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, 2000
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 94111-4529
San Francisco, California (Zip Code)
(Address of principal executive offices)
(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 paracticable date.
Class Outstanding at June 4, 2000
-------------------------------- ----------------------------
Common Stock, $.01 par value 16,312,344
<PAGE>
URS CORPORATION AND SUBSIDIARIES
This Form 10-Q for the second quarter ended April 30, 2000 contains
forward-looking statements within the meaning of the securities laws that
involve risks and uncertainties. We believe that our 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 our expectations include our ability to successfully
integrate Dames & Moore Group ("D-M") following the acquisition of D-M in June
1999, the impact on our financial condition caused by the substantial
indebtedness incurred in connection with the D-M acquistion, our dependence on
government programs and contracts, competitive practices in the industry,
possible changes in legislation or governmental regulation or policies,
contracting risks, our ability to attract and retain qualified professionals,
exposure to potential liability from legal proceedings, and other factors
discussed more completely below in Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Company's 1999 Form 10-K
and in other publicly available reports filed with the Securities and Exchange
Commission from time to time. We do not intend and assume no obligation to
update any forward-looking statements.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets
April 30, 2000 and October 31, 1999 ............................ 3
Consolidated Statements of Operations
Three and six months ended April 30, 2000 and 1999 ............. 4
Consolidated Statements of Cash Flows
Six months ended April 30, 2000 and 1999 ....................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 15
Item 3. Ouantitative and Qualitative Disclosures About Market Risk ..... 21
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders ............ 22
Item 6. Exhibits and Reports on Form 8-K ............................... 22
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
April 30, October 31,
2000 1999
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash .......................................... $ 32,036 $ 45,687
Accounts receivable ........................... 472,879 477,731
Costs and accrued earnings in excess of
billings on contracts in process ............ 226,037 228,841
Less allowances ............................... (34,177) (40,611)
----------- -----------
Net accounts receivable ..................... 664,739 665,961
----------- -----------
Deferred income taxes ............................ 9,750 10,005
Prepaid expenses and other assets ................ 23,211 24,111
----------- -----------
Total current assets ........................ 729,736 745,764
Property and equipment, net ...................... 85,953 93,165
Goodwill, net .................................... 521,367 529,697
Other assets ..................................... 55,340 68,861
----------- -----------
$ 1,392,396 $ 1,437,487
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............. $ 38,799 $ 39,423
Accounts payable .............................. 132,220 130,045
Accrued salaries and wages .................... 74,452 89,023
Accrued expenses and other .................... 40,667 57,873
Billings in excess of costs and accrued
earnings on contracts in process ............ 66,301 70,313
----------- -----------
Total current liabilities ................... 352,439 386,677
Long-term debt ................................... 635,747 648,957
Deferred income taxes ............................ 15,431 15,267
Deferred compensation and other .................. 56,612 76,084
----------- -----------
Total liabilities ........................... 1,060,229 1,126,985
----------- -----------
Commitments and contingencies (Note 3)
Mandatorily redeemable Series B exchangeable
convertible preferred stock, par
value $1.00; authorized 150 shares; issued
49 and 48, respectively; liquidation
preference $106,789 and $103,333, respectively .. 106,789 103,333
----------- -----------
Stockholders' equity:
Common shares, par value $.01; authorized
50,000 shares; issued 16,174 and
15,925 shares, respectively .................. 162 159
Treasury stock ................................ (287) (287)
Additional paid-in capital .................... 129,477 125,462
Foreign currency translation adjustment ....... (1,216) 197
Retained earnings since February 21, 1990,
date of quasi-reorganization ................ 97,242 81,638
----------- -----------
Total stockholders' equity .................. 225,378 207,169
----------- -----------
$ 1,392,396 $ 1,437,487
=========== ===========
3
<PAGE>
<TABLE>
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
Three months ended Six months ended
April 30, April 30,
------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues ............................................. $535,401 $222,219 $1,048,278 $ 421,276
-------- -------- ---------- ---------
Expenses:
Direct operating .................................. 309,209 126,481 619,385 245,358
Indirect, general and administrative .............. 186,431 80,549 355,465 148,737
Interest expense, net ............................. 19,230 2,694 37,213 4,714
-------- -------- ---------- ---------
514,870 209,724 1,012,063 398,809
-------- -------- ---------- ---------
Income before taxes .................................. 20,531 12,495 36,215 22,467
Income tax expense ................................... 9,450 5,500 16,500 9,800
-------- -------- ---------- ---------
Net income ........................................... 11,081 6,995 19,715 $ 12,667
Preferred stock dividend ............................. 2,059 -- 4,111 --
-------- -------- ---------- ---------
Net income available for common stockholders ......... 9,022 6,995 15,604 12,667
Other comprehensive income, net of tax:
Foreign currency translation adjustments .......... (1,496) (627) (1,413) 70
-------- -------- ---------- ---------
Comprehensive income ................................. $ 7,526 $ 6,368 $ 14,191 $ 12,737
======== ======== ========== =========
Net income per common share:
Basic ............................................. $ .56 $ .46 $ .97 $ .83
======== ======== ========== =========
Diluted ........................................... $ .51 $ .42 $ .91 $ .77
