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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 2001
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 Identification No.)
of incorporation)
100 California Street, Suite 500,
San Francisco, California 94111-4529
(Address of principal executive offices) (Zip Code)
(415) 774-2700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class: which registered:
Common Shares, par value $.01 per share New York Stock Exchange
Pacific Exchange
8 5/8% Senior Subordinated Debentures due 2004 New York Stock Exchange
6 1/2% Convertible Subordinated Debentures due 2012 New York Stock Exchange
Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act:
12 1/4% Senior Subordinated Notes due 2009.
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [X]
On January 2, 2002, there were 18,257,232 shares of Common Stock
outstanding, and the aggregate market value of the shares of Common Stock of URS
Corporation held by non-affiliates was approximately $433.3 million based on the
closing sales price on such date as reported in the consolidated transaction
reporting system.
Documents Incorporated by Reference
Items 10, 11, and 12 of Part III incorporate information by reference from the
Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on March 26, 2002.
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This Annual Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those discussed here. Factors that might cause such a difference include, but
are not limited to, those discussed elsewhere in this Annual Report on Form
10-K. We do not intend, and undertake no obligation, to update any
forward-looking statements.
ITEM 1. BUSINESS
We are an engineering services firm that provides a broad range of
planning, design and program and construction management services. We provide
these services in seven markets: surface transportation, air transportation,
railroads/mass transit, industrial process/petrochemical, general building and
facilities, water/wastewater and hazardous waste. We provide services to state,
local and federal government agencies, as well as to private clients in the
chemical, pharmaceutical, manufacturing, forest products, energy, oil, gas,
mining, healthcare, water supply, retail and commercial development,
telecommunications and utilities industries. We conduct business through
approximately 110 principal offices and have approximately 16,000 employees
located throughout the world, including the United States of America, Canada,
Mexico, Central and South America, Europe and the Asia/Pacific region.
Acquisitions
In June 1999, we acquired publicly held Dames and Moore Group, an
engineering and construction services firm ("D-M"). For a discussion of the
effect of the D-M acquisition upon our operations, see Management's Discussion
and Analysis of Results of Operations and Financial Condition.
Services
We provide professional services in planning, design and program and
construction management. Each of our offices is responsible for obtaining local
or regional contracts, and multiple offices often work together to pursue large
national or multi-national contracts. We have the capability to market and
perform large multi-disciplinary projects throughout the world, by drawing from
our large and diverse network of professional and technical resources.
Planning. Planning covers a broad range of assignments from conceptual
design and technical and economic feasibility studies to community involvement
programs and archaeological investigations. In many instances, we use the
planning process to develop the blueprint, or overall scheme, for the project.
We use planning analyses and reports to identify and evaluate alternatives,
estimate usage levels, determine financial feasibility, assess available
technology, ascertain economic and environmental impacts and recommend optimal
courses of action. Projects can include master planning, land use planning,
feasibility studies, transportation planning, zoning, permitting and compliance
with applicable regulations.
Design. We provide a broad range of design and design-related services.
Representative services include architectural and interior design and civil,
structural, mechanical, electrical, sanitary, environmental, water resources,
geotechnical/underground, dam, mining and seismic engineering design. For each
project, we identify the project requirements and then integrate and coordinate
the various design elements. The result is a set of contract documents that may
include plans, specifications and cost estimates that are used to build a
project. These documents detail design characteristics and set forth for the
contractor the material it should use and the schedule for construction. Other
critical tasks in the design process may include value analysis and the
assessment of construction and maintenance requirements.
Program and Construction Management. Our program and construction
management services include master scheduling of both the design and
construction phases, construction and life-cycle cost estimating, cash flow
analyses, value engineering, constructability reviews, environmental and
specialized engineering and construction and bid management. Once construction
has begun, we oversee and coordinate the activities of construction contractors.
This frequently involves acting as the owner's representative for on-site
supervision and inspection of
1
the contractor's work. In this role, our objective is to monitor a project's
schedule, cost and quality. In addition, we act as the general contractor or
sub-contractor on demolition and environmental contracts wherein we take
responsibility for contractor's risk and methods. These construction projects
account for approximately 10% of our revenues.
Markets
Our strategy is to focus on the infrastructure market, including surface,
air and rail transportation systems, industrial process/petrochemical and
facilities projects and environmental programs involving water/wastewater and
hazardous waste management. We perform our business development and sales
activities primarily at our network of offices around the world. In addition, we
coordinate national and global marketing efforts on large projects and for
multi-national clients on a company-wide basis.
Surface Transportation. We provide a full range of services for all types
of surface transportation systems and networks, including highways,
interchanges, bridges, tunnels, toll facilities, intelligent transportation
systems, parking facilities and ports and marine structures. Historically, we
have emphasized the design of new transportation systems, but in recent years we
have focused on the rehabilitation of existing systems.
Air Transportation. We provide comprehensive services for the development
of new airports and the modernization and expansion of existing facilities.
Assignments have included terminals, hangars, air cargo buildings, runways,
taxiways, aprons, air traffic control towers and baggage, communications,
security and fueling systems, as well as supporting infrastructure such as
people mover systems, roadways, parking garages and utilities. We have completed
projects at both general aviation and large-hub international airports. We have
played a major role in the expansion and modernization of existing airports as
well as the development of new facilities worldwide. We have completed
assignments at more than 250 airports worldwide.
Rail. We provide services to freight and passenger railroads and urban mass
transit agencies. We have planned, designed and managed the construction of
commuter rail systems, freight rail systems, heavy and light rail transit
systems and high-speed rail. Our specialized expertise in transportation
structures, including terminals, stations, parking facilities, bridges, tunnels,
power, signals and communications systems complements these capabilities.
Industrial Process. We provide full-service capabilities for industrial
process markets. We provide expertise in facility siting and permitting,
environmental management and pollution control, waste management and remediation
engineering, process engineering and design and property redevelopment.
Facilities. We provide design services of new buildings and the
rehabilitation and expansion of existing facilities. The facility design
practice covers a broad range of building types, including facilities for
education, criminal justice, healthcare, commerce, industry, government,
military, transportation, sports and recreation. With the increased interest in
historic preservation, adaptive reuse and seismic safety, a significant portion
of our practice focuses on facility assessments, code and structural evaluations
and renovation projects to maintain aging building infrastructure.
Water/Wastewater. We provide services for the planning, design and
construction of all types of water and wastewater facilities to ensure that the
quality and quantity of the world's water supply is maintained. Services include
water quality studies, new and expanded water supply, storage, distribution, and
treatment systems, municipal wastewater treatment plants and sewer systems,
watershed and stormwater management and flood control. We also respond to this
market with specialized expertise in the design and seismic retrofit of earth,
rockfill and roller-compacted concrete dams, as well as the design of
reservoirs, impoundments, including mine tailings disposal and large outfall
structures.
Hazardous Waste Management. We conduct initial site investigations, design
remedial actions for site clean up and provide construction management services
during site clean up. This market involves identifying and developing measures
to dispose of hazardous and toxic waste effectively at contaminated sites. We
also provide air quality monitoring and design modifications required to meet
national and local air quality standards. This work
2
requires specialized knowledge of, and compliance with, complex applicable
regulations, as well as the permitting and approval processes.
Clients
We provide our services to a broad range of clients, including state, local
and municipal agencies, the federal government and private sector businesses.
Our state and local government clients include approximately 40 state
departments of transportation, water utilities, local power generators,
wastewater treatment agencies, environmental protection agencies, schools and
colleges, law enforcement, judiciary, hospitals and healthcare providers. Our
federal agency clients include the Army, Environmental Protection Agency, Navy,
Air Force, Coast Guard, United States Postal Service and Department of Energy.
Our private sector clients include retail and commercial, petro-chemical, food,
telecommunications, oil and gas, power, semi-conductor, transportation,
technology, public utility, mining and forest products entities.
For the five fiscal years ended October 31, 2001, our revenues were
attributed to the following categories:
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in thousands)
Domestic:
Local and state
agencies .........$ 822,900 36% $ 728,861 33% $ 470,958 33% $346,072 43% $255,423 63%
Federal agencies .... 380,454 16 354,581 16 235,039 17 116,340 14 67,042 17
Private businesses .. 899,021 39 886,453 40 558,314 39 288,067 36 83,986 20
International ......... 216,975 9 235,683 11 154,211 11 55,467 7 -- --
---------- --- ---------- --- ---------- --- -------- --- -------- ---
Total ............$2,319,350 100% $2,205,578 100% $1,418,522 100% $805,946 100% $406,451 100%
========== === ========== === ========== === ======== === ======== ===
International Business
We currently derive approximately 9% of our revenues from international
operations. Our focus is to provide a range of services to local and national
governmental units and private sector businesses, both domestic and
multi-national. The markets we serve are primarily industrial
process/petrochemical, facilities, hazardous waste and surface transportation.
