SECURITIES EXCHANGE AND COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 15, 2002
URS Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------------
(State or other jurisdiction of incorporation)
1-7567 94-1381538
(Commission File No.) (I.R.S. Employer Identification No.)
100 California Street, Suite 500,
San Francisco, California 94111-4529
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 774-2700
Item 5. Other Events
URS Corporation adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets (SFAS 142), on November 1, 2001. The
implementation of this accounting pronouncement modified the accounting for
goodwill and intangibles, which included the cessation of amortizing capitalized
goodwill and certain intangible assets. URS Corporation is filing this Form 8-K
to include as adjusted net income and net income per share financial information
within its Consolidated Financial Statements for the years ended October 31,
2001, 2000 and 1999, as if the adoption of SFAS 142 had occurred at the
beginning of these respective years. Such information is presented within Note
17 to the Consolidated Financial Statements included in this Form 8-K.
2
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 cash flows present fairly, in all material respects, the financial position
of URS Corporation and its subsidiaries ("the Company") at October 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended October 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. 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
auditing standards generally accepted in the United States of America 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 LLP
--------------------------------------
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
December 18, 2001
3
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
OCTOBER 31,
------------------------
2001 2000
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 23,398 $ 23,693
Accounts receivable, including retainage amounts of
$43,751 and $43,029.................................... 484,107 464,074
Costs and accrued earnings in excess of billings on
contracts in process................................... 289,644 281,757
Less receivable allowances................................ (28,572) (36,826)
---------- ----------
Net accounts receivable................................ 745,179 709,005
---------- ----------
Income taxes recoverable.................................. -- 16,668
Deferred income taxes..................................... 10,296 4,859
Prepaid expenses and other assets......................... 24,769 22,325
---------- ----------
Total current assets................................... 803,642 776,550
Property and equipment at cost, net......................... 106,997 88,661
Goodwill, net............................................... 500,286 514,611
Other assets................................................ 52,451 47,312
---------- ----------
$1,463,376 $1,427,134
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 54,425 $ 45,223
Accounts payable.......................................... 135,066 125,165
Accrued salaries and wages................................ 69,982 92,212
Accrued expenses and other................................ 21,232 28,915
Billings in excess of costs and accrued earnings on
contracts in process................................... 95,520 90,475
---------- ----------
Total current liabilities.............................. 376,225 381,990
Long-term debt.............................................. 576,704 603,128
Deferred income taxes....................................... 34,700 33,157
Deferred compensation and other............................. 33,146 40,052
---------- ----------
Total liabilities...................................... 1,020,775 1,058,327
---------- ----------
Commitments and contingencies (Note 10).....................
Mandatorily redeemable Series B exchangeable convertible
preferred stock, par value $1.00; authorized 150 shares;
issued and outstanding 55 and 51, respectively;
liquidation preference $120,099 and $111,013,
respectively.............................................. 120,099 111,013
---------- ----------
Stockholders' equity:
Common stock, par value $.01; authorized 50,000 shares;
issued and outstanding 18,198 and 16,834 shares,
respectively........................................... 182 168
Treasury stock............................................ (287) (287)
Additional paid-in capital................................ 155,273 137,389
Accumulated other comprehensive income (loss)............. (3,962) (2,412)
Retained earnings......................................... 171,296 122,936
---------- ----------
Total stockholders' equity............................. 322,502 257,794
---------- ----------
$1,463,376 $1,427,134
========== ==========
</Table>
See Notes to Consolidated Financial Statements
4
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
YEARS ENDED OCTOBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
Revenues............................................... $2,319,350 $2,205,578 $1,418,522
---------- ---------- ----------
Expenses:
Direct operating..................................... 1,393,818 1,345,068 854,520
Indirect, general and administrative................. 755,791 697,051 463,132
Interest expense, net................................ 65,589 71,861 34,589
---------- ---------- ----------
2,215,198 2,113,980 1,352,241
---------- ---------- ----------
Income before taxes.................................... 104,152 91,598 66,281
Income tax expense..................................... 46,300 41,700 29,700
---------- ---------- ----------
Net income............................................. 57,852 49,898 36,581
Preferred stock dividend............................... 9,229 8,337 3,333
---------- ---------- ----------
Net income available for common stockholders........... 48,623 41,561 33,248
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments............... (1,550) (2,609) 197
---------- ---------- ----------
Comprehensive income................................... $ 47,073 $ 38,952 $ 33,445
========== ========== ==========
Net income per common share:
Basic................................................ $ 2.79 $ 2.55 $ 2.14
========== ========== ==========
Diluted.............................................. $ 2.41 $ 2.27 $ 1.98
========== ========== ==========
Weighted average shares outstanding:
Basic................................................ 17,444 16,272 15,499
========== ========== ==========
Diluted.............................................. 23,962 22,020 18,484
========== ========== ==========
</Table>
See Notes to Consolidated Financial Statements
5
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
--------------- TREASURY PAID-IN COMPREHENSIVE RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCK CAPITAL INCOME EARNINGS EQUITY
------ ------ -------- ---------- ------------- -------- -------------
Balances, October 31, 1998........... 15,206 $152 $(287) $117,842 $ -- $ 48,653 $166,360
Employee stock purchases............. 719 7 -- 8,857 -- -- 8,864
Preferred stock issuance costs....... -- -- -- (1,500) -- -- (1,500)
Quasi-reorganization NOL
carryforward....................... -- -- -- 263 -- (263) --
Total comprehensive income:
Foreign currency translation before
and after tax...................... -- -- -- -- 197 -- 197
Net income........................... -- -- -- -- -- 36,581 36,581
In-kind preferred stock dividends.... -- -- -- -- -- (3,333) (3,333)
------ ---- ----- -------- ------- -------- --------
Balances, October 31, 1999........... 15,925 159 (287) 125,462 197 81,638 207,169
Employee stock purchases............. 909 9 -- 9,209 -- -- 9,218
Tax benefit of stock options......... -- -- -- 2,455 -- -- 2,455
Quasi-reorganization NOL
carryforward....................... -- -- -- 263 -- (263) --
Total comprehensive income:
Foreign currency translation before
and after tax...................... -- -- -- -- (2,609) -- (2,609)
Net income........................... -- -- -- -- -- 49,898 49,898
In-kind preferred stock dividends.... -- -- -- -- -- (8,337) (8,337)
------ ---- ----- -------- ------- -------- --------
Balances, October 31, 2000........... 16,834 168 (287) 137,389 (2,412) 122,936 257,794
Employee stock purchases............. 1,364 14 -- 13,722 -- -- 13,736
Tax benefit of stock options......... -- -- -- 3,899 -- -- 3,899
Quasi-reorganization NOL
carryforward....................... -- -- -- 263 -- (263) --
Total comprehensive income:
Foreign currency translation before
and after tax...................... -- -- -- -- (1,550) -- (1,550)
Net income........................... -- -- -- -- -- 57,852 57,852
In-kind preferred stock dividends.... -- -- -- -- -- (9,229) (9,229)
------ ---- ----- -------- ------- -------- --------
Balances, October 31, 2001........... 18,198 $182 $(287) $155,273 $(3,962) $171,296 $322,502
====== ==== ===== ======== ======= ======== ========
</Table>
See Notes to Consolidated Financial Statements
6
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEARS ENDED OCTOBER 31,
--------------------------------
2001 2000 1999
--------- -------- ---------
Cash flows from operating activities:
Net income................................................ $ 57,852 $ 49,898 $ 36,581
--------- -------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 42,143 41,829 32,177
Amortization of financing fees......................... 3,663 3,467 1,587
Receivable allowances.................................. (8,254) (3,785) (285)
Stock compensation..................................... 1,964 1,179 1,726
Tax benefit of stock options........................... 3,899 2,455 --
Changes in current assets and liabilities, net of business
acquired:
Accounts receivable and costs and accrued earnings in
excess of billings on contracts in process............ (27,920) (39,259) (86,266)
Income taxes recoverable............................... 4,997 (16,668) --
Prepaid expenses and other assets...................... (5,544) (1,224) (1,737)
Accounts payable, accrued salaries and wages and
accrued expenses...................................... (8,484) (27,620) (15,215)
Billings in excess of costs and accrued earnings on
contracts in process.................................. 5,045 20,162 33,307
Deferred income taxes.................................. (3,894) 23,036 5,831
Deferred compensation and other........................ (6,906) (36,032) --
Other, net............................................. (11,511) (6,414) 1,047
--------- -------- ---------
Total adjustments...................................... (10,802) (38,874) (27,828)
--------- -------- ---------
Net cash provided by operating activities............ 47,050 11,024 8,753
--------- -------- ---------
Cash flows from investing activities:
Payment for business acquisition, net of cash
acquired.............................................. -- -- (316,167)
Proceeds from sale of subsidiaries..................... 3,530 25,354 --
Capital expenditures, less equipment purchased through
capital leases of $25,084, $10,040, and $11,651,
respectively.......................................... (19,778) (15,885) (20,248)
--------- -------- ---------
Net cash (used) provided by investing activities..... (16,248) 9,469 (336,415)
--------- -------- ---------
Cash flows from financing activities:
Payments of merger fees................................ -- -- (18,738)
Proceeds from issuance of debt......................... -- -- 854,739
Principal payments on long-term debt................... (33,522) (43,721) (590,251)
Borrowings under the line of credit.................... 105,849 -- --
Repayments under the line of credit.................... (105,849) -- --
Repayments under capital lease obligations............. (7,530) (6,805) (2,971)
Borrowings under short-term notes...................... 5,830 -- --
Repayments under short-term notes...................... (7,647) -- --
Proceeds from sale of common shares and exercise of
stock options......................................... 11,772 8,039 7,138
Proceeds from issuance of preferred stock.............. -- -- 100,000
Payment of financing fees.............................. -- -- (11,597)
Payment of financing fees related to issuance of
preferred stock....................................... -- -- (1,500)
--------- -------- ---------
Net cash (used) provided by financing activities..... (31,097) (42,487) 336,820
--------- -------- ---------
Net (decrease) increase in cash...................... (295) (21,994) 9,158
Cash and cash equivalents at beginning of year............ 23,693 45,687 36,529
--------- -------- ---------
Cash and cash equivalents at end of year.................. $ 23,398 $ 23,693 $ 45,687
========= ======== =========
Supplemental information:
Interest paid........................................ $ 75,434 $ 66,774 $ 24,903
========= ======== =========
Taxes paid........................................... $ 33,882 $ 34,726 $ 22,562
========= ======== =========
Non-cash dividends paid in-kind...................... $ 9,086 $ 7,680 $ 3,333
========= ======== =========
Net book value of business sold...................... $ 3,530 $ 25,354 $ --
========= ======== =========
</Table>
See Notes to Consolidated Financial Statements
7
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
BUSINESS
URS Corporation (the "Company") offers a broad range of planning, design,
and program and construction management services for transportation, hazardous
waste, industrial processing and petrochemical, general building and
water/wastewater projects. Headquartered in San Francisco, the Company operates
in more than 30 countries with approximately 16,000 employees providing
engineering services to federal, state and local governmental agencies as well
as to private clients in the chemical, manufacturing, pharmaceutical, forest
products, mining, oil and gas, and utilities industries.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company includes in current assets and liabilities amounts realizable and
payable under engineering and construction contracts that extend beyond one
year. The consolidated financial statements reflect the June 1999 acquisition of
Dames & Moore Group ("D-M"), which was accounted for under purchase accounting
method. See Note 2, Acquisitions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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 using 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 federal, state and local government agencies
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 1998 through
fiscal 2001 are subject to review by the federal, state and local government
agencies.