======== ======== ========== =========
</TABLE>
4
<PAGE>
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
---------------------------
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 19,715 $ 12,667
--------- ---------
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization .............................. 22,513 7,731
Receivable allowances ...................................... (6,434) 451
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings in
excess of billings on contracts in process ................ 7,656 (43,912)
Prepaid expenses and other assets .......................... 900 (2,590)
Accounts payable, accrued salaries and wages and accrued
expenses .................................................. (31,903) (15,125)
Billings in excess of costs and accrued earnings on
contracts in process ...................................... (4,012) 8,269
Deferred income taxes ...................................... 419 1,970
Other, net ................................................. (6,301) 3,093
--------- ---------
Total adjustments ....................................... (17,162) (40,113)
--------- ---------
Net cash provided (used) by operating activities ........... 2,553 (27,446)
--------- ---------
Cash flows from investing activities:
Business acquisition, net of cash acquired ................. -- (12,530)
Capital expenditures ....................................... (6,251) (3,560)
--------- ---------
Net cash (used) by investing activities .................... (6,251) (16,090)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt ............................. -- 10,096
Principal payments on long-term debt ....................... (7,305) (9,700)
Principal payments on bank borrowings ...................... (6,343) --
Proceeds from bank borrowings .............................. -- 12,795
Proceeds from sale of common shares ........................ 3,212 2,714
Proceeds from exercise of stock options .................... 483 1,138
--------- ---------
Net cash (used) provided by financing activities ........... (9,953) 17,043
--------- ---------
Net decrease in cash .......................................... (13,651) (26,493)
Cash at beginning of period ................................... 45,687 36,529
--------- ---------
Cash at end of period ......................................... $ 32,036 $ 10,036
========= =========
Supplemental Information:
Interest paid .............................................. $ 32,392 $ 5,338
========= =========
Taxes paid ................................................. $ 13,321 $ 9,485
========= =========
Equipment subject to capital lease obligations ............. $ 3,655 $ 4,296
========= =========
Non-cash dividends paid in-kind ............................ $ 4,111 $ --
========= =========
</TABLE>
5
<PAGE>
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, 1999.
The results of operations for the three and six month periods ended April 30,
2000 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.
Reporting Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS 130"), in fiscal 1999. SFAS 130
establishes new standards for reporting and displaying comprehensive income and
its components. Other comprehensive income refers to revenues, expenses, gains,
and losses that under generally accepted accounting principles are included in
comprehensive income but are excluded from net earnings as these amounts are
recorded directly as an adjustment to stockholders' equity. The Company's
comprehensive income is primarily comprised of foreign currency translation
adjustments.
Adoption of Statements of Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 which established
accounting and reporting standards for derivative instruments, including
derivative instruments that are embedded in other contracts, and for hedging
activities. While SFAS 133 was effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999, in July 1999, the FASB issued Statement of
Financial Accounting Standards No. 137 "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of SFAS Statement No.
133" ("SFAS 137"). SFAS 137 deferred the effective date until the first quarter
of fiscal years beginning after June 15, 2000. The Company will adopt SFAS 133
in its quarter ending January 31, 2001 and does not expect such adoption to have
a material adverse effect on its financial position or results of operations.
Reclassifications
Certain reclassifications have been made to the 1999 financial statements
to conform to the 2000 presentation with no effect on net income as previously
reported.
NOTE 2. ACQUISITIONS
During the year ended October 31, 1999, the Company acquired publicly-held
Dames & Moore Group ("D-M") for the amount of $376.2 million. The acquisition
has been accounted for by the purchase
6
<PAGE>
method of accounting and the excess of the fair value of the net assets
acquired over the purchase price has been allocated to goodwill and is being
amortized over 40 years. The operating results of D-M are included in the
Company's results of operations from the date of purchase.
During the year ended October 31, 1999, the Company acquired privately-held
Thorburn Colquhoun Holdings plc ("T-C") for an aggregate purchase price of $13.6
million including assumption of $2.4 million of debt. 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 and is being amortized over 30 years. The operating results of T-C are
included in the Company's results of operations from the date of purchase.
NOTE 3. COMMITMENTS AND CONTINGENCIES
Currently, the Company has limits of $100 million per loss and $100 million
in the annual aggregate for general liability, professional errors and omissions
liability, and contractor's pollution liability insurance. 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. It is the Company's intent 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
punitive or treble damages are sought which substantially exceed the Company's
insurance coverage. The Company's management does not believe that any of such
proceedings will have a material adverse effect on the consolidated financial
position and operations of the Company.
NOTE 4. SEGMENT AND RELATED INFORMATION
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, ("SFAS 131") "Disclosures about Segments of an Enterprise and
Related Information." SFAS 131 established standards for reporting information
about operating segments and related disclosures about products, geographic
information and major customers.