Our international business is located in the United Kingdom and Western Europe,
the Asia/Pacific region, including Australia, New Zealand, Singapore and the
Philippines, and the Americas, including Canada, Mexico, and Central and South
America.
Contract Pricing and Terms of Engagement
We earn our revenues from cost-plus, fixed price and time-and-materials
contracts.
Cost-Plus Contracts. Under our cost-plus contracts, we charge clients
negotiated rates based on our direct and indirect costs. Labor costs and
subcontractor services are the principal components of our direct costs. Federal
Acquisition Regulations, which are applicable to all federal government
contracts and which are partially incorporated in many local and state agency
contracts, limit the recovery of certain specified indirect costs on contracts
subject to such regulations. In negotiating a cost-plus contract, we estimate
all recoverable direct and indirect costs and then add a profit component, which
is either a percentage of total recoverable costs or a fixed negotiated fee, to
arrive at a total dollar estimate for the project. We receive payment based on
the total actual number of labor hours expended. If the total actual number of
labor hours is lower than estimated, the revenues from that project will be
lower than estimated. If the actual labor hours expended exceed the initial
negotiated amount, we must obtain a contract modification to receive payment for
such overage. Cost-plus contracts covered by Federal Acquisition Regulations and
certain state and local agencies require an audit of actual costs and provide
for upward or downward adjustments if actual recoverable costs differ from
billed recoverable costs.
3
Fixed-Price Contracts. Under our fixed-price contracts, clients pay us an
agreed sum negotiated in advance for the specified scope of work. Under
fixed-price contracts, we make no revenue adjustments if we over-estimate or
under-estimate the costs required to complete the project, unless there is a
change of scope in the work to be performed. Accordingly, our profit margin will
increase to the extent that costs are below the contracted amounts. The profit
margin will decrease and we may realize a loss on the project if the costs
exceed the estimates.
Time-and-Materials Contracts. Under our time-and-materials contracts, we
negotiate hourly billing rates and charge our clients based on actual time
expended. In addition, clients reimburse us for the actual out-of-pocket costs
of materials and other direct incidental expenditures incurred in connection
with performing the contract. Our profit margins on time-and-materials contracts
fluctuate based on actual labor and overhead costs directly charged or allocated
to contracts compared with negotiated billing rates.
Backlog, Project Designations and Indefinite Delivery Contracts
Our contract backlog was $1,684.1 million at October 31, 2001 and $1,656.5
million at October 31, 2000. Our contract backlog consists of the amount
billable at a particular point in time for future services under signed and
funded contracts. We include indefinite delivery contracts, which are executed
contracts requiring the issuance of task orders in contract backlog only to the
extent the task orders are actually issued and funded. Of the contract backlog
of $1,684.1 million at October 31, 2001, we expect to fill approximately 70%, or
$1,178.9 million, within the next fiscal year ending October 31, 2002.
Customers also have designated us as the recipient of future contracts.
These "designations" are projects that customers have awarded to us but for
which we do not have signed contracts. We include in designations task orders
under executed indefinite delivery contracts that we expect clients to issue
over the next twelve months. We estimate total contract designations to be
$939.0 million at October 31, 2001, as compared to $817.0 million at October 31,
2000. Historically, a significant portion of designations is converted into
signed contracts. However, we cannot provide any assurance that this experience
will continue to occur in the future.
Indefinite delivery contracts are signed contracts pursuant to which we
perform work only when the client issues specific task orders. Generally these
contracts exceed one year and often indicate a maximum term and potential value.
Certain indefinite delivery contracts are for a definite time period with
renewal option periods at the client's discretion. While we believe that we will
continue to get work under these contracts over their entire term, because of
renewals and the necessity for issuance of individual task orders, we cannot be
assured of continued work by us and the realization of the potential maximum
values under these contracts. However, because of the increasing frequency with
which our government and private sector clients use this contracting method, we
believe the potential value should be disclosed along with backlog and
designations as an indicator of our future business. When the client notifies us
of the scope and pricing of task orders, we add the estimated value of such task
orders to designations. When such task orders are signed and funded, we put
their value into backlog.
As of October 31, 2001, our five largest indefinite delivery contracts were
as follows:
Total Estimated
Potential Estimated Remaining
Contract Term Values Revenue Backlog Designations Values
-------- ---- ------ ------- ------- ------------ ------
(In millions)
USAF-AFCEE(1) ........................ 2000-2005 $200 $ 10 $32 $ 29 $129
FEMA(2) .............................. 2001-2005 157 5 27 -- 125
EPA RAC 9(3) ......................... 1998-2008 120 12 8 -- 100
EPA RAC 10(4) ........................ 1998-2008 101 34 17 4 46
USAF-AFCEE (5) ....................... 1997-2002 65 52 7 -- 6
---- ---- --- ---- ----
Total ......................... $643 $113 $91 $ 33 $406
==== ==== === ==== ====
4
The names of the clients and the complete titles of the contracts listed in the
table above are:
(1) Department of the Air Force, Remedial Design
(2) Federal Emergency Management Agency, Housing Inspection Support Services
(3) United States Environmental Protection Agency, Response Action Contract,
Region 9
(4) United States Environmental Protection Agency, Response Action Contract,
Region 10
(5) Department of the Air Force, Remedial Design
Competition
Our industry is highly fragmented and very competitive. As a result, in
each specific market area, we compete with many engineering and consulting
firms, some of which are substantially larger than us and possess greater
financial resources. To our knowledge, no firm currently dominates any
significant portion of our market areas. Competition is based on quality of
service, expertise, price, reputation and local presence, or the ability to
provide services globally. We believe that we compete favorably with respect to
each of these factors in the market areas we serve.
Regulation
Our professional services include the planning, design, program and
construction management and, under limited circumstances, construction of waste
management and pollution control facilities. Federal laws, such as CERCLA, the
Clean Water Act, the Toxic Substances Control Act, and various state and local
laws strictly regulate the handling, removal, storage, treatment, transportation
and disposal of toxic and hazardous substances and impose liability for
environmental contamination caused by these substances. These laws and
regulations are directly related to the demand for many of the services that we
offer. While generally we do not directly handle, remove, store, treat,
transport or dispose of toxic or hazardous substances, some of our contracts
require us to design systems for those functions or to subcontract for or
supervise this type of work. Consequently, we may be exposed to claims for
damages or penalties caused by environmental contamination arising from projects
on which we have worked.
In the ordinary course of business, we and members of our professional
staff are subject to a variety of state, local and foreign licensing and permit
requirements. We believe that we are in substantial compliance with these
regulations.
Insurance
Currently, we have limits of $125.0 million per loss and $125.0 million in
the annual aggregate for general liability, professional errors and omissions
liability and contractor's pollution liability insurance. These programs each
have a self-insured claim retention of $0.1 million, $1.0 million, and $0.25
million, respectively. With respect to D-M claims arising from professional
errors and omissions prior to the acquisition, we have maintained a self-insured
retention of $5.0 million per claim. 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 we do not continue to maintain these
excess policies, we will have no coverage for claims made after its termination
date even if the occurrence was during the term of coverage. It is our intent to
maintain these policies, but there can be no assurance that we can maintain
existing coverage or that claims will not exceed the available amount of
insurance. We believe that our claim reserves combined with our insurance
coverage will be adequate for our present and reasonably foreseeable future
operations. We have maintained insurance without lapse for many years with
limits in excess of losses sustained.
Employees
As of October 31, 2001, we had approximately 16,000 employees in total. We
employ, at various times on a temporary or part-time basis, up to several
thousand persons to meet contractual requirements. Approximately 425 of
5
our employees are covered by collective bargaining agreements. We have never
experienced a strike or work stoppage. We believe that employee relations are
good.
ITEM 2. PROPERTIES
We lease office space in 236 offices, branches and project locations
throughout the world. Most of the leases are written for a minimum term of three
years with options for renewal, sublease rights and allowances for improvements.
Our significant lease agreements expire at various dates through the year 2013.
We believe that our current facilities are sufficient for the operation of our
business and that suitable additional space in various local markets is
available to accommodate any needs that may arise.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are pending against us or our subsidiaries
alleging, among other things, breaches of contract or negligence in connection
with our performance of professional services. In some actions, parties are
seeking damages, including punitive or treble damages that substantially exceed
our insurance coverage. Based on our previous experience with claims settlement
and the nature of the pending legal proceedings, we do not believe that any of
the legal proceedings are likely to result in a judgment against, or settlement
by, us that would materially exceed our insurance coverage or have a material
adverse effect on our consolidated financial position and operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position Held Age
---- ------------- ---
Martin M. Koffel.................... Chief Executive Officer, President and Director from May 1989; Chairman 62
of the Board from June 1989; Director of McKesson HBOC, Inc.
Kent P. Ainsworth................... Executive Vice President from April 1996; Vice President and Chief 55
Financial Officer from January 1991; Secretary from May 1994.
