FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
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)
Registrant's telephone number, including area code: 415-774-2700
------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 3,1999
- ---------------------------- -------------------------------
Common stock, $.01 par value 15,652,906
URS CORPORATION AND SUBSIDIARIES
This Form 10-Q for the third quarter ended July 31, 1999 contains
forward-looking statements within the meaning of the securities laws that
involve risks and uncertainties. The Company believes that its expectations are
reasonable and are based on reasonable assumptions. However, risks and
uncertainties relating to future events that could cause actual results to
differ materially from the Company's expectations include the Company's ability
to successfully integrate Dames & Moore Group ("Dames & Moore") and the Company
following the acquisition of Dames & Moore in June 1999, the impact on the
Company and its financial condition of the substantial indebtedness incurred in
connection with the Dames & Moore acquisition, the Company's dependency on
government programs and contracts, competitive practices in the industry,
possible changes in legislation or governmental regulation or policies,
contracting risks, the Company's ability to attract and retain qualified
professionals, exposure to potential liability from legal proceedings, and other
factors discussed more fully below in Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Company's 1998 Form 10-K,
in the Company's Form 10-Q for the quarter ended April 30, 1999, in the
Company's registration statement on Form S-4, as amended, initially filed with
the Securities and Exchange Commission on August 4, 1999 (registration no.
333-84521) and in other publicly available reports filed with the Securities and
Exchange Commission from time to time. The Company does not intend, and assumes
no obligation, to update any forward-looking statements.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
July 31, 1999 and October 31, 1998............................4
Consolidated Statements of Operations
Three and nine months ended July 31,
1999 and 1998................................................5
Consolidated Statements of Cash Flows
Nine months ended July 31, 1999 and 1998......................6
Notes to consolidated financial statements.....................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................................15
2
PART II. OTHER INFORMATION:
Item 3. Submission of Matters to a Vote of
Security Holders.............................................20
Item 4. Other Information.............................................21
Item 5. Exhibits and Reports on Form 8-K..............................21
3
ITEM 1. FINANCIAL STATEMENTS
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(unaudited)
July 31, October 31,
ASSETS 1999 1998
----------- -----------
Current assets:
Cash $ 19,738 $ 36,529
Accounts receivable, less allowance for doubtful accounts
of $15,268 and $7,206 445,586 161,742
Costs and accrued earnings in excess of
billings on contracts in process, less
allowance for losses of $14,620 and $6,896 186,837 77,881
Prepaid expenses and other assets 28,023 10,033
----------- -----------
Total current assets 680,184 286,185
Property and equipment at cost, net 93,004 29,517
Goodwill, net 466,616 129,748
Other assets 67,132 6,254
----------- -----------
$ 1,306,936 $ 451,704
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 14,602 $ 16,400
Notes payable 13,191 1,943
Accounts payable 97,175 37,236
Accrued salaries and wages 73,482 34,797
Accrued expenses and other 63,160 29,385
Billings in excess of costs and accrued earnings on
contracts in process 31,267 35,455
----------- -----------
Total current liabilities 292,877 155,216
Long-term debt 667,498 94,957
Deferred income taxes 12,514 5,377
Deferred compensation and other 42,242 29,794
----------- -----------
Total liabilities 1,015,131 285,344
----------- -----------
Mandatory Redeemable Series A and C Preferred Stock 100,000 --
----------- -----------
Stockholders' equity:
Common shares, par value $.01; authorized 20,000 shares;
issued 15,653 and 15,206 shares 157 152
Treasury stock (287) (287)
Additional paid-in capital 121,125 117,842
Foreign currency translation adjustment 430 --
Retained earnings since February 21, 1990, date of
quasi-reorganization 70,380 48,653
----------- -----------
Total stockholders' equity 191,805 166,360
----------- -----------
$ 1,306,936 $ 451,704
=========== ===========
<FN>
See Notes to Consolidated Financial Statements
</FN>
4
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three months ended Nine months ended
July 31, July 31,
--------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Revenues $428,482 $207,484 $849,758 $588,822
-------- -------- -------- --------
Expenses:
Direct operating 255,531 130,262 500,889 361,849
Indirect, general and administrative 143,386 62,951 292,123 191,708
Interest expense, net 10,781 2,582 15,495 6,864
-------- -------- -------- --------
409,698 195,795 808,507 560,421
-------- -------- -------- --------
Income before taxes 18,784 11,689 41,251 28,401
Income tax expense 8,400 5,300 18,200 12,900
Preferred stock dividend 1,333 -- 1,333 --
-------- -------- -------- --------
Net income available for common stockholders $ 9,051 $ 6,389 $ 21,718 $ 15,501
======== ======== ======== ========
Other comprehensive income:
Foreign currency translation adjustment 360 -- 430 --
-------- -------- -------- --------
Comprehensive income $ 9,411 $ 6,389 $ 22,148 $ 15,501
======== ======== ======== ========
Net income per share:
Basic $ .58 $ .43 $ 1.41 $ 1.04
======== ======== ======== ========
Diluted $ .53 $ .40 $ 1.30 $ .98
======== ======== ======== ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
5
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
July 31,
--------------------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,718 $ 15,501
--------- ---------
Adjustment to reconcile net income to net cash
provided (used)by operating activities:
