<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7567
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URS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-1381538
- ----------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
100 California Street, Suite 500
San Francisco, California 94111-4529
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415-774-2700
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at June 4, 1999
- ----------------------------- ------------------------------
Common stock, $.01 par value 15,589,410
<PAGE>
URS CORPORATION AND SUBSIDIARIES
In this Form 10-Q, the "Company," "we," "us," "our" and similar terms
refer to URS Corporation and its subsidiaries, except where it is clear that
such terms mean only URS Corporation. When we make such references, we are
referring to URS Corporation prior to giving effect to our acquisition of Dames
& Moore Group. References to "Dames & Moore" refer to Dames & Moore Group, and
references to the "Combined Company" refer to URS Corporation and Dames & Moore
after giving effect to the Dames & Moore acquisition described on page 7.
This Form 10-Q for the second quarter ended April 30, 1999 contains
forward-looking statements within the meaning of the securities laws that
involve risks and uncertainties. The Company believes that its expectations are
reasonable and are based on reasonable assumptions. However, risks and
uncertainties relating to future events that could cause actual results to
differ materially from the Company's expectations include the Company's ability
to successfully integrate the Combined Company following the Dames & Moore
acquisition, the impact on the Company and its financial condition of the
substantial indebtedness incurred in connection with the Dames & Moore
acquisition, the Company's dependancy on government programs and contracts,
competitive practices in the industry, possible changes in legislation or
governmental regulation and policies, contracting risks, the Company's ability
to attract and retain qualified professionals, exposure to potential liability
from legal proceedings, and other factors discussed more fully below in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, in the Company's 1998 Form 10-K and in other publicly available
reports filed with the Securities and Exchange Commission from time to time. The
Company does not intend, and assumes no obligation, to update any forward-
looking statements.
PART I. FINANCIAL INFORMATION:
In the opinion of management, the information furnished reflects all
adjustments, consisting only of normal recurring adjustments, which are
necessary for a fair statement of the interim financial information.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1998. The results of operations for the three and six month periods ended April
30, 1999 are not necessarily indicative of the operating results for the full
year.
2
<PAGE>
<TABLE>
<CAPTION>
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
<S> <C> <C>
April 30, 1999 and October 31, 1998.............................. 4
Consolidated Statements of Operations
Three and six months ended April 30, 1999 and 1998............... 5
Consolidated Statements of Cash Flows
Six months ended April 30, 1999 and 1998......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 7
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders................ 17
Item 6. Exhibits and Reports on Form 8-K................................... 18
</TABLE>
3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
April 30, October 31,
ASSETS 1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 10,036 $ 36,529
Accounts receivable, less allowance for doubtful accounts
of $7,256 and $7,206 183,469 161,742
Costs and accrued earnings in excess of
billings on contracts in process, less
allowances for losses of $7,297 and $6,896 112,820 77,881
Prepaid expenses and other assets 12,098 10,033
----------- -----------
Total current assets 318,423 286,185
Property and equipment at cost, net 32,508 29,517
Goodwill, net 136,123 129,748
Other assets 7,603 6,254
----------- -----------
$494,657 $451,704
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 16,502 $ 16,400
Notes payable 6,499 1,943
Accounts payable 40,714 37,236
Accrued salaries and wages 35,359 34,797
Accrued expenses and other 16,495 29,385
Billings in excess of costs and accrued earnings on
contracts in process 43,724 35,455
----------- -----------
Total current liabilities 159,293 155,216
Long-term debt 110,808 94,957
Deferred income taxes 7,224 5,377
Deferred compensation and other 34,383 29,794
----------- -----------
Total liabilities 311,708 285,344
----------- -----------
Stockholders' equity:
Common shares, par value $.01; authorized 20,000 shares;
issued 15,507 and 15,206 shares 155 152
Treasury stock (287) (287)
Additional paid-in capital 121,691 117,842
Foreign currency translation adjustment 70 -
Retained earnings since February 21, 1990, date of
quasi-reorganization 61,320 48,653
----------- -----------
Total stockholders' equity 182,949 166,360
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$494,657 $451,704
=========== ===========
</TABLE>
4
<PAGE>
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
April 30, April 30,
-------------------- ------------------
1999 1998 1999 1998
--------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 222,219 $195,182 $415,069 $381,338
--------- -------- -------- --------
Expenses:
Direct operating 126,481 116,356 239,151 231,587
Indirect, general and administrative 80,549 67,410 148,737 128,757
Interest expense, net 2,694 2,273 4,714 4,282
--------- -------- -------- --------
