------- -------- -------
(In thousands)
October 31, 1998
Allowances for losses and doubtful accounts $3,326 $11,721 $ 945 $14,102
October 31, 1997
Allowances for losses and doubtful accounts $4,866 $ 995 $2,535 $ 3,326
October 31, 1996
Allowances for losses and doubtful accounts $1,270 $ 4,679 $1,083 $ 4,866
The allowance for losses and doubtful accounts increased significantly
in fiscal 1998 due to the acquisition of W-C.
NOTE 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal 1998 and 1997 is summarized as
follows:
Fiscal 1998 Quarters Ended
-----------------------------------------------
Jan. 31 Apr. 30 July 31 Oct. 31
-------- -------- -------- --------
(In thousands, except per share data)
Revenues $186,156 $195,182 $207,484 $217,124
Operating income 9,578 11,416 14,271 14,976
Net income $ 4,169 $ 4,943 $ 6,389 $ 7,166
Income per share:
Basic $ .28 $ .33 $ .43 $ .47
======== ======== ======== ========
Diluted $ .27 $ .31 $ .40 $ .45
======== ======== ======== ========
Weighted-average
number of shares 15,632 15,723 15,970 15,961
======== ======== ======== ========
Fiscal 1997 Quarters Ended
-----------------------------------------------
Jan. 31 Apr. 30 July 31 Oct. 31
-------- -------- -------- --------
(In thousands, except per share data)
Revenues $ 95,541 $ 99,759 $100,196 $110,955
Operating income 5,081 5,458 6,280 7,188
Net income $ 2,196 $ 2,457 $ 3,181 $ 3,671
Income per share:
Basic $ .26 $ .24 $ .30 $ .35
======== ======== ======== ========
Diluted $ .25 $ .22 $ .28 $ .33
======== ======== ======== ========
Weighted-average
number of shares 8,784 11,171 11,294 11,126
======== ======== ======== ========
Operating income represents continuing operations before interest
income and interest expense.
42
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
Incorporated by reference from the information under the captions
"Election of Directors" and "Compliance with Section 16(a) of Securities
Exchange Act" in the Company's definitive proxy statement for the Annual Meeting
of Stockholders to be held on March 23, 1999 and from Item 4a -- "Executive
Officers of the Registrant" in Part I.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the caption
"Executive Compensation" in the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held on March 23, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the information under the caption "Stock
Ownership" in the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on March 23, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from Item 8, Financial Statement and
Supplementary Data, Note 8, Notes Payable and Long-Term Debt and Note 7, Related
Party Transactions.
PART IV
ITEM 14. EXHIBITS. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)Item 8. Consolidated Financial Statements and
Supplementary Data
Report of Independent Accountants
Consolidated Balance Sheets
October 31, 1998 and October 31, 1997
Consolidated Statements of Operations
For the years ended October 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity For the years
ended October 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows For the years ended October 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Schedules are omitted because they are not applicable, not required
or because the required information is included in the Consolidated Financial
Statements or Notes thereto.
43
(a)(3) Exhibits
3.1 Certificate of Incorporation of the Company, filed as Exhibit
3.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1991 (the "1991 Form 10-K"), and
incorporated herein by reference.
3.2 Bylaws of the Company, filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended October
31, 1996 (the "1996 Form 10-K"), and incorporated herein by
reference.
4.1 Indenture, dated as of February 15, 1987, between the Company
and First Interstate Bank of California, Trustees, relating to
$57.5 million of the Company's 6 1/2% Convertible Subordinated
Debentures Due 2012, filed as Exhibit 4.10 to the Company's
Registration Statement on Form S-2 (Commission File No.
33-11668), and incorporated herein by reference.
4.2 Amendment Number 1 to Indenture governing 6-1/2% Convertible
Subordinated Debentures due 2012, dated February 21, 1990,
between the Company and First Interstate Bank of California,
Trustee, filed as Exhibit 4.9 to the Company's Registration
Statement on Form S-1 (Commission File No. 33-56296) (the
"1990 Form S-1"), and incorporated herein by reference.
4.3 Indenture, dated as of March 16, 1989, between the Company and
MTrust Corp., National Association, Trustee relating to the
Company's 8-5/8% Senior Subordinated Debentures due 2004,
filed as Exhibit 13C to the Company's Form T-3 under the Trust
Indenture Act of 1939 (Commission File No. 22-19189), and
incorporated herein by reference.
4.4 Amendment Number 1 to Indenture governing 8-5/8% Senior
Subordinated Debentures due 2004, dated as of April 7, 1989,
filed as Exhibit 4.11 to the 1990 Form S-1 and incorporated
herein by reference.