Depreciation and amortization
Preferred stock dividend 16,320 11,045
Allowance for doubtful accounts and losses 1,333 --
Changes in current assets and liabilities, net of 3,992 (109)
effects of purchases of businesses:
Accounts receivable and costs and accrued
earnings in excess of billings on contracts in process (42,006) (3,104)
Prepaid expenses and other assets (5,650) 197
Accounts payable, accrued salaries and wages
and accrued expenses (42,779) (9,709)
Billings in excess of costs and accrued
earnings on contracts in process (5,739) 810
Deferred income taxes 12,618 250
Other, net (14,927) 503
--------- ---------
Total adjustments (76,838) (117)
--------- ---------
Net cash provided (used) by operating activities (55,120) 15,384
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition, net of cash acquired (316,167) (36,937)
Capital expenditures (10,191) (7,747)
--------- ---------
Net cash (used) by investing activities (326,358) (44,684)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit 15,000 --
Proceeds from issuance of debt 854,739 110,000
Payments on merger fees (18,738) (4,000)
Principal payments on long-term debt (589,597) (73,977)
Proceeds from sale of common shares 2,693 755
Proceeds from exercise of stock options 2,090 887
Proceeds from issuance of preferred stock 100,000 --
Payments on financing fees related to issuance of
preferred stock (1,500) --
--------- ---------
Net cash provided by financing activities 364,687 33,665
--------- ---------
Net (decrease) increase in cash (16,791) 4,365
Cash at beginning of period 36,529 22,134
--------- ---------
Cash at end of period $ 19,738 $ 26,499
========= =========
SUPPLEMENTAL INFORMATION:
Interest paid $ 12,180 $ 7,482
========= =========
Taxes paid $ 15,633 $ 11,565
========= =========
Equipment subject to capital lease obligations $ 11,651 $ 2,176
========= =========
Noncash purchase allocation adjustment $ -- $ 11,600
========= =========
Issuance of common stock in business acquisition $ -- $ 61,936
========= =========
<FN>
See Notes to Consolidated Financial Statements
</FN>
6
URS CORPORATION AND SUBSIDIARIES
Note 1. Accounting Policies
In the opinion of management, the information furnished reflects all
adjustments, consisting only of normal recurring adjustments, which are
necessary for a fair statement of the interim financial information.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1998.
The results of operations for the three and nine month periods ended July 31,
1999 are not necessarily indicative of the operating results for the full year.
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 conversion of
preferred stock. Diluted income per share is computed by dividing net income
available to common stockholders plus the preferred stock dividend by the
weighted-average dilutive potential common shares that were outstanding during
the period.
Reporting Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting of Comprehensive Income", effective January 31, 1999. SFAS No. 130
established standards for the reporting and display of comprehensive income and
its components. Other comprehensive income of the Company consists of foreign
currency translation adjustments.
Note 2. Acquisitions
In June 1999, the Company acquired publicly-held Dames & Moore for an
aggregate purchase price of $316.2 million. 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 have been allocated to goodwill. The
goodwill resulting from the Dames & Moore acquisition is being amortized on a
straight-line basis over forty years. The operating results of Dames & Moore are
included in the Company's results of operations from June 1999, the date of
purchase.
The total purchase price paid was provided through the issuance by the
Company of (1) $100 million of Series A and Series C Preferred Stock to RCBA
Strategic Partners, L.P., (2) $200 million of senior subordinated increasing
rate notes pursuant to a bridge financing facility provided by
7
Morgan Stanley Senior Funding, Inc. (the "Bridge Facility"), and (3) borrowings
of up to $450 million of the $550 million available under a senior secured
credit facility between the Company, certain guarantors, including the Company,
and Wells Fargo Bank, National Association, as administrative agent (the "Senior
Secured Credit Facility"). The Senior Secured Credit Facility includes three
term loan facilities in the aggregate amount of $450 million and a revolving
credit facility in the amount of $100 million. The term loan facilities consist
of a $250 million tranche ("Term Loan A"), a $100 million tranche ("Term Loan
B") and another $100 million tranche ("Term Loan C"). Term Loan A matures six
years from the funding date; Term Loan B matures seven years from the funding
date; Term Loan C matures eight years from the funding date; and the revolving
credit facility matures six years from the funding date.
The revolving credit facility will be used for the Company's working
capital requirements and for general corporate purposes.
The term loans each bear interest, at the Company's option, at a rate
per annum equal to either (1) the Base Rate or (2) LIBOR, in each case plus an
applicable margin. The revolving credit facility bears interest, at the
Company's option, at a rate per annum equal to either (a) the Base Rate, (b)
LIBOR or (c) the Adjusted Sterling Rate, in each case plus an applicable margin.
The applicable margin adjusts according to a performance pricing grid based on a
ratio of Funded Debt to Earnings before Interest, Taxes, Depreciation and
Amortization. The "Base Rate" is defined as the higher of (1) Wells Fargo Bank,
National Association's Prime Rate and (2) the Federal Funds Rate plus 0.50%.
"LIBOR" is defined as the offered quotation that first class banks in the London
interbank market offer to Wells Fargo Bank, National Association for dollar
deposits, as adjusted for reserve requirements. The "Adjusted Sterling Rate" is
defined as the rate per annum displayed by Reuters at which Sterling is offered
to Wells Fargo Bank, National Association in the London interbank market as
determined by the British Bankers' Association.