209,724 186,039 392,602 364,626
--------- -------- -------- --------
Income before taxes 12,495 9,143 22,467 16,712
Income tax expense 5,500 4,200 9,800 7,600
--------- -------- -------- --------
Net income $ 6,995 $ 4,943 $ 12,667 $ 9,112
========= ======== ======== ========
Other comprehensive income:
Foreign currency translation (627) - 70 -
--------- -------- -------- --------
Comprehensive income $ 6,368 $ 4,943 $ 12,737 $ 9,112
========= ======== ======== ========
Net income per share:
Basic $ .46 $ .33 $ .83 $ .61
Diluted ========= ======== ======== ========
$ .42 $ .31 $ .77 $ .58
========= ======== ======== ========
</TABLE>
5
<PAGE>
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
-------------------
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,667 $ 9,112
-------- --------
Adjustment to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization 7,731 7,339
Allowance for doubtful accounts and losses 451 329
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings
in excess of billings on contracts in process (43,912) 11,845
Prepaid expenses and other assets (2,590) (104)
Accounts payable, accrued salaries and wages
and accrued expenses (15,125) (16,171)
Billings in excess of costs and accrued earnings on
contracts in process 8,269 687
Deferred taxes 1,970 (177)
Other, net 3,093 1,287
-------- --------
Total adjustments (40,113) 5,035
-------- --------
Net cash (used) provided by operating activities (27,446) 14,147
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition, net of cash acquired (12,530) (36,937)
Capital expenditures (3,560) (3,122)
-------- --------
Net cash (used) by investing activities (16,090) (40,059)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 10,096 110,000
Principal payments on long-term debt (9,700) (73,356)
Proceeds from bank borrowings 12,795 -
Proceeds from sale of common shares 2,714 755
Proceeds from exercise of stock options 1,138 254
-------- --------
Net cash provided by financing activities 17,043 37,653
-------- --------
Net (decrease) increase in cash (26,493) 11,741
Cash at beginning of period 36,529 22,134
-------- --------
Cash at end of period $ 10,036 $ 33,875
======== ========
SUPPLEMENTAL INFORMATION:
Interest paid $ 5,338 $ 4,587
======== ========
Taxes paid $ 9,485 $ 8,496
======== ========
Equipment subject to capital lease obligations $ 4,296 $ 1,128
======== ========
Noncash purchase allocation adjustment $ 2,000 $ 13,600
======== ========
Foreign currency translation adjustment $ (627) $ -
======== ========
Issuance of common stock in business acquisition $ - $ 61,936
======== ========
</TABLE>
6
<PAGE>
URS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company reports the results of its operations on a fiscal year
which ends on October 31. This Management Discussion and Analysis ("MD&A")
should be read in conjunction with the MD&A and the footnotes to the
Consolidated Financial Statements included in the Annual Report on Form 10-K for
the fiscal year ended October 31, 1998 which was previously filed with the
Securities and Exchange Commission.
Acquisitions
- ------------
On February 1, 1999 the Company acquired privately-held Thorburn
Colquhoun Holdings, plc, ("T-C") for an aggregate purchase price of $13.6
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 has been allocated to goodwill. The operating results of T-C are
included in the Company's results of operations from the date of purchase. Pro
forma operating results for the three and six months ended April 30, 1998 and
1999, as if the acquisition had been made on November 1, 1997, are not presented
as they would not be materially different from the Company's reported results.
On June 9, 1999, the Company, through its wholly-owned subsidiary,
Demeter Acquisition Corporation, a Delaware corporation (the "Purchaser")
accepted for payment 17,858,895 shares of common stock, par value $.01 per share
(the "Shares"), of Dames & Moore, that had been validly tendered and not
withdrawn, including approximately 245,236 Shares tendered pursuant to notices
of guaranteed delivery, pursuant to the Purchaser's tender offer for all
outstanding Shares at a price of $16.00 per Share (the "Offer"). The Offer
expired at 12:00 midnight, New York City time, on Tuesday, June 8, 1999. The
Offer was made pursuant to an Offer to Purchase, dated as of May 11, 1999, as
amended, and pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 5, 1999 among the Company, Dames & Moore and the
Purchaser. After the consummation of the Offer, the Merger Agreement provides,
among other things, for Purchaser to be merged with and into Dames & Moore,
with Dames & Moore surviving as a wholly-owned subsidiary of the Company
following the merger (the "Merger").
The Shares purchased pursuant to the Offer constitute approximately 96%
of the issued and outstanding Shares. The remaining Shares, other than shares
owned directly or indirectly by the Company, Purchaser or Dames & Moore (and
except for shares of Common Stock owned by any holder who properly demands
appraisal rights) will be converted into the right to receive $16.00 in cash
upon consummation of the Merger.
In accordance with the provisions of the Merger Agreement, effective
upon payment for the Shares by the Purchaser, the following designees of
Purchaser were appointed to the Dames & Moore Board of Directors: Kent P.
Ainsworth, Martin M. Koffel, Joseph Masters and Jean-Yves Perez. In accordance
with the terms of the Merger Agreement, Arthur C. Darrow, Robert F. Clarke and
A. Ewan Macdonald will remain on the Board of Directors of Dames & Moore until
consummation of the Merger, and Ursula M. Burns, Gary R. Krieger, George D.