Management has organized the Company by geographic divisions. The
geographic divisions are Domestic and International. The Domestic division
comprises all offices located in North Amercica. The International division is
comprised of all offices in Europe and Asia/Pacific (Australia, Indonesia,
Singapore, New Zealand and the Phillippines).
Accounting policies for each of the reportable segments are the same as
those described in Note 1, Accounting Policies. The Company provides services
throughout the world. Services to other countries may be performed within the
United States, generally revenues are classified within the geographic area
where the services were performed.
<TABLE>
The following table shows summarized financial information on the Company's
reportable segments. Included in the "Other" column are corporate related items
and the elimination of inter-segment sales which are not significant.
<CAPTION>
As of April 30, 2000: Parent Domestic International Eliminations Total
-------------------------------------------- ------------- ------------ --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Total Accounts receivable .................. $ (20,091) $ 588,114 $ 80,264 $ 16,452 $ 664,739
Total Assets ............................... $ 649,708 $1,330,304 $119,786 $ (707,402) $1,392,396
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended April 30, 2000: Parent Domestic International Eliminations Total
-------------------------------------------- ------------- ------------ --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $ -- $ 485,537 $ 58,391 $ (8,527) $ 535,401
Segment operating income (loss) ............ $ (5,131) $ 42,380 $ 1,997 $ 515 $ 39,761
</TABLE>
<TABLE>
<CAPTION>
For the six Months Ended April 30, 2000: Parent Domestic International Eliminations Total
-------------------------------------------- ------------- ---------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $ -- $944,421 $115,195 $ (11,338) $1,048,278
Segment operating income (loss) ............ $ (8,847) $ 79,397 $ 2,847 $ 31 $ 73,428
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
As of October 31, 1999: Parent Domestic International Eliminations Total
----------------------------------- ------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Total accounts receivable ......... $ (15,000) $ 592,159 $ 90,818 $ (2,016) $ 665,961
Total assets ...................... $ 493,938 $1,646,890 $130,779 $ (834,120) $1,437,487
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended April 30, 1999: Parent Domestic International Eliminations Total
-------------------------------------------- -------- ---------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $ -- $195,579 $27,704 $ (1,064) $222,219
Segment operating income ................... $ 569 $ 14,447 $ 132 $ 41 $ 15,189
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1999: Parent Domestic International Eliminations Total
------------------------------------------ ----------- ---------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Revenue .................................. $ -- $379,591 $42,749 $ (1,064) $421,276
Segment operating income (loss) .......... $ (935) $ 28,405 $ (289) $ -- $ 27,181
</TABLE>
The Company's reportable segments are measured based upon segment operating
income.
The next table provides a reconciliation of operating income to
consolidated income before income taxes.
Three Months Ended Six Months Ended
April 30, April 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Segment operating income ... $39,761 $15,189 $73,428 $27,181
Interest expense, net ...... 19,230 2,694 37,213 4,714
------- ------- ------- -------
Income before taxes ........ $20,531 $12,495 $36,215 $22,467
======= ======= ======= =======
NOTE 5. SUPPLEMENTAL GUARANTOR INFORMATION
In June 1999, the Company completed a private placement of $200 million
principal amount of its senior subordinated Notes due 2009, which Notes were
exchanged in August 1999 for 12 1/4% senior subordinated exchange Notes due
2009. The Notes are fully and unconditionally guaranteed on a joint and several
basis by certain of the Company's wholly-owned subsidiaries. Substantially all
of the Company's income and cash flow is generated by its subsidiaries. The
Company has no operating assets or operations other than its investments in its
subsidiaries. As a result, funds necessary to meet the Company's debt service
obligations are provided in large part by distributions to or advances from its
subsidiaries. Under certain circumstances, contractural 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, 2000 and October 31, 1999, the condensed
consolidating statements of operations for the three and six months ended April
30, 2000 and 1999, and condensed consolidating statements of cash flows for the
six months ended April 30, 2000 and 1999. Investments in subsidiaries are
accounted for on the equity method; accordingly, entries necessary to
consolidate the Company and all of its subsidiaries are reflected in the
eliminations column. Separate complete financial statements of the Company and
its subsidiaries that guarantee the Notes would not provide additional material
information that would be useful in assessing the financial composition of such
subsidiaries.