The following unaudited pro forma summary presents the consolidated
results of operations as if the Dames & Moore acquisition had occurred at the
beginning of the periods presented and does not purport to indicate what would
have occurred had the acquisition been made as of those dates or of results
which may occur in the future.
Nine Months Ended Twelve Months Ended
July 31, 1999 October 31, 1998
---------- ----------
(in thousands, except per share amounts)
Revenues $1,520,937 $1,895,184
========== ==========
Net income $ 17,571 $ 11,071
========== ==========
Net income per share $ 1.00 $ .70
========== ==========
On February 1, 1999 the Company acquired privately-held Thorburn Colquhoun
Holding plc, for an aggregate purchase price of $13.6 million including
assumption of its debt. The Company has accounted for the acquisition using 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 Thorburn Colquhoun Holding, plc are included in the Company's results
of operations from the date of purchase. Pro forma operating results for the
nine months ended July 31, 1999 and the twelve months ended October 31, 1998, as
if the acquisition had been made on November 1, 1997, are not presented because
they would not be materially different from the Company's reported results.
8
Note 3. Commitments and Contingencies
The Company in the ordinary course of business is a defendant in
various lawsuits involving claims typically filed against the engineering and
consulting professions, primarily alleging professional errors or omissions.
Management makes estimates and assumptions that affect the reported amount of
liability and the disclosure of contingent liabilities. As claims develop, it is
possible that the ultimate results of these claims may differ from management's
estimates. In the opinion of management, based upon information it presently
possesses, the resolution of these claims will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
Note 4. Supplemental Guarantor Information
In June 1999, the Company completed a private placement of $200 million
principal amount of its Senior Subordinated Notes due 2009 (the "Notes"). The
Notes are fully and unconditionally guaranteed on a joint and several basis by
certain of the Company's wholly-owned subsidiaries. The Company is a holding
company with no operating assets or operations other than its investments in its
subsidiaries. Substantially all of the Company's income and cash flow is
generated by its subsidiaries. As a result, funds necessary to meet the
Company's debt service obligations are provided in large part by distributions
or advances from its subsidiaries. Under certain circumstances, contractual and
legal restrictions, as well as the financial condition and operating
requirements of the Company's subsidiaries, could limit the Company's ability to
obtain cash from its subsidiaries for the purpose of meeting its debt service
obligations, including the payment of principal and interest on the Notes.
The following information sets forth the condensed consolidating
balance sheets of the Company as of October 31, 1998 and July 31, 1999, and the
condensed consolidating statements of operations and cash flows for the nine
months ended July 31, 1999 and 1998. Investments in subsidiaries are accounted
for on the equity method; accordingly, entries necessary to consolidate the
Company and all of its subsidiaries are reflected in the eliminations column.
Separate complete financial statements of the Company and its subsidiaries that
guarantee the Notes would not provide additional material information that would
be useful in assessing the financial composition of such subsidiaries.
9
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
(unaudited)
October 31, 1998
------------------------------------------------------------
Parent and Subsidiary
Subsidiary Non
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash $ 33,487 $ 3,042 $ -- $ 36,529
Accounts receivable, net 150,190 11,552 -- 161,742
Costs and accrued earnings in excess of billings on
contracts in process, net 73,557 4,324 -- 77,881
Accounts receivable, intercompany 35,260 9,812 (45,072) --
Prepaid expenses and other assets 9,802 231 -- 10,033
--------- --------- --------- ---------
Total current assets 302,296 28,961 (45,072) 286,185
--------- --------- --------- ---------
Property and equipment, net 26,488 3,041 (12) 29,517
Goodwill, net 129,748 (12) 12 129,748
Investment in unconsolidated subsidiaries 101,251 -- (101,251) --
Other assets 6,127 127 -- 6,254
--------- --------- --------- ---------
263,614 3,156 (101,251) 165,519
--------- --------- --------- ---------
Total assets $ 565,910 $ 32,117 $(146,323) $ 451,704
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt $ 17,423 $ 920 $ -- $ 18,343
Accounts payable 35,606 1,630 -- 37,236
Intercompany payable 23,950 26,713 (50,663) --
Billings in excess of costs and accrued earnings on
contracts in process 34,438 1,017 -- 35,455
Accruals 59,331 4,851 -- 64,182
--------- --------- --------- ---------
Total current liabilities 170,748 35,131 (50,663) 155,216
Long-term debt 94,956 1 -- 94,957
Other 34,877 294 -- 35,171
--------- --------- --------- ---------
Total liabilities 300,581 35,426 (50,663) 285,344
Total stockholders' equity 265,329 (3,309) (95,660) 166,360
--------- --------- --------- ---------
Total liabilities and stockholders' equity $ 565,910 $ 32,117 $(146,323) $ 451,704
========= ========= ========= =========
10
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
(unaudited)
July 31, 1999
------------------------------------------------------------
Parent and Subsidiary
Subsidiary Non
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash $ 5,230 $ 14,508 $ -- $ 19,738