Leal, Michael R. Peevey, Harald Peipers, and Arthur E. Williams resigned as
Directors of Dames & Moore.
The total purchase price paid by Purchaser in connection with the Offer
was provided through the issuance by the Company of $100 million of Series A and
Series C Preferred Stock to RCBA Strategic Partners, L.P., the issuance by the
Company of $200 million of senior subordinated increasing rate notes pursuant to
a bridge financing facility provided by Morgan Stanley Senior Funding, Inc. (the
"Bridge Facility"), and borrowings of up to $450 million of the $550 million
available under a senior secured credit facility between the Company, certain
guarantors, including the Company, and Wells Fargo Bank, National Association,
as administrative agent (the "Senior Secured Credit Facility"), which includes
three term loan facilities in the aggregate amount of $450 million and a
revolving credit facility in the amount of $100 million. The term loan
facilities consist of a $250 million tranche ("Term Loan A"), a $100 million
tranche ("Term Loan B") and another $100 million tranche ("Term Loan C"). Term
Loan A matures six years from the funding date; Term Loan B matures seven years
from the funding date; Term Loan C matures eight years from the funding date;
and the revolving credit facility matures six years from the funding date.
A portion of Term Loan A will be available to the Company on a delayed
draw-down basis to fund payments due upon close of the Merger. The remainder of
the revolving credit facility will be used for the Company's working capital
requirements and for general corporate purposes and to pay for any appraisal
rights that dissenting stockholders may have.
The term loans each bear interest, at the Company's option, at a rate
per annum equal to either (1) the Base Rate or (2) LIBOR, in each case plus an
applicable margin. The revolving credit facility bears interest, at the
Company's option, at a rate per annum equal to either (a) the Base Rate, (b)
LIBOR or (c) the Adjusted Sterling Rate, in each case plus an applicable margin.
The applicable margin adjusts according to a performance pricing grid based on a
ratio of Funded Debt to EBITDA (as defined in the credit facility). The "Base
Rate" is defined as the higher of (1) Wells Fargo Bank, National Association's
Prime Rate and (2) the Federal Funds Rate plus 0.50%. "LIBOR" is defined as the
offered quotation that first class banks in the London interbank market offer to
Wells Fargo Bank, National Association for dollar deposits, as adjusted for
reserve requirements. The "Adjusted Sterling Rate" is defined as the rate per
annum displayed by Reuters at which Sterling is offered to Wells Fargo Bank,
National Association in the London interbank market as determined by the British
Bankers' Association.
The Dames & Moore acquisition will be accounted for using the purchase
method of accounting. Dames & Moore's results are not included in the Company's
results for the year ended October 31, 1998 or the three and six month periods
ended April 30, 1999.
Reporting Comprehensive Income
- ------------------------------
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Recording Comprehensive Income,
effective January 31, 1999. SFAS 130 requires that comprehensive income and its
components, as defined in SFAS 130, be reported in a financial statement.
In accordance with the disclosure requirements of SFAS 130,
comprehensive income is reported in the Company's income statement and includes
the effect on net income of translating foreign currency denominated financial
statement into U.S. dollars.
Results of Operations
- ---------------------
Second quarter ended April 30, 1999 vs. April 30, 1998.
The Company's revenues were $222,219,000 for the quarter ended April
30, 1999, an increase of $27,037,000, or 14%, over the amount reported for the
same period last year. The growth in revenue is primarily attributable to an
increase in demand for the Company's on-going services on infrastructure
projects.
7
<PAGE>
Direct operating expenses for the quarter ended April 30, 1999, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $10,125,000, a 9% increase over the amount reported for the
same period last year. Indirect, general and administrative expenses for the
quarter ended April 30, 1999 increased $13,139,000, or 19%, over the amount
reported for the same period last year as a result of an increase in business
activity. Direct indirect, and general and administrative expenses generally
increased at the same rate as revenues.
The Company earned $12,495,000 before income taxes for the quarter
ended April 30, 1999 compared to $9,143,000 for the same period last year. The
Company's effective income tax rates for the quarters ended April 30, 1999 and
1998 were approximately 44% and 46%, respectively.
The Company reported net income of $6,995,000, or $.42 per share, for
the second quarter ended April 30, 1999, compared with $4,943,000, or $.31 per
share, for the same period last year.
The Company's backlog of signed and funded contracts at April 30, 1999
was $712,815,000, as compared to $675,000,000 at October 31, 1998.
Six months ended April 30, 1999 vs. April 30, 1998
The Company's revenues were $415,069,000 for the six months ended April
30, 1999, an increase of $33,731,000, or 9%, over the amount reported for the
same period last year. The growth in revenues is primarily attributable to all
areas of the Company's business including infrastructure projects involving
transportation systems, institutional and commercial facilities and
environmental projects.
