UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from _____________ to _____________
Commission file number 1-7567
URS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1381538
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
100 California Street, Suite 500
San Francisco, California 94111-4529
(Address of principal executive offices) (Zip Code)
(415) 774-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 4, 2001
----- ---------------------------
Common Stock, $.01 par value 17,656,741
URS CORPORATION AND SUBSIDIARIES
This Form 10-Q for the quarter ended April 30, 2001, contains
forward-looking statements, including statements about the continued strength of
our business and opportunities for future growth. We believe that our
expectations are reasonable and are based on reasonable assumptions. However,
such forward-looking statements by their nature involve risks and uncertainties.
We caution that a variety of factors, including but not limited to the
following, could cause our business and financial results to differ materially
from those expressed or implied in forward-looking statements: our highly
leveraged position; our ability to service our debt; our ability to pursue
business strategies; our continued dependence on federal, state and local
appropriations for infrastructure spending; pricing pressures, changes in the
regulatory environment; outcomes of pending and future litigation; our ability
to attract and retain qualified professionals; industry competition; changes in
international trade, monetary and fiscal policies; our ability to integrate
future acquisitions successfully; our ability to successfully integrate our
accounting and management information systems; and other factors discussed more
fully in the attached Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as in our Annual Report on Form
10-K for the year ended October 31, 2000, and other reports subsequently filed
from time to time with the Securities and Exchange Commission . We assume no
obligation to update any forward-looking statements.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets
April 30, 2001 and October 31, 2000 .......................... 3
Consolidated Statements of Operations
Three and six months ended April 30, 2001 and 2000 ........... 4
Consolidated Statements of Cash Flows
Six months ended April 30, 2001 and 2000 ..................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...... 22
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings ............................................... 23
Item 2. Changes in Securities and Use of Proceeds ....................... 23
Item 3. Defaults Upon Senior Securities ................................. 23
Item 4. Submission of Matters to a Vote of Security Holders ............. 23
Item 5. Other Information ............................................... 23
Item 6. Exhibits and Reports on Form 8-K ................................ 24
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
April 30, 2001 October 31, 2000
-------------- ----------------
(unaudited)
ASSETS
Current assets:
Cash......................................................................... $ 9,296 $ 23,693
Accounts receivable.......................................................... 452,182 464,074
Costs and accrued earnings in excess of billings on contracts in process..... 307,082 281,757
Less receivable allowances................................................... (31,634) (36,826)
----------- -----------
Net accounts receivable................................................ 727,630 709,005
----------- -----------
Income taxes recoverable..................................................... -- 16,668
Deferred income taxes........................................................ 4,926 4,859
Prepaid expenses and other assets............................................ 25,405 22,325
----------- -----------
Total current assets.................................................. 767,257 776,550
Property and equipment, net..................................................... 94,948 88,661
Goodwill, net................................................................... 508,057 514,611
Other assets.................................................................... 46,384 47,312
----------- -----------
$ 1,416,646 $ 1,427,134
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................ $ 51,943 $ 45,223
Accounts payable............................................................. 118,535 125,165
Accrued salaries and wages................................................... 56,959 92,212
Accrued expenses and other................................................... 33,604 28,915
Billings in excess of costs and accrued earnings on contracts in process..... 100,699 90,475
----------- -----------
Total current liabilities............................................. 361,740 381,990
Long-term debt.................................................................. 585,023 603,128
Deferred income taxes........................................................... 32,057 33,157
Deferred compensation and other................................................. 41,688 40,052
----------- -----------
Total liabilities..................................................... 1,020,508 1,058,327
----------- -----------
Commitments and contingencies (Note 2)
Mandatorily redeemable Series B exchangeable convertible preferred
stock, par value $1.00; authorized 150 shares; issued 53 and 51,
respectively; liquidation preference $115,435 and $111,013, respectively..... 115,435 111,013
----------- -----------
Stockholders' equity:
Common shares, par value $.01; authorized 50,000 shares; issued
17,505 and 16,834 shares, respectively....................................... 175 168
Treasury stock............................................................... (287) (287)
Additional paid-in capital................................................... 143,221 137,389
Other comprehensive income (loss)............................................ (3,229) (2,412)
Retained earnings............................................................ 140,823 122,936
----------- -----------
Total stockholders' equity............................................ 280,703 257,794
----------- -----------
$ 1,416,646 $ 1,427,134
=========== ===========
See Notes to Consolidated Financial Statements
3
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended Six months ended
April 30, April 30,
------------------------------- -------------------------------
2001 2000 2001 2000
---- ---- ---- ----
(unaudited) (unaudited)
Revenues........................................... $ 545,996 $ 535,401 $ 1,061,620 $ 1,048,278
----------- ----------- ----------- -----------
Expenses:
Direct operating............................... 319,727 309,209 625,260 619,385
Indirect, general and administrative........... 185,711 186,431 361,229 355,465
Interest expense, net.......................... 16,907 19,230 34,525 37,213
----------- ----------- ----------- -----------
522,345 514,870 1,021,014 1,012,063
----------- ----------- ----------- -----------
Income before taxes................................ 23,651 20,531 40,606 36,215
Income tax expense................................. 10,770 9,450 18,270 16,500
----------- ----------- ----------- -----------
Net income......................................... 12,881 11,081 22,336 $ 19,715
Preferred stock dividend........................... 2,235 2,059 4,449 4,111
----------- ----------- ----------- -----------
Net income available for common stockholders.... 10,646 9,022 17,887 15,604
Other comprehensive income (loss).................. (938) (1,496) (817) (1,413)
----------- ----------- ----------- -----------
Comprehensive income............................... $ 9,708 $ 7,526 $ 17,070 $ 14,191
=========== =========== =========== ===========
Net income per common share:
Basic.......................................... $ .62 $ .56 $ 1.05 $ .97
=========== =========== =========== ===========
Diluted........................................ $ .55 $ .51 $ .97 $ .91
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic.......................................... 17,202 16,052 17,045 15,997