Accounts receivable, net 386,769 58,817 -- 445,586
Costs and accrued earnings in excess of billings on
contracts in process, net 165,538 21,299 -- 186,837
Accounts receivable, intercompany 69,579 (59,947) (9,632) --
Prepaid expenses and other assets 24,940 3,083 -- 28,023
---------- ---------- ---------- ----------
Total current assets 652,056 37,760 (9,632) 680,184
Property and equipment, net 80,913 12,091 -- 93,004
Goodwill, net 466,616 -- -- 466,616
Investment in unconsolidated subsidiaries 252,026 -- (252,026) --
Other assets 67,132 102,499 (102,499) 67,132
---------- ---------- ---------- ----------
Total assets $1,518,743 $ 152,350 $ (364,157) $1,306,936
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt $ 20,622 $ 7,171 $ -- $ 27,793
Accounts payable 80,605 16,570 -- 97,175
Intercompany payable 5,127 (22,330) 17,203 --
Billings in excess of costs and accrued earnings on
contracts in process 26,890 4,377 -- 31,267
Accruals 131,176 5,466 -- 136,642
---------- ---------- ---------- ----------
Total current liabilities 264,420 11,254 17,203 292,877
Long-term debt 666,913 585 -- 667,498
Intercompany payable 61,134 104,178 (165,312) --
Other 53,113 1,643 -- 54,756
---------- ---------- ---------- ----------
Total liabilities 1,045,580 117,660 (148,109) 1,015,131
Mandatory Redeemable Series A and C Preferred Stock 100,000 -- -- 100,000
---------- ---------- ---------- ----------
Total stockholders' equity 373,163 34,690 (216,048) 191,805
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $1,518,743 $ 152,350 $ (364,157) $1,306,936
========== ========== ========== ==========
11
URS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(In thousands)
(unaudited)
Nine Months Ended July 31, 1999
----------------------------------------------------------------
Parent and Subsidiary
Subsidiary Non
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Revenues $765,048 $ 87,267 $ (2,557) $849,758
-------- -------- -------- --------
Expenses:
Direct operating 451,066 52,380 (2,557) 500,889
Indirect, general and administrative 262,911 29,212 -- 292,123
-------- -------- -------- --------
Operating income 51,071 5,675 -- 56,746
Interest expense, net 13,945 1,550 -- 15,495
-------- -------- -------- --------
Income before taxes 37,126 4,125 -- 41,251
Income tax expense 16,380 1,820 -- 18,200
Preferred stock dividend 1,333 -- -- 1,333
-------- -------- -------- --------
Net income $ 19,413 $ 2,305 $ -- $ 21,718
======== ======== ======== ========
Nine Months Ended July 31, 1998
----------------------------------------------------------------
Parent and Subsidiary
Subsidiary Non
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Revenues $554,940 $ 35,400 $ (1,518) $588,822
-------- -------- -------- --------
Expenses:
Direct operating 341,527 21,840 (1,518) 361,849
Indirect, general and administrative 180,205 11,503 -- 191,708
-------- -------- -------- --------
Operating income 33,208 2,057 -- 35,265
Interest expense, net 6,452 412 -- 6,864
-------- -------- -------- --------
Income before taxes 26,756 1,645 -- 28,401
Income tax expense 12,160 740 -- 12,900
-------- -------- -------- --------
Net income $ 14,596 $ 905 $ -- $ 15,501
======== ======== ======== ========
12
URS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
(In thousands)
(unaudited)
Nine Months Ended July 31, 1998
-----------------------------------------------------
Parent and Subsidiary
Subsidiary Non
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income $ 14,596 $ 905 $ -- $ 15,501
--------- --------- --------- ---------
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 10,382 663 -- 11,045
Allowance for doubtful accounts and losses (53) (56) -- (109)
Changes in current assets and liabilities, net of effects of purchases
of businesses:
Accounts receivable and costs and accrued earnings in excess
of billings on contracts in process (2,005) 266 (1,365) (3,104)
Prepaid expenses and other assets (1,013) 1,096 114 197
Accounts payable, accrued salaries and wages and accrued
expenses (9,612) 278 (375) (9,709)
Billings in excess of costs and accrued earnings on contracts in
process (411) 1,221 -- 810
Deferred income taxes (1,499) 1,749 -- 250
Other, net 2,335 (93) (1,739) 503
--------- --------- --------- ---------
Total adjustments (1,876) 5,124 (3,365) (117)
--------- --------- --------- ---------
Net cash provided (used) by operating activities 12,720 6,029 (3,365) 15,384
--------- --------- --------- ---------
Cash flows from investing activities:
Business acquisition, net of cash acquired (36,937) -- -- (36,937)
Capital expenditures (7,199) (548) -- (7,747)
--------- --------- --------- ---------
Net cash (used) by investing activities (44,136) (548) -- (44,684)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt 110,000 -- -- 110,000
Principal payments on long-term debt (77,309) (33) 3,365 (73,977)
Payments on merger fees (4,000) -- -- (4,000)
Proceeds from sale of common shares 755 -- -- 755
Proceeds from exercise of stock options 887 -- -- 887
--------- --------- --------- ---------
Net cash provided (used) by financing activities 30,333 (33) 3,365 33,665
--------- --------- --------- ---------
Net increase in cash (1,083) 5,448 -- 4,365
Cash at beginning of period 21,495 639 -- 22,134
--------- --------- --------- ---------
Cash at end of period $ 20,412 $ 6,087 $ -- $ 26,499
========= ========= ========= =========
13
URS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
(In thousands)
(unaudited)
Nine Months Ended July 31, 1999
--------------------------------------------------
Parent and Subsidiary
Subsidiary Non
Guarantors Guarantors Eliminations Consolidated
---------- ---------- -------------------------
Cash flows from operating activities:
Net income $ 19,413 $ 2,305 $ -- $ 21,718
--------- --------- --------- ---------
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 14,688 1632 -- 16,320
Preferred stock dividend 1,333 -- -- 1,333
Allowance for doubtful accounts and losses 3,992 -- -- 3,992
Changes in current assets and liabilities, net of effects of purchases of
businesses:
Accounts receivable and costs and accrued earnings in excess
of billings on contracts in process (31,870) 10,014 (20,150) (42,006)
Prepaid expenses and other assets 10,305 (2,836) (13,119) (5,650)
Accounts payable, accrued salaries and wages and accrued
expenses (81,817) (2,288) 41,326 (42,779)
Billings in excess of costs and accrued earnings on contracts in process (447) (3,554) (1,738) (5,739)
Deferred income taxes and other, net (4,367) 8,377 (6,319) (2,309)
--------- --------- --------- ---------
Total adjustments (88,183) 11,345 -- (76,838)
--------- --------- --------- ---------
Net cash (used) provided by operating activities (68,770) 13,650 -- (55,120)
--------- --------- --------- ---------
Cash flows from investing activities:
Business acquisition, net of cash acquired (316,167) -- -- (316,167)
Capital expenditures (7,708) (2,483) -- (10,191)
--------- --------- --------- ---------
Net cash (used) by investing activities (323,875) (2,483) -- (326,358)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt 854,440 299 -- 854,739
Principal payments on long-term debt (589,597) -- -- (589,597)
Payments on merger fees (18,738) -- -- (18,738)
Proceeds from issuance of preferred stock 15,000 -- -- 15,000
Payments on financing fees related to issuance of preferred stock 100,000 -- -- 100,000
Proceeds from sale of common shares (1,500) -- -- (1,500)
Proceeds from exercise of stock options 2,693 -- -- 2,693
2,090 -- -- 2,090
--------- --------- --------- ---------
Net cash provided by financing activities 364,388 299 -- 364,687
--------- --------- --------- ---------
Net increase in cash (28,257) 11,466 -- (16,791)
Cash at beginning of period 33,487 3,042 -- 36,529
--------- --------- --------- ---------
Cash at end of period $ 5,230 $ 14,508 $ -- $ 19,738
========= ========= ========= =========
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company reports the results of its operations on a fiscal year which
ends on October 31. This Management Discussion and Analysis (MD&A) should be
read in conjunction with the MD&A and the footnotes to the Consolidated
Financial Statements included in the Annual Report on Form 10-K for the fiscal
year ended October 31, 1998 which was previously filed with the Securities and
Exchange Commission.
Results of Operations
Third quarter ended July 31, 1999 vs. July 31, 1998.
The Company's revenues were $428,482,000 for the third quarter ended July
31, 1999, an increase of $220,998,000, or 107%, over the amount reported for the
same period last year. The growth in revenue is primarily attributable to the
acquisition of Dames & Moore, the results of which are included commencing June
1999, and to a lesser extent due to an increase in demand for the Company's
on-going services on infrastructure projects.
Direct operating expenses for the quarter ended July 31, 1999, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $125,269,000, a 96% increase over the amount reported for the
same period last year. This increase is primarily due to the addition of the
direct operating expenses of Dames & Moore.
Indirect, general and administrative expenses for the quarter ended July
31, 1999 increased $80,435,000, or 128%, over the amount reported for the same
period last year as a result of the Dames & Moore acquisition.
The Company earned $18,784,000 before income taxes for the third quarter
ended July 31, 1999 compared to $11,689,000 for the same period last year. The
Company's effective income tax rate for the quarters ended July 31, 1999 and
1998 was approximately 45%.
The Company reported net income available for common stockholders of
$9,051,000, or $.53 per share for the third quarter ended July 31, 1999,
compared with $6,389,000 or $.40 per share for the same period last year.
Nine months ended July 31, 1999 vs. July 31, 1998.
The Company's revenues were $849,758,000 for the nine months ended July
31, 1999, an increase of $260,936,000, or 44%, over the amount reported for the
same period last year. The growth in revenues is primarilly attributable to the
Dames & Moore acquisition.
Direct operating expenses for the nine months ended July 31, 1999, which
consist of direct labor and other direct expenses including subcontractor costs,
increased $139,040,000, or 38%, over the amount reported in the same period last
year. This increase is primarily attributable to the Dames & Moore acquisition
as well as an overall increase in the Company's business as compared to the same
period last year. Indirect, general and administrative expenses were
$292,123,000 for the nine months ended July 31, 1999, an increase of
$100,415,000, or 52%, over the amount reported for the same period last year.
The increase in indirect, general and administrative expenses is due primarily
to the addition of the Dames & Moore overhead.
The Company earned $41,251,000 before income taxes for the nine
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months ended July 31, 1999 compared to $28,401,000 for the same period last
year. The Company's effective income tax rates for the nine months ended July
31, 1999 and 1998 was approximately 44% and 45%, respectively.
The Company reported net income available for common stockholders of
$21,718,000 or $1.30 per share, for the nine months ended July 31, 1999,
compared with $15,501,000, or $.98 per share for the same period last year.