Direct operating expenses for the six months ended April 30, 1999,
which consist of direct labor and other direct expenses including subcontractor
costs, increased $7,564,000, or 3%, over the amount reported in the same period
last year. This increase is attributable to the overall increase in the
Company's business as compared to the same period last year. Indirect, general
and administrative expenses were $148,737,000 for the six months ended April 30,
1999, an increase of $19,980,000, or 16%, over the amount reported for the same
period last year. The increase in indirect, general and administrative expenses
is due to an increase in business activity.
The Company earned $22,467,000 before income taxes for the six months
ended April 30, 1999 compared to $16,712,000 for the same period last year. The
Company's effective income tax rates for the six months ended April 30, 1999 and
1998 were approximately 44% and 45% respectively.
The Company reported net income of $12,667,000 or $.77 per share, for
the six months ended April 30, 1999, compared with $9,112,000, or $.58 per share
for the same period last year.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At April 30, 1999, the Company had working capital of $159,130,000, an
increase of $28,161,000 from October 31, 1998.
On February 1, 1999, the Company acquired T-C. The transaction involved
the revision of the existing revolving loan commitment so that the facility now
consisted of a revolving dollar loan commitment aggregating $40,000,000 and a
revolving sterling loan commitment aggregating $15,000,000. Borrowings on the
revolving sterling credit facility bear interest at the option of the Company
based on the adjusted Domestic Sterling Rate, with variable spreads over the
selected index based on loan maturity and the Company's financial performance.
The "Adjusted Domestic Sterling Rate" is defined as the rate per annum displayed
by Reuters at which Sterling is offered to Wells Fargo Bank, National
Association in the London interbank market as determined by the British Bankers'
Association.
At April 30, 1999, the Company had outstanding letters of credit
totaling $1,000,000 and $10,000,000 in borrowings, which reduced the amount
available to the Company under its revolving dollar credit facility to
$29,000,000. At April 30, 1999, the Company also had $10,202,000 in borrowings
under its revolving sterling credit facility, which reduced the amount available
to $4,798,000.
The Company's credit agreement required compliance with certain
financial and other covenants. The Company was in compliance with such covenants
at April 30, 1999.
Our liquidity and capital measurements are set forth below:
<TABLE>
<CAPTION>
Six Months
Ended
April 30,
1999
----------
<S> <C>
Working capital................................................... $159,130,000
Working capital ratio............................................. 2.0x
Average days to convert billed accounts receivable to cash........ 76
Percentage of debt to equity...................................... 73.1%
</TABLE>
Our cash and cash equivalents amounted to $10 million at April 30, 1999, a
decrease of $26.5 million from October 31, 1998. During the six month period
ended April 30, 1999, our accounts receivable increased due to the installation
of a new accounting system. This caused a delay in billings which resulted in a
corresponding decrease in cash. In addition, cash was used to fund working
capital required to support the expansion of our business.
During the first six months of fiscal year 1999, our cash flow used by
operating activities totaled $27.4 million. Our domestic operations generated
substantially all of the operating cash flow. We intend to satisfy our working
capital needs primarily through internal cash generation.
Cash paid during the period for:
<TABLE>
<CAPTION>
Six Months
Ended
April 30, 1999
--------------
<S> <C>
Interest.................................................... $5,338,000
Income taxes................................................ 9,485,000
</TABLE>
Upon completion of the Dames & Moore acquisition, our primary sources of
liquidity will be cash flow from operations and borrowings under the Senior
Secured Credit Facility. Our primary uses of cash will be to fund our working
capital and capital expenditures and to service our debt.
Our operating cash flow and working capital requirements have grown
substantially due to our acquisition growth strategy. We intend to satisfy our
working capital needs though internal cash generation. As a professional
services organization, we are not capital intensive. Capital expenditures,
historically, have been for computer-aided design and general purpose computer
equipment to accommodate our growth. Capital expenditures during fiscal years
1998, 1997, and 1996 were $12.2 million, $5.1 million, and $3 million,
respectively. We do not expect to have any significant capital outlays
resulting from the Dames & Moore acquisition.
We have incurred substantial indebtedness in connection with the Dames &
Moore acquisition. Following the Dames & Moore acquisition, we will have
outstanding debt of $680.2 million, including approximately $473.5 million of
senior indebtedness.
We believe that our existing financial resources including the Senior Secured
Credit Facility, together with our planned cash flow from operations, will
provide sufficient capital to fund our combined operations, our
capital expenditure needs, and to pay interest and principal obligations on our
outstanding indebtedness. There can be no assurance that the Combined Company
will generate sufficient cash flow from operations, that currently anticipated
revenue growth and cost savings will be realized, or that future borrowings
available under the Senior Secured Credit Facility will be in amounts
sufficient to pay our outstanding indebtedness or to fund other liquidity
needs. There can be no assurance that, if required, we would be able to
refinance all or a portion of our indebtedness, including the Senior Secured
Credit Facility, on commercially reasonable terms or at all.