8
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS 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 that compose the Company's customer base and
their dispersion across different business and geographic areas. The Company's
cash balances and short-term investments are maintained in accounts held by
major banks and financial institutions located primarily in the United States of
America and Europe. As of October 31, 2001 and 2000, 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.
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 the 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 reflected in
income. Depreciation is provided on the straight-line method using 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.
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 share of common stock is computed
giving effect to all dilutive potential shares of common stock that were
outstanding during the period. Dilutive potential shares of common stock consist
of the incremental shares of common stock issuable upon the exercise of stock
options and convertible 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 common share and dilutive potential common
shares that were outstanding during the period.
9
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the disclosure requirements of Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," a
reconciliation of the numerator and denominator of basic and diluted income per
common share is provided as follows:
<Table>
<Caption>
YEARS ENDED OCTOBER 31,
-----------------------------
2001 2000 1999
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Numerator -- Basic
Net income available for common stockholders........ $48,623 $41,561 $33,248
======= ======= =======
Denominator -- Basic
Weighted-average common stock outstanding........... 17,444 16,272 15,499
======= ======= =======
Basic income per share.............................. $ 2.79 $ 2.55 $ 2.14
======= ======= =======
Numerator -- Diluted
Net income available for common stockholders........ $48,623 $41,561 $33,248
Preferred stock dividend............................ 9,229 8,337 3,333
------- ------- -------
Net income............................................ $57,852 $49,898 $36,581
======= ======= =======
Denominator -- Diluted
Weighted-average common stock outstanding........... 17,444 16,272 15,499
Effect of dilutive securities:
Stock options....................................... 1,212 943 1,180
Convertible preferred stock......................... 5,306 4,805 1,805
------- ------- -------
23,962 22,020 18,484
======= ======= =======
Diluted income per share.............................. $ 2.41 $ 2.27 $ 1.98
======= ======= =======
</Table>
Stock options to purchase 1,511,916 shares of common stock at prices
ranging from $20.94 to $28.00 per share were outstanding at October 31, 2001,
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 shares of common
stock. Convertible subordinated debt was not included in the computation of
diluted income per share because it would be anti-dilutive.
Stock options to purchase 2,088,819 shares of common stock at prices
ranging from $15.75 to $28.00 per share were outstanding at October 31, 2000,
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 shares of common
stock. Convertible subordinated debt was not included in the computation of
diluted income per share because it would be anti-dilutive.
Stock options to purchase 60,000 shares of common stock at $28.00 were
outstanding at October 31, 1999, but were not included in the computation of
diluted income per share because the exercise price was greater than the average
market value of a share of common stock. Convertible subordinated debt was not
included in the computation of diluted income per share because it would be
anti-dilutive.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to risk of changes in interest rates as a result of
borrowings under the senior collateralized credit facility. The Company has
entered into interest rate derivatives to protect against the risk. At October
31, 2001, the only derivative instrument held by the Company was an interest
rate cap agreement relating to $204.3 million of the Company's LIBOR bank term
loan borrowings. From an
10
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
economic standpoint, the cap agreement provides the Company with protection
against LIBOR interest rate increases above 7%. For accounting purposes, the
Company has elected not to designate the cap agreement as a hedge, and in
accordance with Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which the Company adopted on
November 1, 2000, changes in the fair market value of the cap agreement are
included in other expenses in the Consolidated Statements of Operations. The
value of the interest rate cap agreement at October 31, 2001 is zero.
SEGMENT AND RELATED INFORMATION
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 establishes standards for reporting
information about operating segments and related disclosures about products,
geographic information and major customers.
REPORTING COMPREHENSIVE INCOME
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting of Comprehensive Income." SFAS 130
establishes new standards for reporting and displaying comprehensive income and
its components. Other comprehensive income refers to revenues, expenses, gains
and losses that under generally accepted accounting principles are included in
comprehensive income, but are excluded from net earnings as these amounts are
recorded directly as an adjustment to stockholders' equity. Foreign currency
translation adjustments compose the Company's other comprehensive income.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets." SFAS 142 supercedes Accounting Principles Board
Opinion No. 17 and addresses the financial accounting and reporting standards
for goodwill and intangible assets subsequent to their initial recognition. SFAS
142 requires that goodwill be separately disclosed from other intangible assets
in the statement of financial position, and no longer be amortized. It also
requires that goodwill and other intangible assets be tested for impairment at
least annually. The provisions of SFAS 142 are effective for fiscal years
beginning after December 15, 2001 and must be applied to all goodwill and other
intangible assets that are recognized in an entity's balance sheet at the
beginning of that fiscal year. Early application of SFAS 142 is permitted for
entities with fiscal years beginning after March 15, 2001, provided that the
first interim period financial statements have not been issued previously. SFAS
142 will be effective for the Company on November 1, 2001 and primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition. Upon adoption of SFAS 142, goodwill will no longer be amortized and
will be tested for impairment at least annually. Based on the goodwill
amortization expense for fiscal year ended October 31, 2001, the Company
estimates that based upon an effective income tax rate of 44.5%, the net of tax
effect of eliminating goodwill amortization expense will positively impact net
income by approximately $8.7 million on an annual basis.
In October 2001, FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 supersedes Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations -- Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual
11
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and Infrequently Occurring Events and Transactions", for the disposal of a
segment of a business (as previously defined in that Opinion). SFAS 144 intends
to establish a single accounting model, based on the framework established in
SFAS 121, for long-lived assets to be disposed of by sale and to resolve
significant implementation issues related to SFAS 121. SFAS 144 is not expected
to significantly impact the assessment of impairment of long-lived assets by the
Company, other than the fact that SFAS 144 removes goodwill from its scope and,
therefore, eliminates the requirement of SFAS 121 to allocate goodwill to
long-lived assets to be tested for impairment. As indicated above, goodwill will
be required to be assessed for impairment in accordance with the provisions of
SFAS 142, which the Company adopted on November 1, 2001.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 and 1999 financial
statements to conform to the 2001 presentation with no effect on net income,
equity or cash flows as previously reported.
NOTE 2. ACQUISITIONS
During the fiscal year ended October 31, 1999, the Company acquired
publicly held D-M for cash in the amount of $376.2 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 in the amount of
$388.4 million has been allocated to goodwill and has been amortized based on an
estimated useful life of 40 years. The operating results of D-M are included in
the Company's results of operations from the date of purchase.
The following unaudited proforma summary presents the consolidated results
of operations as if the D-M acquisition had occurred at the beginning of fiscal
year 1999 and does not purport to indicate what would have occurred had the
acquisition been made as of that date.
