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 January 31, 1999
----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-7567
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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 March 1, 1999
---------------------------- ----------------------------
Common stock, $.01 par value 15,291,235
<PAGE>
URS CORPORATION AND SUBSIDIARIES
This Form 10-Q for the first quarter ended January 31, 1999 contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed here. Factors that
might cause such a difference include, but are not limited to, those discussed
elsewhere in this Form 10-Q for the first quarter ended January 31, 1999 and
those incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1998, filed with the Securities and
Exchange Commission.
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. Basic net
earnings per share computations are based upon the weighted average number of
common shares outstanding during the period while diluted net earnings per share
also include shares issuable under stock options that have a dilutive effect.
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 quarterly period ended January 31, 1999
are not necessarily indicative of the operating results for the full year.
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
January 31, 1999 and October 31, 1998......................3
Consolidated Statements of Operations
Three months ended January 31, 1999 and 1998...............4
Consolidated Statements of Cash Flows
Three months ended January 31, 1999 and 1998...............5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................6
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K............................9
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<CAPTION>
January 31, October 31,
ASSETS 1999 1998
---- ----
(unaudited)
Current assets:
<S> <C> <C>
Cash $ 18,316 $ 36,529
Accounts receivable, less allowance for
doubtful accounts of $7,247 and $7,206 177,799 161,742
Costs and accrued earnings in excess of
billings on contracts in process, less
allowances for losses of $7,204 and $6,896 89,828 77,881
Prepaid expenses and other 11,015 10,033
-------- --------
Total current assets 296,958 286,185
Property and equipment at cost, net 27,727 29,517
Goodwill, net 128,705 129,748
Other assets 7,409 6,254
-------- --------
$460,799 $451,704
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 16,400 $ 16,400
Note payable 4,028 1,943
Accounts payable 60,379 37,236
Accrued salaries and wages 16,453 34,797
Accrued expenses and other 14,556 29,385
Billings in excess of costs and accrued earnings on
contracts in process 39,982 35,455
-------- --------
Total current liabilities 151,798 155,216
Long-term debt 94,363 94,957
Deferred income taxes 5,379 5,377
Deferred compensation and other 35,781 29,794
-------- --------
Total liabilities 287,321 285,344
-------- --------
Stockholders' equity:
Common shares, par value $.01; authorized 20,000 shares;
issued 15,291 and 15,206 shares 153 152
Treasury stock (287) (287)
Additional paid-in capital 118,590 117,842
Foreign currency translation adjustment 697 --
Retained earnings since February 21, 1990, date of
quasi-reorganization 54,325 48,653
-------- --------
Total stockholders' equity 173,478 166,360
-------- --------
$460,799 $451,704
======== ========
</TABLE>
3
<PAGE>
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
January 31,
- --------------------------------------------------------------------------------
1999 1998
---- ----
(unaudited)
Revenues $199,057 $186,156
-------- --------
Expenses:
Direct operating 118,878 115,231
Indirect, general and
administrative 68,187 61,347
Interest expense, net 2,020 2,009
-------- --------
189,085 178,587
-------- --------
Income before taxes 9,972 7,569
Income tax expense 4,300 3,400
-------- --------
Net income $ 5,672 $ 4,169
======== ========
Other comprehensive income:
Foreign currency translation 697 --
-------- --------
Comprehensive income $ 6,369 $ 4,169
======== ========
Net income per share:
Basic $ .37 $ .28
======== ========
Diluted $ .35 $ .27
======== ========
4
<PAGE>
URS CORPORATION AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Three Months Ended
January 31,
1999 1998
---- ----
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 5,672 $ 4,169
--------- ---------
Adjustment to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization 3,480 3,603
Allowance for doubtful accounts and losses 349 418
Deferred taxes -- (579)
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings
in excess of billings on contracts in process (28,350) 8,814
Prepaid expenses and other assets (2,137) 608
Accounts payable, accrued salaries and wages
and accrued expenses (5,842) (23,437)
Billings in excess of costs and accrued earnings
on contracts in process 4,527 (510)
Other, net 3,150 (221)
--------- ---------
Total adjustments (24,823) (11,304)
--------- ---------
Net cash (used) by operating activities (19,151) (7,135)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition, net of cash acquired -- (36,937)
Capital expenditures (1,301) (1,599)
--------- ---------
Net cash (used) by investing activities (1,301) (38,536)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 1,491 110,000
Principal payments on long-term debt -- (66,197)
Proceeds from exercise of stock options 748 123
--------- ---------
Net cash provided by financing activities 2,239 43,926
--------- ---------
Net decrease in cash (18,213) (1,745)
Cash at beginning of period 36,529 22,134
--------- ---------
Cash at end of period $ 18,316 $ 20,389
========= =========
SUPPLEMENTAL INFORMATION:
Interest paid $ 2,466 $ 2,069
========= =========
Taxes paid $ 5,294 $ 502
========= =========
Equipment purchased through capital lease obligations $ 60 $ 470
========= =========
Foreign currency translation adjustment $ 697 $ --
========= =========
Noncash purchase allocation adjustment $ -- $ 10,800
========= =========
Issuance of common stock in business acquisition $ -- $ 61,936
========= =========
</TABLE>
5
<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.