9
<PAGE>
YEAR 2000 ISSUES
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. Any programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in the computer shutting down or performing incorrect
computations. As a result, before December 31, 1999, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements.
We have developed and implemented a plan to achieve Year 2000 readiness. We
have hired some external consultants and dedicated some of our internal
resources to ensure Year 2000 compliance. We are implementing our Year 2000
compliance program in the following phases:
. identification and assessment of business areas affected by Year 2000
requirements
. program implementation and
. identification of risks and development of contingency and business
continuity plans to mitigate the effects of any Year 2000 failures.
Year 2000 issues which may affect us fall into two basic categories,
business disruption issues and client deliverable issues.
Business Disruption Issues. In some situations, a Year 2000 problem could
interfere with the operation of our business. For example, a Year 2000 problem
could adversely affect our ability to interface with third parties, such as
receiving payments from clients or supplies from vendors on a timely basis,
the reliability of our internal information management systems, such as
accounting systems, or the physical operation of our systems which have
embedded technology, such as elevator and telephone systems, security systems
and other physical office infrastructure. These business disruption issues
could arise from internal Year 2000 problems in software that we use or from
external Year 2000 problems that third parties encounter.
Our Year 2000 compliance program addresses the following issues:
. Third Party Interfaces. We are discussing with our clients and vendors
the potential effect that the Year 2000 issue will have on their
systems. Possible effects include delayed payments from clients due to
Year 2000 problems affecting their accounting and payables systems. As
we assess these issues, we expect to develop contingency plans for
payment delays and other Year 2000 problems. The contingency plans may
include, for example, holding additional cash reserves.
. Internal Information Systems. We have completed an inventory of our
internal hardware and software. We are currently performing a Year 2000
readiness assessment and impact analysis for these systems. We have
addressed or are addressing Year 2000 issues for many of our critical
internal information systems as part of the previously planned upgrade
of such systems following the acquisition of Woodward-Clyde Group, Inc. in
November 1997. For example, we believe that our e-mail software is
currently Year 2000 compliant. We also anticipate that in the near future
our upgraded company-wide accounting and financial reporting system and our
payroll and human resources system will be Year 2000 compliant.
. Embedded Technology Systems. We currently are examining infrastructure
issues on an office-by-office basis. As we renegotiate our office leases
or enter into new leases, we are incorporating language designed to
protect us against potential business interruption arising from Year
2000 problems. We expect to develop contingency plans to address any
embedded technology issues as we identify them.
Client Deliverables. We have undertaken a limited number of projects that
include the specification of computer-based components as part of the work
that we deliver to clients. Only a few of our projects involve the actual
development of software and hardware. We are implementing a plan of action
related to such client deliverables. The plan includes developing an inventory
of affected projects and contacting affected clients and offering assistance
with their Year 2000 compliance issues. However, because we generally have not
manufactured or designed the hardware or software, we anticipate that the
responsibility for any Year 2000 problems associated with these deliverables
ultimately will rest with the hardware or software manufacturer. To address
Year 2000 issues, we also have drafted contract clauses and distributed them
to all officers with contracting authority for inclusion in our future client
contracts.
Costs. We have not incurred substantial incremental costs in connection with
our Year 2000 compliance programs. For example, we were integrating our
internal information management systems after the Woodward-Clyde acquisition
independent of the Year 2000 issue and did not accelerate the replacement of
those systems due to Year 2000 compliance issues. We have, however, devoted
internal resources and hired some external resources to assist with the
implementation and monitoring of our Year 2000 compliance programs. These
related costs are not significant.
Risks and Contingencies. We do not anticipate that the costs of our Year
2000 compliance program or risks that could result from the Year 2000 problem
will be material. However, because we have no control over third parties'
products or services, we cannot assure you of third-party Year 2000
compliance. Problems arising from the Year 2000 issues that our clients and
vendors encounter could have a material adverse effect on our business. In
addition, if our plans to address the Year 2000 issue are not successfully or
timely implemented, we may need to devote more resources to the process and
may incur additional costs that could have a material adverse effect on our
business.
The costs of our Year 2000 compliance programs and the timetable on which we
plan to complete them are based on our best estimates and reflect assumptions
regarding the availability and cost of personnel trained in this area, the
compliance plans of third parties and similar uncertainties. We cannot assure
you that these estimates will be achieved. Actual results could differ
materially from those we anticipate because of the complexity and
pervasiveness of the Year 2000 issue and in particular, our uncertainty
regarding the compliance programs of third parties.
We are in the process of determining contingency plans, including the
identification of our most reasonable likely worst case scenarios. We do not
yet have any contingency plans in place in the event that we do not complete
all of our Year 2000 remediation or if our major customers or vendors are not
Year 2000 compliant. We will base any future contingency plans on our best
estimates of numerous factors and assumptions about future events, many of
which are beyond our control. We cannot assure you that these factors and
assumptions will be sufficiently comprehensive or accurate. Additionally, we
cannot assure you that any contingency plans would be successful or adequate
to meet our needs without materially impacting our financial condition or
results of operations.