<Table>
<Caption>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
Revenues........................................... $2,089,701
Net income......................................... $ 31,101
Net income per share............................... $ 1.46
</Table>
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<Table>
<Caption>
OCTOBER 31,
--------------------
2001 2000
-------- --------
(IN THOUSANDS)
Equipment................................................... $ 87,245 $ 93,960
Capital leases.............................................. 49,695 29,842
Furniture and fixtures...................................... 25,375 24,926
Leasehold improvements...................................... 19,872 13,710
Construction in progress.................................... 11,752 872
Building.................................................... 301 390
Land........................................................ 75 97
-------- --------
194,315 163,797
Less: accumulated depreciation and amortization............. (87,318) (75,136)
-------- --------
Net property and equipment.................................. $106,997 $ 88,661
======== ========
</Table>
12
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company capitalizes certain costs incurred in the development of
internal-use software, including external direct material costs, external
service costs, payroll and employee-related costs and interest costs incurred
during the period of development.
Depreciation expense for the fiscal years ended 2001, 2000 and 1999 was
$26.5 million, $26.6 million, and $17.3 million, respectively.
NOTE 4. 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, 2001, 2000 and 1999, was $53.9 million,
$39.2 million and $26.9 million, respectively. Amortization expense for the
fiscal years ended 2001, 2000 and 1999 was $15.6 million, $15.2 million, and
$14.9 million, respectively. Goodwill was amortized on the straight-line method
over periods ranging from 30 to 40 years.
NOTE 5. INCOME TAXES
The components of income tax expense applicable to the operations each year
are as follows:
<Table>
<Caption>
YEARS ENDED OCTOBER 31,
-----------------------------
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Current:
Federal............................................. $33,242 $18,550 $17,820
State and local..................................... 6,963 4,040 3,380
Foreign............................................. 3,660 4,110 450
------- ------- -------
Subtotal......................................... 43,865 26,700 21,650
------- ------- -------
Deferred:
Federal............................................. 4,510 13,940 7,687
State and local..................................... 945 1,550 583
Foreign............................................. (3,020) (490) (220)
------- ------- -------
Subtotal......................................... 2,435 15,000 8,050
------- ------- -------
Total tax provision.............................. $46,300 $41,700 $29,700
======= ======= =======
</Table>
As of October 31, 2001, the Company has available net operating loss
("NOL") carryforwards for federal income tax and financial statement purposes of
$2.4 million, which will expire in fiscal year 2004. The Company's NOL
utilization is limited to $750,000 per year pursuant to Section 382 of the
Internal Revenue Code and is related to the Company's October 1989
quasi-reorganization. The Company also has available $21.1 million of foreign
NOLs. These NOLs are available only to offset income earned in foreign
jurisdictions and expire at various dates.
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.
13
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's deferred tax assets and
liabilities are as follows:
Deferred tax assets/(liabilities) -- due to:
<Table>
<Caption>
OCTOBER 31,
--------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
Current:
Allowance for doubtful accounts.................. $ 5,392 $ 4,686 $ 3,645
Payroll related and other accruals............... 11,193 9,211 17,184
-------- -------- --------
Current deferred tax asset....................... 16,585 13,897 20,829
-------- -------- --------
Revenue retentions............................... (1,402) (1,492) (1,548)
Unbilled fees.................................... (4,887) (7,546) (2,238)
-------- -------- --------
Current deferred tax liability................... (6,289) (9,038) (3,786)
-------- -------- --------
Net current deferred tax asset................ $ 10,296 $ 4,859 $ 17,043
======== ======== ========
Non-Current:
Deferred compensation and pension................ $ 2,995 $ (931) $ 1,725
Self-insurance contingency accrual............... 2,082 2,184 1,971
Depreciation and amortization.................... (1,245) 380 1,251
Foreign tax credit............................... 561 2,837 1,583
Net operating loss............................... 9,425 11,550 6,888
-------- -------- --------
Gross non-current deferred tax asset............. 13,818 16,020 13,418
Valuation allowance.............................. (5,815) (7,406) (6,888)
-------- -------- --------
Net non-current deferred tax asset............ 8,003 8,614 6,530
-------- -------- --------
Cash to accrual.................................. -- (1,256) (3,252)
Acquisition liabilities.......................... (28,370) (28,229) (12,988)
Other deferred gain and unamortized bond
premium....................................... (725) (941) (1,099)
Restructuring accrual............................ (2,820) (2,985) --
Mark to market................................... -- (154) (1,731)
Depreciation and amortization.................... (11,184) (8,556) (5,802)
Other accruals................................... 396 350 (3,963)
-------- -------- --------
Non-current deferred tax liability............ (42,703) (41,771) (28,835)
-------- -------- --------
Net non-current deferred tax liability........ $(34,700) $(33,157) $(22,305)
======== ======== ========
</Table>
The net change in the total valuation allowance related to deferred tax
assets for the fiscal year ended October 31, 2001, was a decrease of $0.3
million due to the utilization of domestic net operating losses and a decrease
of $1.3 million due to current and prior year foreign losses utilized.
14
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<Table>
<Caption>
YEARS ENDED OCTOBER 31,
-----------------------------
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Federal income tax expense based upon federal
statutory tax rate of 35%........................... $36,453 $32,059 $23,140
Nondeductible goodwill amortization................... 4,592 4,388 3,080
Meals and entertainment............................... 290 885 988
Non-deductible expenses............................... 1,289 461 925
NOL carryforwards utilized............................ (263) (269) (263)
Unbenefited foreign losses............................ 305 939 900
Foreign tax credit utilized........................... -- -- (250)
Foreign earnings taxed at rates higher (lower) than
U.S statutory rate.................................. 41 53 (410)
State taxes, net of federal benefit................... 5,218 4,158 2,700
Adjustment due to change in federal and state rates... 206 52 --
Extraterritorial income exclusion..................... (622) -- --
Reversal of valuation adjustment...................... (821) -- --
Utilization of deferred tax allowance and other
adjustments......................................... (388) (1,026) (1,110)
------- ------- -------
Total taxes provided.................................. $46,300 $41,700 $29,700
======= ======= =======
</Table>
NOTE 6. RELATED PARTY TRANSACTIONS
The Company had agreements for business consulting services to be provided
by BLUM Capital Partners, L.P. (formerly Richard C. Blum & Associates L.P.)
("BLUM") and Richard C. Blum, a Director of the Company. Under these agreements,
the Company paid $60,000 and $40,000 to BLUM and Richard C. Blum, respectively,
during fiscal year 1999. These agreements were terminated effective June 1999.
Richard C. Blum also received an additional cash amount of $23,000, $19,000, and
$21,000 for his services as a Director of the Company in fiscal 2001, 2000 and
1999, respectively.
See Note 11, Preferred Stock, for a discussion of preferred stock issued to
RCBA Strategic Partners, L.P. ("RCBA Strategic Partners").
15
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following:
<Table>
<Caption>
OCTOBER 31,
--------------------
2001 2000
-------- --------
(IN THOUSANDS)
Bank term loans, payable in quarterly installments.......... $381,338 $409,432
12 1/4% Senior Subordinated Notes due 2009.................. 200,000 200,000
6 1/2% Convertible Subordinated Debentures due 2012 (net of
bond issue costs of $26 and $29).......................... 1,772 1,810
8 5/8% Senior Subordinated Debentures due 2004 (net of
discount and bond issue costs of $1,817 and $2,375)
(effective interest rate on date of restructuring was
25%)...................................................... 4,638 4,080
10.95% note payable, due in annual installments through 2001
(net of issue costs of $0 and $26)........................ -- 738
Obligations under capital leases............................ 39,219 21,664
Foreign collateralized borrowings and notes payable......... 4,162 10,627
-------- --------
631,129 648,351
Less:
Current maturities of long-term debt...................... 39,704 28,094
Current maturities of notes payable....................... 3,841 10,658
Current maturities of capital leases...................... 10,880 6,471
-------- --------
$576,704 $603,128
======== ========
</Table>
During fiscal 1999, the Company incurred new borrowings by establishing a
long-term senior collateralized credit facility with a syndicate of banks led by
the Bank.
Senior Collateralized Credit Facility. The senior collateralized credit
facility was funded on June 9, 1999, ("Funding Date") and provides for three
term loan facilities in the aggregate amount of $450.0 million and a revolving
credit facility in the amount of $100.0 million. The term loan facilities
consist of Term Loan A, a $250.0 million tranche, Term Loan B, a $100.0 million
tranche and Term Loan C, another $100.0 million tranche.
Principal amounts under Term Loan A became due, commencing on October 31,
1999, in the amount of approximately $3.0 million per quarter for the subsequent
three quarters. Commencing on October 31, 2000 and through June 9, 2005, annual
principal payments under Term Loan A range from $25.0 million to a maximum of
$58.0 million with Term Loan A expiring and the then-outstanding principal
amount becoming due and repayable in full on June 9, 2005. Principal amounts
under Term Loan B became due, commencing on October 31, 1999, in the amount of
$1.0 million in each year through July 31, 2005, with Term Loan B expiring and
the then-outstanding principal amount becoming due and repayable in full in
equal quarterly installments beginning on October 31, 2005. Principal amounts
under Term Loan C became due, commencing on October 31, 1999, in the amount of
$1.0 million in each year through July 31, 2006, with Term Loan C expiring and
the then-outstanding principal amount becoming due and repayable in full in
equal quarterly installments beginning on October 31, 2006. The revolving credit
facility expires, and is repayable in full, on June 9, 2005.