=========== =========== =========== ===========
Diluted........................................ 23,621 21,549 23,101 21,724
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
4
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
April 30,
----------------------------
2001 2000
---- ----
(unaudited)
Cash flows from operating activities:
Net income................................................................. $ 22,336 $ 19,715
--------- ---------
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization........................................... 20,277 21,619
Amortization of financing fees.......................................... 1,789 1,687
Receivable allowances................................................... 2,622 (6,434)
Stock compensation...................................................... 906 323
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings in excess of
billings on contracts in process....................................... (13,433) 7,656
Income taxes recoverable................................................ 4,997 --
Prepaid expenses and other assets....................................... (4,605) (579)
Accounts payable, accrued salaries and wages and accrued expenses....... (33,364) (31,903)
Billings in excess of costs and accrued earnings on contracts in
process................................................................ 10,224 (4,012)
Deferred income taxes................................................... (1,167) 419
Deferred compensation and other......................................... 1,636 (19,472)
Other, net.............................................................. (1,127) 12,108
--------- ---------
Total adjustments.................................................. (11,245) (18,588)
--------- ---------
Net cash provided by operating activities.................................. 11,091 1,127
--------- ---------
Cash flows from investing activities:
Capital expenditures, less equipment purchased through capital
leases of $7,711 and $3,655, respectively.............................. (14,254) (4,838)
--------- ---------
Net cash (used) by investing activities.................................... (14,254) (4,838)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt....................................... (12,082) (7,305)
Borrowings under the line of credit........................................ 30,000 --
Repayments on the line of credit........................................... (25,000) --
Repayments on capital lease obligations.................................... (3,600) (1,793)
Repayments on short-term notes............................................. (5,485) (4,537)
Proceeds from sale of common shares and exercise of stock options.......... 4,933 3,695
--------- ---------
Net cash (used) by financing activities................................... (11,234) (9,940)
--------- ---------
Net decrease in cash.......................................................... (14,397) (13,651)
Cash at beginning of period................................................... 23,693 45,687
--------- ---------
Cash at end of period......................................................... $ 9,296 $ 32,036
========= =========
Supplemental Information:
Interest paid.............................................................. $ 33,370 $ 32,392
========= =========
Taxes paid................................................................. $ 18,009 $ 13,321
========= =========
Equipment acquired subject to capital lease obligations.................... $ 7,711 $ 3,655
========= =========
Non-cash dividends paid in-kind............................................ $ 4,422 $ 3,456
========= =========
See Notes to Consolidated Financial Statements
5
URS CORPORATION AND SUBSIDIARIES
NOTE 1. Accounting Policies
In the opinion of management, the information furnished reflects all
adjustments, consisting only of normal recurring adjustments, which are
necessary for a fair statement of the interim financial information.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2000.
The results of operations for the six months ended April 30, 2001, are not
necessarily indicative of the operating results for the full year.
Income Per Common Share
Basic income per common share is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted income per common share is computed giving
effect to all dilutive potential common shares that were outstanding during the
period. Dilutive potential common shares consist of the incremental common
shares issuable upon the exercise of stock options and conversion of preferred
stock. Diluted income per share is computed by dividing net income available to
common stockholders plus the preferred stock dividend by the weighted average
dilutive potential common shares that were outstanding during the period.
In accordance with the disclosure requirement of SFAS 128, a reconciliation
of the numerator and denominator of basic and diluted income per common share is
provided as follows:
Three months ended Six months ended
April 30 April 30
--------------------------- ---------------------------
2001 2000 2001 2000
---- ---- ---- ----
(in thousands, except per share amounts)
Numerator--Basic
Net income available for common stockholders......... $ 10,646 $ 9,022 $ 17,887 $ 15,604
========= ========= ========= =========
Denominator--Basic
Weighted-average common stock outstanding............ 17,202 16,052 17,045 15,997
========= ========= ========= =========
Basic income per share............................... $ .62 $ .56 $ 1.05 $ .97
========= ========= ========= =========
Numerator--Diluted
Net income available for common stockholders......... $ 10,646 $ 9,022 $ 17,887 $ 15,604
Preferred stock dividend............................. 2,235 2,059 4,449 4,111
--------- --------- --------- ---------
Net income............................................. $ 12,881 $ 11,081 $ 22,336 $ 19,715
========= ========= ========= =========
Denominator--Diluted
Weighted-average common stock outstanding............ 17,202 16,052 17,045 15,997
Effect of dilutive securities:
Stock options........................................ 1,168 889 858 1,119
Convertible preferred stock.......................... 5,251 4,608 5,198 4,608
--------- --------- --------- ---------
23,621 21,549 23,101 21,724
========= ========= ========= =========
Diluted income per share............................... $ .55 $ .51 $ .97 $ .91
========= ========= ========= =========
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. From time to time,
the Company may enter into interest rate derivatives to protect against this
risk. At April 30, 2001, the only derivative instrument held by the Company was
the interest rate cap agreement. From an 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 accordingly, changes in the fair market value of the
cap agreement are included in other expenses in the Consolidated Statements of
Operations. The fair market value of the interest rate cap agreement at April
30, 2001, was $7,760 and was included in Prepaid Expenses and Other Assets in
the Consolidated Balance Sheets.
6
Reclassifications
Certain reclassifications have been made to the 2000 financial statements to
conform to the 2001 presentation with no effect on net income, equity or cash
flows as previously reported.
NOTE 2. 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 Dames and
Moore Group ("D-M"), an engineering and construction services firm acquired in
June 1999, that arose from professional errors and omissions prior to the
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.
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 it, that would
materially exceed its insurance coverage or have a material adverse effect on
its consolidated financial position or operations.
NOTE 3. 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 the
United States. The International division comprises all offices in the Americas
and in Europe and 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, and
generally, revenues are classified within the geographic area where the services
were performed.