Factors That May Affect Future Results
- --------------------------------------
The risks and uncertainties described below are not the only ones facing the
Combined Company. Additional risks and uncertainties not presently known to us
or that we currently deem to be immaterial may also materially and adversely
affect the Combined Company's business operations. If any of the following risks
materialize, the Combined Company's business could be materially adversely
affected.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE DAMES & MOORE AND ACHIEVE
ANTICIPATED COST SAVINGS AND OTHER BENEFITS FROM THE DAMES & MOORE
ACQUISITION.
The Combined Company will only achieve the efficiencies, cost reductions and
other benefits that are expected to result from the Dames & Moore acquisition
if we can successfully integrate each company's administrative, finance,
technical and marketing organizations, and implement appropriate operations,
financial and management systems and controls. In addition, Dames & Moore is
in the process of integrating the diverse operations that it recently
acquired.
The integration of Dames & Moore into our operations and the integration of
Dames & Moore's recently acquired operations will involve a number of risks,
including:
. the possible diversion of our management's attention from other business
concerns
. the potential inability to successfully pursue some or all of the
anticipated revenue opportunities associated with the Dames & Moore
acquisition
. the possible loss of Dames & Moore's and our key professional employees
. the potential inability to successfully replicate our operating
efficiencies in Dames & Moore's operations
. insufficient management resources to accomplish the integration
. the increased complexity and diversity of the Combined Company compared
to our operations prior to the Dames & Moore acquisition
. the possible negative reaction of clients to the Dames & Moore
acquisition and
. unanticipated problems or legal liabilities.
The occurrence of any of the above events, as well as any other difficulties
which may be encountered in the transition and integration process, could have
a material adverse effect on the Combined Company's business, financial
condition and results of operations.
THE COMBINED COMPANY'S SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT ITS
FINANCIAL CONDITION.
As a result of the Dames & Moore acquisition and the related financing, the
Combined Company will be a highly leveraged company. As of April 30, 1999, it
would have had, on a pro forma basis after giving effect to the Dames & Moore
acquisition and the related financing, $680.2 million of outstanding
indebtedness. This level of indebtedness could have important consequences,
including the following:
. it may limit the Combined Company's ability to borrow money or sell
stock for its working capital, capital expenditures, debt service
requirements or other purposes
. it may limit the Combined Company's flexibility in planning for, or
reacting to, changes in its business
. the Combined Company could be more highly leveraged than some of its
competitors, which may place it at a competitive disadvantage
10
<PAGE>
. it may make the Combined Company more vulnerable to a downturn in its
business or the economy
. a substantial portion of the Combined Company's cash flow from
operations could be dedicated to the repayment of its indebtedness and
would not be available for other purposes.
11
<PAGE>
To service the Combined Company's indebtedness will require a significant amount
of cash. The ability to generate cash depends on many factors beyond the
Combined Company's control.
The Combined Company's ability to make payments on its indebtedness depends on
its ability to generate cash in the future. If it does not generate sufficient
cash flow to meet its debt service and working capital requirements, it may need
to seek additional financing or sell assets. This may make it more difficult for
the Combined Company to obtain financing on terms that are acceptable to it, or
at all. Without this financing, the Combined Company could be forced to sell
assets to make up for any shortfall in its payment obligations under unfavorable
circumstances.
The Senior Secured Credit Facility and the Bridge Facility limit the Combined
Company's ability to sell assets and also restrict the use of proceeds from any
such sale. Moreover, the Senior Secured Credit Facility is secured by
substantially
12
<PAGE>
all of the Combined Company's assets. We cannot assure you that the Combined
Company's assets could be sold quickly enough or for sufficient amounts to
enable it to meet its obligations. Furthermore, a substantial portion of the
Combined Company's assets are, and may continue to be, intangible assets.
Therefore, it may be difficult for the Combined Company to meet its obligations
in the event of an acceleration of its indebtedness.
RESTRICTIVE COVENANTS IN THE SENIOR SECURED CREDIT FACILITY AND THE BRIDGE
FACILITY MAY RESTRICT THE COMBINED COMPANY'S ABILITY TO PURSUE ITS BUSINESS
STRATEGIES.
The Senior Secured Credit Facility restricts the Combined Company's ability,
among other things, to:
. incur additional indebtedness or contingent obligations
. pay dividends or make distributions to its stockholders
. repurchase or redeem its stock
. make investments
. grant liens
. make capital expenditures
. enter into transactions with its stockholders and affiliates
. sell assets and
. acquire the assets of, or merge or consolidate with, other companies.