The term loans each bear interest at a rate per annum equal to, at the
Company's option, either the Base Rate or LIBOR, in each case plus an applicable
margin. The revolving credit facility bears interest at a rate per annum equal
to, at the Company's option, any of the Base Rate, LIBOR or the Adjusted
Sterling Rate, in each case plus an applicable margin. The applicable margin
adjusts according to a
16
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
performance-pricing grid based on the Company's ratio of Consolidated Total
Funded Debt to Consolidated Earnings Before Income Taxes, Depreciation and
Amortization ("EBITDA"). The "Base Rate" is defined as the higher of the Bank's
Prime Rate and the Federal Funds Rate plus 0.50%. "LIBOR" is defined as the
offered quotation by first class banks in the London interbank market to the
Bank 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 the Bank in the London interbank market as determined by
the British Bankers' Association. The Company may determine which interest rate
options to use and which interest periods will apply for both the term loans and
the revolving credit facility.
At October 31, 2001 and 2000, the Company's revolving credit facility with
the Bank provided for advances up to $100.0 million. At October 31, 2001 and
2000, the Company had outstanding letters of credit in the aggregate amount of
$25.0 million and $36.5 million, respectively, which reduced the amount
available to the Company under the Company's revolving credit facility to $75.0
million and $63.5 million, respectively.
The senior collateralized credit facility is governed by affirmative and
negative covenants. These covenants include restrictions on incurring additional
debt, paying dividends or making distributions to its stockholders, repurchasing
or retiring capital stock and making subordinated junior debt payments, as well
as other restrictions. The financial covenants include maintenance of a minimum
current ratio of 1.20 to 1.00, a minimum fixed charge coverage ratio of 1.10 to
1.00, an EBITDA minimum of $160.0 million and a maximum leverage ratio of 3.50
to 1.00 for the fiscal year ended October 31, 2001. The Company is required to
submit quarterly compliance certification to the Bank. The Company was fully
compliant with these covenants as of October 31, 2001.
NOTES
12 1/4% Senior Subordinated Notes. The Company's notes are due in 2009.
Each note bears interest at 12 1/4% per annum. Interest on the notes is payable
semi-annually on May 1 and November 1 of each year, commencing on November 1,
1999. The notes are subordinate to the senior collateralized credit facility. As
of October 31, 2001, the Company owed $200.0 million on the notes.
Certain of the Company's wholly owned subsidiaries fully and
unconditionally guarantee the notes on a joint and several basis. The Company
may redeem any of the notes beginning May 1, 2004. The initial redemption price
is 106.125% of the principal amount, plus accrued and unpaid interest. The
redemption price will decline each year after 2004 and will be 100% of the
principal amount, plus accrued and unpaid interest beginning on May 1, 2007. In
addition, at any time prior to May 1, 2002, the Company may redeem up to 35% of
the principal amount of the notes with net cash proceeds from the sale of
capital stock. The redemption price will be equal to 112.25% of the principal
amount of the redeemed notes.
DEBENTURES
8 5/8% Senior Subordinated Debentures ("8 5/8% Debentures"). The Company's
8 5/8% Debentures are due in 2004. Interest is payable semiannually in January
and July. The 8 5/8% Debentures are subordinate to the senior collateralized
credit facility. As of October 31, 2001, the Company owed approximately $6.5
million on the 8 5/8% Debentures.
6 1/2% Convertible Subordinated Debentures ("6 1/2% Debentures"). The
Company's 6 1/2% Debentures are due in 2012 and are convertible into shares of
the Company's common stock at the rate of $206.30 per share. Interest is payable
semiannually in February and August. Sinking fund payments calculated to retire
70% of the 6 1/2% Debentures prior to maturity began in February 1998. The
6 1/2% Debentures are
17
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subordinate to the senior collateralized credit facility. As of October 31,
2001, the Company owed approximately $1.8 million on the 6 1/2% Debentures.
FOREIGN CREDIT LINES
The Company maintains foreign lines of credit which are collateralized by
assets of foreign subsidiaries at October 31, 2001. The interest rate for the
foreign lines of credit was 7.25% plus applicable margins consistent with market
conditions in the respective countries at October 31, 2001. At October 31, 2001
and 2000, these foreign lines of credit provided for advances up to $15.0
million and $19.0 million, respectively. At October 31, 2001 and 2000, the
Company had utilized $3.8 million and $10.6 million of outstanding foreign lines
of credit, respectively. This reduced the amount available to the Company under
these foreign lines of credit to $11.2 million and $8.4 million, respectively.
INTEREST RATE SWAP
On December 31, 1997, the Company entered into an interest rate swap
agreement with the Bank. This interest rate swap effectively fixed the interest
rate on $48.8 million of the Company's LIBOR-based borrowings at 5.97% plus the
applicable margin. This interest rate swap expired on November 30, 2000.
INTEREST RATE CAP AGREEMENT
The Company entered into an interest rate cap agreement with the Bank. This
agreement caps the Company's interest rate at 7% for $204.3 million of the
Company's LIBOR-based borrowings through July 31, 2002. From an economic
standpoint, the cap agreement provides the Company with protection against LIBOR
interest rate increases above 7%. For accounting purposes, the Company elected
not to designate the cap agreement as a hedge, and accordingly, changes in the
fair market value of the cap agreement were included in other expenses in the
Consolidated Statements of Operations. The value of the interest rate cap
agreement at October 31, 2001 was zero.
MATURITIES
The amounts of long-term debt outstanding (excluding capital leases and
foreign collateralized borrowings) at October 31, 2001, maturing in the next
five years are as follows:
<Table>
<Caption>
(IN THOUSANDS)
2002........................................................ $ 39,904
2003........................................................ 51,696
2004........................................................ 66,606
2005........................................................ 68,536
2006........................................................ 70,315
Thereafter.................................................. 291,212
--------
$588,269
========
</Table>
NOTE 8. OBLIGATIONS UNDER LEASES
Total rental expense included in operations for operating leases for the
fiscal years ended October 31, 2001, 2000 and 1999, totaled to $76.5 million,
$70.2 million and $50.1 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 2013. Obligations under capital leases include leases on vehicles,
office equipment and other equipment. Obligations under operating leases include
building, office, and other equipment rentals.
18
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Obligations under non-cancelable lease agreements are as follows:
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
2002........................................................ $14,735 $ 66,883
2003........................................................ 11,911 58,021
2004........................................................ 9,796 50,748
2005........................................................ 7,131 42,827
2006........................................................ 2,874 32,773
Thereafter.................................................. -- 92,721
------- --------
Total minimum lease payments................................ 46,447 $343,973
========
Less: amounts representing interest......................... 7,228
-------
Present value of net minimum lease payments................. $39,219
=======
</Table>
NOTE 9. SEGMENT AND RELATED INFORMATION
Management has organized the Company by geographic divisions. The
geographic divisions are Parent, Domestic and International. The Parent division
comprises the Parent Company. The Domestic division comprises all offices
located in United States of America. The International division comprises all
offices in the Americas (e.g., Canada, Mexico, Central and South America), in
Europe and in Asia/ Pacific (e.g., Australia, Indonesia, Singapore, New Zealand
and the Philippines).
Accounting policies for each of the reportable segments are the same as
those of the Company. The Company provides services throughout the world.
Services to other countries may be performed within the United States of
America, and generally, revenues are classified within the geographic area where
the services are performed.
The following table shows summarized financial information (in thousands)
on the Company's reportable segments. Included in the "Eliminations" column are
elimination of inter-segment sales and elimination of investment in
subsidiaries.
