FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 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 of (I.R.S. Employer
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 March 3, 2000
----- ----------------------------
Common Stock, $.01 par value 15,982,487
<PAGE>
URS CORPORATION AND SUBSIDIARIES
This Form 10-Q for the first quarter ended January 31, 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 acquisition, 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:
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 and convertible preferred stock
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
our Annual Report on Form 10-K for the fiscal year ended October 31, 1999. The
results of operations for the quarterly period ended January 31, 2000 are not
necessarily indicative of the operating results for the full year.
Item 1. Financial Statements
Consolidated Balance Sheets
January 31, 2000 and October 31, 1999 ........................ 2
Consolidated Statements of Operations
Three months ended January 31, 2000 and 1999 ................. 3
Consolidated Statements of Cash Flows
Three months ended January 31, 2000 and 1999 ................. 4
Notes to Consolidated Financial Statements ..................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 14
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K ............................... 22
1
<PAGE>
<TABLE>
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<CAPTION>
January 31, October 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................................. $ 28,775 $ 45,687
Accounts receivable, less allowance for doubtful accounts of
$24,640 and $23,771 ..................................................................... 457,396 453,960
Costs and accrued earnings in excess of billings on contracts in process,
less allowance for losses of $16,057 and $16,840 ......................................... 220,108 212,001
Deferred income taxes ..................................................................... 8,614 10,005
Prepaid expenses and other assets ......................................................... 24,328 24,111
----------- -----------
Total current assets .................................................................... 739,221 745,764
Property and equipment at cost, net .......................................................... 91,686 93,165
Goodwill, net ................................................................................ 525,985 529,697
Other assets ................................................................................. 57,549 68,861
----------- -----------
$ 1,414,441 $ 1,437,487
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion ........................................................... $ 17,625 $ 17,625
Notes payable ............................................................................. 19,153 17,040
Obligations under capital leases .......................................................... 7,822 4,758
Accounts payable .......................................................................... 139,338 130,045
Accrued salaries and wages ................................................................ 55,322 89,023
Accrued expenses and other ................................................................ 45,137 57,873
Billings in excess of costs and accrued earnings on contracts
in process ............................................................................... 74,988 70,313
----------- -----------
Total current liabilities ............................................................... 359,385 386,677
Long-term debt ............................................................................... 635,277 635,286
Obligations under capital leases ............................................................. 13,436 13,671
Deferred income taxes ........................................................................ 15,420 15,267
Deferred compensation and other .............................................................. 71,274 76,084
----------- -----------
Total liabilities ....................................................................... 1,094,792 1,126,985
----------- -----------
Mandatorily redeemable Series B exchangeable convertible preferred stock, par
value $1.00; authorized 150 shares; issued 49 and 48, respectively; liquidation
preference $105,386 and $103,333, respectively .............................................. 105,386 103,333
----------- -----------
Stockholders' equity:
Common stock, par value $.01; authorized 50,000 shares; issued 15,979 and
15,925 shares, respectively .............................................................. 160 159
Treasury stock ............................................................................ (287) (287)
Additional paid-in capital ................................................................ 125,890 125,462
Foreign currency translation adjustment ................................................... 280 197
Retained earnings since February 21, 1990, date of quasi-reorganization ................... 88,220 81,638
----------- -----------
Total stockholders' equity .............................................................. 214,263 207,169
----------- -----------
$ 1,414,441 $ 1,437,487
=========== ===========
</TABLE>
2
<PAGE>
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
January 31,
---------------------
2000 1999
-------- --------
(unaudited)
Revenues ............................................. $512,877 $199,057
-------- --------
Expenses:
Direct operating .................................. 310,176 118,878
Indirect, general and administrative .............. 169,034 68,187
Interest expense, net ............................. 17,983 2,020
-------- --------
497,193 189,085
-------- --------