4.5 Amendment Number 2 to Indenture governing 8-5/8% Senior
Subordinated Debentures due 2004, dated February 21, 1990,
between the Company and MTrust Corp. National Association,
Trustee, filed as Exhibit 4.12 to the 1990 Form S-1 and
incorporated herein by reference.
10.1 Incentive Compensation Plan of the Company, approved by the
Board of Directors on December 17, 1998, subject to the
approval of the Company's stockholders. FILED HEREWITH.
10.2 1991 Stock Incentive Plan of the Company, 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 SEC on February 17, 1998 (the
"1998 Proxy Statement"), and incorporated herein by reference.
10.3 Employee Stock Purchase Plan of the Company, as amended
effective December 18, 1997, filed as Appendix B to the 1998
Proxy Statement, and incorporated herein by reference.
10.4 Non-Executive Directors Stock Grant Plan of the Company,
adopted December 17, 1996, filed as Exhibit 10.5 to the 1996
Form 10-K and incorporated herein by reference.
10.5 Selected Executive Deferred Compensation Plan of the Company,
filed as Exhibit 10.3 to the 1990 Form S-1 and incorporated
herein by reference.
10.6 1998 Incentive Compensation Plan of the Company. FILED
HEREWITH.
10.7 1998 Incentive Compensation Plan of URS Greiner. FILED
HEREWITH.
44
10.8 1998 Incentive Compensation Plan of Woodward-Clyde. FILED
HEREWITH.
10.9 Non-Executive Directors Stock Grant Plan, as amended, filed as
Exhibit 10.1 to the Form 10-Q for the quarter ended January
31, 1998, and incorporated herein by reference.
10.10 Stock Appreciation Rights Agreement, dated July 18, 1989,
between the Company and Irwin L. Rosenstein, filed as Exhibit
10.13 to the 1990 Form S-1 and incorporated herein by
reference.
10.11 Stock Appreciation Rights Agreement, dated October 9, 1989,
between the Company and Martin M. Koffel, filed as Exhibit
10.15 to the 1990 Form S-1 and incorporated herein by
reference.
10.12 Contingent Restricted Stock Award Agreement dated as of
December 16, 1997 between the Company and Martin M. Koffel.
FILED HEREWITH.
10.13 Contingent Restricted Stock Award Agreement dated as of
December 16, 1997 between the Company and Kent P. Ainsworth.
FILED HEREWITH.
10.14 Employment Agreement, dated December 16, 1991, between the
Company and Martin M. Koffel, filed as Exhibit 10.13 to the
1991 Form 10-K and incorporated herein by reference.
10.15 Employment Agreement, dated May 7, 1991, between the Company
and Kent P. Ainsworth, filed as Exhibit 10.16 to the 1991 Form
10-K and incorporated herein by reference.
10.16 Employment Agreement, dated August 1, 1991, between URS
Consultants, Inc. and Irwin L. Rosenstein, filed as Exhibit
10.12 to the 1991 Form 10-K and incorporated herein by
reference.
10.17 Employment Agreement, dated March 29, 1996, between Greiner,
Inc. and Robert L. Costello, filed as Exhibit 10.1 to the Form
10-Q for the quarter ended April 30, 1996 and incorporated
herein by reference.
10.18 Employment Agreement, dated November 1, 1997, between
Woodward-Clyde Group, Inc. and Jean-Yves Perez, filed as
Exhibit 10.1 to the Form 10-Q for the quarter ended April 30,
1998, and incorporated herein by reference.
10.19 Employment Agreement, dated as of March 20, 1998, between the
Company and Joseph Masters. FILED HEREWITH.
10.20 Amendment to Employment Agreement, dated October 11, 1994,
between URS Consultants, Inc., and Irwin L. Rosenstein, filed
as Exhibit 10.12(a) to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1994, and
incorporated herein by reference.
10.21 Amendment to Employment Agreement dated as of October 13, 1998
between the Company and Martin M. Koffel. FILED HEREWITH.
10.22 Form of Amendment to Employment Agreement dated as of October
13, 1998 between the Company, URS Greiner Woodward-Clyde
Consultants, Inc., or URS Greiner Woodward-Clyde, Inc. and
each of Kent P. Ainsworth, Joseph Masters, Martin Tanzer,
Irwin L. Rosenstein, Robert Costello and Jean-Yves Perez.
FILED HEREWITH.