As of and for the fiscal year ended October 31, 2001:
<Table>
<Caption>
PARENT DOMESTIC INTERNATIONAL ELIMINATIONS TOTAL
-------- ---------- ------------- ------------ ----------
Revenue........................ $ -- $2,109,173 $216,975 $ (6,798) $2,319,350
Segment operating income
(loss)....................... $ (2,980) $ 172,164 $ 557 $ -- $ 169,741
Total accounts receivable...... $ -- $ 667,009 $ 78,170 $ -- $ 745,179
Total assets................... $665,015 $1,574,865 $116,995 $(893,499) $1,463,376
</Table>
As of and for the fiscal year ended October 31, 2000:
<Table>
<Caption>
PARENT DOMESTIC INTERNATIONAL ELIMINATIONS TOTAL
-------- ---------- ------------- ------------ ----------
Revenue........................ $ 800 $1,989,259 $235,683 $ (20,164) $2,205,578
Segment operating income....... $ 39,160 $ 116,630 $ 7,669 $ -- $ 163,459
Total accounts receivable...... $ (7,814) $ 634,350 $ 82,469 $ -- $ 709,005
Total assets................... $680,824 $1,272,340 $116,310 $(642,340) $1,427,134
</Table>
19
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of and for the fiscal year ended October 31, 1999:
<Table>
<Caption>
PARENT DOMESTIC INTERNATIONAL ELIMINATIONS TOTAL
-------- ---------- ------------- ------------ ----------
Revenue........................ $ -- $1,268,925 $154,211 $ (4,614) $1,418,522
Segment operating income
(loss)....................... $(14,541) $ 114,633 $ 778 $ -- $ 100,870
Total accounts receivable...... $(15,000) $ 590,143 $ 90,818 $ -- $ 665,961
Total assets................... $493,938 $1,653,928 $130,779 $(834,120) $1,444,525
</Table>
Operating income is defined as income before income taxes and net interest
expense.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Currently, the Company has limits of $125.0 million per loss and $125.0
million in the annual aggregate for general liability, professional errors and
omissions liability, and contractor's pollution liability insurance. These
programs each have a self-insured claim retention of $0.1 million, $1.0 million,
and $0.25 million, respectively. With respect to various claims of D-M that
arose from professional errors and omissions prior to acquisition, the Company
has maintained a self-insured retention of $5.0 million per claim. Excess limits
provided for these 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 these excess policies, it will have no coverage
for claims made after its termination date even if the occurrence was during the
term of coverage. The Company intends to maintain these policies, but there can
be no assurance that the Company can maintain existing coverages or that claims
will not exceed the available amount of insurance. The Company believes that any
settlement of these claims will not have a material adverse effect on its
consolidated financial position and operations.
Various legal proceedings are pending against the Company or its
subsidiaries alleging, among other things, breaches of contract or negligence in
connection with the performance of professional services. In some actions,
parties are seeking damages, including punitive or treble damages that
substantially exceed the Company's insurance coverage. Based on the Company's
previous experience with claims settlement and the nature of the pending legal
proceedings, the Company does not believe that any of the legal proceedings are
likely to result in a judgment against, or settlement by the Company, that would
materially exceed its insurance coverage or have a material adverse effect on
its consolidated financial position and operations.
NOTE 11. PREFERRED STOCK
In June 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 an aggregate consideration of $100.0 million. The proceeds of
this issuance were used in connection with the D-M acquisition. The Company paid
a transaction fee of $1.5 million to RCBA Strategic Partners, L.P. in connection
with this placement. In October 1999, the Company issued 46,083 shares of its
Series B Exchangeable Convertible Preferred Stock ("Series B Stock") to RCBA
Strategic Partners, L.P. in exchange for the shares of Series A and Series C
Preferred Stock.
The Company has authorized for issuance 3,000,000 shares of preferred stock
with a $1.00 par value. Of these 3,000,000 shares, 150,000 shares have been
designated Series B Stock. At October 31, 2001 and 2000, the Company had 55,345
and 51,159 shares, respectively, of Series B Stock outstanding. The Series B
Stock has a liquidation preference equal to its original purchase price plus
certain formulaic adjustments calculated at the time of liquidation. The Series
B Stock is senior to the common stock and has voting rights equal to that number
of shares of common stock into which it can be converted. Cumulative dividends
are payable in-kind in additional shares of Series B Stock each calendar quarter
at a dividend rate of 8%. Each share of the Series B Stock may be converted into
shares of common stock at
20
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the option of the holder at any time (approximately 5,535,000 shares in the
aggregate as of October 31, 2001). In addition, the Company will have the right,
on or after June 2002, to convert all, but not less than all, of the outstanding
shares of Series B Stock into common stock if the price of the Company's common
stock on the relevant stock exchanges reaches certain levels for certain minimum
periods of time. In June 2011, the Company is obligated to redeem any
outstanding shares of Series B Stock for cash. If the Company fails to
repurchase all of the outstanding shares of Series B Stock, the dividend rate
will increase to 12%, and three months after that the rate will increase to 15%.
NOTE 12. STOCKHOLDERS' EQUITY
Declaration of dividends, except preferred stock dividends, is restricted
by the senior collateralized credit facility with the Bank and the indentures
governing the 8 5/8% Debentures and the 12 1/4% Senior Subordinated Notes.
Further, declaration of dividends may be precluded by existing Delaware law.
On October 12, 1999, the stockholders approved the 1999 Equity Incentive
Plan ("1999 Plan"). An aggregate of 1,500,000 shares of common stock initially
has been reserved for issuance under the 1999 Plan. In July 2000, an additional
1,076,000 shares were reserved for issuance under the 1999 Plan. As of October
31, 2001, the Company had issued options and restricted stock in the aggregate
amount of 1,339,272 shares under the 1999 Plan.
On March 26, 1991, the stockholders approved the 1991 Stock Incentive Plan
("1991 Plan"). The 1991 Plan provides for the grant not to exceed 3,310,000
Restricted Shares, Stock Units and Options. As of October 31, 1999, the Company
had issued options and restricted stock in the aggregate amount of 1,041,700
shares under the 1991 Plan.
Stock options expire in ten years from the date granted and vest over
service periods that range from three to five years.
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 is 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 602,522 shares
under the ESP Plan in fiscal 2001 and 495,017 shares in fiscal 2000.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its 1991 Plan and 1999 Plan. Accordingly, no compensation cost has been
recognized for its 1991 and 1999 Plans. Had compensation cost for the Company's
1991 and 1999 Plans been determined consistent with Statement of Financial
Accounting
21
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and earnings per share would have been reduced to the proforma amounts
indicated below:
<Table>
<Caption>
YEARS ENDED OCTOBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income available for common stockholders:
As reported......................................... $48,623 $41,561 $33,248
Proforma............................................ $45,496 $38,171 $32,367
Basic earnings per share:
As reported......................................... $ 2.79 $ 2.55 $ 2.14
Proforma............................................ $ 2.61 $ 2.35 $ 2.09
Net income before preferred stock dividends:
As reported......................................... $57,852 $49,898 $36,581
Proforma............................................ $54,725 $46,508 $35,700
Dilutive earnings per share:
As reported......................................... $ 2.41 $ 2.27 $ 1.98
Proforma............................................ $ 2.28 $ 2.11 $ 1.93
</Table>
A summary of the status of the stock options granted under the Company's
1991 and 1999 Plans for the fiscal years ended October 31, 2001, 2000, and 1999,
is presented below:
<Table>
<Caption>
2001 2000 1999
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- ---------
Outstanding at beginning
of year................. 3,829,084 $14.64 2,394,709 $11.97 2,031,094 $11.12
Granted................. 1,234,272 $20.33 1,613,017 $18.51 835,500 $16.81
Exercised............... (812,142) $ 8.78 (80,716) $ 8.11 (350,099) $ 6.67
Forfeited............... (117,677) $17.02 (97,926) $18.87 (121,786) $15.22
--------- --------- ---------
Outstanding at end of
year.................... 4,133,537 $17.39 3,829,084 $14.64 2,394,709 $11.97
========= ========= =========
Options exercisable at
year-end................ 1,585,242 $14.52 1,554,426 $10.04 1,133,788 $ 7.72
Weighted-average fair
value of options granted
during the year......... $ 8.48 $ 5.30 $ 6.53
</Table>
22
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at October 31, 2001, under the 1991 and 1999 Plans:
<Table>
<Caption>
OUTSTANDING EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
$ 5.70 - $ 8.55 263,300 3.1 $ 6.48 263,300 $ 6.48
$ 8.55 - $11.40 148,000 4.6 $10.32 148,000 $10.32
$11.40 - $14.25 312,532 8.0 $13.81 121,211 $13.88
$14.25 - $17.10 1,334,112 7.5 $15.53 770,871 $15.35
$17.10 - $19.95 594,510 9.4 $17.62 -- --
$19.95 - $22.80 823,833 8.0 $21.44 248,525 $21.45
$22.80 - $25.65 587,750 10.0 $23.03 -- --
$25.65 - $28.50 69,500 8.2 $27.93 33,335 $28.10
--------- ---------
4,133,537 1,585,242
========= =========
</Table>
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
<Table>
<Caption>
2001 2000 1999
------------- ------------- -------------
Risk-free interest rates.............. 4.62% - 5.28% 5.72% - 6.36% 4.70% - 5.97%
Expected life......................... 4 years 4 years 4 years
Volatility............................ 44.58% 42.54% 41.06%
Expected dividends.................... None None None
</Table>
NOTE 13. EMPLOYEE RETIREMENT PLANS
The Company has defined contribution retirement plans under Internal
Revenue Code Section 401(k). The plans cover 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. The Company made contributions in the amounts of
$12.0 million, $10.4 million and $7.7 million to the plans in fiscal years 2001,
2000 and 1999, respectively.
In July 1999, the Company entered into a Supplemental Executive Retirement
Agreement (the "Agreement") with Martin M. Koffel, the Company's Chief Executive
Officer (the "Executive"). The Executive will be eligible to receive a benefit
under this agreement following his termination of employment with the Company
(the "Benefit"). The Benefit shall be an annual amount, payable for the life of
the Executive with a guarantee of payments for at least ten years. The Benefit
is equal to a percentage of the Executive's final average compensation, reduced
by the annual social security benefit to which the Executive is entitled based
on his age at the termination of employment. The Benefits payable under this
Agreement shall be "unfunded," as that term is used in Sections 201(2),
301(a)(3), 401(a)(10) and 4021(a)(6) of the Employee Retirement Income
Securities Act ("ERISA").