The following table shows summarized financial information 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 April 30, 2001: Parent Domestic International Eliminations Total
--------------------- ------ -------- ------------- ------------ -----
Total accounts receivable............... $ 174 $ 650,150 $ 77,306 $ -- $ 727,630
Total assets............................ $ 657,457 $1,301,389 $ 101,128 $(643,328) $1,416,646
For the Three Months Ended
April 30, 2001: Parent Domestic International Eliminations Total
--------------- ------ -------- ------------- ------------ -----
Revenue ................................ $ -- $ 496,697 $ 50,519 $ (1,220) $ 545,996
Segment operating income (loss)......... $ (7,288) $ 46,972 $ 874 $ -- $ 40,558
For the Six Months Ended
April 30, 2001: Parent Domestic International Eliminations Total
--------------- ------ -------- ------------- ------------ -----
Revenue ................................ $ -- $ 963,127 $ 101,075 $ (2,582) $1,061,620
Segment operating income (loss)......... $ (15,498) $ 88,322 $ 2,307 $ -- $ 75,131
As of October 31, 2000: Parent Domestic International Eliminations Total
----------------------- ------ -------- ------------- ------------ -----
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
For the Three Months Ended
April 30, 2000: Parent Domestic International Eliminations Total
--------------- ------ -------- ------------- ------------ -----
Revenue ................................ $ -- $ 477,403 $ 58,391 $ (393) $ 535,401
Segment operating income (loss)......... $ (6,143) $ 44,688 $ 1,216 $ -- $ 39,761
For the Six Months Ended
April 30, 2000: Parent Domestic International Eliminations Total
--------------- ------ -------- ------------- ------------ -----
Revenue ................................ $ -- $ 933,627 $ 115,195 $ (544) $1,048,278
Segment operating income (loss)......... $ (11,261) $ 81,221 $ 3,468 $ -- $ 73,428
Operating income is defined as income before income taxes and interest.
7
NOTE 4. SUPPLEMENTAL GUARANTOR INFORMATION
In June 1999, the Company completed a private placement of $200 million
principal amount of its 12 1/4% Senior Subordinated Exchange Notes due 2009,
which were exchanged in August 1999, for 12 1/4% Senior Subordinated Notes (the
"Notes"). 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 mainly by distributions to or
advances from its subsidiaries. Under certain circumstances, contractual and
legal restrictions, as well as the financial condition and operating
requirements of the Company's subsidiaries, could limit the Company's ability to
obtain cash from its subsidiaries for the purpose of meeting its debt service
obligations, including the payment of principal and interest on the Notes.
The following information sets forth the condensed consolidating balance
sheets of the Company as of April 30, 2001 and October 31, 2000, the condensed
consolidating statements of operations for the three and six months ended April
30, 2001 and 2000, and the condensed consolidating statements of cash flows for
the six months ended April 30, 2001 and 2000. Investments in subsidiaries are
accounted for using 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.
8
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
(Unaudited)
April 30, 2001
---------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash..................................... $ (2,689) $ 901 $ 11,084 $ -- $ 9,296
Accounts receivable, net................. 174 650,150 77,306 -- 727,630
Prepaid expenses and other assets........ 10,223 18,335 1,773 -- 30,331
---------- ----------- ---------- --------- -----------
Total current assets................. 7,708 669,386 90,163 -- 767,257
Property and equipment, net.................. 636 83,568 10,744 -- 94,948
Goodwill, net................................ 390,555 152,153 182 (34,833) 508,057
Investment in unconsolidated subsidiaries.... 245,127 363,959 (591) (608,495) --
Other assets................................. 13,431 32,323 630 -- 46,384
---------- ----------- ---------- --------- -----------
$ 657,457 $ 1,301,389 $ 101,128 $(643,328) $ 1,416,646
========== =========== ========== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........ $ 38,989 $ 7,758 $ 5,196 $ -- $ 51,943
Accounts payable......................... (652) 104,392 14,795 -- 118,535
Inter-company payable.................... (102,132) 51,891 54,271 (4,030) --
Accrued expenses and other............... 6,666 67,372 16,525 -- 90,563
Billings in excess of costs and
accrued earnings on contracts in process -- 92,135 8,564 -- 100,699
---------- ----------- ---------- --------- -----------
Total current liabilities............ (57,129) 323,548 99,351 (4,030) 361,740
Long-term debt............................... 568,960 15,603 460 -- 585,023
Other........................................ 36,571 37,147 27 -- 73,745
---------- ----------- ---------- --------- -----------
Total liabilities.................... 548,402 376,298 99,838 (4,030) 1,020,508
---------- ----------- ---------- --------- -----------
Mandatorily redeemable Series B exchangeable
convertible preferred stock.. 115,435 -- -- -- 115,435
Total stockholders' equity................... (6,380) 925,091 1,290 (639,298) 280,703
---------- ----------- ---------- --------- -----------
$ 657,457 $ 1,301,389 $ 101,128 $(643,328) $ 1,416,646
========== =========== ========== ========= ===========
9
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended April 30, 2001
--------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Revenues............................... $ -- $ 496,697 $ 50,519 $ (1,220) $ 545,996
---------- ----------- ---------- --------- ---------
Expenses:
Direct operating.................... -- 296,465 24,482 (1,220) 319,727
Indirect, general and
administrative.................... 7,288 153,260 25,163 -- 185,711
Interest expense, net............... 16,519 249 139 -- 16,907
---------- ----------- ---------- --------- ---------
23,807 449,974 49,784 (1,220) 522,345
---------- ----------- ---------- --------- ---------
Income (loss) before taxes............. (23,807) 46,723 735 -- 23,651
Income tax expense..................... 9,521 778 471 -- 10,770
---------- ----------- ---------- --------- ---------
Net income (loss)...................... (33,328) 45,945 264 -- 12,881
Preferred stock dividend............... 2,235 -- -- -- 2,235
---------- ----------- ---------- --------- ---------
Net income (loss) available for
common stockholders................. (35,563) 45,945 264 -- 10,646
Other comprehensive income
(loss).............................. -- -- (938) -- (938)
---------- ----------- ---------- --------- ---------
Comprehensive income (loss)............ $ (35,563) $ 45,945 $ (674) $ -- $ 9,708
========== =========== ========== ========= =========
Six Months Ended April 30, 2001
--------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Revenues............................... $ -- $ 963,127 $ 101,075 $ (2,582) $1,061,620
---------- ----------- ---------- --------- ----------
Expenses:
Direct operating.................... -- 573,291 54,551 (2,582) 625,260
Indirect, general and
administrative.................... 15,498 301,514 44,217 -- 361,229
Interest expense, net............... 33,650 507 368 -- 34,525