The Company's backlog at July 31, 1999 was $1,266,000,000 compared
to $675,000,000 at October 31, 1998.
Liquidity and Capital Resources
At July 31, 1999, the Company had working capital of $387,307,000, an
increase of $256,338,000 from October 31, 1998, due primarily to the Dames &
Moore acquisition.
The Company's current revolving line of credit is $100,000,000, of which
after issuance of letters of credit aggregating $40,000,000, and $15,000,000 in
borrowings on its revolving line of credit during the nine months ended July 31,
1999, $45,000,000 was available at July 31, 1999.
The Company has incurred substantial indebtedness in connection with the
Dames & Moore acquisition. The Company has outstanding debt of $701 million,
including approximately $473.5 million of senior indebtedness.
The Company's credit agreement required compliance with certain financial
and other covenants. The Company was in compliance with such covenants at July
31, 1999.
The Company's liquidity and capital measurements are set forth below:
As of
July 31,1999
------------
Working capital $387,307,000
Working capital ratio 2.3 to 1
Average days to convert billed
accounts receivable to cash 77
Percentage of debt to equity 240%
The Company's cash and cash equivalents amounted to $19,738,000 at July
31, 1999, a decrease of $16,791,000 from October 31, 1998. During the nine month
period ended July 31, 1999, the Company's accounts receivable increased due to
the installation of a new accounting system. This caused a delay in billings
which resulted in a corresponding decrease in cash. In addition, during the nine
month period ended July 31, 1999, cash was used to fund working capital required
to support the expansion of the Company's business and to pay expenses
associated with the Dames & Moore acquisition.
During the first nine months of fiscal year 1999, the Company's cash flow
used by operating activities totaled $55,120,000. The Company's domestic
operations used substantially all of the operating cash flow.
The Company's primary sources of liquidity are cash flow from
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operations and borrowings under the Senior Secured Credit Facility. The
Company's primary uses of cash are to satisfy its working capital needs, and pay
interest and principal obligations on its outstanding indebtedness.
The Company's operating cash flow and working capital requirements have
grown substantially due to its growth. As a professional services organization,
the Company is not capital intensive. Capital expenditures, historically, have
been for computer-aided design and general purpose computer equipment to
accommodate the Company's growth. Capital expenditures during fiscal years 1998,
1997, and 1996 were $12,200,000, $5,100,000, and $3,000,000, respectively. The
Company does not expect to have any significant capital outlays resulting from
the Dames & Moore acquisition.
The Company believes that its existing financial resources including the
Senior Secured Credit Facility, together with its planned cash flow from
operations, will provide sufficient capital to fund its combined operations,
capital expenditure needs, and to pay interest and principal obligations on its
outstanding indebtedness. There can be no assurance that the Company will
generate sufficient cash flow from operations; that currently anticipated
revenue growth and cost savings will be realized, or that future borrowings
available under the Senior Secured Credit Facility will be in amounts sufficient
to pay its outstanding indebtedness or to fund other liquidity needs.
YEAR 2000 ISSUES
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 has developed and implemented a plan to achieve Year 2000
readiness. The Company has hired some external consultants and dedicated some of
its internal resources to ensure Year 2000 compliance. The Company is
implementing its Year 2000 compliance program in the following phases:
o identification and assessment of business areas affected by Year 2000
requirements
o program implementation and
o identification of risks and development of contingency and business
continuity plans to mitigate the effects of any Year 2000 failures.
Year 2000 issues which may affect the Company fall into two basic
categories, business disruption issues and client deliverable issues.
Business Disruption Issues. In some situations, a Year 2000 problem
could interfere with the operation of the Company's business. For example, a
Year 2000 problem could adversely affect the Company's ability to interface with
third parties, such as receiving payments from clients or supplies from vendors
on a timely basis, the reliability of its internal information management
systems, such as accounting systems, or the
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physical operation of its systems which have embedded technology, such as
elevator and telephone systems, security systems and other physical office
infrastructure. These business disruption issues could arise from internal Year
2000 problems in software that the Company uses or from external Year 2000
problems that third parties encounter.
The Company's Year 2000 compliance program addresses the following
issues:
o Third Party Interfaces. The Company is discussing with its clients and
vendors the potential effect that the Year 2000 issue will have on
their systems. Possible effects include delayed payments from clients
due to Year 2000 problems affecting their accounting and payables
systems. As the Company assesses these issues, it expects to develop
contingency plans for payment delays and other Year 2000 problems. The
contingency plans may include, for example, holding additional cash
reserves.
o Internal Information Systems. The Company has completed an inventory of
its internal hardware and software. The Company is currently performing
a Year 2000 readiness assessment and impact analysis for these systems.
The Company has addressed or is addressing Year 2000 issues for many of
its critical internal information systems. The Company also 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.
o Embedded Technology Systems. The Company is currently examining
infrastructure issues on an office-by-office basis. As the Company
renegotiates its office leases or enter into new leases, it is
incorporating language designed to protect it against potential
business interruption arising from Year 2000 problems. The Company
expects to develop contingency plans to address any embedded technology
issues it identifies.
Client Deliverables. The Company has undertaken a limited number of
projects that include the specification of computer-based components as part of
the work that it delivers to clients. Only a few of the Company's projects
involve the actual development of software and hardware. The Company is
implementing a plan of action related to such client deliverables. The plan
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 the 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. To address Year 2000 issues, the Company also has drafted
contract clauses and distributed them to all officers with contracting authority
for inclusion in its future client contracts.