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 net income and
translation adjustments on foreign currency.
Results of Operations
First quarter ended January 31, 1999 vs. January 31, 1998.
The Company's revenues were $199,057,000 for the first quarter ended
January 31, 1998, an increase of $12,901,000 or 7% 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
project.
Direct operating expenses for the quarter ended January 31, 1999, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $3,647,000, a 3% increase over the amount reported for the same
period last year. Indirect, general and administrative expenses for the quarter
ended January 31, 1999 increased $6,840,000, or 11% 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 of revenues.
The Company earned $9,972,000 before income taxes for the first quarter
ended January 31, 1999 compared to $7,569,000 for the same period last year. The
Company's effective income tax rate for the quarter ended January 31, 1999 was
approximately 43% compared to 45% in 1998.
The Company reported net income of $5,672,000, or $.35 per share for the
first quarter ended January 31, 1999, compared with $4,169,000, or $.27 per
share for the same period last year.
6
<PAGE>
The Company's backlog at January 31, 1999 was $701,000,000, as compared to
$675,000,000 at October 31, 1998.
Liquidity and Capital Resources
At January 31, 1999, the Company had working capital of $145,160,000, an
increase of $14,191,000 from October 31, 1998.
The Company's current revolving line of credit is $40,000,000, of which,
after issuance of letters of credit aggregating $3,000,000, $37,000,000 was
available at January 31, 1999.
The Company's credit agreement requires compliance with certain financial
and other covenants. The Company was in compliance with such covenants at
January 31, 1999.
The Company believes that its existing financial resources, together with
its planned cash flow from operations and its unused bank line of credit, will
provide sufficient capital to fund its operations and capital expenditure needs
for the foreseeable future.
Year 2000 Compliance
Generally. Many currently installed computer systems and software products
are coded to accept only two digit entries in the date code field. These date
code fields will need to accept four digit entries to distinguish 21st century
dates from 20th century dates. Any programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in the computer shutting down or performing incorrect computations.
As a result, before December 31, 1999, computer systems and software used by
many companies may need to be upgraded to comply with such "Year 2000"
requirements.
Year 2000 issues which may affect the Company fall into two basic
categories:
1. Business Disruption Issues. In certain situations, a Year 2000
problem could interfere with the operation of the Company's business. For
example, a Year 2000 problem could adversely impact: (a) the Company's
ability to interface with third parties, such as receiving payments from
clients or supplies from vendors on a timely basis, (b) the reliability of
the Company's internal information management systems, such as accounting
systems, or (c) the physical operation of systems used by the Company
which have embedded technology, such as elevator and telephone systems,
security systems and other physical office infrastructure. Such business
disruption issues could arise from internal Year 2000 problems in software
used by the Company or from external Year 2000 problems encountered by
third parties.
7
<PAGE>
(a) Third Party Interfaces: The Company is discussing with its
clients and vendors the potential impact the Year 2000 issue will have
on their systems, including possible delays in receiving payment from
clients resulting from Year 2000 problems affecting such clients'
accounting and payables systems. As the Company assesses these issues,
it expects to develop contingency plans against such payment delays
and other Year 2000 problems which may include, for example, holding
additional cash reserves.