---------- ----------- ---------- --------- ----------
49,148 875,312 99,136 (2,582) 1,021,014
---------- ----------- ---------- --------- ----------
Income (loss) before taxes............. (49,148) 87,815 1,939 -- 40,606
Income tax expense..................... 16,812 909 549 -- 18,270
---------- ----------- ---------- --------- ----------
Net income (loss)...................... (65,960) 86,906 1,390 -- 22,336
Preferred stock dividend............... 4,449 -- -- -- 4,449
---------- ----------- ---------- --------- ----------
Net income (loss) available for
common stockholders................. (70,409) 86,906 1,390 -- 17,887
Other comprehensive income
(loss).............................. -- -- (817) -- (817)
---------- ----------- ---------- --------- ----------
Comprehensive income (loss)............ $ (70,409) $ 86,906 $ 573 $ -- $ 17,070
========== =========== =========== ========= ==========
10
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended April 30, 2001
--------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income (loss)......................... $ (65,960) $ 86,906 $ 1,390 $ -- $ 22,336
---------- ---------- ---------- --------- ----------
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization............. 5,234 13,623 1,420 -- 20,277
Amortization of financing fees ........... 1,789 -- -- -- 1,789
Receivable allowances..................... (174) 1,055 1,741 -- 2,622
Stock compensation........................ 906 -- -- -- 906
Changes in current assets and
liabilities:
Accounts receivable and costs and
accrued earnings in excess of
billings on contracts in process ....... -- (16,855) 3,422 -- (13,433)
Prepaid expenses and other assets........ 3,592 (821) (2,379) -- 392
Accounts payable, accrued salaries
and wages and accrued expenses.......... 47,462 (82,727) 502 1,399 (33,364)
Billings in excess of costs and
accrued earnings on contracts in
process................................. -- 7,966 2,258 -- 10,224
Deferrals and other, net.................. (2,733) 14,060 (10,586) (1,399) (658)
---------- ---------- ---------- --------- ----------
Total adjustments....................... 56,076 (63,699) (3,622) -- (11,245)
---------- ---------- ---------- --------- ----------
Net cash provided (used) by
operating activities.................... (9,884) 23,207 (2,232) -- 11,091
---------- ---------- ---------- --------- ----------
Cash flows from investing activities:
Capital expenditures...................... (264) (12,861) (1,129) -- (14,254)
---------- ---------- ---------- --------- ----------
Net cash (used) by investing
activities.............................. (264) (12,861) (1,129) -- (14,254)
---------- ---------- ---------- --------- ----------
Cash flows from financing activities:
Net (decrease) in long-term debt,
bank borrowings and capital
lease obligations....................... (8,375) (3,625) (4,167) -- (16,167)
Proceeds from sale of common
shares and exercise of stock
options................................. 4,933 -- -- -- 4,933
---------- ---------- ---------- --------- ----------
Net cash (used) by financing
activities.............................. (3,442) (3,625) (4,167) -- (11,234)
---------- ---------- ---------- --------- ----------
Net increase (decrease) in cash.............. (13,590) 6,721 (7,528) -- (14,397)
Cash at beginning of period.................. 10,901 (5,820) 18,612 -- 23,693
---------- ---------- ---------- --------- ----------
Cash at end of period........................ $ (2,689) $ 901 $ 11,084 $ -- $ 9,296
============== ========== ========== ========= ==========
11
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
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................................ 395,063 154,631 -- (35,083) 514,611
Investment in unconsolidated subsidiaries.... 245,127 361,210 920 (607,257) --
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
========= =========== ========= =========== ===========
12
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended April 30, 2000
--------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Revenues................................. $ -- $ 477,403 $ 58,391 $ (393) $ 535,401
---------- ---------- ---------- --------- ----------
Expenses:
Direct operating........................ -- 275,330 34,272 (393) 309,209
Indirect, general and
administrative........................ 6,143 157,385 22,903 -- 186,431
Interest expense, net................... 19,428 (411) 213 -- 19,230
---------- ---------- ---------- --------- ----------
25,571 432,304 57,388 (393) 514,870
---------- ---------- ---------- --------- ----------
Income (loss) before taxes............... (25,571) 45,099 1,003 -- 20,531
Income tax expense....................... 9,118 283 49 -- 9,450
---------- ---------- ---------- --------- ----------
Net income (loss)........................ (34,689) 44,816 954 -- 11,081
Preferred stock dividend................. 2,059 -- -- -- 2,059
---------- ---------- ---------- --------- ----------
Net income (loss) available for
common stockholders................... (36,748) 44,816 954 -- 9,022
Other comprehensive income
(loss)................................ -- -- (1,496) -- (1,496)
---------- ---------- ---------- --------- ----------
Comprehensive income (loss).............. $ (36,748) $ 44,816 $ (542) $ -- $ 7,526
========== ========== ========== ========= ==========
Six Months Ended April 30, 2000
--------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Revenues................................. $ -- $ 933,627 $ 115,195 $ (544) $1,048,278
---------- ---------- ---------- --------- ----------
Expenses:
Direct operating........................ -- 552,485 67,444 (544) 619,385
Indirect, general and
administrative........................ 11,261 299,921 44,283 -- 355,465
Interest expense, net................... 37,018 (246) 441 -- 37,213
---------- ---------- ---------- --------- ----------
48,279 852,160 112,168 (544) 1,012,063
---------- ---------- ---------- --------- ----------
Income (loss) before taxes............... (48,279) 81,467 3,027 -- 36,215
Income tax expense....................... 15,974 444 82 -- 16,500
---------- ---------- ---------- --------- ----------
Net income (loss)........................ (64,253) 81,023 2,945 -- 19,715
Preferred stock dividend................. 4,111 -- -- -- 4,111
---------- ---------- ---------- --------- ----------
Net income (loss) available for
common stockholders................... (68,364) 81,023 2,945 -- 15,604
Other comprehensive income
(loss)................................ -- -- (1,413) -- (1,413)
---------- ---------- ---------- --------- ----------
Comprehensive income (loss).............. $ (68,364) $ 81,023 $ 1,532 $ -- $ 14,191
========== ========== ========== ========= ==========
13
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended April 30, 2000
--------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income (loss)......................... $ (64,253) $ 81,023 $ 2,945 $ -- $ 19,715
---------- ----------- ---------- --------- ----------
Adjustments to reconcile net income to
net cash provided (used) by
operating activities:
Depreciation and amortization............. 5,230 15,207 1,182 -- 21,619
Amortization of financing fees............ 1,687 -- -- -- 1,687