Income before taxes .................................. 15,684 9,972
Income tax expense ................................... 7,050 4,300
-------- --------
Net income ........................................... 8,634 5,672
Preferred stock dividend ............................. 2,052 --
-------- --------
Net income available for common stockholders ......... 6,582 5,672
Other comprehensive income, net of tax:
Foreign currency translation adjustments .......... 83 697
-------- --------
Comprehensive income ................................. $ 6,665 $ 6,369
======== ========
Net income per common share:
Basic ............................................. $ .41 $ .37
======== ========
Diluted ........................................... $ .40 $ .35
======== ========
3
<PAGE>
<TABLE>
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Three months ended
January 31,
------------------------------
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 8,634 $ 5,672
-------- --------
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization ....................................................... 10,714 3,480
Allowance for doubtful accounts and losses .......................................... 86 349
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings in
excess of billings on contracts in process ......................................... (11,629) (28,350)
Prepaid expenses and other assets ................................................... 10,901 (2,137)
Accounts payable, accrued salaries and wages and accrued
expenses ........................................................................... (42,369) (5,842)
Billings in excess of costs and accrued earnings on
contracts in process ............................................................... 4,675 4,527
Deferred income taxes and other, net ................................................ 1,958 3,150
-------- --------
Total adjustments ................................................................ (25,664) (24,823)
-------- --------
Net cash (used) by operating activities ............................................. (17,030) (19,151)
-------- --------
Cash flows from investing activities:
Capital expenditures ................................................................ (2,075) (1,301)
-------- --------
Net cash (used) by investing activities ............................................. (2,075) (1,301)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt ...................................................... 1,852 1,491
Proceeds from exercise of stock options ............................................. 341 748
-------- --------
Net cash provided by financing activities ........................................... 2,193 2,239
-------- --------
Net decrease in cash ................................................................... (16,912) (18,213)
Cash at beginning of period ............................................................ 45,687 36,529
-------- --------
Cash at end of period .................................................................. $ 28,775 $ 18,316
======== ========
Supplemental Information:
Interest paid ....................................................................... $ 20,199 $ 2,466
======== ========
Taxes paid .......................................................................... $ 8,609 $ 5,294
======== ========
Equipment purchased through capital lease obligations ............................... $ 2,829 $ 60
======== ========
</TABLE>
4
<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 month periods ended January 31,
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 of Comprehensive Income" ("SFAS 130"), in fiscal 1999. SFAS 130
establishes new standards for reporting and displaying of 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") in the amount of $376.2 million. The
acquisition has been accounted for by the purchase method of accounting and the
excess of the fair value of the net assets acquired over the purchase price
5
<PAGE>
in the amount of $388.3 million 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 in
the amount of $10.0 million 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 and for the Three Months Ended January 31, 2000: Domestic Non-U.S. Other Total
- ------------------------------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue ....................................... $ 458,884 $ 56,804 $ (2,811) $ 512,877
Segment operating income ...................... $ 37,017 $ 850 $ (4,200) $ 33,667
Total accounts receivable ..................... $ 395,892 $ 62,308 $ (804) $ 457,396
Total assets .................................. $2,012,965 $ 120,724 $ (719,248) $1,414,441
6
<PAGE>
As of October 31, 1999: Domestic Non-U.S. Other Total
- ----------------------- ---------- ---------- ---------- ----------
Total accounts receivable ..................... $ 389,488 $ 66,169 $ (1,697) $ 453,960
Total assets .................................. $2,142,028 $ 130,779 $ (834,120) $1,437,487
For the Three Months Ended January 31, 1999: Domestic Non-U.S. Other Total
- -------------------------------------------- -------- -------- -------- --------
Revenue .......................................... $184,012 $ 15,045 $ -- $199,057
Segment operating (loss) ......................... $ 13,958 $ (351) (1,615) $ 11,992
</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.
January 31,
-------------------------
2000 1999
------- -------
Segment operating income ................... $33,667 $11,992
Interest expense, net ...................... 17,983 2,020
Income before taxes ........................ $15,684 $ 9,972
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 January 31, 2000 and October 31, 1999, and
the condensed consolidating statements of operations and cash flows for the
three months ended January 31, 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.