8
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
(unaudited)
<CAPTION>
April 30, 2000
-----------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------------ -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ......................................... $ 4,056 $ (809) $ 28,789 $ -- $ 32,036
Accounts receivable, net ..................... (20,091) 588,114 80,264 16,452 664,739
Deferred income taxes ........................ -- 8,542 1,208 -- 9,750
Prepaid expenses and other assets ............ 4,652 19,627 (1,068) -- 23,211
---------- ---------- -------- ---------- ----------
Total current assets ....................... (11,383) 615,474 109,193 16,452 729,736
Property and equipment, net ................... 463 74,202 11,288 -- 85,953
Goodwill, net ................................. 399,093 157,857 -- (35,583) 521,367
Investment in unconsolidated subsidiaries ..... 245,127 434,406 849 (680,382) --
Accounts receivable, intercompany ............. -- 5,458 (4,203) (1,255) --
Other assets .................................. 16,408 42,907 2,659 (6,634) 55,340
---------- ---------- -------- ---------- ----------
$ 649,708 $1,330,304 $119,786 $ (707,402) $1,392,396
========== ========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............ $ 24,692 $ 17,908 $ 8,090 $ (11,891) $ 38,799
Accounts payable ............................. 25,596 85,777 22,221 (1,374) 132,220
Intercompany payable ......................... (219,616) 238,833 48,619 (67,836) --
Accrued expenses and other ................... 9,594 102,255 15,666 (12,396) 115,119
Billings in excess of costs and accrued
earnings on contracts in process ........... -- 66,850 8,676 (9,225) 66,301
---------- ---------- -------- ---------- ----------
Total current liabilities .................. (159,734) 511,623 103,272 (102,722) 352,439
Long-term debt ................................ 620,814 14,825 108 -- 635,747
Other ......................................... 16,774 30,346 840 24,083 72,043
---------- ---------- -------- ---------- ----------
Total liabilities .......................... 477,854 556,794 104,220 (78,639) 1,060,229
---------- ---------- -------- ---------- ----------
Total stockholders' equity .................... 171,854 773,510 15,566 (628,763) 332,167
---------- ---------- -------- ---------- ----------
$ 649,708 $1,330,304 $119,786 $ (707,402) $1,392,396
========== ========== ======== ========== ==========
</TABLE>
9
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended April 30, 2000
-----------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ -- $485,537 $ 58,391 $ (8,527) $535,401
--------- -------- -------- -------- --------
Expenses:
Direct operating ................. -- 281,203 34,272 (6,266) 309,209
Indirect, general and
administrative ................. 5,131 161,954 22,122 (2,776) 186,431
Interest expense, net ............ 19,428 (411) 213 -- 19,230
--------- -------- -------- -------- --------
24,559 442,746 56,607 (9,042) 514,870
--------- -------- -------- -------- --------
Income (loss) before taxes ........ (24,559) 42,791 1,784 515 20,531
Income tax expense ................ 9,118 283 49 -- 9,450
--------- -------- -------- -------- --------
Net income (loss) ................. (33,677) 42,508 1,735 515 11,081
Preferred stock dividend .......... 2,059 -- -- -- 2,059
--------- -------- -------- -------- --------
Net income (loss) available for
common stockholders .............. (35,736) 42,508 1,735 515 9,022
Other comprehensive income,
net of tax:
Foreign currency adjustments ..... -- -- (1,496) -- (1,496)
--------- -------- -------- -------- --------
Comprehensive income .............. $ (35,736) $ 42,508 $ 239 $ 515 $ 7,526
========= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended April 30, 2000
-----------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ -- $944,421 $115,195 $ (11,338) $1,048,278
--------- -------- -------- --------- ----------
Expenses:
Direct operating ................. -- 563,278 67,444 (11,337) 619,385
Indirect, general and
administrative ................. 8,847 301,746 44,904 (32) 355,465
Interest expense, net ............ 37,018 (246) 441 -- 37,213
--------- -------- -------- --------- ----------
45,865 864,778 112,789 (11,369) 1,012,063
--------- -------- -------- --------- ----------
Income (loss) before taxes ........ (45,865) 79,643 2,406 31 36,215
Income tax expense ................ 15,974 444 82 -- 16,500
--------- -------- -------- --------- ----------
Net income (loss) ................. (61,839) 79,199 2,324 31 19,715
--------- -------- -------- --------- ----------
Preferred stock dividend .......... 4,111 -- -- -- 4,111
--------- -------- -------- --------- ----------
Net income (loss) available for
common stockholders .............. (65,950) 79,199 2,324 31 15,604
Other comprehensive income,
net of tax:
Foreign currency adjustments ..... -- -- (1,413) -- (1,413)
--------- -------- -------- --------- ----------
Comprehensive income .............. $ (65,950) $ 79,199 $ 911 $ 31 $ 14,191
========= ======== ======== ========= ==========
</TABLE>
10
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended April 30, 2000
----------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................... $ (61,839) $ 79,199 $ 2,324 $ 31 $ 19,715
--------- --------- -------- --------- ---------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization ................... 6,124 15,207 1,207 (25) 22,513
Receivable allowances ........................... (909) (6,371) (3,376) 4,222 (6,434)
Changes in current assets and liabilities:
Accounts receivable and costs and accrued
earnings in excess of billings on contracts