(b) Internal Information Systems: The Company has completed an
inventory of its internal hardware and software and is currently
performing a Year 2000 readiness assessment and impact analysis for
these systems. Year 2000 issues for many of the Company's critical
internal information systems have been or are being addressed as part
of the previously planned upgrade of such systems following the
Company's acquisition of W-C. For example, the Company believes that
its e-mail software is currently Year 2000 compliant and anticipates
that in the near future its upgraded company-wide accounting and
financial reporting system and its payroll and human resources system
will be Year 2000 compliant.
(c) Embedded Technology Systems: The Company currently is
examining infrastructure issues on an office-by-office basis. As the
Company renegotiates its office leases or enters into new leases, it is
incorporating language designed to protect the Company against
potential business interruption stemming from Year 2000 problems. The
Company expects to develop contingency plans to address any such
embedded technology issues as they are identified.
2. Client Deliverables. A limited number of projects undertaken by the
Company include the specification of computer-based components as part of
the work delivered to clients, and an even fewer number of projects
involve the actual development of software and hardware. The Company is
implementing a plan of action related to such client deliverables, which
includes developing an inventory of affected projects and contacting
affected clients and offering assistance with their Year 2000 compliance
issues. However, because the Company generally has not manufactured or
designed this hardware or software, it anticipates that the responsibility
for any Year 2000 problems associated with these deliverables ultimately
will rest with the hardware or software manufacturer. The Company also has
drafted contract clauses to address Year 2000 issues which have been
distributed to all officers with contracting authority for insertion in
the Company's future client contracts.
Costs and Risks. The Company has not incurred substantial incremental
costs in connection with its Year 2000 compliance programs. For example, the
Company has been working on integrating its internal information management
systems after the acquisition of W-C regardless of the Year 2000 issue and did
not accelerate the replacement of such systems due to Year 2000 compliance
issues. The
8
<PAGE>
Company has, however, devoted internal resources and hired some external
resources to assist with the implementation and monitoring of its Year 2000
compliance programs. Such costs are not significant.
At this time, the Company does not anticipate that costs of its Year 2000
compliance program or the risks to the Company which might arise from the Year
2000 problem are likely to be material. However, because the Company has no
control over third parties' products or services, the Company cannot ensure Year
2000 compliance by third parties. Problems encountered by the Company's clients
and vendors arising from the Year 2000 issue could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, if the Company's plans to address the Year 2000 issue are not
successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The costs of the Company's Year 2000 compliance programs and the timetable
on which the Company plans to complete such programs are based on management's
best estimates, and reflect assumptions regarding the availability and cost of
personnel trained in this area, the compliance plans of third parties and
similar uncertainties. However, due to the complexity and pervasiveness of the
Year 2000 issue, and in particular the uncertainty regarding the compliance
programs of third parties, no assurance can be given that these estimates will
be achieved, and actual results could differ materially from those anticipated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOVE MARKET RISK
None.
9
<PAGE>
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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (electronic filing only)
(b) Reports on From 8-K
None.
10
<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 March 15, 1999
URS CORPORATION
/s/ Kent Ainsworth
- -----------------------------------
Kent P. Ainsworth
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 18,316
<SECURITIES> 0
<RECEIVABLES> 282,078
<ALLOWANCES> (14,451)
<INVENTORY> 0
<CURRENT-ASSETS> 296,958
<PP&E> 82,539
<DEPRECIATION> (54,813)
<TOTAL-ASSETS> 460,799
<CURRENT-LIABILITIES> 151,798
<BONDS> 114,791
0
0
<COMMON> 153
<OTHER-SE> 173,325
<TOTAL-LIABILITY-AND-EQUITY> 460,799
<SALES> 0
<TOTAL-REVENUES> 199,057
<CGS> 0
<TOTAL-COSTS> 118,878
<OTHER-EXPENSES> 68,187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,020
<INCOME-PRETAX> 9,972
<INCOME-TAX> 4,300
<INCOME-CONTINUING> 5,672
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,672
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.35
</TABLE>