10.23 Letter Agreement, dated February 14, 1990, between the Company
and Richard C. Blum, filed as Exhibit 10.31 to the 1990 Form
S-1 and incorporated herein by reference.
10.24 Letter Agreement, dated February 14, 1990, between the Company
and Richard C. Blum & Associates, Inc., filed as Exhibit 10.32
to the 1990 Form S-1 and incorporated herein by reference.
45
10.25 Registration Rights Agreement, dated February 21, 1990, among
the Company, Wells Fargo Bank, N.A. and the Purchaser Holders
named therein, filed as Exhibit 10.33 to the 1990 Form S-1 and
incorporated herein by reference.
10.26 Post-Affiliation Agreement, dated July 19, 1989, between the
Company and URS International, Inc., filed as Exhibit 10.42 to
the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1989 and incorporated herein by reference.
10.27 Form of Indemnification Agreement filed as Exhibit 10.34 to
the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1992 and incorporated herein by reference;
dated as of May 1, 1992 between the Company and each of
Messrs. Ainsworth, Blum, Koffel, Madden, Praeger, Rosenstein
and Walsh; dated as of March 22, 1994 between the Company and
each of Admiral Foley and Mr. Der Marderosian; dated as of
March 29, 1996 between the Company and Mr. Costello; dated as
of November 6, 1996 between the Company and Mr. Glynn; dated
as of January 20, 1997 between the Company and Mr. Masters;
and dated as of November 17, 1997 between the Company and Mr.
Perez.
10.28 Agreement and Plan of Merger dated August 18, 1997, by and
among URS Corporation, Woodward-Clyde Group, Inc. and W-C
Acquisition Corporation, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed on August 21, 1997 and
incorporated herein by reference.
10.29 Credit Agreement, dated as of November 14, 1997, between URS
Corporation, the Financial Institutions listed therein as
Lenders and Wells Fargo Bank, National Association, as
Administrative Agent for the Lenders, filed as Exhibit 2.2 to
the Company's Current Report on Form 8-K filed on November 26,
1997, and incorporated herein by reference.
21.1 Subsidiaries of the Company. FILED HEREWITH.
23.1 Consent of PricewaterhouseCoopers L.L.P. FILED HEREWITH.
24.1 Powers of Attorney of the Company's directors and officers.
FILED HEREWITH.
27 Financial Data Schedule (filed with electronic version only).
(b)(1) Reports on Form 8-K.
None.
46
SIGNATURES
Pursuant to the requirements of Section 13 or 29(d) of the Securities
Exchange Act of 1934, URS Corporation, the Registrant, has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
URS Corporation
(Registrant)
By /s/ KENT P. AINSWORTH
---------------------------------------
Kent P. Ainsworth
Executive Vice President and
Chief Financial Officer
Dated: January 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ MARTIN M. KOFFEL Chairman of the Board January 29, 1999
- ----------------------------------------------------- of Directors and Chief
(Martin M. Koffel) Executive Officer
/s/ KENT P. AINSWORTH Executive Vice President, January 29, 1999
- ----------------------------------------------------- Chief Financial Officer
(Kent P. Ainsworth) Principal Accounting
Officer and Secretary
IRWIN L. ROSENSTEIN* Director January 29, 1999
- -----------------------------------------------------
(Irwin L. Rosenstein)
RICHARD C. BLUM* Director January 29, 1999
- -----------------------------------------------------
(Richard C. Blum)
RICHARD Q. PRAEGER* Director January 29, 1999
- -----------------------------------------------------
(Richard Q. Praeger)
47
WILLIAM D. WALSH * Director January 29, 1999
- -----------------------------------------------------
(William D. Walsh)
RICHARD B. MADDEN* Director January 29, 1999
- -----------------------------------------------------
(Richard B. Madden)
ARMEN DER MARDEROSIAN* Director January 29, 1999
- -----------------------------------------------------
(Armen Der Marderosian)
ADM. S. ROBERT FOLEY, JR., USN (RET.)* Director January 29, 1999
- -----------------------------------------------------
(Adm. S. Robert Foley, Jr., USN (Ret.))
ROBERT D. GLYNN, JR.* Director January 29, 1999
- -----------------------------------------------------
(Robert D. Glynn Jr.)
ROBERT L. COSTELLO* Director January 29, 1999
- -----------------------------------------------------
(Robert Costello)
JEAN-YVES PEREZ* Director January 29, 1999
- -----------------------------------------------------
(Jean-Yves Perez)
*By
/s/ Kent P. Ainsworth
- -----------------------------------------------------
(Kent P. Ainsworth, Attorney-in-fact)
48