Joseph Masters...................... Vice President and General Counsel since July 1997; Vice President, 45
Legal, from April 1994 to June 1997; Vice President and Associate
General Counsel of URS Consultants, Inc. from May 1992 to April 1994;
outside counsel to URS from January 1990 to May 1992.
Irwin L. Rosenstein................. President of General Engineering Group ("GEG"), the principal operating 65
group of URS since November 1999; President of URS Greiner Woodward
Clyde Group, Inc. ("URSGWC"), the Company's former principal operating
division, from November 1998 to October 1999; President of URS Greiner
("URSG"), URS's former principal operating division, from November 1997
to October 1998; President of URS Consultants, Inc. ("URSC"), URS's
former principal operating division, from February 1989 to November
1997; Director since February 1989; Vice President since 1987.
Jean-Yves Perez..................... Director and Executive Vice President of GEG since November 1999; 56
Executive Vice President of URSGWC, URS's former principal operating
division, from November 1998 to October 1999; President of
Woodward-Clyde Group, Inc. ("W-C"), a division of URS from November
1997 to October 1998; Director of URS since November 1997; President
and Chief Executive Officer of W-C from 1987 to October 1997.
Susan B. Kilgannon.................. Vice President, Communications, of the Company since October 1999; Vice 42
President of URSGWC, URS's former principal operating division, from
November 1998 to October 1999; Vice President of URSG, URS's former
principal operating division, from November 1997 to October 1998; Vice
President of URSC, URS's former principal operating division, from
March 1992 to November 1997.
David C. Nelson..................... Vice President and Treasurer since December 1999; Assistant Treasurer 47
of Seagate Technology, Inc. from February 1996 to December 1999;
Assistant Treasurer of Conner Peripherals, Inc. from May 1995 to
February 1996; Director of International Finance of Conner Peripherals,
Inc. from October 1994 to May 1995.
Mark H. Perry....................... Vice President and Corporate Controller beginning January 2002; 51
Executive Vice President and Chief Financial Officer of Covad
Communications from August 2000 to July 2001; Vice President, Operations
and Merger Integration of US West, Inc. from 1999 to 2000; Vice
President, Finance and Administration of US West, Inc. from 1996 to
1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The shares of our Common Stock are listed on the New York Stock Exchange
and the Pacific Exchange (under the symbol "URS"). At January 2, 2002, we had
approximately 4,200 stockholders of record. The following table sets forth the
high and low closing sale prices of our Common Stock, as reported by The Wall
Street Journal for the periods indicated.
Market Price
----------------------
Low High
--------- --------
Fiscal Period:
2000:
First Quarter.................................... $17.25 $21.75
Second Quarter................................... $11.13 $17.38
Third Quarter.................................... $12.69 $15.94
Fourth Quarter................................... $11.38 $15.50
2001:
First Quarter.................................... $12.19 $19.44
Second Quarter................................... $17.05 $22.06
Third Quarter.................................... $22.70 $27.92
Fourth Quarter................................... $18.30 $24.72
2002:
First Quarter.................................... $23.40 $27.84
(through January 2, 2002)
We have not paid cash dividends since 1986, and at the present time,
our management does not anticipate paying dividends on our outstanding Common
Stock in the near future. Further, we are precluded from paying dividends on our
outstanding Common Stock pursuant to our senior collateralized credit facility
with our lender and the indentures governing the 8 5/8% Senior Subordinated
Debentures and the 12 1/4% Senior Subordinated Notes. See Item 8, Consolidated
Financial Statements and Supplementary Data, Note 7, Notes Payable and Long-Term
Debt and Note 12, Stockholders' Equity.
8
ITEM 6. SUMMARY OF SELECTED FINANCIAL INFORMATION
The following table sets forth our selected financial data for the five
fiscal years ended October 31, 2001. The data presented below should be read in
conjunction with our Consolidated Financial Statements including the Notes
thereto.
SUMMARY OF SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
Years Ended October 31,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ---------- ---------- --------- ---------
Income Statement Data:
Revenues ................................................ $ 2,319,350 $ 2,205,578 $1,418,522 $805,946 $406,451
----------- ----------- ---------- -------- --------
Expenses:
Direct operating ..................................... 1,393,818 1,345,068 854,520 478,640 241,002
Indirect, general and administrative ................ 755,791 697,051 463,132 277,065 141,442
Interest expense, net ................................ 65,589 71,861 34,589 8,774 4,802
----------- ----------- ---------- -------- --------
2,215,198 2,113,980 1,352,241 764,479 387,246
----------- ----------- ---------- -------- --------
Income before taxes ..................................... 104,152 91,598 66,281 41,467 19,205
Income tax expense ...................................... 46,300 41,700 29,700 18,800 7,700
----------- ----------- ---------- -------- --------
Net income .............................................. 57,852 49,898 36,581 22,667 11,505
Preferred stock dividend ................................ 9,229 8,337 3,333 -- --
----------- ----------- ---------- -------- --------
Net income available for common stockholders ............ 48,623 41,561 33,248 22,667 11,505
Other comprehensive income, net of tax:
Foreign currency translation adjustments ................ (1,550) (2,609) 197 -- --
----------- ----------- ---------- -------- --------
Comprehensive income .................................... $ 47,073 $ 38,952 $ 33,445 $ 22,667 $ 11,505
=========== =========== ========== ======== ========
Net income per common share:
Basic ................................................ $ 2.79 $ 2.55 $ 2.14 $ 1.51 $ 1.15
=========== =========== ========== ======== ========
Diluted .............................................. $ 2.41 $ 2.27 $ 1.98 $ 1.43 $ 1.08
=========== =========== ========== ======== ========
As of October 31,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ---------- ---------- --------- ---------
Balance Sheet Data:
Working capital ......................................... $ 427,417 $ 394,560 $ 366,125 $130,969 $ 63,236
Total assets ............................................ $ 1,463,376 $ 1,427,134 $1,444,525 $451,704 $210,091
Total debt .............................................. $ 631,129 $ 648,351 $ 688,380 $116,016 $ 48,049
Preferred stock ......................................... $ 120,099 $ 111,013 $ 103,333 $ -- $ --
Stockholders' equity .................................... $ 322,502 $ 257,794 $ 207,169 $166,360 $ 77,151
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We are an engineering services firm with domestic and international clients
that include local, state and federal government agencies and private clients in
a broad array of industries. Revenues are earned from fixed-price, cost-plus and
time-and-materials contracts. Revenue from contract services is recognized by
the percentage-of-completion method and includes a proportion of the earnings
expected to be realized on a contract in the ratio that costs incurred bear to
estimated total costs. The principal components of our direct operating costs
are labor costs for employees who are directly involved in providing services to
clients and subcontractor costs. Other direct operating expenses include those
expenses associated with specific projects including materials and incidental
expenditures. Indirect, general and administrative expenses include salaries and
benefits for management, administrative, marketing and sales personnel, bid and
proposal costs, occupancy and related overhead costs.
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 or advances from our subsidiaries. Under certain
circumstances, legal and contractual restrictions as well as the financial
condition and operating requirements of the subsidiaries may limit our ability
to obtain cash from the subsidiaries.
Results of Operations
Fiscal 2001 Compared with Fiscal 2000
Consolidated
------------
Our revenues were $2,319.4 million for the fiscal year ended October 31,
2001, an increase of $113.8 million, or 5.2%, over the amount reported for the
same period last year. The increase is due to increased demand for our services.
Direct operating expenses for the fiscal year ended October 31, 2001, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $48.8 million, a 3.6% increase over the amount reported for the
same period last year primarily as a result of an increase in the use of
subcontractors. Indirect, general and administrative expenses ("IG&A") for the
fiscal year ended October 31, 2001, increased $58.7 million, or 8.4%, from the
amount reported for the same period last year. The increase is primarily due to
increases in marketing and business development expenses, benefits and rental
expense. Net interest expense for the fiscal year ended October 31, 2001
decreased $6.3 million due to repayments of our long-term debt and a decrease in
interest rates.
Our earnings before income taxes were $104.2 million for the fiscal year
ended October 31, 2001, compared to $91.6 million for the same period last year.
Our effective income tax rates for the fiscal years ended October 31, 2001 and
2000 were approximately 44.5% and 45.5%, respectively.
We reported net income available to shareholders of $48.6 million, or $2.41
per share on a diluted basis, for the fiscal year ended October 31, 2001,
compared to $41.6 million, or $2.27 per share on a diluted basis, for the same
period last year.
Our backlog of signed and funded contracts was $1,684.1 million at October
31, 2001 and $1,656.5 million at October 31, 2000. The value of our designations
was $939.0 million at October 31, 2001, as compared to $817.0 million at October
31, 2000.
Domestic Segment Including Parent Company
-----------------------------------------
Revenues for the domestic segment were $2,109.2 million for the fiscal year
ended October 31, 2001, an increase of $119.1 million, or 6.0%, over the amount
reported for the same period last year. The increase is due to increased demand
for our services.