Receivable allowances..................... (7,079) 4,021 (3,376) -- (6,434)
Stock compensation........................ 323 -- -- -- 323
Changes in current assets and liabilities:
Accounts receivable and costs and
accrued earnings in excess of
billings on contracts in process........ -- (6,274) 13,930 -- 7,656
Prepaid expenses and other assets......... (1,491) (1,003) 1,915 -- (579)
Accounts payable, accrued salaries
and wages and accrued expenses.......... 78,982 (119,339) (6,817) 15,271 (31,903)
Billings in excess of costs and
accrued earnings on contracts in
process................................. -- (8,408) 4,396 -- (4,012)
Deferrals and other, net.................. (11,548) 18,095 1,779 (15,271) (6,945)
---------- ----------- ---------- --------- ----------
Total adjustments....................... 66,104 (97,701) 13,009 -- (18,588)
---------- ----------- ---------- --------- ----------
Net cash provided (used) by operating
activities................................ 1,851 (16,678) 15,954 -- 1,127
---------- ----------- ---------- --------- ----------
Cash flows from investing activities:
Capital expenditures...................... (102) (1,887) (2,849) -- (4,838)
---------- ----------- ---------- --------- ----------
Net cash (used) by investing
activities.............................. (102) (1,887) (2,849) -- (4,838)
---------- ----------- ---------- --------- ----------
Cash flows from financing activities:
Net increase (decrease) in long-term
debt, bank borrowings and capital
lease obligations....................... (8,110) 728 (6,253) -- (13,635)
Proceeds from sale of common shares
and exercise of stock options........... 3,695 -- -- -- 3,695
---------- ----------- ---------- --------- ----------
Net cash provided (used) by
financing activities.................... (4,415) 728 (6,253) -- (9,940)
---------- ----------- ---------- --------- ----------
Net increase (decrease) in cash.............. (2,666) (17,837) 6,852 -- (13,651)
Cash at beginning of period.................. 6,722 17,028 21,937 -- 45,687
---------- ----------- ---------- --------- ----------
Cash at end of period........................ $ 4,056 $ (809) $ 28,789 $ -- $ 32,036
========== =========== ========== ========= ==========
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We report the results of our operations on a fiscal year, which ends on
October 31. This Management Discussion and Analysis ("MD&A") should be read in
conjunction with the MD&A and the footnotes to the Consolidated Financial
Statements included in the Annual Report on Form 10-K for the fiscal year ended
October 31, 2000, which was previously filed with the Securities and Exchange
Commission.
Results of Operations
Second quarter ended April 30, 2001 vs. April 30, 2000
Consolidated
Our revenues were $546.0 million for the quarter ended April 30, 2001, an
increase of $10.6 million or 2.0%, over the amount reported for the same period
last year.
Direct operating expenses for the quarter ended April 30, 2001, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $10.5 million, a 3.4% increase over the amount reported for the
same period last year as a result of an increase in the use of subcontractors.
Indirect, general and administrative expenses for the quarter ended April 30,
2001, decreased $0.7 million, or 0.4%, from the amount reported for the same
period last year. Interest expense decreased $2.3 million due to repayments of
our long-term debt and decrease in interest rate.
Our earnings before income taxes were $23.7 million for the second quarter
ended April 30, 2001, compared to $20.5 million for the same period last year.
Our effective income tax rates for the quarters ended April 30, 2001 and 2000
were both approximately 46%.
We reported net income of $12.9 million or $0.55 per share on a diluted
basis for the second quarter ended April 30, 2001, compared to $11.1 million, or
$0.51 per share for the same period last year.
Our backlog at April 30, 2001, was $1.6 billion, as compared to $1.7 billion
at October 31, 2000.
Domestic Segment Including Parent Company
Revenues for the domestic segment were $496.7 million for the quarter ended
April 30, 2001, an increase of $19.3 million or 4.0%, over the amount reported
for the same period last year. The increase is due to increased demand for our
services.
Domestic direct operating expenses for the quarter ended April 30, 2001
increased $21.1 million, a 7.7% increase over the amount reported for the same
period last year as a result of an increase in the use of subcontractors.
Indirect, general and administrative expenses for the quarter ended April 30,
2001, decreased $3.0 million, or 1.8%, from the amount reported for the same
period last year, due to decrease in marketing and business development expenses
during the quarter. Interest expense decreased $2.3 million due to repayments of
our long-term debt and decrease in interest rate.
International Segment
Revenues for the international segment were $50.5 million for the quarter
ended April 30, 2001, a decrease of $7.9 million or 13.5%, from the amount
reported for the same period last year. The decrease is mainly due to decreases
in foreign currency exchange rates versus the U.S. dollar.
Foreign direct operating expenses for the quarter ended April 30, 2001
decreased $9.8 million, a 28.6% decrease from the amount reported for the same
period last year as a result of the decrease in pass-through expenses. Indirect,
general and administrative expenses for the quarter ended April 30, 2001,
increased $2.3 million, or 9.9%, over the amount reported for the same period
last year. The increase is primarily due to additional staff, increase in
insurance premiums and increase in occupancy costs.
15
Six months ended April 30, 2001 vs. April 30, 2000
Consolidated
Our revenues were $1.1 billion for the six months ended April 30, 2001, an
increase of $13.3 million or 1.3%, over the amount reported for the same period
last year.
Direct operating expenses for the six months ended April 30, 2001, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $5.9 million, a 0.9% increase over the amount reported for the
same period last year. Indirect, general and administrative expenses for the six
months ended April 30, 2001, increased $5.8 million, or 1.6%, from the amount
reported for the same period last year. Interest expense decreased $2.7 million
due to repayments of our long-term debt and decrease in interest rate.
Our earnings before income taxes were $40.6 million for the six months ended
April 30, 2001, compared to $36.2 million for the same period last year. Our
effective income tax rates for the six months ended April 30, 2001 and 2000 were
approximately 45% and 46%, respectively.
We reported net income of $22.3 million or $0.97 per share on a diluted
basis for the six months ended April 30, 2001, compared to $19.7 million, or
$0.91 per share for the same period last year.
Domestic Segment Including Parent Company
Revenues for the domestic segment were $963.1 million for the six months
ended April 30, 2001, an increase of $29.5 million or 3.2%, over the amount
reported for the same period last year. The increase is due to increased demand
for our services.