7
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
(unaudited)
<CAPTION>
January 31, 2000
------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ........................................... $ (1,186) $ 7,183 $ 22,778 $ -- $ 28,775
Accounts receivable, net ....................... -- 395,892 62,308 (804) 457,396
Costs and accrued earnings in excess of
billings on contracts in process, net ........ -- 199,056 24,460 (3,408) 220,108
Prepaid expenses and other assets .............. 6,723 28,599 426 (2,806) 32,942
----------- ----------- ----------- ----------- -----------
Total current assets ......................... 5,537 630,730 109,972 (7,018) 739,221
Property and equipment, net ..................... 459 79,359 11,868 -- 91,686
Goodwill, net ................................... 396,970 160,410 (522) (30,873) 525,985
Investment in unconsolidated subsidiaries ....... 252,025 420,268 1,032 (673,325) --
Accounts receivable, intercompany ............... -- 5,459 (4,206) (1,253) --
Other assets .................................... 17,165 44,583 2,580 (6,779) 57,549
----------- ----------- ----------- ----------- -----------
$ 672,156 $ 1,340,809 $ 120,724 $ (719,248) $ 1,414,441
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion ................ $ 17,625 $ -- $ -- $ -- $ 17,625
Notes payable .................................. 767 71 18,315 -- 19,153
Obligations under capital leases ............... -- 7,727 95 -- 7,822
Trade payables ................................. 29,199 113,745 14,409 (18,015) 139,338
Intercompany payable ........................... (267,675) 275,699 44,785 (52,809) --
Accruals ....................................... 10,544 97,755 20,425 (28,265) 100,459
Billings in excess of costs and accrued
earnings on contracts in process ............. -- 73,897 7,141 (6,050) 74,988
----------- ----------- ----------- ----------- -----------
Total current liabilities .................... (209,540) 568,894 105,170 (105,139) 359,385
Long-term debt .................................. 635,010 160 107 -- 635,277
Obligations under capital leases ................ -- 13,172 264 -- 13,436
Other ........................................... 39,312 31,198 906 15,278 86,694
----------- ----------- ----------- ----------- -----------
Total liabilities ............................ 464,782 613,424 106,447 (89,861) 1,094,792
Total stockholders' equity ...................... 207,374 727,385 14,277 (629,387) 319,649
----------- ----------- ----------- ----------- -----------
$ 672,156 $ 1,340,809 $ 120,724 $ (719,248) $ 1,414,441
=========== =========== =========== =========== ===========
</TABLE>
8
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended January 31, 2000
---------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ -- $ 458,884 $ 56,804 $ (2,811) $ 512,877
--------- --------- --------- --------- ---------
Expenses:
Direct operating .......................... -- 282,075 33,172 (5,071) 310,176
Indirect, general and
administrative .......................... 3,716 139,792 22,782 2,744 169,034
Interest expense, net ..................... 17,590 165 228 -- 17,983
--------- --------- --------- --------- ---------
21,306 422,032 56,182 (2,327) 497,193
--------- --------- --------- --------- ---------
Income (loss) before taxes ................. (21,306) 36,852 622 (484) 15,684
--------- --------- --------- --------- ---------
Income tax expense ......................... 6,856 161 33 -- 7,050
--------- --------- --------- --------- ---------
Net income (loss) .......................... (28,162) 36,691 589 (484) 8,634
Preferred stock dividend ................... 2,052 -- -- -- 2,052
--------- --------- --------- --------- ---------
Net income (loss) available for
common stockholders ....................... (30,214) 36,691 589 (484) 6,582
Other comprehensive income,
net of tax:
Foreign currency adjustments .............. -- 83 -- 83
--------- --------- --------- --------- ---------
Comprehensive income ....................... $ (30,214) $ 36,691 $ 672 $ (484) $ 6,665
========= ========= ========= ========= =========
</TABLE>
9
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended January 31, 2000
--------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .............................................. $(28,162) $ 36,691 $ 589 $ (484) $ 8,634
-------- -------- -------- -------- --------
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization .................................. 2,424 7,672 618 -- 10,714
Allowance for doubtful accounts and
losses ....................................................... -- 2,542 (3,548) 1,092 86
Changes in current assets and liabilities:
Accounts receivable and costs and
accrued earnings in excess of billings
on contracts in process ...................................... -- (54,403) 7,598 35,176 (11,629)
Prepaid expenses and other assets .............................. (7,221) 338 1,167 16,617 10,901
Accounts payable, accrued salaries and
wages and accrued expenses ................................... 24,363 3,408 (6,825) (63,315) (42,369)