in process .................................... -- 10,416 13,930 (16,690) 7,656
Prepaid expenses and other assets ............... (4,745) (38,646) 3,903 40,388 900
Accounts payable, accrued salaries and wages
and accrued expenses .......................... 83,321 (76,721) (1,708) (36,795) (31,903)
Billings in excess of costs and accrued
earnings on contracts in process .............. -- 821 4,396 (9,229) (4,012)
Deferrals and other, net ........................ (20,088) (742) (1,109) 16,057 (5,882)
--------- --------- -------- --------- ---------
Total adjustments ............................. 63,703 (96,036) 17,243 (2,072) (17,162)
--------- --------- -------- --------- ---------
Net cash (used) provided by operating
activities .................................... 1,864 (16,837) 19,567 (2,041) 2,553
--------- --------- -------- --------- ---------
Cash flows from investing activities:
Capital expenditures ............................ (102) (1,887) (4,262) -- (6,251)
--------- --------- -------- --------- ---------
Net cash (used) by investing activities ......... (102) (1,887) (4,262) -- (6,251)
--------- --------- -------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance (payment) on
long-term debt ................................ (7,250) 51 72 (178) (7,305)
Proceeds from issuance (payment) on bank
borrowings .................................... (873) 836 (8,525) 2,219 (6,343)
Proceeds from sale of common shares ............. 3,212 -- -- -- 3,212
Proceeds from exercise of stock options ......... 483 -- -- -- 483
--------- --------- -------- --------- ---------
Net cash provided (used) by financing
activities .................................... (4,428) 887 (8,453) 2,041 (9,953)
--------- --------- -------- --------- ---------
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
========= ========= ======== ========= =========
</TABLE>
11
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
<CAPTION>
October 31, 1999
---------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ............................................. $ 6,722 $ 17,028 $ 21,937 $ -- $ 45,687
Accounts receivable, net ......................... (15,000) 592,159 90,818 (2,016) 665,961
Deferred income taxes ............................ -- 8,681 1,324 -- 10,005
Prepaid expenses and other assets ................ 4,640 18,624 847 -- 24,111
---------- ---------- -------- ---------- ----------
Total current assets ........................... (3,638) 636,492 114,926 (2,016) 745,764
Property and equipment, net ....................... 445 81,526 11,194 -- 93,165
Goodwill, net ..................................... 233,081 322,363 3,633 (29,380) 529,697
Investment in unconsolidated subsidiaries ......... 252,025 554,834 3,231 (810,090) --
Accounts receivable, intercompany ................. -- 5,460 (4,207) (1,253) --
Other assets ...................................... 12,025 46,215 2,002 8,619 68,861
---------- ---------- -------- ---------- ----------
$ 493,938 $1,646,890 $130,779 $ (834,120) $1,437,487
========== ========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ................ $ 18,392 $ 16,514 $ 16,250 $ (11,733) $ 39,423
Accounts payable ................................. 27,381 95,277 13,686 (6,299) 130,045
Intercompany payable ............................. (471,007) 452,321 54,447 (35,761) --
Accrued expenses and other ....................... 27,132 68,613 28,185 22,966 146,896
Billings in excess of costs and accrued
earnings on contracts in process ............... -- 70,369 4,280 (4,336) 70,313
---------- ---------- -------- ---------- ----------
Total current liabilities ...................... (398,102) 703,094 116,848 (35,163) 386,677
Long-term debt .................................... 635,016 13,540 401 -- 648,957
Other ............................................. 44,909 75,400 694 (29,652) 91,351
---------- ---------- -------- ---------- ----------
Total liabilities .............................. 281,823 792,034 117,943 (64,815) 1,126,985
Total stockholders' equity ........................ 212,115 854,856 12,836 (769,305) 310,502
---------- ---------- -------- ---------- ----------
$ 493,938 $1,646,890 $130,779 $ (834,120) $1,437,487
========== ========== ======== ========== ==========
</TABLE>
12
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended April 30, 1999
--------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
----------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues .............................. $ -- $195,579 $27,704 $ (1,064) $222,219
-------- -------- ------- -------- --------
Expenses:
Direct operating ..................... -- 111,396 16,149 (1,064) 126,481
Indirect, general and
administrative ..................... (569) 69,736 11,423 (41) 80,549
Interest expense, net ................ 2,221 358 115 -- 2,694
-------- -------- ------- -------- --------
1,652 181,490 27,687 (1,105) 209,724
-------- -------- ------- -------- --------
Income (loss) before taxes ............ (1,652) 14,089 17 41 12,495
Income tax expense .................... 5,446 -- 13 41 5,500
-------- -------- ------- -------- --------
Net income (loss) ..................... (7,098) 14,089 4 -- 6,995
Preferred stock dividend .............. -- -- -- -- --
-------- -------- ------- -------- --------
Net income (loss) available for
common stockholders .................. (7,098) 14,089 4 -- 6,995
Other comprehensive income,
net of tax:
Foreign currency adjustments ......... -- -- (627) -- (627)
-------- -------- ------- -------- --------
Comprehensive income .................. $ (7,098) $ 14,089 $ (623) $ -- $ 6,368
======== ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended April 30, 1999