Costs. The Company has not incurred substantial incremental costs in
connection with its Year 2000 compliance programs. 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. These
related costs are not significant.
Risks and Contingencies. The Company does not anticipate that the costs
of its Year 2000 compliance program or risks that could result from the Year
2000 problem will be material. However, because the Company has
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no control over third parties' products or services, it cannot assure you of
third-party Year 2000 compliance. Problems arising from the Year 2000 issues
that the Company's clients and vendors encounter could have a material adverse
effect on its business. 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 may incur additional costs that could
have a material adverse effect on its business.
The costs of the Company's Year 2000 compliance programs and the
timetable on which the Company plans to complete them are based on its 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. The Company cannot assure you that these estimates will
be achieved. Actual results could differ materially from those the Company
anticipates because of the complexity and pervasiveness of the Year 2000 issue
and in particular, its uncertainty regarding the compliance programs of third
parties.
The Company is in the process of determining contingency plans,
including the identification of its most reasonable likely worst case scenarios.
The Company does not yet have any contingency plans in place in the event that
it does not complete all of its Year 2000 remediation or if its major customers
or vendors are not Year 2000 compliant. The Company will base any future
contingency plans on its best estimates of numerous factors and assumptions
about future events, many of which are beyond its control. The Company cannot
assure you that these factors and assumptions will be sufficiently comprehensive
or accurate. Additionally, the Company cannot assure you that any contingency
plans would be successful or adequate to meet the Company's needs without
materially impacting its financial condition or results of operations.
The Company will also depend on third parties to resolve the Year 2000
issue. The Company is unable to project with complete certainty that those third
parties will successfully resolve their Year 2000 problems. If the Company's
plan to address the Year 2000 issue is not successfully or timely implemented,
it may need to devote more resources to the process and additional costs may be
incurred, which could have a material adverse effect on its business, financial
condition and results of operations. No one can accurately predict the severity,
duration or financial consequences of the year 2000 related failures.
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PART II
OTHER INFORMATION
ITEM 3. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
On June 9, 1999, the Company issued $200 million of senior subordinated
increasing rate notes pursuant to a bridge financing facility provided by Morgan
Stanley Senior Funding, Inc. (the "Bridge Facility"). The proceeds of this
issuance were used in connection with the Dames & Moore acquisition. The Company
paid a placement fee of $5,100,000 to Morgan Stanley Senior Funding, Inc. in
connection with this placement. This issuance was effected as a private
placement in reliance on Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and Regulation D thereunder as the transaction did not
involve a public offering and the notes were issued to an accredited investor.
On June 9, 1999, the Company issued 46,082.95 shares of its Series A
Preferred Stock and 450,000 shares of its Series C Preferred Stock to RCBA
Strategic Partners, L.P. for aggregate consideration of $100 million. The
proceeds of this issuance were used in connection with the Dames & Moore
acquisition. The Company paid a transaction fee of $1,500,000 to RCBA Strategic
Partners in connection with this placement. This issuance was effected as a
private placement in reliance on Section 4(2) of the Securities Act and
Regulation D thereunder as the transaction did not involve a public offering and
the notes were issued to an accredited investor.
On June 23, 1999, the Company issued $200 million of 12-1/4% senior
subordinated notes due 2009 to certain institutional investors pursuant to an
Indenture dated June 23, 1999, by and between the Company, certain specified
wholly-owned subsidiaries of the Company as guarantors and Firstar Bank of
Minnesota, N.A. as trustee, and a Placement Agreement dated June 18, 1999,
between the Company, such guarantors and Morgan Stanley & Co. Incorporated as
placement agent. The proceeds of this issuance were used to pay off the notes
issued under the Bridge Facility. The Company paid a placement fee of $5,500,000
to Morgan Stanley & Co. Incorporated in connection with this placement. This
issuance was effected as a private placement in reliance on Section 4(2) of the
Securities Act and Rule 144A thereunder as the transaction did not involve a
public offering and the notes were issued to qualified institutional buyers.
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ITEM 4. OTHER INFORMATION
On September 10, 1999, the Company mailed to its
stockholders of record on September 7, 1999, a notice of a special meeting of
stockholders to be held on October 12, 1999, for the following purposes:
1. to consider approval of an amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of common
stock from 20,000,000 shares to 50,000,000 shares and to increase the
authorized number of shares of preferred stock from 1,000,000 shares to
3,000,000 shares;
2. to consider approval of an amendment to and restatement of the
Company's Employee Stock Purchase Plan;
3. to consider approval of the Company's 1999 Equity Incentive Plan; and
4. to consider approval of the issuance of Series B Exchangeable
Convertible Preferred Stock to RCBA Strategic Partners, L.P. ("RCBA
Strategic Partners") in exchange for the Series A and Series C
Preferred Stock issued to RCBA Strategic Partners in connection with
the acquisition of Dames & Moore.