Billings in excess of costs and accrued
earnings on contracts in process ............................. -- 3,528 2,861 (1,714) 4,675
Deferrals and other, net ....................................... -- -- (2,387) 4,345 1,958
-------- -------- -------- -------- --------
Total adjustments ............................................ 19,566 (36,915) (516) (7,799) (25,664)
-------- -------- -------- -------- --------
Net cash (used) provided by operating
activities ................................................... (8,596) (224) 73 (8,283) (17,030)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures ........................................... (16) (697) (1,362) -- (2,075)
-------- -------- -------- -------- --------
Net cash (used) by investing activities ........................ (16) (697) (1,362) -- (2,075)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance (payment) of
debt ......................................................... 363 (8,924) 2,130 8,283 1,852
Proceeds from exercise of stock
options ...................................................... 341 -- -- -- 341
-------- -------- -------- -------- --------
Net cash provided (used) by financing
activities ................................................... 704 (8,924) 2,130 8,283 2,193
-------- -------- -------- -------- --------
Net increase (decrease) in cash ................................. (7,908) (9,845) 841 -- (16,912)
Cash at beginning of period ..................................... 6,722 17,028 21,937 -- 45,687
-------- -------- -------- -------- --------
Cash at end of period ........................................... $ (1,186) $ 7,183 $ 22,778 $ -- $ 28,775
======== ======== ======== ======== ========
</TABLE>
10
<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 .......................... -- 389,488 66,169 (1,697) 453,960
Costs and accrued earnings in excess of
billings on contracts in process, net ........... (15,000) 202,671 24,649 (319) 212,001
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:
Long-term debt, current portion ................... $ 17,625 $ 11,733 $ -- $ (11,733) $ 17,625
Notes payable ..................................... 767 119 16,154 -- 17,040
Obligations under capital leases .................. -- 4,662 96 -- 4,758
Trade payables .................................... 27,381 95,277 13,686 (6,299) 130,045
Intercompany payable .............................. (471,007) 452,321 54,447 (35,761) --
Billings in excess of costs and accrued
earnings on contracts in process ................ -- 70,369 4,280 (4,336) 70,313
Accruals .......................................... -- 68,613 28,185 50,098 146,896
----------- ----------- ----------- ----------- -----------
Total current liabilities ....................... (425,234) 703,094 116,848 (8,031) 386,677
Long-term debt ..................................... 635,016 168 102 -- 635,286
Obligations under capital leases ................... -- 13,372 299 -- 13,671
Other .............................................. 72,041 75,400 694 (56,784) 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>
11
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended January 31, 1999
--------------------------------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................................. $ -- $ 184,012 $ 15,045 $ -- $ 199,057
--------- --------- --------- --------- ---------
Expenses:
Direct operating ........................ -- 110,854 8,024 -- 118,878
Indirect, general and
administrative ........................ 1,504 59,200 7,442 41 68,187
Interest expense, net ................... 1,938 117 (35) -- 2,020
--------- --------- --------- --------- ---------
3,442 170,171 15,431 41 189,085
--------- --------- --------- --------- ---------
Income (loss) before taxes ............... (3,442) 13,841 (386) (41) 9,972
Income tax expense ....................... 4,300 -- 41 (41) 4,300
--------- --------- --------- --------- ---------
Net income (loss) ........................ (7,742) 13,841 (427) -- 5,672
Preferred stock dividend ................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) available for
common stockholders ..................... (7,742) 13,841 (427) -- 5,672
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments ........................... -- -- 697 -- 697
--------- --------- --------- --------- ---------
Comprehensive income (loss) .............. $ (7,742) $ 13,841 $ 270 $ -- $ 6,369
========= ========= ========= ========= =========
</TABLE>
12
<PAGE>
<TABLE>
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended January 31, 1999
----------------------------------------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................... $ (7,742) $ 13,841 $ (427) $ -- $ 5,672
-------- -------- -------- -------- --------
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization ....................................... 28 3,129 323 -- 3,480
Allowance for doubtful accounts and
losses ............................................................ -- (288) 524 113 349
Changes in current assets and liabilities:
Accounts receivable and costs and
accrued earnings in excess of billings
on contracts in process ........................................... -- (27,904) (750) 304 (28,350)
Prepaid expenses and other assets ................................... (248) 4,097 (1,180) (4,806) (2,137)
Accounts payable, accrued salaries and
wages and accrued expenses ........................................ (8,112) (2,503) 742 4,031 (5,842)
Billings in excess of costs and accrued
earnings on contracts in process .................................. -- 5,540 (1,013) -- 4,527
Deferrals and other, net ............................................ 1,965 (3,309) 1,721 2,773 3,150
-------- -------- -------- -------- --------
Total adjustments ................................................. (6,367) (21,238) 367 2,415 (24,823)
-------- -------- -------- -------- --------
Net cash (used) provided by operating
activities ........................................................ (14,109) (7,397) (60) 2,415 (19,151)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures ................................................ (48) (1,146) (107) -- (1,301)
-------- -------- -------- -------- --------
Net cash (used) by investing activities ............................. (48) (1,146) (107) -- (1,301)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of debt ...................................... 85 1,281 2,540 (2,415) 1,491
Proceeds from exercise of stock
options ........................................................... 748 -- -- -- 748
-------- -------- -------- -------- --------
Net cash provided (used) by financing
activities ........................................................ 833 1,281 2,540 (2,415) 2,239
-------- -------- -------- -------- --------
Net increase (decrease) in cash ...................................... (13,324) (7,262) 2,373 -- (18,213)
Cash at beginning of period .......................................... 26,949 6,538 3,042 -- 36,529
-------- -------- -------- -------- --------
Cash at end of period ................................................ $ 13,625 $ (724) $ 5,415 $ -- $ 18,316
======== ======== ======== ======== ========
</TABLE>
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
First quarter ended January 31, 2000 vs. January 31, 1999.
Our revenues were $512,877,000 for the first quarter ended January 31,
2000, an increase of $313,820,000 or 158% 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, and to a lesser extent due to an increase in
demand for our on-going services on infrastructure projects.
Direct operating expenses for the quarter ended January 31, 2000, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $191,298,000, a 161% 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 January 31, 2000 increased $100,847,000, or 148% 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 of revenues. Interest expenses increased due to the
additional indebtedness incurred in connection with the acquisition of D-M.
We earned $15,684,000 before income taxes for the first quarter ended
January 31, 2000 compared to $9,972,000 for the same period last year. Our
effective income tax rate for the quarter ended January 31, 2000 was
approximately 45% and approximately 43% for the quarter ended January 31, 1999.
We reported net income available for common stockholders of $6,582,000,
or $.40 per share for the first quarter ended January 31, 2000, compared with
$5,672,000, or $.35 per share for the same period last year on a diluted basis.
Our backlog at January 31, 2000 was $1,414,000,000, as compared to
$1,260,000,000 at October 31, 1999.
Liquidity and Capital Resources
At January 31, 2000, we had working capital of $379,836,000, an
increase of $20,749,000 from October 31, 1999.
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 to or advances 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 January 31, 2000
------------------------
Working capital .................................... $379,836,000
Working capital ratio .............................. 2.1 to 1
Average days to convert billed accounts
receivable to cash ............................... 82
Percentage of debt to equity ....................... 217%
14
<PAGE>
Our cash and cash equivalents amounted to $28,775,000 million at
January 31, 2000, a decrease of $16,912,000 from October 31, 1999, principally
as a result of funding operating requirements.
During the quarter ended January 31, 2000, cash flow used by operating
activities totaled $17,030,000. This represented an increase of $2,121,000 from
the quarter ended January 31, 1999, primarily due to funding working capital
required to support the expansion of our business. The majority of the operating
cash flow was generated by domestic operations. Our working capital has
increased primarily due to the acquisitions of D-M and Woodward-Clyde Group,
Inc. ("W-C"). 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"}. The Series A and Series C Preferred Stock was also exchanged in
October 1999 for Series B Exchangeable Convertible Preferred Stock.