Domestic direct operating expenses for the six months ended April 30, 2001
increased $20.8 million, a 3.8% increase over the amount reported for the same
period last year as a result of an increase in the use of subcontractors.
Indirect, general and administrative expenses for the six months ended April 30,
2001, increased $5.8 million, or 1.9%, from the amount reported for the same
period last year, due to increase in marketing expenses. Interest expense
decreased $2.6 million due to repayments of our long-term debt and decrease in
interest rate.
International Segment
Revenues for the international segment were $101.1 million for the six
months ended April 30, 2001, a decrease of $14.1 million or 12.3%, from the
amount reported for the same period last year. The decrease is mainly due to
decreases in foreign currency exchange rates versus the U.S. dollar.
Foreign direct operating expenses for the six months ended April 30, 2001,
decreased $12.9 million, a 19.1% decrease from the amount reported for the same
period last year as a result of the decrease in pass-through expenses. Indirect,
general and administrative expenses for the six months ended April 30, 2001,
decreased $.07 million, or 0.1%, over the amount reported for the same period
last year.
Liquidity and Capital Resources
At April 30, 2001, we had working capital of $405.5 million, an increase of
$11.0 million from October 31, 2000.
Substantially all of our cash flow is generated by our subsidiaries. As a
result, funds necessary to meet our debt service obligations are provided mainly
by receipts from our subsidiaries. Under certain circumstances, legal and
contractual restrictions, as well as the financial condition and operating
requirements of the subsidiaries, may limit our ability to obtain cash from our
subsidiaries.
16
Our liquidity and capital measurements are set forth below:
As of As of
April 30, 2001 October 31, 2001
-------------- ----------------
Working capital............................ $ 405,517,000 $ 394,560,000
Working capital (current) ratio............ 2 to 1 2 to 1
Average days to convert billed accounts
receivable to cash........................ 72 68
Percentage of debt to equity............... 161% 176%
Our cash and cash equivalents amounted to $9.3 million at April 30, 2001, a
decrease of $14.4 million from October 31, 2000, primarily as a result of $16.2
million in net repayment of debt, and $14.3 million in payment for capital
expenditures, offset by $11.1 million generated from operations and $4.9 million
of proceeds generated from sale of common stock and exercise of stock options.
During the second quarter ended April 30, 2001, we borrowed $30.0 million
and repaid $25.0 million under our revolving line of credit. Our primary sources
of liquidity will be cash flow from operations and borrowings under the senior
collateralized credit facility, if necessary. Our primary uses of cash will be
to fund our working capital and capital expenditures and to service our debt. We
believe that our existing financial resources, together with our planned cash
flow from operations and existing credit facilities, will provide sufficient
resources to fund our combined operations and capital expenditure needs for the
foreseeable future.
During the fiscal year ended October 31, 1999, we paid $376.2 million for
the purchase of D-M. To fund this transaction and to refinance outstanding bank
debt, we incurred new borrowings of $650 million from establishing a long-term
senior collateralized credit facility with a syndicate of banks led by Wells
Fargo Bank, N.A. ("the Bank") and from the issuance of 12 1/4% Senior
Subordinated Exchange Notes subsequently exchanged for 12 1/4% Senior
Subordinated Notes. In addition, we sold 46,083 shares of our Series B Preferred
Stock to RCBA Strategic Partners, L.P. for an aggregate consideration of $100
million.
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 million and a revolving
credit facility in the amount of $100 million. The term loan facilities consist
of Term Loan A, a $250 million tranche, Term Loan B, a $100 million tranche and
Term Loan C, another $100 million tranche.
Principal amounts under Term Loan A became due, commencing on October 31,
1999, in the amount of approximately $3 million per quarter for the following
four quarters. Thereafter and through June 9, 2005, annual principal payments
under Term Loan A range from $25 million to a maximum of $58 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 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 four equal quarterly
installments in 2006. Principal amounts under Term Loan C became due, commencing
on October 31, 1999, in the amount of $1 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 in 2007. 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 our
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
our option, either the Base Rate, LIBOR or the Adjusted Sterling Rate, in each
case plus an applicable margin. The applicable margin adjusts according to a
performance-pricing grid based on our 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. We may determine which interest rate options to use and
interest periods will apply for such periods for both the term loans and the
revolving credit facility.
17
At April 30, 2001, our revolving credit facility with the Bank provides for
advances up to $100 million, of which $5.0 million was outstanding. Also at
April 30, 2001, we had outstanding letters of credit aggregating $22.9 million,
which reduced the amount available to us under our revolving credit facility to
$72.1 million.
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 our stockholders, repurchasing
or retiring capital stock and making subordinated junior debt payments. We are
required to submit quarterly compliance certification. 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 million and a
maximum leverage ratio of 4.00 to 1.00 for the period ended April 30, 2001. We
were fully compliant with these covenants as of April 30, 2001.
12 1/4% Senior Subordinated Notes. Our 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 November 1, 1999.
The notes are subordinate to the senior collateralized credit facility. As of
April 30, 2001, we owed $200.0 million on our notes.
Certain of our wholly owned subsidiaries fully and unconditionally guarantee
the notes on a joint and several basis. We may redeem any of the notes beginning
May 1, 2004. The initial redemption price is 106.125% of their principal amount,
plus accrued and unpaid interest. The redemption price will decline each year
after 2004 and will be 100% of their principal amount, plus accrued and unpaid
interest beginning on May 1, 2007. In addition, at any time prior to May 1,
2002, we 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.
Interest Rate Swap Agreement. We entered into an interest rate swap
agreement with the Bank. This interest rate swap effectively fixed the interest
rate on $48.8 million of our LIBOR-based borrowings at 5.97% plus the applicable
margin. This interest rate swap expired on November 30, 2000.
Interest Rate Cap Agreement. We entered into an interest rate cap agreement
with the Bank. This agreement caps the interest rate at 7% for $211.0 million of
our LIBOR-based borrowings through July 31, 2002. From an economic standpoint,
the cap agreement provides us with protection against LIBOR interest rate
increases above 7%. For accounting purposes, we have elected not to designate
the cap agreement as a hedge, and accordingly, changes in the fair market value
of the cap agreement are included in other expenses in the Consolidated
Statements of Operations. The fair market value of the interest rate cap
agreement at April 30, 2001, was $7,760 and was included in Prepaid Expenses and
Other Assets in the Consolidated Balance Sheets.