------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ -- $379,591 $42,749 $ (1,064) $421,276
--------- -------- ------- -------- --------
Expenses:
Direct operating ................. -- 222,249 24,173 (1,064) 245,358
Indirect, general and
administrative ................. 935 128,937 18,865 -- 148,737
Interest expense, net ............ 4,159 475 80 -- 4,714
--------- -------- ------- -------- --------
5,094 351,661 43,118 (1,064) 398,809
--------- -------- ------- -------- --------
Income (loss) before taxes ........ (5,094) 27,930 (369) -- 22,467
Income tax expense ................ 9,746 -- 54 -- 9,800
--------- -------- ------- -------- --------
Net income (loss) ................. (14,840) 27,930 (423) -- 12,667
Preferred stock dividend .......... -- -- -- -- --
--------- -------- ------- -------- --------
Net income (loss) available for
common stockholders .............. (14,840) 27,930 (423) -- 12,667
Other comprehensive income,
net of tax:
Foreign currency adjustments ..... -- -- 70 -- 70
--------- -------- ------- -------- --------
Comprehensive income .............. $ (14,840) $ 27,930 $ (353) $ -- $ 12,737
========= ======== ======= ======== ========
</TABLE>
13
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended April 30, 1999
----------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................. $(14,840) $27,930 $ (423) $ -- $12,667
-------- ------- ------- ------- -------
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization ................. 495 6,531 705 -- 7,731
Receivable allowances ......................... -- 2,420 (482) (1,487) 451
Changes in current assets and liabilities:
Accounts receivable and costs and
accrued earnings in excess of billings
on contracts in process ..................... -- (33,319) 10,473 (21,066) (43,912)
Prepaid expenses and other assets ............. 425 4,299 (1,300) (6,014) (2,590)
Accounts payable, accrued salaries and
wages and accrued expenses .................. (21,328) (7,967) (835) 15,005 (15,125)
Billings in excess of costs and accrued
earnings on contracts in process ............ -- 645 5,121 2,503 8,269
Deferrals and other, net ...................... 15,296 (5,720) (15,572) 11,059 5,063
-------- ------- ------- ------- -------
Total adjustments ........................... (5,112) (33,111) (1,890) -- (40,113)
-------- ------- ------- ------- -------
Net cash used by operating activities ......... (19,952) (5,181) (2,313) -- (27,446)
-------- ------- ------- ------- -------
Cash flows from investing activities:
Business acquisition, net of cash
acquired .................................... (12,530) -- -- -- (12,530)
Capital expenditures .......................... (88) (2,268) (1,204) -- (3,560)
-------- ------- ------- ------- -------
Net cash used by investing activities ......... (12,618) (2,268) (1,204) -- (16,090)
-------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of debt ................ 10,096 -- -- -- 10,096
Principal payments on long-term debt .......... (9,700) -- -- -- (9,700)
Proceeds from bank borrowings ................. 7,775 -- 5,020 -- 12,795
Proceeds from sale of common shares ........... 2,714 -- -- -- 2,714
Proceeds from exercise of stock
options ..................................... 1,138 -- -- -- 1,138
-------- ------- ------- ------- -------
Net cash provided by financing
activities .................................. 12,023 -- 5,020 -- 17,043
-------- ------- ------- ------- -------
Net increase (decrease) in cash ................ (20,547) (7,449) 1,503 -- (26,493)
Cash at beginning of period .................... 26,949 6,538 3,042 -- 36,529
-------- ------- ------- ------- -------
Cash at end of period .......................... $ 6,402 $ (911) $ 4,545 $ -- $10,036
======== ======= ======= ======= =======
</TABLE>
14
<PAGE>
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, 1999 which was previously filed with the Securities and
Exchange Commission.
Results of Operations
Second quarter ended April 30, 2000 vs. April 30, 1999.
Our revenues were $535,401,000 for the quarter ended April 30, 2000, an
increase of $313,182,000 or 141%, over the amount reported for the same period
last year. The growth in revenue is primarily attributable to the acquisition of
D-M in June, 1999.
Direct operating expenses for the quarter ended April 30, 2000, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $182,728,000, a 144% increase over the amount reported for the
same period last year. The increase is due to the addition of the direct
operating expenses of D-M. Indirect, general and administrative expenses for the
quarter ended April 30, 2000 increased $105,882,000, or 131%, over the amount
reported for the same period last year as a result of the addition of the D-M
overhead. Direct, indirect, and general and administrative expenses generally
increased at the same rate as revenues. Interest expense increased due to
additional indebtedness incurred in connection with the acquisition of D-M and
to a lesser extent to increased interest rates.
We earned $20,531,000 before income taxes for the second quarter ended
April 30, 2000 compared to $12,495,000 for the same period last year. Our
effective income tax rates for the quarters ended April 30, 2000 and 1999 were
approximately 46% and 44%, respectively.
We reported net income available for common stockholders of $11,081,000 or
$.51 per share, for the second quarter ended April 30, 2000, compared with
$6,995,000, or $.42 per share for the same period last year, on a diluted basis.
Our backlog at April 30, 2000 was $1,576,000,000, as compared to
$1,260,000,000 at October 31, 1999.