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.
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 January 31, 2000, our revolving credit facility with the Bank
provides for advances up to $100,000,000. Also at January 31, 2000, we had
outstanding letters of credit aggregating $40,000,000, which reduced the amount
available to us under our revolving credit facility to $60,000,000.
15
<PAGE>
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 $160,000,000 and a maximum leverage ratio of 4.50 to 1.00 for the
period ended January 31, 2000. We were fully compliant with these covenants as
of January 31, 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
January 31, 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.
16
<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:
o the possible diversion of our management's attention from other
business concerns;
o the potential inability to successfully pursue some or all of the
anticipated revenue opportunities associated with the D-M
acquisition;
o the possible loss of D-M's or our key professional employees;
o the potential inability to successfully replicate our operating
efficiencies in D-M's operations;
o insufficient management resources to accomplish the integration;
o our increased complexity and diversity compared to our operations
prior to the D-M acquisition;
o the possible negative reaction of clients to the D-M acquisition;
and
o 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 January 31, 2000, we had
approximately $693.3 million of outstanding indebtedness following consummation
of the D-M acquisition and the related financing plan. This level of
indebtedness could have important consequences, including the following:
o it may limit our ability to borrow money or sell stock for working
capital, capital expenditures, debt service requirements or other
purposes;
o it may limit our flexibility in planning for, or reacting to,
changes in our business;
o we could be more highly leveraged than some of our competitors,
which may place us at a competitive disadvantage;
o it may make us more vulnerable to a downturn in our business or the
economy; and
o a substantial portion of our cash flow from operations could be
dedicated to the repayment of our indebtedness and would not be
available for other purposes.
To service our indebtedness we will require a significant amount of cash. The
ability to generate cash depends on many factors beyond our control.
Our ability to make payments on our indebtedness depends on our ability
to generate cash in the future. If we do not generate sufficient cash flow to
meet our debt service and working capital requirements, we may need to seek
additional financing or sell assets. This need may make it more difficult for us
to obtain financing on terms that are acceptable to us, or at all. Without this
financing, we could be forced to sell assets to make up for any shortfall in our
payment obligations under unfavorable circumstances.
17
<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:
o incur additional indebtedness or contingent obligations;
o pay dividends or make distributions to our stockholders;
o repurchase or redeem our stock;
o make investments;
o grant liens;
o make capital expenditures;
o enter into transactions with our stockholders and affiliates;
o sell assets; and
o acquire the assets of, or merge or consolidate with, other
companies.
In addition, our senior collateralized credit facility requires us to
maintain certain financial ratios. We may not be able to maintain these ratios.
Additionally, covenants in the senior collateralized credit facility and the
indenture relating to the Notes may impair our ability to finance future
operations or capital needs or to engage in other favorable business activities.
If we default under our various debt obligations, the lenders could
require immediate repayment of the entire principal. If the lenders require
immediate repayment, we will not be able to repay them, and our inability to
meet our debt obligations could have a material adverse effect on our business,
financial condition and results of operations.
We derive approximately 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
18
<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
19
<PAGE>
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.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
21
<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.
22
<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 16, 2000 URS CORPORATION
/s/ Kent Ainsworth
----------------------------------------
Kent P. Ainsworth
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
23
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 28,775
<SECURITIES> 0
<RECEIVABLES> 482,036
<ALLOWANCES> (24,640)
<INVENTORY> 0
<CURRENT-ASSETS> 739,221
<PP&E> 163,034
<DEPRECIATION> (71,348)
<TOTAL-ASSETS> 1,414,441
<CURRENT-LIABILITIES> 359,385
<BONDS> 693,313
105,386
0
<COMMON> 160
<OTHER-SE> 214,103
<TOTAL-LIABILITY-AND-EQUITY> 1,414,441
<SALES> 0
<TOTAL-REVENUES> 512,877
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<TOTAL-COSTS> 310,176
<OTHER-EXPENSES> 168,274
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<INCOME-TAX> 7,050
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</TABLE>