10
Domestic direct operating expenses for the fiscal year ended October 31,
2001 increased $57.8 million, a 4.7% increase over the amount reported for the
same period last year as a result of an increase in the use of subcontractors
and an increase in other direct expenses. Domestic IG&A expenses for the fiscal
year ended October 31, 2001 increased $47.9 million, or 7.9%, from the amount
reported for the same period last year, due to increases in marketing and
business development expenses, benefits and rental expense. Domestic net
interest expense, which includes intercompany interest recorded in the fiscal
year ended October 31, 2001, decreased $10.3 million due to repayments of our
long-term debt and a decrease in interest rates.
International Segment
---------------------
Revenues for the international segment were $217.0 million for the fiscal
year ended October 31, 2001, a decrease of $18.7 million, or 7.9%, from the
amount reported for the same period last year. The decrease is mainly due to
decreases in foreign currency exchange rates versus the U.S. dollar and a
decrease in the demand for our services in the Asia/Pacific region.
Foreign direct operating expenses for the fiscal year ended October 31,
2001, decreased $22.4 million, a 16.1% decrease from the amount reported for the
same period last year. The change is primarily the result of a decrease in
foreign currency exchange rates versus the U.S. dollar, as well as the decrease
in the use of subcontractors and a decrease in other direct expenses. Foreign
IG&A expenses for the fiscal year ended October 31, 2001 increased $10.8
million, or 12.2%, from the amount reported for the same period last year.
Foreign net interest expense increased $4.0 million primarily due to
intercompany interest recorded in the fiscal year ended October 31, 2001.
Fiscal 2000 Compared with Fiscal 1999
Consolidated
------------
Our revenues were $2,205.6 million for the fiscal year ended October 31,
2000, an increase of $787.1 million, or 55.5%, over the amount reported for the
fiscal year ended October 31, 1999. The increase is due to the acquisition of
D-M in June 1999. In fiscal 2000, the results of operations of D-M were included
for a full year compared to five months in fiscal 1999.
Direct operating expenses for the fiscal year ended October 31, 2000, which
consist of direct labor and other direct expenses, including subcontractor
costs, increased $490.5 million, a 57.4% increase over the amount reported for
the fiscal year ended October 31, 1999. The increase is primarily due to a full
year of direct operating expenses of D-M in fiscal 2000 compared to five months
in fiscal 1999 and, to a lesser extent, to increases in subcontractor costs and
direct labor costs. IG&A expenses for the fiscal year ended October 31, 2000,
increased to $233.9 million, or 50.5% from the amount reported for the fiscal
year ended October 31, 1999. The increase is primarily due to the addition of
the D-M overhead as well as an increase in business activity. Net interest
expense for the fiscal year ended October 31, 2000 increased $37.3 million due
to increased borrowings incurred in connection with the acquisition of D-M in
June 1999.
Our earnings before income taxes were $91.6 million for the fiscal year
ended October 31, 2000 compared to $66.3 million for the fiscal year ended
October 31, 1999. Our effective income tax rates for the fiscal years ended
October 31, 2000 and 1999 were approximately 45.5% and 45.0%, respectively.
We reported net income available to shareholders of $41.6 million, or $2.27
per share on a diluted basis, for the fiscal year ended October 31, 2000,
compared to $33.2 million, or $1.98 per share on a diluted basis, for the fiscal
year ended October 31, 1999.
Our backlog of signed and funded contracts at October 31, 2000 was $1,656.5
million, as compared to $1,260.0 million at October 31, 1999. The value of our
designations was approximately $817.0 million at October 31, 2000, as compared
to approximately $775.0 million at October 31, 1999.
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Domestic Segment Including Parent Company
-----------------------------------------
Revenues for the domestic segment were $1,990.1 million for the fiscal year
ended October 31, 2000, an increase of $721.1 million, or 56.8%, over the amount
reported for the fiscal year ended October 31, 1999. The increase is primarily
attributable to the acquisition of D-M in June 1999.
Domestic direct operating expenses for the fiscal year ended October 31,
2000 increased $460.6 million, a 60.2% increase over the amount reported for the
fiscal year ended October 31, 1999. The increase in direct operating expenses is
primarily due to the acquisition of D-M in June 1999 and, to a lesser extent, to
increases in subcontractor costs and direct labor costs. Domestic IG&A expenses
for the fiscal year ended October 31, 2000, increased $204.9 million, or 50.8%,
from the amount reported for the fiscal year ended October 31, 1999 as a result
of the addition of the D-M overhead as well as an increase in business activity.
Domestic net interest expense increased $37.4 million due to increased
borrowings incurred in connection with the acquisition of D-M in June 1999.
International Segment
---------------------
Revenues for the international segment were $235.7 million for the fiscal
year ended October 31, 2000, an increase of $81.5 million, or 52.8%, from the
amount reported for the fiscal year ended October 31, 1999. The increase is
primarily attributable to the acquisition of D-M in June 1999.
Foreign direct operating expenses for the fiscal year ended October 31,
2000, increased $45.5 million, a 48.7% increase over the amount reported for the
fiscal year ended October 31, 1999, primarily as a result of the acquisition of
D-M. Foreign IG&A expenses for the fiscal year ended October 31, 2000, increased
$29.0 million, or 48.5%, from the amount reported for the fiscal year ended
October 31, 1999. Foreign net interest expense for the fiscal year ended October
31, 2000 decreased $0.1 million.
Income Taxes
As of October 31, 2001, we have available net operating loss ("NOL")
carryforwards for federal income tax and financial statement purposes of $2.4
million, which will expire in fiscal year 2004. Our NOL utilization is limited
to $750,000 per year pursuant to Section 382 of the Internal Revenue Code and is
related to our October 1989 quasi-reorganization. We also have available $21.1
million of foreign NOLs. These NOLs are available only to offset income earned
in foreign jurisdictions and expire at various dates.
We have recorded deferred tax assets and liabilities. The deferred tax
liability decreased primarily because of a change in tax accounting for unbilled
fees and an expiring adjustment due to a change in accounting method. The net
change in the total valuation allowance related to deferred tax assets for the
fiscal year ended October 31, 2001, was a decrease of $0.3 million due to the
utilization of domestic net operating losses and a decrease of $1.3 million due
to current and prior year foreign losses utilized.
Liquidity and Capital Resources
At October 31, 2001, we had working capital of $427.4 million, an increase
of $32.9 million from October 31, 2000. As a professional services organization,
we are not capital intensive. Capital expenditures historically have been for
computer-aided design, accounting and project management information systems,
and general-purpose computer equipment to accommodate our growth. Capital
expenditures, excluding purchases financed through capital leases, during fiscal
years 2001, 2000, and 1999 were $19.8 million, $15.9 million and $20.2 million,
respectively. We expect to continue to have capital outlays consistent with our
resulting relative growth.
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 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.
12
Our liquidity and capital measurements are set forth below:
Years Ended October 31,
----------------------------------------------
2001 2000 1999
---------- ----------- -----------
(Dollars in thousands)
Working capital .............................................................. $427,417 $394,560 $366,125
Working capital ratio ........................................................ 2.1 to 1 2.0 to 1 1.9 to 1
Average days to convert billed accounts receivable to cash ................... 63 68 75
Percentage of debt to equity ................................................. 142.6% 175.8% 221.7%
Our cash and cash equivalents amounted to $23.4 million at October 31,
2001, a decrease of $0.3 million from October 31, 2000. During the fiscal year
ended October 31, 2001, we generated $47.1 million from operations, received
$3.5 million of proceeds from sales of subsidiaries and generated $11.8 million
of proceeds from sales of common stock and exercises of stock options. We used
$42.9 million to repay debt and $19.8 million for capital expenditures.
During the fiscal year ended October 31, 2001, cash flow provided by
operating activities totaled $47.1 million. We borrowed various amounts that
totaled in aggregate $105.8 million and paid off the entire outstanding balance
under our revolving line of credit by the end of the fiscal year. We intend to
satisfy our working capital needs primarily through internal cash generation.
Our primary sources of liquidity are cash flow from operations and borrowings
under the senior collateralized credit facility, if necessary. Our primary uses
of cash are to fund our working capital and capital expenditures and to service
our debt. We believe that our existing financial resources, which primarily
includes our planned cash flow from operations and existing credit facilities,
will provide sufficient resources to fund our operations and capital expenditure
needs for the foreseeable future.
During the fiscal year ended October 31, 1999, we paid $376.2 million for
the purchase of D-M. To fund this transaction and to refinance outstanding bank
debt, we incurred new borrowings of $650.0 million from the establishment of 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 the 12 1/4% Senior
Subordinated Notes. In addition, we sold 46,083 shares of our Series B Preferred
Stock to RCBA Strategic Partners, L.P. for an aggregate consideration of $100.0
million.