Enterprise Resource Program (ERP). During the current year, we commenced a
project to consolidate all of our accounting and project management information
systems. The costs of implementing this project, including software, consulting
and hardware costs, are estimated to be approximately $30 million, to be
incurred over the next two years. As of April 30, 2001, we incurred a total of
approximately $5 million for this project. We plan to finance most of the
implementation costs through capital lease arrangements with various vendors. If
and to the extent that financing cannot be obtained through capital leases, we
will draw on our line of credit as alternative financing for expenditures to be
incurred for this project.
18
Risk Factors That Could Affect Our Financial Condition and
Results of Operations
In addition to the other information included or incorporated by reference
in this Form 10-Q, the following factors could affect our actual results:
Our substantial indebtedness could adversely affect our financial condition.
We are a highly leveraged company. As of April 30, 2001, we had
approximately $637.0 million of outstanding indebtedness following consummation
of the D-M acquisition and the related financing plan. This level of
indebtedness could have important consequences, including the following:
o it may limit our ability to borrow money or sell stock for working
capital, capital expenditures, debt service requirements or other
purposes;
o it may limit our flexibility in planning for, or reacting to, changes in
our business;
o we could be more highly leveraged than some of our competitors, which
may place us at a competitive disadvantage;
o it may make us more vulnerable to a downturn in our business or the
economy; and
o a substantial portion of our cash flow from operations could be
dedicated to the repayment of our indebtedness and would not be
available for other purposes.
To service our indebtedness, we will require a significant amount of cash. The
ability to generate cash depends on many factors beyond our control.
Our ability to make payments on our indebtedness depends on our ability to
generate cash in the future. If we do not generate sufficient cash flow to meet
our debt service and working capital requirements, we may need to seek
additional financing or sell assets. This need may make it more difficult for us
to obtain financing on terms that are acceptable to us, or at all. Without this
financing, we could be forced to sell assets to make up for any shortfall in our
payment obligations under unfavorable circumstances.
Our senior collateralized credit facility and our obligations under the
notes limit our ability to sell assets and also restrict the use of proceeds
from any such sale. Moreover, the senior collateralized credit facility is
secured by substantially all of our assets. Furthermore, substantial portions of
our assets are, and may continue to be, intangible assets. Therefore, we cannot
assure you that our assets could be sold quickly enough or for sufficient
amounts to enable us to meet our debt obligations.
Restrictive covenants in our senior collateralized credit facility and the
indenture relating to the notes may restrict our ability to pursue business
strategies.
Our senior collateralized credit facility and indenture relating to the
notes restrict our ability, among other things, to:
o incur additional indebtedness or contingent obligations;
o pay dividends or make distributions to our stockholders;
o repurchase or redeem our stock;
o make investments;
o grant liens;
o make capital expenditures;
o enter into transactions with our stockholders and affiliates;
19
o sell assets; and
o acquire the assets of, or merge or consolidate with, other companies.
In addition, our senior collateralized credit facility requires us to
maintain certain financial ratios. We may not be able to maintain these ratios.
Additionally, covenants in the senior collateralized credit facility and the
indenture relating to the notes may impair our ability to finance future
operations or capital needs or to engage in other favorable business activities.
If we default under our various debt obligations, the lenders could require
immediate repayment of the entire principal. If the lenders require immediate
repayment, we will not be able to repay them, and our inability to meet our debt
obligations could have a material adverse effect on our business, financial
condition and results of operations.
We derive approximately 60% of our revenues from contracts with government
agencies. Any disruption in government funding or in our relationship with those
agencies could adversely affect our business and our ability to meet our debt
obligations.
We derive approximately 60% of our revenues from local, state and federal
government agencies. The demand for our services will be directly related to the
level of government program funding that is allocated to rebuild and expand the
nation's infrastructure. We believe that the success and further development of
our business depend upon the continued funding of these government programs and
upon our ability to participate in these government programs. We cannot assure
you that governments will have the available resources to fund these programs,
that these programs will continue to be funded even if governments have
available financial resources, or that we will continue to win government
contracts under these or other programs.
Some of these government contracts are subject to renewal or extension
annually, so we cannot assure you of our continued work under these contracts in
the future. Unsuccessful bidders may protest or challenge the award of these
contracts. In addition, government agencies can terminate these contracts at
their convenience. As a result, we may incur costs in connection with the
termination of these contracts. Also, contracts with government agencies are
subject to substantial regulation and an audit of actual costs incurred.
Consequently, there may be a downward adjustment in our revenues if actual
recoverable costs exceed billed recoverable costs.
We have a responsibility to maintain our eligibility to perform government
contracts. From time to time allegations of improper conduct in connection with
government contracting have been made against us, and these could be the
subjects of suspension or debarment consideration. We investigate all such
allegations thoroughly and believe that appropriate actions have been taken in
all cases. Additionally, we maintain a compliance program in an effort to assure
that no improper conduct occurs in connection with government contracting.
We may be unable to estimate accurately our cost in performing services for our
clients. This may cause us to have low profit margins or incur losses.
We submit some proposals on projects based on an estimate of the costs we
will likely incur. To the extent we cannot control overhead, general and
administrative and other costs, or if we underestimate such costs, we may have
low profit margins or may incur losses.
We are subject to risks from changes in environmental legislation, regulation
and governmental policies.
Federal laws, such as the Resource Conservation and Recovery Act of 1976, as
amended, and the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, ("CERCLA"), and various state and local laws,
strictly regulate the handling, removal, treatment and transportation of toxic
and hazardous substances and impose liability for environmental contamination
caused by such substances. Moreover, so-called "toxic tort" litigation has
increased markedly in recent years as people injured by hazardous substances
seek recovery for personal injuries or property damages. We handle, remove,
treat and transport toxic or hazardous substances. Consequently, we may be
exposed to claims for damages caused by environmental contamination.
20
Federal and state laws, regulations, and programs related to environmental
issues will generate, either directly or indirectly, much of our environmental
business. Accordingly, a reduction of these laws and regulations, or changes in
governmental policies regarding the funding, implementation or enforcement of
these programs, could have a material effect on our business. Environmental
laws, regulations and enforcement policies remained essentially unchanged during
fiscal year 2000, including further deferral of congressional reauthorization of
CERCLA. The outlook for congressional action on CERCLA legislation in fiscal
year 2001 remains unclear.