In addition, the Senior Secured Credit Facility and the Bridge Facility
require the Combined Company to maintain financial ratios. The Combined Company
may not be able to maintain these ratios. Additionally, covenants in the Senior
Secured Credit Facility and the Bridge Facility may impair the Combined
Company's ability to finance future operations or capital needs or to engage in
other favorable business activities.
HE COMBINED COMPANY WILL DERIVE APPROXIMATELY HALF OF ITS REVENUES FROM
CONTRACTS WITH GOVERNMENT AGENCIES. ANY DISRUPTION IN GOVERNMENT FUNDING OR IN
THE COMBINED COMPANY'S RELATIONSHIP WITH THOSE AGENCIES COULD ADVERSELY AFFECT
ITS BUSINESS AND ITS ABILITY TO MEET ITS FINANCIAL OBLIGATIONS.
The Combined Company will derive approximately half of its revenues from
local, state and federal government agencies. The demand for the Combined
Company's 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 the Combined Company's
business depends upon the continued funding of these government programs and
upon the Combined Company's 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 the
Combined Company 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 the Combined Company's 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. Consequently, the Combined
Company 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 the Combined Company's revenues if actual recoverable costs
exceed billed recoverable costs.
13
<PAGE>
THE COMBINED COMPANY MAY BE UNABLE TO ACCURATELY ESTIMATE ITS COST IN
PERFORMING SERVICES FOR ITS CLIENTS. THIS MAY CAUSE THE COMBINED COMPANY TO
HAVE LOW PROFIT MARGINS OR INCUR LOSSES.
The Combined Company will submit proposals on projects with an estimate of
the costs it will likely incur. To the extent the Combined Company cannot
control overhead, general and administrative and other costs, or underestimates
such costs, it may have low profit margins or may incur losses.
THE COMBINED COMPANY IS SUBJECT TO RISKS FROM CHANGES IN ENVIRONMENTAL
LEGISLATION, REGULATION AND GOVERNMENTAL POLICIES.
The Combined Company's professional services involve the planning, design and
program and construction management of waste management and pollution control
facilities. Federal laws, such as the Resource Conservation and Recovery Act of
1976, 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 damage.
While in the past we did not directly handle, remove, treat or transport toxic
or hazardous substances, Dames & Moore has performed these activities.
Consequently, the Combined Company may be exposed to claims for damages caused
by environmental contamination.
Federal and state laws, regulations, and programs related to environmental
issues will generate, either directly or indirectly, much of the Combined
Company's 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 adverse
effect on the Combined Company's business. Environmental laws, regulations and
enforcement policies remained essentially unchanged during fiscal year 1998,
including further deferral of congressional reauthorization of CERCLA. The
outlook for congressional action on CERCLA legislation in fiscal year 1999
remains unclear.
THE COMBINED COMPANY'S LIABILITY FOR DAMAGES DUE TO LEGAL PROCEEDINGS MAY BE
SIGNIFICANT. ITS INSURANCE MAY NOT BE ADEQUATE TO COVER THESE RISKS.
Various legal proceedings are pending against the Combined Company alleging
breaches of contract or negligence in connection with its performance of
professional services. In some actions punitive or treble damages are sought
which substantially exceed our insurance coverage. If the Combined Company
sustains damages greater than its insurance coverage, there could be a material
adverse effect on its business, financial condition and results of operations.
The Combined Company's 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, the
Combined Company may be liable for resulting damages that its clients incur.
THE FAILURE TO ATTRACT AND RETAIN KEY PROFESSIONAL PERSONNEL COULD ADVERSELY
AFFECT THE COMBINED COMPANY'S BUSINESS.
The ability to attract, retain and expand the Combined Company's staff of
qualified technical professionals will be an important factor in determining
its 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 the Combined
Company will be successful in its efforts to continue to attract and retain
such professionals. In addition, the Combined Company will rely heavily upon
the experience and ability of its senior executive staff and the loss of a
significant number of such individuals could have a material adverse effect on
its business, financial condition and results of operations.
14
<PAGE>
THE COMBINED COMPANY MAY BE UNABLE TO COMPETE SUCCESSFULLY IN ITS INDUSTRY.
THIS COULD ADVERSELY AFFECT ITS BUSINESS AND ITS ABILITY TO SATISFY ITS
OBLIGATIONS UNDER THE NOTES.
The Combined Company will be engaged in highly fragmented and very
competitive markets in its service areas. It will compete with firms of various
sizes, several of which are substantially larger than it and which possess
greater technical resources. Furthermore, the engineering and design industry
is undergoing consolidation, particularly in the United States. As a result,
the Combined Company will compete against several larger companies which have
the ability to offer more diverse services to a wider client base. These
competitive forces could have a material adverse effect on the Combined
Company's business, financial condition and results of operations.
THE COMBINED COMPANY'S INTERNATIONAL OPERATIONS WILL BE SUBJECT TO A NUMBER OF
RISKS THAT COULD ADVERSELY AFFECT THE RESULTS FROM THESE OPERATIONS AND ITS
OVERALL BUSINESS.
