-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Elh/I/6gPBAs3yYIlz65HCQ8xBfN3B4ctgVppOoon3dOXfPJO2/5LNRIL0W+A5He yphlOfVNeiyoa9FO0AQTwQ== /in/edgar/work/20000614/0000950005-00-000749/0000950005-00-000749.txt : 20000919 0000950005-00-000749.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950005-00-000749 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: URS CORP /NEW/ CENTRAL INDEX KEY: 0000102379 STANDARD INDUSTRIAL CLASSIFICATION: [8711 ] IRS NUMBER: 941381538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07567 FILM NUMBER: 654892 BUSINESS ADDRESS: STREET 1: 100 CALIFORNIA ST STREET 2: STE 500 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4157742700 MAIL ADDRESS: STREET 1: 100 CALIFORNIA STREET STREET 2: SUITE 500 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 FORMER COMPANY: FORMER CONFORMED NAME: THORTEC INTERNATIONAL INC DATE OF NAME CHANGE: 19900222 FORMER COMPANY: FORMER CONFORMED NAME: URS CORP /DE/ DATE OF NAME CHANGE: 19871214 10-Q 1 0001.txt FORM 10-Q 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 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 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 URS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three months ended Six months ended April 30, April 30, ------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ------------- ------------- (unaudited) (unaudited) 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 ======== ======== ========== =========
4 URS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended April 30, --------------------------- 2000 1999 ------------ ------------ (unaudited) 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 $ -- ========= =========
5 URS CORPORATION AND SUBSIDIARIES NOTE 1. Accounting Policies In the opinion of management, the information furnished reflects all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 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 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. 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.
As of April 30, 2000: Parent Domestic International Eliminations Total - -------------------------------------------- ------------- ------------ --------------- -------------- ------------ 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
For the Three Months Ended April 30, 2000: Parent Domestic International Eliminations Total - -------------------------------------------- ------------- ------------ --------------- -------------- ------------ Revenue .................................... $ -- $ 485,537 $ 58,391 $ (8,527) $ 535,401 Segment operating income (loss) ............ $ (5,131) $ 42,380 $ 1,997 $ 515 $ 39,761
For the six Months Ended April 30, 2000: Parent Domestic International Eliminations Total - -------------------------------------------- ------------- ---------- --------------- -------------- ------------- Revenue .................................... $ -- $944,421 $115,195 $ (11,338) $1,048,278 Segment operating income (loss) ............ $ (8,847) $ 79,397 $ 2,847 $ 31 $ 73,428
7
As of October 31, 1999: Parent Domestic International Eliminations Total - ----------------------------------- ------------- ------------- --------------- -------------- ------------- 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
For the Three Months Ended April 30, 1999: Parent Domestic International Eliminations Total - -------------------------------------------- -------- ---------- --------------- -------------- ----------- Revenue .................................... $ -- $195,579 $27,704 $ (1,064) $222,219 Segment operating income ................... $ 569 $ 14,447 $ 132 $ 41 $ 15,189
For the Six Months Ended April 30, 1999: Parent Domestic International Eliminations Total - ------------------------------------------ ----------- ---------- --------------- -------------- ----------- Revenue .................................. $ -- $379,591 $42,749 $ (1,064) $421,276 Segment operating income (loss) .......... $ (935) $ 28,405 $ (289) $ -- $ 27,181
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 URS CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET (In thousands) (unaudited)
April 30, 2000 ----------------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------ -------------- ------------ -------------- ------------- 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 ========== ========== ======== ========== ==========
9 URS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In thousands) (Unaudited)
Three Months Ended April 30, 2000 ----------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------ ------------ ------------ -------------- ------------- Revenues .......................... $ -- $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 ========= ======== ======== ======== ========
Six Months Ended April 30, 2000 ----------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------ ------------ ------------ -------------- ------------- 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 ========= ======== ======== ========= ==========
10 URS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended April 30, 2000 ---------------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------- ------------ ------------ -------------- ------------- Cash flows from operating activities: Net income (loss) ............................... $ (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 ========= ========= ======== ========= =========
11 URS CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET (In thousands)
October 31, 1999 --------------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------ ------------ ------------ -------------- ------------- 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 ========== ========== ======== ========== ==========
12 URS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In thousands) (Unaudited)
Three Months Ended April 30, 1999 -------------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ----------- ------------ ------------ -------------- ------------- 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 ======== ======== ======= ======== ========
Six Months Ended April 30, 1999 ------------------------------------------------------------------------ Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------- ------------ ------------ -------------- ------------- 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 ========= ======== ======= ======== ========
13 URS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended April 30, 1999 ---------------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated -------- ------- ------- ------- ------- 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 ======== ======= ======= ======= =======
14 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 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 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 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 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 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 20 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. 21 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. 22 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) 23 -----END PRIVACY-ENHANCED MESSAGE-----