23
\ URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management's estimate of accumulated benefits for the Executive's
Supplemental Executive Retirement Plan as of October 31, 2001 and 2000, was as
follows:
<Table>
<Caption>
2001 2000
------- -------
(IN THOUSANDS)
Actuarial present value of accumulated benefits:
Vested.................................................... $ 3,091 $ 1,319
Non-vested................................................ -- --
------- -------
Total..................................................... $ 3,091 $ 1,319
======= =======
Change in projected benefit obligation (PBO):
PBO at beginning of the year.............................. $ 2,774 $ 745
Service cost.............................................. 1,469 794
Interest cost............................................. 166 48
Amortization of unrecognized service cost................. -- --
------- -------
Net period cost........................................... 1,635 842
------- -------
Actuarial loss............................................ 403 1,187
Benefit payments.......................................... -- --
------- -------
PBO at the end of the year................................ $ 4,812 $ 2,774
======= =======
The funded status of the plans:
Projected benefit obligation.............................. $ 4,812 $ 2,774
Plan assets available for benefits........................ -- --
------- -------
Deficiency of assets over projected benefit obligations... 4,812 2,774
Unrecognized actuarial loss............................... (1,378) (1,263)
Unrecognized prior service costs.......................... -- --
------- -------
Accrued pension liability................................. $ 3,434 $ 1,511
======= =======
The weighted-average discount rate used to determine the
above amounts was 5.5% for 2001 and 6.0% for 2000.
</Table>
Certain of the Company's foreign subsidiaries have trustee retirement plans
covering substantially all of their employees. These pension plans are not
required to report to government agencies pursuant to ERISA and do not otherwise
determine the actuarial value of accumulated benefits or net assets available
for benefits. The aggregate pension expense for these plans for the fiscal years
ended October 31, 2001 and 2000 was $1.8 million and $0.8 million, respectively.
The Company, upon acquiring D-M, assumed certain of Radian International
LLC defined benefit pension plans ("Radian pension plans"), and several
post-retirement benefit plans. These plans cover a select group of Radian
employees and former employees who will continue to be eligible to participate
in the plans.
The Radian pension plans include a Supplemental Executive Retirement Plan
("SERP") and Salary Continuation Agreement ("SCA") which are intended to
supplement retirement benefits provided by other benefit plans upon the
participant's meeting minimum age and years of service requirements. The plans
are unfunded. However, at October 31, 2001 and 2000, the Company had designated
and deposited $7.2 million in a trust account for the SERP. Radian also has a
post-retirement benefit program that provides certain medical insurance benefits
to participants upon meeting minimum age and years of service requirements. This
plan is also unfunded.
24
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management's estimate of accumulated benefits for the Radian SERP and SCA
as of October 31, 2001 and 2000, was as follows:
<Table>
<Caption>
2001 2000
------- -------
(IN THOUSANDS)
Actuarial present value of accumulated benefits:
Vested.................................................... $ 9,726 $10,295
Non-vested................................................ 789 657
------- -------
Total..................................................... $10,515 $10,952
======= =======
Change in projected benefit obligation (PBO):
PBO at the beginning of the year.......................... $10,952 $11,542
Service cost.............................................. 12 62
Interest cost............................................. 727 784
Amortization of unrecognized service cost................. -- --
------- -------
Net period cost........................................ 739 846
------- -------
Actuarial (gain) loss..................................... (301) (631)
Benefit payments.......................................... (875) (805)
------- -------
PBO at the end of the year................................ $10,515 $10,952
======= =======
The funded status of the plans:
Projected benefit obligation.............................. $10,515 $10,952
Plan assets available for benefits........................ -- --
------- -------
Deficiency of assets over projected benefit obligations... 10,515 10,952
Unrecognized actuarial gain............................... 904 631
Unrecognized prior service costs.......................... -- --
------- -------
Accrued pension liability................................. $11,419 $11,583
======= =======
The weighted-average discount rate used to determine the
above amounts was 7.25% for 2001 and 7.75% for 2000.
</Table>
Management's estimate of the funded status of the Radian post-retirement
program at October 31, 2001 and 2000, was as follows:
<Table>
<Caption>
2001 2000
------ ----
(IN THOUSANDS)
Accumulated post-retirement benefit obligation ("APBO"):
Retirees.................................................. $ 204 $191
Active plan participants, fully eligible.................. 145 131
Active plan participants, not yet fully eligible.......... 789 608
------ ----
Total APBO.................................................. 1,138 930
Unrecognized net loss from past experience different from
that assumed and from changes in assumptions........... -- --
------ ----
Accrued post-retirement benefits............................ $1,138 $930
====== ====
The weighted-average discount rate used to determine the
APBO was 7.25% for 2001and 7.75% for 2000.
</Table>
25
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. VALUATION AND ALLOWANCE ACCOUNTS
<Table>
<Caption>
BEGINNING ENDING
BALANCE ADDITIONS DEDUCTIONS BALANCE
--------- --------- ---------- -------
(IN THOUSANDS)
October 31, 2001
Allowances for losses and doubtful accounts..... $36,826 $ 6,091 $14,345 $28,572
October 31, 2000
Allowances for losses and doubtful accounts..... $40,611 $25,306 $29,091 $36,826
October 31, 1999
Allowances for losses and doubtful accounts..... $14,102 $40,772 $14,263 $40,611
</Table>
The allowances for losses and doubtful accounts increased significantly in
fiscal 1999 due to the acquisition of D-M.
NOTE 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal 2001 and 2000 is summarized as
follows:
<Table>
<Caption>
FISCAL 2001 QUARTERS ENDED
-----------------------------------------
JAN. 31 APR. 30 JULY 31 OCT. 31
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues...................................... $515,624 $545,996 $591,198 $666,532
Operating income.............................. $ 34,573 $ 40,558 $ 44,715 $ 49,895
Net income available for common
stockholders................................ $ 7,241 $ 10,646 $ 13,352 $ 17,384
Net income.................................... $ 9,455 $ 12,881 $ 15,674 $ 19,842
Income per share:
Basic....................................... $ .43 $ .62 $ .76 $ .98
======== ======== ======== ========
Diluted..................................... $ .42 $ .55 $ .64 $ .80
======== ======== ======== ========
Weighted-average number of shares:
Basic....................................... 16,889 17,202 17,695 17,953
======== ======== ======== ========
Diluted..................................... 22,673 23,621 24,696 24,870
======== ======== ======== ========
</Table>
<Table>
<Caption>
FISCAL 2000 QUARTERS ENDED
-----------------------------------------
JAN. 31 APR. 30 JULY 31 OCT. 31
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues...................................... $512,877 $535,401 $558,534 $598,766
Operating income.............................. $ 33,667 $ 39,761 $ 43,944 $ 46,087
Net income available for common
stockholders................................ $ 6,582 $ 9,022 $ 12,038 $ 13,919
Net income.................................... $ 8,634 $ 11,081 $ 14,181 $ 16,002
Income per share:
Basic....................................... $ .41 $ .56 $ .73 $ .85
======== ======== ======== ========
Diluted..................................... $ .40 $ .51 $ .64 $ .72
======== ======== ======== ========
Weighted-average number of shares:
Basic....................................... 15,943 16,052 16,498 16,609
======== ======== ======== ========
Diluted..................................... 21,784 21,549 22,328 22,492
======== ======== ======== ========
</Table>
Operating income is defined as income before income taxes and net interest
expense.
26
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. SUPPLEMENTAL GUARANTOR INFORMATION
In June 1999, the Company completed a private placement of $200.0 million
principal amount of the 12 1/4% Senior Subordinated Exchange Notes due in the
year 2009, which notes were exchanged in August 1999 for 12 1/4% Senior
Subordinated Notes due in the year 2009. The notes are fully and unconditionally
guaranteed on a joint and several basis by certain of the Company's wholly-owned
subsidiaries. Substantially all of the Company's income and cash flow is
generated by its subsidiaries. The Company has no operating assets or operations
other than its investments in its subsidiaries. As a result, funds necessary to
meet the Company's debt service obligations are provided in large part by
distributions to or advances from its subsidiaries. Under certain circumstances,
contractual and legal restrictions, as well
27
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 2001 and 2000, and the condensed
consolidating statements of operations and cash flows for the three fiscal years
ended October 31, 2001. 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.