Six months ended April 30, 2000 vs. April 30, 1999
Our revenues were $1,048,278,000 for the six months ended April 30, 2000,
an increase of $627,002,000 or 149%, over the amount reported for the same
period last year. The growth in revenues is primarily attributable to the
acquisition of D-M in June, 1999.
Direct operating expenses for the six months ended April 30, 2000, which
consists of direct labor and other direct expenses including subcontractor
costs, increased $374,027,000, or 152%, over the amount reported in the same
period last year. The increase is due to the addition of the direct operating
expenses of D-M. Indirect, general and administrative expenses were $355,465,000
for the six months ended April 30, 2000, an increase of $206,728,000 or 139%,
over the amount reported for the same period last year as a result of the
addition of the D-M overhead. Direct, indirect, and general and administrative
expenses generally increased at the same rate as revenues. Interest expense
increased due to the additional indebtedness incurred in connection with the
acquisition of D-M.
We earned $36,215,000 before income taxes for the six months ended April
30, 2000 compared to $22,467,000 for the same period last year. The Company's
effective income tax rates for the six months ended April 30, 2000 and 1999 were
approximately 46% and 44% respectively.
We reported net income available for common stockholders of $19,715,000 or
$.91 per share, for the six months ended April 30, 2000, compared with
$12,667,000 or $.77 per share for the same period last year, on a diluted basis.
15
<PAGE>
Liquidity and Capital Resources
At April 30, 2000, we had working capital of $377,297,000, an increase of
$18,210,000 from October 31, 1999. During the second quarter, we repaid
$7,305,000 of our senior long term debt and $6,343 of other indebtedness.
Substantially all of our cash flow is generated by our subsidiaries. As a
result, funds necessary to meet our debt service obligations are provided in
large part by distributions from our subsidiaries. Under certain circumstances,
legal and contractual restrictions as well as the financial condition and
reporting requirements of the subsidiaries may limit our ability to obtain cash
from the subsidiaries.
Our liquidity and capital measurements are set forth below:
As of April 30, 2000
---------------------
Working capital ................................. $377,297,000
Working capital ratio ........................... 2.1 to 1
Average days to convert billed accounts
receivable to cash .............................. 75
Percentage of debt to equity .................... 203%
Our cash and cash equivalents amounted to $32,036,000 at April 30, 2000, a
decrease of $13,651,000 from October 31, 1999, principally as a result of
capital expenditures of $6,251,000 and repayment of indebtedness of $13,648,000.
During the six month period ended April 30, 2000, cash flow provided by
operating activities totaled $2,553,000. We intend to satisfy our working
capital needs primarily through internal cash generation. 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.
During fiscal 1999, we paid $376.2 million for the purchase of D-M, and
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
notes . We also issued 46,082.95 shares of our Series B Preferred Stock to RCBA
Strategic Partners, L.P. for an aggregate consideration of $100,000,000. The net
proceeds of the debt were incurred to fund a portion of the D-M acquisition and
refinance outstanding bank debt. The 12 1/4% senior subordinated notes were
exchange in August 1999 for 12 1/4% senior subordinated exchange notes (the
"Notes").
Senior collateralized credit facility. The senior collateralized credit
facility was funded June 9, 1999 ("Funding Date") and provides for three term
loan facilities in the aggregate amount of $450,000,000 and a revolving credit
facility in the amount of $100,000,000. The term loan facilities consist of Term
Loan A, a $250,000,000 tranche, Term Loan B, a $100,000,000 tranche, and Term
Loan C, another $100,000,000 tranche.
Principal amounts under Term Loan A became due, commencing on October 31,
1999, in the amount of approximately $3,000,000 per quarter for the following
four quarters. Thereafter and through the sixth anniversary of the Funding Date,
annual principal payments under Term Loan A range from $25,000,000 to a maximum
of $62,500,000 with Term Loan A expiring and the then-outstanding principal
amount becoming due and repayable in full on the sixth anniversary of the
Funding Date. Principal amounts under Term Loan B become due, commencing on
October 31, 1999, in the amount of $1,000,000 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 year
seven. Principal amounts under Term Loan C become due, commencing on October 31,
1999, in the amount of $1,000,000 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 year eight. The revolving
credit facility expires, and is repayable in full, on the sixth anniversary of
the Funding Date.
16
<PAGE>
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.
At April 30, 2000, our revolving credit facility with the Bank provides for
advances up to $100,000,000. Also at April 30, 2000, we had outstanding letters
of credit aggregating $46,900,000, which reduced the amount available to us
under our revolving credit facility to $53,100,000.
The senior collateralized credit facility is governed by affirmative and
negative covenants. These covenants include restrictions upon incurring
additional debt, paying dividends, or making distributions to our stockholders,
repurchasing or retiring capital stock and making subordinated junior debt
payments, and require us 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, a proforma EBITDA
minimum of $142,000,000 and a maximum leverage ratio of 4.50 to 1.00 for the
period ended April 30, 2000. We were fully compliant with these covenants as of
April 30, 2000.
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.