ITEM 5. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
The following exhibits are furnished in accordance with the
provisions of Item 601 of Regulation S-K:
Exhibit Number Exhibit
Exhibit 3(ii) Bylaws, as amended through May 5, 1999 FILED HEREWITH
Exhibit 2.1 Agreement and Plan of Merger, dated May 5, 1999, by and
among Dames & Moore Group, URS Corporation and Demeter
Acquisition Corporation (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K, dated May 7, 1999,
and incorporated herein by reference)
Exhibit 4.1 Credit Agreement, dated as of June 9, 1999, among URS
Corporation, the lenders names therein, Wells Fargo
Bank, N.A., as Co-Lead Arranger and Administrative
Agent, and Morgan Stanley Senior Funding, Inc. as Co-
Lead Arranger and Syndication Agent (filed as Exhibit
2.2 to the Company's Current Report on Form 8-K, dated
June 11, 1999, and incorporated herein by reference)
Exhibit 4.2 Note Purchase Agreement, dated as of June 9, 1999,
between Morgan Stanley Senior Funding, Inc. and URS
Corporation (filed as Exhibit 2.3 to the Company's
Current Report on Form 8-K, dated June 11, 1999, and
incorporated herein by reference)
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Exhibit 4.3 Securities Purchase Agreement, dated 5.as of May 5,
1999, between RCBA Strategic Partners, L.P. and URS
Corporation (filed as Exhibit 2.4 to the Company's
Current Report on Form 8-K, dated June 11, 1999, and
incorporated herein by reference)
Exhibit 4.4 Indenture, dated as of June 23, 1999, by and between
Firststar Bank of Minnesota, N.A., URS Corporation and
the Subsidiary Guarantors defined therein relating to
the Company's 12- 1/4% Senior Subordinated Notes due
2009 (filed as Exhibit 2.5 to the Company's Current
Report on Form 8-K, dated July 1, 1999, and incorporated
herein by reference)
Exhibit 4.5 Registration Rights Agreement, dated June 23, 1999, by
and between Morgan Stanley & Co. Incorporated, URS
Corporation and the Guarantors listed therein (filed as
Exhibit 2.6 to the Company's Current Report on Form 8-K,
dated July 1, 1999, and incorporated herein by
reference)
Exhibit 4.6 Placement Agreement, dated June 18, 1999, by and between
Morgan Stanley & Co. Incorporated, URS Corporation and
the Guarantors named therein (filed as Exhibit 2.7 to
the Company's Current Report on Form 8-K, dated July 1,
1999, and incorporated herein by reference)
Exhibit 4.7 Form of URS Corporation 12-1/4% Senior Subordinated Note
due 2009 (included in Exhibit 4.4, filed as Exhibit 2.5
to the Company's Current Report on Form 8-K, dated July
1, 1999, and incorporated herein by reference)
Exhibit 4.8 Form of URS Corporation 12-1/4% Senior Subordinated
Exchange Note due 2009 (included in Exhibit 4.4, filed
as Exhibit 2.5 to the Company's Current Report on Form
8-K, dated July 1, 1999, and incorporated herein by
reference)
Exhibit 4.9 Certificate of Designation of Series A Preferred Stock
of URS Corporation (included as an exhibit to Exhibit
4.3, filed as Exhibit 2.4 to the Company's Current
Report on Form 8-K, dated June 11, 1999, and
incorporated herein by reference)
Exhibit 4.10 Certificate of Designation of Series B Preferred Stock
of URS Corporation (included as an exhibit to Exhibit
4.3, filed as Exhibit 2.4 to the Company's Current
Report on Form 8-K, dated June 11, 1999, and
incorporated herein by reference)
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Exhibit 4.11 Certificate of Designation of Series C Preferred Stock
of URS Corporation (included as an exhibit to Exhibit
4.3, filed as Exhibit 2.4 to the Company's Current
Report on Form 8-K, dated June 11, 1999, and
incorporated herein by reference)
Exhibit 10.1 URS Corporation Supplemental Executive Retirement
Agreement, dated as of July 13, 1999, between Martin M.
Koffel and URS Corporation. FILED HEREWITH
Exhibit 10.2 URS Corporation 1991 Stock Incentive Plan Nonstatutory
Stock Option Agreement, dated as of March 23, 1999,
between URS Corporation and Martin M. Koffel. FILED
HEREWITH
Exhibit 27 Financial Data Schedule (electronic format only)
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter
ended July 31, 1999:
o Form 8-K dated May 7, 1999 to report that the Company had signed a
definitive agreement to acquire Dames & Moore
o Form 8-K dated June 8, 1999 to report unaudited pro forma combined
financial information of the Company and Dames & Moore
o Form 8-K dated June 11, 1999 to report completion of the tender
offer for Dames & Moore and financial statements of the acquired
business
o Form 8-K/A dated June 22, 1999 to report updated unaudited pro forma
combined financial information of the Company and Dames & Moore to
reflect the interest rate on the Company's 12-1/4% Senior
Subordinated Notes due 2009 as priced effective June 18, 1999
o Form 8-K dated July 1, 1999 to report consummation of the merger of
a wholly-owned subsidiary of the Company with and into Dames &
Moore, with Dames & Moore surviving as a wholly-owned subsidiary of
the Company, and the sources of funds used for the acquisition
Subsequent to July 31, 1999, the Company also filed a Form 8-K/A dated
August 4, 1999 to file financial statements of Dames & Moore
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated September 14, 1999
URS CORPORATION
/s/ Kent Ainsworth
- ----------------------------------------
Kent P. Ainsworth
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
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