28
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
<Table>
<Caption>
OCTOBER 31, 2001
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash.................................. $ 1,699 $ 9,371 $ 12,328 $ -- $ 23,398
Accounts receivable, net.............. -- 667,009 78,170 -- 745,179
Prepaid expenses and other assets..... 16,615 17,416 1,034 -- 35,065
-------- ---------- -------- --------- ----------
Total current assets............... 18,314 693,796 91,532 -- 803,642
Property and equipment, net............. 820 96,193 9,984 -- 106,997
Goodwill, net........................... 385,749 114,537 -- -- 500,286
Investment in unconsolidated
subsidiaries.......................... 247,643 631,103 14,753 (893,499) --
Other assets............................ 12,489 39,236 726 -- 52,451
-------- ---------- -------- --------- ----------
$665,015 $1,574,865 $116,995 $(893,499) $1,463,376
======== ========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..... $ 39,794 $ 10,803 $ 3,828 $ -- $ 54,425
Accounts payable...................... 1,012 120,414 13,640 -- 135,066
Inter-company payable................. (32,720) (13,341) 47,130 (1,069) --
Accrued expenses and other............ 6,672 68,945 15,597 -- 91,214
Billings in excess of costs and
accrued earnings on contracts in
process............................ -- 84,411 11,109 -- 95,520
-------- ---------- -------- --------- ----------
Total current liabilities.......... 14,758 271,232 91,304 (1,069) 376,225
Long-term debt.......................... 547,954 28,276 474 -- 576,704
Other................................... 40,035 27,286 525 -- 67,846
-------- ---------- -------- --------- ----------
Total liabilities.................. 602,747 326,794 92,303 (1,069) 1,020,775
Mandatorily redeemable Series B
exchangeable convertible preferred
stock................................. 120,099 -- -- -- 120,099
Total stockholders' equity.............. (57,831) 1,248,071 24,692 (892,430) 322,502
-------- ---------- -------- --------- ----------
$665,015 $1,574,865 $116,995 $(893,499) $1,463,376
======== ========== ======== ========= ==========
</Table>
29
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED OCTOBER 31, 2001
---------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
Revenues....................... $ -- $2,109,173 $216,975 $(6,798) $2,319,350
Expenses:
Direct operating............. -- 1,283,880 116,736 (6,798) 1,393,818
Indirect, general and
administrative............ 2,980 653,129 99,682 -- 755,791
Interest expense, net........ 64,455 (3,227) 4,361 -- 65,589
--------- ---------- -------- ------- ----------
67,435 1,933,782 220,779 (6,798) 2,215,198
--------- ---------- -------- ------- ----------
Income (loss) before taxes..... (67,435) 175,391 (3,804) -- 104,152
Income tax expense............. 41,632 1,492 3,176 -- 46,300
--------- ---------- -------- ------- ----------
Net income (loss).............. (109,067) 173,899 (6,980) -- 57,852
Preferred stock dividend....... 9,229 -- -- -- 9,229
--------- ---------- -------- ------- ----------
Net income (loss) available for
common stockholders.......... (118,296) 173,899 (6,980) -- 48,623
Other comprehensive income
(loss), net of tax:
Foreign currency translation
adjustments............... -- -- (1,550) -- (1,550)
--------- ---------- -------- ------- ----------
Comprehensive income (loss).... $(118,296) $ 173,899 $ (8,530) $ -- $ 47,073
========= ========== ======== ======= ==========
</Table>
30
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED OCTOBER 31, 2001
-----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income (loss)..................... $(109,067) $ 173,899 $ (6,980) $ -- $ 57,852
--------- --------- -------- ------- --------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 10,552 29,474 2,117 -- 42,143
Amortization of financing fees........ 3,663 -- -- -- 3,663
Receivable allowances................. (7,814) (2,092) 1,652 -- (8,254)
Stock compensation.................... 1,964 -- -- -- 1,964
Tax benefit of stock options.......... 3,899 -- -- -- 3,899
Changes in current assets and
liabilities:
Accounts receivable and costs and
accrued earnings in excess of
billings on contracts in process... -- (30,566) 2,646 -- (27,920)
Income taxes recoverable.............. 4,997 -- -- -- 4,997
Prepaid expenses and other assets..... (4,002) 98 (1,640) -- (5,544)
Accounts payable, accrued salaries and
wages and accrued expenses......... 107,469 (126,354) 7,889 2,512 (8,484)
Billings in excess of costs and
accrued earnings on contracts in
process............................ -- 242 4,803 -- 5,045
Deferrals and other, net.............. (3,275) (6,340) (10,184) (2,512) (22,311)
--------- --------- -------- ------- --------
Total adjustments.................. 117,453 (135,538) 7,283 -- (10,802)
--------- --------- -------- ------- --------
Net cash provided by operating
activities......................... 8,386 38,361 303 -- 47,050
--------- --------- -------- ------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiaries.... -- 3,530 -- -- 3,530
Capital expenditures.................. (528) (18,184) (1,066) -- (19,778)
--------- --------- -------- ------- --------
Net cash (used) by investing
activities......................... (528) (14,654) (1,066) -- (16,248)
--------- --------- -------- ------- --------
Cash flows from financing activities:
Principal payments on long-term debt,
bank borrowings and capital lease
obligations........................ (28,832) (8,516) (5,521) -- (42,869)
Proceeds from sale of common shares
and exercise of stock options...... 11,772 -- -- -- 11,772
--------- --------- -------- ------- --------
Net cash (used) by financing
activities....................... (17,060) (8,516) (5,521) -- (31,097)
--------- --------- -------- ------- --------
Net (decrease) increase in cash......... (9,202) 15,191 (6,284) -- (295)
Cash and cash equivalents at beginning
of year............................... 10,901 (5,820) 18,612 -- 23,693
--------- --------- -------- ------- --------
Cash and cash equivalents at end of
year.................................. $ 1,699 $ 9,371 $ 12,328 $ -- $ 23,398
========= ========= ======== ======= ========
</Table>
31
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
<Table>
<Caption>
OCTOBER 31, 2000
--------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- --------------- ------------ ------------
ASSETS
Current assets:
Cash...................... $ 10,901 $ (5,820) $ 18,612 $ -- $ 23,693
Accounts receivable,
net.................... (7,814) 634,350 82,469 -- 709,005
Prepaid expenses and other
assets................. 22,086 21,303 463 -- 43,852
--------- ---------- -------- --------- ----------
Total current assets... 25,173 649,833 101,544 -- 776,550
Property and equipment,
net....................... 442 77,184 11,035 -- 88,661
Goodwill, net............... 395,063 119,548 -- -- 514,611
Investment in unconsolidated
subsidiaries.............. 245,127 396,293 920 (642,340) --
Other assets................ 15,019 29,482 2,811 -- 47,312
--------- ---------- -------- --------- ----------
$ 680,824 $1,272,340 $116,310 $(642,340) $1,427,134
========= ========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt......... $ 28,924 $ 6,576 $ 9,723 $ -- $ 45,223
Accounts payable.......... 15,606 99,214 10,345 -- 125,165
Inter-company payable..... (174,043) 150,053 36,099 (12,109) --
Accrued expenses and
other.................. 33,291 55,478 32,358 -- 121,127
Billings in excess of
costs and accrued
earnings on contracts
in process............. -- 84,169 6,306 -- 90,475
--------- ---------- -------- --------- ----------
Total current
liabilities.......... (96,222) 395,490 94,831 (12,109) 381,990
Long-term debt.............. 587,136 15,892 100 -- 603,128
Other....................... 19,902 51,712 1,595 -- 73,209
--------- ---------- -------- --------- ----------
Total liabilities...... 510,816 463,094 96,526 (12,109) 1,058,327
Mandatorily redeemable
Series B exchangeable
convertible preferred
stock..................... 111,013 -- -- -- 111,013
Total stockholders'
equity.................... 58,995 809,246 19,784 (630,231) 257,794
--------- ---------- -------- --------- ----------
$ 680,824 $1,272,340 $116,310 $(642,340) $1,427,134
========= ========== ======== ========= ==========
</Table>
32
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED OCTOBER 31, 2000
-------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- --------------- ------------ ------------
Revenues..................... $ 800 $1,989,259 $235,683 $(20,164) $2,205,578
-------- ---------- -------- -------- ----------
Expenses:
Direct operating........... -- 1,226,077 139,155 (20,164) 1,345,068
Indirect, general and
administrative.......... (38,360) 646,552 88,859 -- 697,051
Interest expense, net...... 71,800 (316) 377 -- 71,861
-------- ---------- -------- -------- ----------
33,440 1,872,313 228,391 (20,164) 2,113,980
-------- ---------- -------- -------- ----------
Income (loss) before taxes... (32,640) 116,946 7,292 -- 91,598
Income tax expense........... 40,246 1,201 253 -- 41,700
-------- ---------- -------- -------- ----------
Net income (loss)............ (72,886) 115,745 7,039 -- 49,898
Preferred stock dividend..... 8,337 -- -- -- 8,337
-------- ---------- -------- -------- ----------
Net income (loss) available
for common stockholders.... (81,223) 115,745 7,039 -- 41,561
Other comprehensive income
(loss), net of tax:
Foreign currency
translation
adjustments............. -- -- (2,609) -- (2,609)
-------- ---------- -------- -------- ----------
Comprehensive income
(loss)..................... $(81,223) $ 115,745 $ 4,430 $ -- $ 38,952
======== ========== ======== ======== ==========
</Table>
33
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED OCTOBER 31, 2000