Senior Collateralized Credit Facility. The senior collateralized credit
facility was funded on June 9, 1999 ("Funding Date") and provides for three term
loan facilities in the aggregate amount of $450.0 million and a revolving credit
facility in the amount of $100.0 million. The term loan facilities consist of
Term Loan A, a $250.0 million tranche, Term Loan B, a $100.0 million tranche and
Term Loan C, another $100.0 million tranche.
Principal amounts under Term Loan A became due, commencing on October 31,
1999, in the amount of approximately $3.0 million per quarter for the subsequent
three quarters. Commencing on October 31, 2000 and through June 9, 2005, annual
principal payments under Term Loan A range from $25.0 million to a maximum of
$58.0 million with Term Loan A expiring and the then-outstanding principal
amount becoming due and repayable in full on June 9, 2005. Principal amounts
under Term Loan B became due, commencing on October 31, 1999, in the amount of
$1.0 million 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
equal quarterly installments beginning on October 31, 2005. Principal amounts
under Term Loan C became due, commencing on October 31, 1999, in the amount of
$1.0 million 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 beginning on October 31, 2006. The revolving credit
facility expires and is repayable in full on June 9, 2005.
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, any of 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
13
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 which interest periods will apply for both the term loans and the
revolving credit facility.
At October 31, 2001, our revolving credit facility with the Bank provided
for advances up to $100.0 million. At October 31, 2001, we had outstanding
letters of credit in the aggregate amount of $25.0 million, which reduced the
amount available to us under our revolving credit facility to $75.0 million.
The senior collateralized credit facility is governed by affirmative and
negative covenants. These covenants include restrictions on incurring additional
debt, paying dividends, or making distributions to our stockholders,
repurchasing or retiring capital stock and making subordinated junior debt
payments, as well as other restrictions. 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, an EBITDA minimum of $160.0 million and a
maximum leverage ratio of 3.50 to 1.00 for the fiscal year ended October 31,
2001. We are required to submit quarterly compliance certification to the Bank.
We were fully compliant with these covenants as of October 31, 2001.
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
semi-annually 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
October 31, 2001, we owed $200.0 million on our notes.
Certain of our wholly owned subsidiaries fully and unconditionally
guarantee the notes on a joint and several basis. We may redeem any of the notes
beginning May 1, 2004. The initial redemption price is 106.125% of the principal
amount, plus accrued and unpaid interest. The redemption price will decline each
year after 2004 and will be 100% of the 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.
8 5/8% Senior Subordinated Debentures. Our 8 5/8% Debentures are due in
2004. Interest is payable semiannually in January and July. The 8 5/8%
Debentures are subordinate to the senior collateralized credit facility. As of
October 31, 2001, we owed approximately $6.5 million on the 8 5/8% Debentures.
6 1/2% Convertible Subordinated Debentures. Our 6 1/2% Debentures are due
in 2012 and are convertible into shares of common stock at the rate of $206.30
per share. Interest is payable semiannually in February and August. Sinking fund
payments calculated to retire 70% of the 6 1/2% Debentures prior to maturity
began in February 1998. The 6 1/2% Debentures are subordinate to the senior
collateralized credit facility. As of October 31, 2001, we owed approximately
$1.8 million on the 6 1/2% Debentures.
Foreign Credit Lines. We maintain foreign lines of credit which are
collateralized by assets of foreign subsidiaries at October 31, 2001. The
interest rate for the foreign lines of credit was 7.25% plus applicable margins
consistent with market conditions in the respective countries at October 31,
2001. At October 31, 2001 and 2000, these foreign lines of credit provided for
advances up to $15.0 million and $19.0 million, respectively. At October 31,
2001 and 2000, we utilized $3.8 million and $10.6 million of outstanding foreign
lines of credit, respectively. This reduced the amount available to us under
these foreign lines of credit to $11.2 million and $8.4 million, respectively.
Interest Rate Swap Agreement. On December 31, 1997, we entered into an
interest rate swap agreement with the Bank. This interest rate swap effectively
fixed the interest rate on $48.8 million of our LIBOR-based borrowings at 5.97%
plus the applicable margin. The interest rate swap expired on November 30, 2000.
Derivative Financial Instruments. We are exposed to risk of changes in
interest rates as a result of borrowings under the senior collateralized credit
facility. We have entered into interest rate derivatives to protect against the
risk. At October 31, 2001, the only derivative instrument we held was an
interest rate cap agreement
14
relating to $204.3 million of our LIBOR bank term loan borrowings. From an
economic standpoint, the cap agreement provided us with protection against LIBOR
interest rate increases above 7%. For accounting purposes, we elected not to
designate the cap agreement as a hedge, and in accordance with Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which we adopted on November 1, 2000, changes in the
fair market value of the cap agreement were included in other expenses in the
Consolidated Statements of Operations. The value of the interest rate cap
agreement at October 31, 2001 is zero.
Other Related Party Transaction. Mr. Koffel, Mr. Ainsworth, Mr. Rosenstein
and other employees of URS Corporation have disposed of shares of our common
stock, both in cashless transactions with us and in market transactions, in
connection with exercises of stock options, the vesting of restricted stock and
the payment of withholding taxes due with respect to such exercises and vesting.
Mr. Koffel, Mr. Ainsworth, Mr. Rosenstein, other Named Executives, and other
officers and employees of URS Corporation may continue to dispose of shares of
our common stock in this manner and for similar purposes.
Enterprise Resource Program (ERP). During the current year, we commenced a
project to consolidate all of our accounting and project management information
systems. The costs of implementing this project, including hardware, software
licenses, consultants, internal staffing costs and training, are estimated to be
approximately $50.0 million, to be incurred over the next two years. As of
October 31, 2001, we incurred a total of approximately $21.0 million for this
project. We have been financing a substantial portion of these costs through
capital lease arrangements with various lenders and plan on continuing to do so.
If, and to the extent, that financing cannot be obtained through capital leases,
we will draw on our line of credit as alternative financing for expenditures to
be incurred for this project.
Acquisitions
In June 1999, we acquired D-M for cash and debt of $376.2 million.
(In millions)
Purchase price of D-M (net of debt) .................................................... $ 357.4
Acquisition costs (net of financing fees) .............................................. 18.8
Fair value of assets acquired .......................................................... (148.2)
--------
Incremental additional excess purchase price over net assets acquired .................. 228.0
D-M historical goodwill, net ........................................................... 160.4
--------
Aggregate goodwill ..................................................................... $ 388.4
========
During the fiscal year ended October 31, 1999, we provided for $37.0
million of costs in connection with the acquisition of D-M and our
reorganization plans to integrate D-M's operations. These costs consist of
project claims and cost over-runs, lease fees, severance and miscellaneous
items. These reserves were substantially utilized during the fiscal year ended
October 31, 2000.
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-K, the following factors could affect our actual results:
Our substantial indebtedness could adversely affect our financial condition.
We are a highly leveraged company. As of October 31, 2001, we had
approximately $631.1 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;
15
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 is dedicated to
the repayment of our indebtedness and would not be available for other
purposes.
To service our indebtedness we 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.
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, substantial portions 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 of the entire principal, 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.
16
We derive approximately 60% 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 60% 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 depends 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.
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. As a result, we may incur costs in connection with the
termination of these contracts and suffer a loss of business. 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 have a responsibility to maintain our eligibility to perform government
contracts. From time to time allegations of improper conduct in connection with
government contracting have been made against us, and these allegations could be
the subjects 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 some proposals on projects with an estimate of the costs that we
will likely incur. To the extent we cannot control overhead, general and
administrative and other costs, or if we 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 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 2001, including further deferral of congressional reauthorization of
CERCLA. The outlook for congressional action on CERCLA legislation in fiscal
year 2002 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
17
negligence in connection with our performance of professional services. In some
actions, punitive or treble damages are sought that 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 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 is an important factor in determining our future success. A
shortage of professionals qualified in certain technical areas exists from time
to time 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 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.
We are engaged in highly fragmented and very competitive markets in our
service areas. We compete with firms of various sizes, some of which are larger
than us and possess greater resources. Furthermore, the engineering and design
industry is undergoing consolidation, particularly in the United States of
America. 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
30 countries and derive approximately 9% 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 daily operations. 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.
We may not be able to successfully integrate our accounting and project
management systems.
We are in the process of designing, testing and installing a company-wide
accounting and project management system. In the event we do not complete the
project successfully, we may experience reduced cash flow due to an inability to
issue invoices to our customers and collect cash in a timely manner.
18
External factors may affect our ability to conduct business.
Recent terrorist attacks on the United States of America present a
potential threat to communication systems, information technology and security,
damage to buildings and their contents and injury to or death of key employees.