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
semiannually 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, 2000, we owed $200,000,000 on our Notes.
The Notes are fully and unconditionally guaranteed on a joint and several
basis by certain of our wholly owned subsidiaries. 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 Swaps. We have entered into two interest rate swap agreements
with the Bank. One interest rate swap effectively fixes the interest rate on
$8,500,000 of our LIBOR based borrowings at 6.92% plus the applicable margin
through April 30, 2000. The actual borrowing cost to us with respect to
indebtedness covered by this interest rate swap will depend upon the applicable
margin over LIBOR for such indebtedness, which will be determined by the terms
of the relevant debt instruments. Currently, it is expected that the contractual
margin will range from 2.75% to 3.50%, which will provide for an all-in annual
interest rate range from 9.67% to 10.42%.
The second interest rate swap effectively fixes the interest rate on
$45,800,000 of our LIBOR based borrowings at 5.97% plus the applicable margin
through January 31, 2001. The actual borrowing cost to us with respect to
indebtedness covered by this interest rate swap will depend upon the applicable
margin over LIBOR for such indebtedness, which will be determined by the terms
of the relevant debt instruments. Currently, it is expected that the contractual
margin will range from 2.75% to 3.50%, which will provide for an all-in annual
interest rate range from 8.72% to 9.47%.
Interest Rate Cap Agreements. We entered into two interest rate cap
agreements with the Bank. These agreements cap our interest rate at 7% for
$161,500,000 and $9,200,000 of our LIBOR based borrowings through July 31, 2002,
and April 30, 2000, respectively.
17
<PAGE>
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:
We may not be able to integrate D-M successfully and achieve anticipated cost
savings and other benefits from the D-M acquisition.
We will achieve the efficiencies, cost reductions and other benefits that
we expect to result from the D-M acquisition only if we can successfully
integrate each company's administrative, finance, technical and marketing
organizations, and implement appropriate operations, financial and management
systems and controls.
The integration of D-M into our 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 D-M acquisition;
* the possible loss of D-M's or our key professional employees;
* the potential inability to successfully replicate our operating
efficiencies in D-M's operations;
* insufficient management resources to accomplish the integration;
* our increased complexity and diversity compared to our operations prior
to the D-M acquisition;
* the possible negative reaction of clients to the D-M 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 our business, financial
condition and results of operations.
Our substantial indebtedness could adversely affect our financial condition.
We are a highly leveraged company. As of April 30, 2000, we had
approximately $674.5 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:
* it may limit our ability to borrow money or sell stock for working
capital, capital expenditures, debt service requirements or other
purposes;
* it may limit our flexibility in planning for, or reacting to, changes
in our business;
* we could be more highly leveraged than some of our competitors, which
may place us at a competitive disadvantage;
* it may make us more vulnerable to a downturn in our business or the
economy; and
* 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.
18
<PAGE>
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, a substantial portion
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:
* incur additional indebtedness or contingent obligations;
* pay dividends or make distributions to our stockholders;
* repurchase or redeem our stock;
* make investments;
* grant liens;
* make capital expenditures;
* enter into transactions with our stockholders and affiliates;
* sell assets; and
* 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 half 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 half 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. Consequently, 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 must maintain our present responsibility to be eligible to perform
government contracts. From time to time allegations of improper conduct in
connection with government contracting have been made
19
<PAGE>
against us and these could be the subject 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 proposals on projects with an estimate of the costs we will
likely incur. To the extent we cannot control overhead, general and
administrative and other costs, or 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 damage. We directly handle,
remove, treat and transport toxic or hazardous substances. Consequently, we 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 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 1999, including further deferral of congressional reauthorization of
CERCLA. The outlook for congressional action on CERCLA legislation in fiscal
year 2000 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
which 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. This could adversely
affect our business.
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
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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 which 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
40 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 day-to-day operations.
Also, future acquisitions could have an adverse effect on us. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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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 the Company's regularly scheduled annual meeting of shareholders held
on March 21, 2000, 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 shareholders and until their successors are elected and
qualified, or until their earlier death or resignation.
Number of Shares
For Withheld
------------ ----------
Richard C. Blum .................................. 10,862,077 2,485,950
Armen Der Marderosian ............................ 13,217,855 130,172
Admiral S. Robert Foley, Jr., USN (Ret.) ......... 13,211,249 136,778
Martin M. Koffel ................................. 13,192,275 155,752
Richard B. Madden ................................ 13,200,049 147,978
Jean-Yves Perez .................................. 13,201,383 146,644
Richard Q. Praeger ............................... 13,218,495 129,532
Irwin L. Rosenstein .............................. 13,186,252 161,775
William D. Walsh ................................. 13,208,927 139,100
Marie L. Knowles ................................. 13,200,823 147,204
No shareholders 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 2000.
Number of Shares
-----------------
For .............. 13,323,222
Against .......... 19,815
Abstain .......... 4,990
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated June 14, 2000 URS CORPORATION
/s/ Kent Ainsworth
----------------------------------------
Kent P. Ainsworth
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
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