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income (loss)..................... $(72,886) $ 115,745 $ 7,039 $ -- $ 49,898
-------- --------- -------- -------- --------
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization......... 10,130 28,908 2,791 -- 41,829
Amortization of financing fees........ 3,467 -- -- -- 3,467
Receivable allowances................. (7,186) 6,202 (2,801) -- (3,785)
Stock compensation.................... 1,179 -- -- -- 1,179
Tax benefit of stock options.......... 2,455 -- -- -- 2,455
Changes in current assets and
liabilities:
Accounts receivable and costs and
accrued earnings in excess of
billings on contracts in process... -- (50,409) 11,150 -- (39,259)
Income taxes recoverable.............. -- (16,668) -- -- (16,668)
Prepaid expenses and other assets..... (3,788) 1,111 1,453 -- (1,224)
Accounts payable, accrued salaries and
wages and accrued expenses......... 88,206 (64,602) (28,139) (23,085) (27,620)
Billings in excess of costs and
accrued earnings on contracts in
process............................ -- 18,136 2,026 -- 20,162
Deferrals and other, net.............. (12,868) (42,242) 12,615 23,085 (19,410)
-------- --------- -------- -------- --------
Total adjustments.................. 81,595 (119,564) (905) -- (38,874)
-------- --------- -------- -------- --------
Net cash provided (used) by operating
activities......................... 8,709 (3,819) 6,134 -- 11,024
-------- --------- -------- -------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiaries.... 25,354 -- -- -- 25,354
Capital expenditures.................. (118) (14,404) (1,363) -- (15,885)
-------- --------- -------- -------- --------
Net cash provided (used) by investing
activities......................... 25,236 (14,404) (1,363) -- 9,469
-------- --------- -------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt,
bank borrowings and capital lease
obligations........................ (37,805) (4,625) (8,096) -- (50,526)
Proceeds from sale of common shares
and exercise of stock options...... 8,039 -- -- -- 8,039
-------- --------- -------- -------- --------
Net cash (used) by financing
activities......................... (29,766) (4,625) (8,096) -- (42,487)
-------- --------- -------- -------- --------
Net increase (decrease) in cash......... 4,179 (22,848) (3,325) -- (21,994)
Cash and cash equivalents at beginning
of year............................... 6,722 17,028 21,937 -- 45,687
-------- --------- -------- -------- --------
Cash and cash equivalents at end of
year.................................. $ 10,901 $ (5,820) $ 18,612 $ -- $ 23,693
======== ========= ======== ======== ========
</Table>
34
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED OCTOBER 31, 1999
--------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
Revenues........................ $ -- $1,268,925 $154,211 $(4,614) $ 1,418,522
-------- ---------- -------- ------- ------------
Expenses:
Direct operating.............. -- 765,527 93,607 (4,614) 854,520
Indirect, general and
administrative............. 14,541 388,765 59,826 -- 463,132
Interest expense, net......... 34,069 -- 520 -- 34,589
-------- ---------- -------- ------- ------------
48,610 1,154,292 153,953 (4,614) 1,352,241
-------- ---------- -------- ------- ------------
Income (loss) before taxes...... (48,610) 114,633 258 -- 66,281
Income tax expense.............. 29,130 8 562 -- 29,700
-------- ---------- -------- ------- ------------
Net income (loss)............... (77,740) 114,625 (304) 36,581
Preferred stock dividend........ 3,333 -- -- -- 3,333
-------- ---------- -------- ------- ------------
Net income (loss) available for
common stockholders........... (81,073) 114,625 (304) -- 33,248
Other comprehensive income
(loss), net of tax:
Foreign currency translation
adjustments................ -- -- 197 -- 197
-------- ---------- -------- ------- ------------
Comprehensive income (loss)..... $(81,073) $ 114,625 $ (107) $ -- $ 33,445
======== ========== ======== ======= ============
</Table>
35
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED OCTOBER 31, 1999
---------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
Cash flows from operating
activities:
Net income (loss)................ $ (77,740) $ 114,625 $ (304) $ -- $ 36,581
--------- --------- -------- -------- ---------
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization.... 7,075 23,162 1,940 -- 32,177
Amortization of financing fees... 1,587 -- -- -- 1,587
Receivable allowances............ -- (234) (51) -- (285)
Stock compensation............... 1,726 -- -- -- 1,726
Changes in current assets and
liabilities:
Accounts receivable and costs and
accrued earnings in excess of
billings on contracts in
process........................ -- (56,055) (30,211) -- (86,266)
Prepaid expenses and other
assets......................... (3,376) 403 1,236 -- (1,737)
Accounts payable, accrued
salaries and wages and accrued
expenses....................... 63,181 (67,679) 38,084 (48,801) (15,215)
Billings in excess of costs and
accrued earnings on contracts
in process..................... -- 30,044 3,263 -- 33,307
Deferrals and other, net......... (10,033) (30,015) (1,875) 48,801 6,878
--------- --------- -------- -------- ---------
Total adjustments.............. 60,160 (100,374) 12,386 -- (27,828)
--------- --------- -------- -------- ---------
Net cash (used) provided by
operating activities........... (17,580) 14,251 12,082 -- 8,753
--------- --------- -------- -------- ---------
Cash flows from investing
activities:
Payment for business acquisition,
net of cash acquired........... (316,167) -- -- -- (316,167)
Capital expenditures............. (41) (16,760) (3,447) -- (20,248)
--------- --------- -------- -------- ---------
Net cash (used) by investing
activities..................... (316,208) (16,760) (3,447) -- (336,415)
--------- --------- -------- -------- ---------
Cash flows from financing
activities:
Payments on merger fees.......... (18,738) -- -- -- (18,738)
Proceeds from issuance of debt... 817,162 24,335 13,242 -- 854,739
Principal payments on long-term
debt, bank borrowings and
capital lease obligations...... (578,904) (11,336) (2,982) -- (593,222)
Proceeds from sale of common
shares and exercise of stock
options........................ 7,138 -- -- -- 7,138
Proceeds from issuance of
preferred stock................ 100,000 -- -- -- 100,000
Payments on financing fees....... (11,597) -- -- -- (11,597)
Payments on financing fees
related to issuance of
preferred stock................ (1,500) -- -- -- (1,500)
--------- --------- -------- -------- ---------
Net cash provided by financing
activities..................... 313,561 12,999 10,260 -- 336,820
--------- --------- -------- -------- ---------
Net (decrease) increase in cash.... (20,227) 10,490 18,895 -- 9,158
Cash and cash equivalents at
beginning of year................ 26,949 6,538 3,042 -- 36,529
--------- --------- -------- -------- ---------
Cash and cash equivalents at end of
year............................. $ 6,722 $ 17,028 $ 21,937 $ -- $ 45,687
========= ========= ======== ======== =========
</Table>
36
NOTE 17. SUBSEQUENT EVENT
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and
Other Intangible Assets. SFAS 142 supercedes Accounting Principles Board Opinion
No. 17 and addresses the financial accounting and reporting standards for
goodwill and intangible assets subsequent to their initial recognition. SFAS 142
requires that goodwill be separately disclosed from other intangible assets in
the statement of financial position, and no longer be amortized. It also
requires that goodwill and other intangible assets be tested for impairment at
least annually. The Company adopted SFAS 142 on November 1, 2001 and ceased to
amortize goodwill on that date.
If amortization expense related to goodwill that is no longer amortized had
been excluded from operating expenses for the three years ended October 31,
2001, 2000, and 1999, and if the effective tax rate remained at 44.5%, 45.5% and
44.8%, respectively, diluted earnings per share for the three years ended
October 31, 2001, 2000, and 1999 would have increased by $0.37, $0.38 and $0.45,
respectively.
The following table reflects the adjusted net income and net income per
share as if SFAS 142 had been effective as of November 1, 1998:
<Table>
<Caption>
YEARS ENDED OCTOBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net Income
Reported net income....................................... $57,852 $49,898 $36,581
Add: goodwill amortization, net of tax.................... 8,667 8,321 8,225
------- ------- -------
Adjusted net income....................................... $66,519 $58,219 $44,806
======= ======= =======
Basic income per share
Reported net income....................................... $ 2.79 $ 2.55 $ 2.14
Goodwill amortization..................................... .49 .51 .53
------- ------- -------
Adjusted net income....................................... $ 3.28 $ 3.06 $ 2.67
======= ======= =======
Diluted income per share
Reported net income....................................... $ 2.41 $ 2.27 $ 1.98
Goodwill amortization..................................... .37 .38 .45
------- ------- -------
Adjusted net income....................................... $ 2.78 $ 2.65 $ 2.43
======= ======= =======
</Table>
37
Item 7. Financial Statements and Exhibits
(c) Exhibits
23.1 Consent of PricewaterhouseCoopers LLP
38
SIGNATURE
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.
URS CORPORATION
Dated: November 15, 2002 By: /s/ Kent P. Ainsworth
-------------------------------
Kent P. Ainsworth
Executive Vice President
Chief Financial Officer and Secretary
39
EXHIBIT INDEX
Exhibit
Number Description
- -------- -----------
23.1 Consent of PricewaterhouseCoopers LLP
40