We may need to take steps to increase security and add necessary protections
against terrorist threats. Although built to structural standards, our
facilities are physically vulnerable to a terrorist attack. Significant
structural damage to our facilities could cause a disruption of our information
systems and loss of financial data and certain customer data, which may affect
our ability to conduct business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates as a result of our borrowings
under our senior collateralized credit facility. If market rates average 1% more
in fiscal year 2002 than in fiscal year 2001, our net of tax interest expense,
after considering the effect of the interest rate cap agreement, would increase
by approximately $2.2 million. Conversely, if market rates average 1% less in
fiscal year 2002 than in fiscal year 2001, our net of tax interest expense would
decrease by approximately $2.2 million.
19
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of URS Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of URS Corporation and its subsidiaries ("the Company") at October 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended October 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
----------------------------------------
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
December 18, 2001
20
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
October 31,
-------------------------------
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents ............................................................... $ 23,398 $ 23,693
Accounts receivable, including retainage amounts of $43,751 and $43,029 ................. 484,107 464,074
Costs and accrued earnings in excess of billings on contracts in process ................ 289,644 281,757
Less receivable allowances .............................................................. (28,572) (36,826)
----------- -----------
Net accounts receivable ............................................................. 745,179 709,005
----------- -----------
Income taxes recoverable ................................................................ -- 16,668
Deferred income taxes ................................................................... 10,296 4,859
Prepaid expenses and other assets ....................................................... 24,769 22,325
----------- -----------
Total current assets ................................................................ 803,642 776,550
Property and equipment at cost, net ........................................................ 106,997 88,661
Goodwill, net .............................................................................. 500,286 514,611
Other assets ............................................................................... 52,451 47,312
----------- -----------
$ 1,463,376 $ 1,427,134
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ...................................................... $ 54,425 $ 45,223
Accounts payable ........................................................................ 135,066 125,165
Accrued salaries and wages .............................................................. 69,982 92,212
Accrued expenses and other .............................................................. 21,232 28,915
Billings in excess of costs and accrued earnings on contracts in process ................ 95,520 90,475
----------- -----------
Total current liabilities ........................................................... 376,225 381,990
Long-term debt ............................................................................. 576,704 603,128
Deferred income taxes ...................................................................... 34,700 33,157
Deferred compensation and other ............................................................ 33,146 40,052
----------- -----------
Total liabilities ................................................................... 1,020,775 1,058,327
----------- -----------
Commitments and contingencies (Note 10) ....................................................
Mandatorily redeemable Series B exchangeable convertible preferred stock,
par value $1.00; authorized 150 shares; issued and outstanding 55 and 51,
respectively; liquidation preference $120,099 and $111,013, respectively ................ 120,099 111,013
----------- -----------
Stockholders' equity:
Common stock, par value $.01; authorized 50,000 shares; issued
and outstanding 18,198 and 16,834 shares, respectively ............................... 182 168
Treasury stock .......................................................................... (287) (287)
Additional paid-in capital .............................................................. 155,273 137,389
Accumulated other comprehensive income (loss) ........................................... (3,962) (2,412)
Retained earnings ....................................................................... 171,296 122,936
----------- -----------
Total stockholders' equity .......................................................... 322,502 257,794
----------- -----------
$ 1,463,376 $ 1,427,134
=========== ===========
See Notes to Consolidated Financial Statements
21
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended October 31,
------------------------------------------------------
2001 2000 1999
----------- ----------- ----------
Revenues ........................................................... $ 2,319,350 $ 2,205,578 $1,418,522
----------- ----------- ----------
Expenses:
Direct operating ................................................ 1,393,818 1,345,068 854,520
Indirect, general and administrative ............................ 755,791 697,051 463,132
Interest expense, net ........................................... 65,589 71,861 34,589
----------- ----------- ----------
2,215,198 2,113,980 1,352,241
----------- ----------- ----------
Income before taxes ................................................ 104,152 91,598 66,281
Income tax expense ................................................. 46,300 41,700 29,700
----------- ----------- ----------
Net income ......................................................... 57,852 49,898 36,581
Preferred stock dividend ........................................... 9,229 8,337 3,333
----------- ----------- ----------
Net income available for common stockholders ....................... 48,623 41,561 33,248
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments ........................... (1,550) (2,609) 197
----------- ----------- ----------
Comprehensive income ............................................... $ 47,073 $ 38,952 $ 33,445
=========== =========== ==========
Net income per common share:
Basic ........................................................... $ 2.79 $ 2.55 $ 2.14
=========== =========== ==========
Diluted ......................................................... $ 2.41 $ 2.27 $ 1.98
=========== =========== ==========
Weighted average shares outstanding:
Basic .......................................................... 17,444 16,272 15,499
=========== =========== ==========
Diluted ........................................................ 23,962 22,020 18,484
=========== =========== ==========
See Notes to Consolidated Financial Statements
22
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except per share data)
Accumulated
Common Stock Additional Other Total
--------------- Treasury Paid-in Comprehensive Retained Stockholders'
Shares Amount Stock Capital Income Earnings Equity
------ ------ ----- ------- ------ -------- ------
Balances, October 31, 1998 ................. 15,206 $152 $(287) $ 117,842 $ -- $ 48,653 $ 166,360
Employee stock purchases ................... 719 7 -- 8,857 -- -- 8,864
Preferred stock issuance costs ............. -- -- -- (1,500) -- -- (1,500)
Quasi-reorganization NOL carryforward ...... -- -- -- 263 -- (263) --
Total comprehensive income:
Foreign currency translation before
and after tax ............................ -- -- -- -- 197 -- 197
Net income ................................. -- -- -- -- -- 36,581 36,581
In-kind preferred stock dividends .......... -- -- -- -- -- (3,333) (3,333)
------ ---- ----- --------- ------- --------- ---------
Balances, October 31, 1999 ................. 15,925 159 (287) 125,462 197 81,638 207,169
Employee stock purchases ................... 909 9 -- 9,209 -- -- 9,218
Tax benefit of stock options ............... -- -- -- 2,455 -- -- 2,455
Quasi-reorganization NOL carryforward ...... -- -- -- 263 -- (263) --
Total comprehensive income:
Foreign currency translation before
and after tax ............................ -- -- -- -- (2,609) -- (2,609)
Net income ................................. -- -- -- -- -- 49,898 49,898
In-kind preferred stock dividends .......... -- -- -- -- -- (8,337) (8,337)
------ ---- ----- --------- ------- --------- ---------
Balances, October 31, 2000 ................. 16,834 168 (287) 137,389 (2,412) 122,936 257,794
Employee stock purchases ................... 1,364 14 -- 13,722 -- -- 13,736
Tax benefit of stock options ............... -- -- -- 3,899 -- -- 3,899
Quasi-reorganization NOL carryforward ...... -- -- -- 263 -- (263) --
Total comprehensive income:
Foreign currency translation before
and after tax ............................ -- -- -- -- (1,550) -- (1,550)
Net income ................................. -- -- -- -- -- 57,852 57,852
In-kind preferred stock dividends .......... -- -- -- -- -- (9,229) (9,229)
------ ---- ----- --------- ------- --------- ---------
Balances, October 31, 2001 ................. 18,198 $182 $(287) $ 155,273 $(3,962) $ 171,296 $ 322,502
====== ==== ===== ========= ======= ========= =========
See Notes to Consolidated Financial Statements
23
URS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended October 31,
----------------------------------------
2001 2000 1999
--------- -------- ---------
Cash flows from operating activities:
Net income ........................................................................ $ 57,852 $ 49,898 $ 36,581
--------- -------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................................... 42,143 41,829 32,177
Amortization of financing fees ................................................... 3,663 3,467 1,587
Receivable allowances ............................................................ (8,254) (3,785) (285)
Stock compensation ............................................................... 1,964 1,179 1,726
Tax benefit of stock options ..................................................... 3,899 2,455 --
Changes in current assets and liabilities, net of business acquired:
Accounts receivable and costs and accrued earnings in excess of
billings on contracts in process ................................................ (27,920) (39,259) (86,266)
Income taxes recoverable ......................................................... 4,997 (16,668) --
Prepaid expenses and other assets ................................................ (5,544) (1,224) (1,737)
Accounts payable, accrued salaries and wages and accrued expenses ................ (8,484) (27,620) (15,215)
Billings in excess of costs and accrued earnings on contracts in process ......... 5,045 20,162 33,307
Deferred income taxes ............................................................ (3,894) 23,036 5,831
Deferred compensation and other .................................................. (6,906) (36,032) --
Other, net ....................................................................... (11,511) (6,414) 1,047
--------- -------- ---------
Total adjustments ................................................................ (10,802) (38,874) (27,828)
--------- -------- ---------
Net cash provided by operating activities .................................... 47,050 11,024 8,753
--------- -------- ---------
Cash flows from investing activities:
Payment for business acquisition, net of cash acquired ............................ -- -- (316,167)
Proceeds from sale of subsidiaries ................................................ 3,530 25,354 --
Capital expenditures, less equipment purchased through capital leases of
$25,084, $10,040, and $11,651, respectively ..................................... (19,778) (15,885) (20,248)
--------- -------- ---------
Net cash (used) provided by investing activities ............................. (16,248) 9,469 (336,415)
--------- -------- ---------
Cash flows from financing activities:
Payments of merger fees ........................................................... -- -- (18,738)
Proceeds from issuance of debt .................................................... -- -- 854,739
Principal payments on long-term debt .............................................. (33,522) (43,721) (590,251)
Borrowings under the line of credit ............................................... 105,849 -- --
Repayments under the line of credit ............................................... (105,849) -- --
Repayments under capital lease obligations ........................................ (7,530) (6,805) (2,971)
Borrowings under short-term notes ................................................. 5,830 -- --
Repayments under short-term notes ................................................. (7,647) -- --
Proceeds from sale of common shares and exercise of stock options ................. 11,772 8,039 7,138
Proceeds from issuance of preferred stock ......................................... -- -- 100,000
Payment of financing fees ......................................................... -- -- (11,597)
Payment of financing fees related to issuance of preferred stock .................. -- -- (1,500)
--------- -------- ---------
Net cash (used) provided by financing activities ............................. (31,097) (42,487) 336,820
--------- -------- ---------
Net (decrease) increase in cash .............................................. (295) (21,994) 9,158
Cash and cash equivalents at beginning of year ...................................... 23,693 45,687 36,529
--------- -------- ---------
Cash and cash equivalents at end of year ............................................ $ 23,398 $ 23,693 $ 45,687
========= ======== =========
Supplemental information:
Interest paid ................................................................ $ 75,434 $ 66,774 $ 24,903
========= ======== =========
Taxes paid ................................................................... $ 33,882 $ 34,726 $ 22,562
========= ======== =========
Non-cash dividends paid in-kind .............................................. $ 9,086 $ 7,680 $ 3,333
========= ======== =========
Net book value of business sold .............................................. $ 3,530 $ 25,354 $ --
========= ======== =========
See Notes to Consolidated Financial Statements
24
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Business
URS Corporation (the "Company") offers a broad range of planning, design,
and program and construction management services for transportation, hazardous
waste, industrial processing and petrochemical, general building and
water/wastewater projects. Headquartered in San Francisco, the Company operates
in more than 30 countries with approximately 16,000 employees providing
engineering services to federal, state and local governmental agencies as well
as to private clients in the chemical, manufacturing, pharmaceutical, forest
products, mining, oil and gas, and utilities industries.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company includes in current assets and liabilities amounts realizable and
payable under engineering and construction contracts that extend beyond one
year. The consolidated financial statements reflect the June 1999 acquisition of
Dames & Moore Group ("D-M"), which was accounted for under purchase accounting
method. See Note 2, Acquisitions.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from contract services is recognized using the
percentage-of-completion method and includes a proportion of the earnings
expected to be realized on a contract in the ratio that costs incurred bear to
estimated total costs. Revenue on cost reimbursable contracts is recorded as
related contract costs are incurred and includes estimated earned fees in the
proportion that costs incurred to date bear to total estimated costs. The fees
under certain government contracts may be increased or decreased in accordance
with cost or performance incentive provisions, which measure actual performance
against established targets or other criteria. Such incentive fee awards or
penalties are included in revenue at the time the amounts can be reasonably
determined. Revenue for additional contract compensation related to unpriced
change orders is recorded when realization is probable. Revenue from claims by
the Company for additional contract compensation is recorded when agreed to by
the customer. If estimated total costs on any contract indicate a loss, the
Company provides currently for the total loss anticipated on the contract.
Costs under contracts with the federal, state and local government agencies
are subject to government audit upon contract completion. Therefore, all
contract costs, including direct and indirect, general and administrative
expenses, are potentially subject to adjustment prior to final reimbursement.
Management believes that adequate provision for such adjustments, if any, has
been made in the accompanying consolidated financial statements. All overhead
and general and administrative expense recovery rates for fiscal 1998 through
fiscal 2001 are subject to review by the federal, state and local government
agencies.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the
25
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
large numbers of customers that compose the Company's customer base and their
dispersion across different business and geographic areas. The Company's cash
balances and short-term investments are maintained in accounts held by major
banks and financial institutions located primarily in the United States of
America and Europe. As of October 31, 2001 and 2000, the Company had no
significant concentrations of credit risk. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments
including cash, accounts receivable, accounts payable and other liabilities
approximate fair value due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
values of long-term debt approximate fair value.
Income Taxes
The Company uses the asset and liability approach for financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable for the
period plus or minus the change in deferred tax assets and liabilities during
the period.
Property and Equipment
Property and equipment are stated at cost. In the year assets are retired
or otherwise disposed of, the costs and related accumulated depreciation are
removed from the accounts, and any gain or loss on disposal is reflected in
income. Depreciation is provided on the straight-line method using estimated
lives ranging from 5 to 10 years for property and equipment. Leasehold
improvements are amortized over the length of the lease or estimated useful
life, whichever is less.
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 share of common stock is computed
giving effect to all dilutive potential shares of common stock that were
outstanding during the period. Dilutive potential shares of common stock consist
of the incremental shares of common stock issuable upon the exercise of stock
options and convertible 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 common share and dilutive potential common
shares that were outstanding during the period.
26
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In accordance with the disclosure requirements of Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," a
reconciliation of the numerator and denominator of basic and diluted income per
common share is provided as follows:
Years ended October 31,
---------------------------
2001 2000 1999
------- ------- -------
(in thousands, except per
share amounts)
Numerator--Basic
Net income available for common stockholders ... $48,623 $41,561 $33,248
======= ======= =======
Denominator--Basic
Weighted-average common stock outstanding ...... 17,444 16,272 15,499
======= ======= =======
Basic income per share ......................... $ 2.79 $ 2.55 $ 2.14
======= ======= =======
Numerator--Diluted
Net income available for common stockholders ... $48,623 $41,561 $33,248
Preferred stock dividend ....................... 9,229 8,337 3,333
------- ------- -------
Net income ....................................... $57,852 $49,898 $36,581
======= ======= =======
Denominator--Diluted
Weighted-average common stock outstanding ...... 17,444 16,272 15,499
Effect of dilutive securities:
Stock options .................................. 1,212 943 1,180
Convertible preferred stock .................... 5,306 4,805 1,805
------- ------- -------
23,962 22,020 18,484
======= ======= =======
Diluted income per share ......................... $ 2.41 $ 2.27 $ 1.98
======= ======= =======
Stock options to purchase 1,511,916 shares of common stock at prices
ranging from $20.94 to $28.00 per share were outstanding at October 31, 2001,
but were not included in the computation of diluted income per share because the
exercise price was greater than the average market value of the shares of common
stock. Convertible subordinated debt was not included in the computation of
diluted income per share because it would be anti-dilutive.
Stock options to purchase 2,088,819 shares of common stock at prices
ranging from $15.75 to $28.00 per share were outstanding at October 31, 2000,
but were not included in the computation of diluted income per share because the
exercise price was greater than the average market value of the shares of common
stock. Convertible subordinated debt was not included in the computation of
diluted income per share because it would be anti-dilutive.
Stock options to purchase 60,000 shares of common stock at $28.00 were
outstanding at October 31, 1999, but were not included in the computation of
diluted income per share because the exercise price was greater than the average
market value of a share of common stock. Convertible subordinated debt was not
included in the computation of diluted income per share because it would be
anti-dilutive.
Derivative Financial Instruments
The Company is exposed to risk of changes in interest rates as a result of
borrowings under the senior collateralized credit facility. The Company has
entered into interest rate derivatives to protect against the risk. At October
31, 2001, the only derivative instrument held by the Company was an interest
rate cap agreement relating to $204.3 million of the Company's LIBOR bank term
loan borrowings. From an economic standpoint, the cap agreement provides the
Company with protection against LIBOR interest rate increases above 7%. For
accounting purposes, the Company has elected not to designate the cap agreement
as a hedge, and in accordance with Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
the Company adopted on November 1, 2000, changes in the fair market value of the
cap agreement are included in other expenses in the Consolidated Statements of
Operations. The value of the interest rate cap agreement at October 31, 2001 is
zero.
27
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 No. 131 establishes standards for reporting
information about operating segments and related disclosures about products,
geographic information and major customers.
Reporting Comprehensive Income
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting of Comprehensive Income." 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. Foreign currency
translation adjustments compose the Company's other comprehensive income.