As a worldwide provider of engineering services, the Combined Company will
have operations in over 40 countries and, on a pro forma basis for the fiscal
year-end 1998, derived approximately 10% of its 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 the Combined Company's
business, financial condition and results of operations.
ADDITIONAL ACQUISITIONS MAY ADVERSELY AFFECT THE COMBINED COMPANY'S ABILITY TO
MANAGE ITS BUSINESS.
Historically, we have completed numerous acquisitions and, in implementing
our business strategy, the Combined Company may continue to do so in the
future. We cannot assure you that the Combined Company will identify, finance
and complete additional suitable acquisitions on acceptable terms. The Combined
Company may not successfully integrate future acquisitions. Any acquisitions
may require substantial attention from the Combined Company's management, which
may limit the amount of time that management can devote to day-to-day
operations. Also, future acquisitions could have an adverse effect on the
Combined Company. The Combined Company's inability to find additional
attractive acquisition candidates or to effectively manage the integration of
any businesses acquired in the future could adversely affect the Combined
Company's business, financial condition and results of operations.
15
<PAGE>
YEAR 2000 COMPUTER PROBLEMS MAY ADVERSELY AFFECT THE COMBINED COMPANY'S
BUSINESS.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. Any programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in the computer shutting down or performing incorrect
computations. As a result, before December 31, 1999, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements.
The Combined Company is engaged in an ongoing process of addressing its
exposure to the Year 2000. Business disruption is the main area in which the
Year 2000 may affect the Combined Company's business operations. The Combined
Company may be unable to receive payments from clients or suppliers from
vendors on a timely basis. Reliability of the Combined Company's internal
information systems such as accounting systems and the physical operation of
elevator, telephone, security and other office infrastructure systems could be
adversely affected.
The Combined Company will also depend on third parties to resolve the Year
2000 issue. We are unable to project with complete certainty that those third
parties will successfully resolve their Year 2000 problems. If the Combined
Company's plan to address the Year 2000 issue is not successfully or timely
implemented, it may need to devote more resources to the process and additional
costs may be incurred, which could have a material adverse effect on its
business, financial condition and results of operations. No one can accurately
predict the severity, duration or financial consequences of the Year 2000
related failures. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition of URS Corporation--Year 2000 Issues."
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's regularly scheduled annual stockholders meeting, held
on March 23, 1999, the stockholders (i) ratified the selection of
PricewaterhouseCoopers L.L.P. as the Company's independent auditors for the 1999
fiscal year, with stockholders holding 14,105,963 shares voting in favor,
stockholders holding 15,311 shares voting against, stockholders holding 16,053
shares abstaining from voting, and no broker non-votes, (ii) approved the URS
Corporation Incentive Compensation Plan, with stockholders holding 12,422,779
shares voting in favor, stockholders holding 298,886 shares voting against,
stockholders holding 73,262 shares abstaining from voting and 1,342,376 broker
non-votes, and (iii) elected each of the following nominees as directors of the
Company by the following vote:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Richard C. Blum 13,902,536 234,798
Armen Der Marderosian 13,904,411 232,923
Admiral S. Robert Foley, Jr., USN (Ret.) 13,895,764 241,570
Robert D. Glynn, Jr. 13,893,278 244,056
Martin M. Koffel 13,904,191 233,143
Richard B. Madden 13,893,137 244,197
Jean-Yves Perez 13,845,226 292,108
Richard Q. Praeger 13,905,860 231,474
Irwin L. Rosenstein 13,879,769 257,565
William D. Walsh 13,907,266 230,068
</TABLE>
No stockholders abstained from voting in this election of directors and
there were no broker non-votes.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are furnished in accordance with the
provisions of Item 601 of Regulation S-K:
Exhibit Number Exhibit
-------------- -------
10.1 Incentive Compensation Plan of the Company,
filed as Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal
year ended 1998 and incorporated herein by
reference.
27 Financial Data Schedule (electronic format
only).
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended April 30,
1999. Subsequent to April 30, 1999, the Company filed the following reports
on Form 8-K:
. Form 8-K dated May 7, 1999 to report that the Company had signed a
definitive agreement to acquire Dames & Moore.
. Form 8-K dated June 8, 1999 to report unaudited pro forma combined
financial information of the Company and Dames & Moore.
. Form 8-K dated June 11, 1999 to report completion of the tender offer for
Dames & Moore and financial statements of the acquired business.
18
<PAGE>
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, 1999
URS CORPORATION
/s/ Kent Ainsworth
- -------------------------------------
Kent P. Ainsworth
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
19
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<PAGE>
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<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
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<SECURITIES> 0
<RECEIVABLES> 310,842
<ALLOWANCES> (14,553)
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<CURRENT-LIABILITIES> 159,293
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0
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