Our liability for damages due to legal proceedings may be significant. Our
insurance may not be adequate to cover this risk.
Various legal proceedings are pending against us alleging, among other
things, breaches of contract or negligence in connection with our performance of
professional services. In some actions, punitive or treble damages are sought
that substantially exceed our insurance coverage. If we sustain damages greater
than our insurance coverage, there could be a material adverse effect on our
business, financial condition and results of operations.
Our engineering practices, including general engineering and civil
engineering services, involve professional judgments about the nature of soil
conditions and other physical conditions, including the extent to which toxic
and hazardous materials are present, and about the probable effect of procedures
to mitigate problems or otherwise affect those conditions. If the judgments and
the recommendations based upon those judgments are incorrect, we may be liable
for resulting damages that our clients incur.
The failure to attract and retain key professional personnel could adversely
affect our business.
The ability to attract, retain and expand our staff of qualified technical
professionals will be an important factor in determining our future success. A
shortage of qualified technical professionals currently exists in the
engineering and design industry. The market for these professionals is
competitive, and we cannot assure you that we will be successful in our efforts
to continue to attract and retain such professionals. In addition, we will rely
heavily upon the experience and ability of our senior executive staff and the
loss of a significant number of such individuals could have a material adverse
effect on our business, financial condition and results of operations.
We may be unable to compete successfully in our industry.
We are engaged in highly fragmented and very competitive markets in our
service areas. We will compete with firms of various sizes, several of which are
substantially larger than us and which possess greater technical resources.
Furthermore, the engineering and design industry is undergoing consolidation,
particularly in the United States. As a result, we will compete against several
larger companies that have the ability to offer more diverse services to a wider
client base. These competitive forces could have a material adverse effect on
our business, financial condition and results of operations.
Our international operations are subject to a number of risks that could
adversely affect the results from these operations and our overall business.
As a worldwide provider of engineering services, we have operations in over
30 countries and derive approximately 10% of our revenues from international
operations. International business is subject to the customary risks associated
with international transactions, including political risks, local laws and
taxes, the potential imposition of trade or currency exchange restrictions,
tariff increases and difficulties or delays in collecting accounts receivable.
Weak foreign economies and/or a weakening of foreign currencies against the U.S.
dollar could have a material adverse effect on our business, financial condition
and results of operations.
Additional acquisitions may adversely affect our ability to manage our business.
Historically, we have completed numerous acquisitions and, in implementing
our business strategy, we may continue to do so in the future. We cannot assure
you that we will identify, finance and complete additional suitable acquisitions
on acceptable terms. We may not successfully integrate future acquisitions. Any
acquisitions may require substantial attention from our management, which may
limit the amount of time that management can devote to daily operations. Our
inability to find additional attractive acquisition candidates or to effectively
manage the integration of any businesses acquired in the future could adversely
affect our business, financial condition and results of operations.
21
Our ability to successfully integrate our accounting and project management
systems.
We are in the process of designing, testing and installing a company-wide
accounting and project management system. In the event we do not complete the
project successfully, we may experience reduced cash flow due to an inability to
issue invoices to our customers and collect cash in a timely manner.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates as a result of our borrowings
under our senior collateralized credit facility. If market rates average 1% more
in fiscal year 2001 than in fiscal year 2000, our net of tax interest expense,
after considering the effect of the interest rate cap agreement, would increase
by approximately $1.6 million. Conversely, if market rates average 1% less in
fiscal year 2001 than in fiscal year 2000, our net of tax interest expense would
decrease by approximately $2.2 million.
The final interest rate settlement for our interest rate swap agreement had
been determined prior to the close of fiscal year 2000. Therefore, changes in
interest rates did not impact our then-existing interest rate swap agreement,
which expired on November 30, 2000.
22
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our annual meeting of stockholders held on March 20, 2001, the following
proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until the next annual meeting
of stockholders and until their successors are elected and qualified, or
until their earlier death or resignation.
Number of Shares
---------------------------
For Withheld
--- --------
Richard C. Blum 11,366,264 2,487,974
Admiral S. Robert Foley, Jr., USN (Ret.) 13,757,882 96,356
Marie L. Knowles 13,764,421 89,817
Martin M. Koffel 12,685,425 1,168,813
Richard B. Madden 13,764,550 89,688
Armen Der Marderosian 13,735,587 118,651
Jean-Yves Perez 13,741,362 112,876
Richard Q. Praeger 13,762,328 91,910
Irwin L. Rosenstein 13,711,610 142,628
William D. Walsh 13,764,878 89,360
No stockholders abstained from voting in this election of directors and
there were no broker non-votes.
2. To ratify the selection of PricewaterhouseCoopers L.L.P. as the Company's
independent auditors for the fiscal year 2001.
Number of Shares
----------------
For 13,816,882
Against 27,370
Abstain 9,986
ITEM 5. OTHER INFORMATION
None.
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Exhibit
-------------- -------
10.1 URS Corporation 1999 Equity Incentive Plan Restricted
Stock Award Agreement, dated as of April 25, 2001,
between Martin M. Koffel and URS Corporation.
FILED HEREWITH.
10.2 Form of URS Corporation 1999 Equity Incentive Plan
Nonstatutory Stock Option Agreement, by and between each
of Martin M. Koffel, Kent P. Ainsworth, Joseph Masters and
Irwin L. Rosenstein and URS Corporation reflecting grants
dated as of April 25, 2001. FILED HEREWITH.
(b) Reports on Form 8-K
None.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated June 14, 2001 URS CORPORATION
/s/ Kent Ainsworth
----------------------------------------
Kent P. Ainsworth
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
25
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------- ---------------------------------------------------------- ------------
10.1 URS Corporation 1999 Equity Incentive Plan Restricted
Stock Award Agreement, dated as of April 25, 2001,
between Martin M. Koffel and URS Corporation. FILED 27
HEREWITH.
10.2 Form of URS Corporation 1999 Equity Incentive Plan
Nonstatutory Stock Option Agreement, by and between
each of Martin M. Koffel, Kent P. Ainsworth,
Joseph Masters and Irwin L.Rosenstein and URS
Corporation reflecting grants dated as of
April 25, 2001. FILED HEREWITH. 32