Adoption of Statements of Financial Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets." SFAS 142 supercedes Accounting Principles Board
Opinion No. 17 and addresses the financial accounting and reporting standards
for goodwill and intangible assets subsequent to their initial recognition. SFAS
142 requires that goodwill be separately disclosed from other intangible assets
in the statement of financial position, and no longer be amortized. It also
requires that goodwill and other intangible assets be tested for impairment at
least annually. The provisions of SFAS 142 are effective for fiscal years
beginning after December 15, 2001 and must be applied to all goodwill and other
intangible assets that are recognized in an entity's balance sheet at the
beginning of that fiscal year. Early application of SFAS 142 is permitted for
entities with fiscal years beginning after March 15, 2001, provided that the
first interim period financial statements have not been issued previously. SFAS
142 will be effective for the Company on November 1, 2001 and primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition. Upon adoption of SFAS 142, goodwill will no longer be amortized and
will be tested for impairment at least annually. Based on the goodwill
amortization expense for fiscal year ended October 31, 2001, the Company
estimates that based upon an effective income tax rate of 44.5%, the net of tax
effect of eliminating goodwill amortization expense will positively impact net
income by approximately $8.7 million on an annual basis.
In October 2001, FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 supersedes Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions",
for the disposal of a segment of a business (as previously defined in that
Opinion). SFAS 144 intends to establish a single accounting model, based on the
framework established in SFAS 121, for long-lived assets to be disposed of by
sale and to resolve significant implementation issues related to SFAS 121. SFAS
144 is not expected to significantly impact the assessment of impairment of
long-lived assets by the Company, other than the fact that SFAS 144 removes
goodwill from its scope and, therefore, eliminates the requirement of SFAS 121
to allocate goodwill to long-lived assets to be tested for impairment. As
indicated above, goodwill will be required to be assessed for impairment in
accordance with the provisions of SFAS 142, which the Company adopted on
November 1, 2001.
Reclassifications
Certain reclassifications have been made to the 2000 and 1999 financial
statements to conform to the 2001 presentation with no effect on net income,
equity or cash flows as previously reported.
28
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. ACQUISITIONS
During the fiscal year ended October 31, 1999, the Company acquired
publicly held D-M for cash 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 in the amount of
$388.4 million has been allocated to goodwill and has been amortized based on an
estimated useful life of 40 years. The operating results of D-M are included in
the Company's results of operations from the date of purchase.
The following unaudited proforma summary presents the consolidated
results of operations as if the D-M acquisition had occurred at the beginning of
fiscal year 1999 and does not purport to indicate what would have occurred had
the acquisition been made as of that date.
For the Fiscal Year
Ended October 31, 1999
----------------------
(In thousands, except
per share amounts)
Unaudited
Revenues ........................................... $2,089,701
Net income ......................................... $ 31,101
Net income per share ............................... $ 1.46
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
October 31,
------------------------
2001 2000
---------- ----------
(In thousands)
Equipment .......................................... $ 87,245 $ 93,960
Capital leases ..................................... 49,695 29,842
Furniture and fixtures ............................. 25,375 24,926
Leasehold improvements ............................. 19,872 13,710
Construction in progress ........................... 11,752 872
Building ........................................... 301 390
Land ............................................... 75 97
--------- ---------
194,315 163,797
Less: accumulated depreciation and amortization..... (87,318) (75,136)
--------- ---------
Net property and equipment ......................... $ 106,997 $ 88,661
========= =========
The Company capitalizes certain costs incurred in the development of
internal-use software, including external direct material costs, external
service costs, payroll and employee-related costs and interest costs incurred
during the period of development.
Depreciation expense for the fiscal years ended 2001, 2000 and 1999 was
$26.5 million, $26.6 million, and $17.3 million, respectively.
NOTE 4. GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
the net tangible assets of various operations acquired by the Company.
Accumulated amortization at October 31, 2001, 2000 and 1999, was $53.9 million,
$39.2 million and $26.9 million, respectively. Amortization expense for the
fiscal years ended 2001, 2000 and 1999 was $15.6 million, $15.2 million, and
$14.9 million, respectively. Goodwill was amortized on the straight-line method
over periods ranging from 30 to 40 years.
29
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5. INCOME TAXES
The components of income tax expense applicable to the operations each year
are as follows:
Years Ended October 31,
----------------------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Current:
Federal ........................ $ 33,242 $ 18,550 $ 17,820
State and local ................ 6,963 4,040 3,380
Foreign ........................ 3,660 4,110 450
-------- -------- --------
Subtotal ................... 43,865 26,700 21,650
-------- -------- --------
Deferred:
Federal ........................ 4,510 13,940 7,687
State and local ................ 945 1,550 583
Foreign ........................ (3,020) (490) (220)
-------- -------- --------
Subtotal ................... 2,435 15,000 8,050
-------- -------- --------
Total tax provision ....... $ 46,300 $ 41,700 $ 29,700
======== ======== ========
As of October 31, 2001, the Company has available net operating loss
("NOL") carryforwards for federal income tax and financial statement purposes of
$2.4 million, which will expire in fiscal year 2004. The Company's NOL
utilization is limited to $750,000 per year pursuant to Section 382 of the
Internal Revenue Code and is related to the Company's October 1989
quasi-reorganization. The Company also has available $21.1 million of foreign
NOLs. These NOLs are available only to offset income earned in foreign
jurisdictions and expire at various dates.
While the Company had available NOL carryforwards which partially offset
otherwise taxable income for federal income tax purposes, for state tax purposes
such amounts are not necessarily available to offset income subject to tax.
30
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The significant components of the Company's deferred tax assets and
liabilities are as follows:
Deferred tax assets/(liabilities)--due to:
October 31,
--------------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Current:
Allowance for doubtful accounts ...................... $ 5,392 $ 4,686 $ 3,645
Payroll related and other accruals ................... 11,193 9,211 17,184
-------- -------- --------
Current deferred tax asset ........................... 16,585 13,897 20,829
-------- -------- --------
Revenue retentions ................................... (1,402) (1,492) (1,548)
Unbilled fees ........................................ (4,887) (7,546) (2,238)
-------- -------- --------
Current deferred tax liability ....................... (6,289) (9,038) (3,786)
-------- -------- --------
Net current deferred tax asset .................... $ 10,296 $ 4,859 $ 17,043
======== ======== ========
Non-Current:
Deferred compensation and pension .................... $ 2,995 $ (931) $ 1,725
Self-insurance contingency accrual ................... 2,082 2,184 1,971
Depreciation and amortization ........................ (1,245) 380 1,251
Foreign tax credit ................................... 561 2,837 1,583
Net operating loss ................................... 9,425 11,550 6,888
-------- -------- --------
Gross non-current deferred tax asset ................. 13,818 16,020 13,418
Valuation allowance .................................. (5,815) (7,406) (6,888)
-------- -------- --------
Net non-current deferred tax asset ................ 8,003 8,614 6,530
-------- -------- --------
Cash to accrual ...................................... -- (1,256) (3,252)
Acquisition liabilities .............................. (28,370) (28,229) (12,988)
Other deferred gain and unamortized bond premium ..... (725) (941) (1,099)
Restructuring accrual ................................ (2,820) (2,985) --
Mark to market ....................................... -- (154) (1,731)
Depreciation and amortization ........................ (11,184) (8,556) (5,802)
Other accruals ....................................... 396 350 (3,963)
-------- -------- --------
Non-current deferred tax liability ............... (42,703) (41,771) (28,835)
-------- -------- --------
Net non-current deferred tax liability ........... $(34,700) $(33,157) $(22,305)
======== ======== ========
The net change in the total valuation allowance related to deferred tax
assets for the fiscal year ended October 31, 2001, was a decrease of $0.3
million due to the utilization of domestic net operating losses and a decrease
of $1.3 million due to current and prior year foreign losses utilized.
31
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The difference between total tax expense and the amount computed by
applying the statutory federal income tax rate to income before taxes is as
follows:
Years Ended October 31,
--------------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Federal income tax expense based upon federal statutory
tax rate of 35% ....................................... $ 36,453 $ 32,059 $ 23,140
Nondeductible goodwill amortization ....................... 4,592 4,388 3,080
Meals and entertainment ................................... 290 885 988
Non-deductible expenses ................................... 1,289 461 925
NOL carryforwards utilized ................................ (263) (269) (263)
Unbenefited foreign losses ................................ 305 939 900
Foreign tax credit utilized ............................... -- -- (250)
Foreign earnings taxed at rates higher (lower) than U.S.
statutory rate ........................................ 41 53 (410)
State taxes, net of federal benefit ....................... 5,218 4,158 2,700
Adjustment due to change in federal and state rates ....... 206 52 --
Extraterritorial income exclusion ......................... (622) -- --
Reversal of valuation adjustment .......................... (821) -- --
Utilization of deferred tax allowance and other
adjustments ........................................... (388) (1,026) (1,110)
-------- -------- --------
Total taxes provided ...................................... $ 46,300 $ 41,700 $ 29,700
======== ======== ========
NOTE 6. RELATED PARTY TRANSACTIONS
The Company had agreements for business consulting services to be provided
by BLUM Capital Partners, L.P. (formerly Richard C. Blum & Associates L.P.)
("BLUM") and Richard C. Blum, a Director of the Company. Under these agreements,
the Company paid $60,000 and $40,000 to BLUM and Richard C. Blum, respectively,
during fiscal year 1999. These agreements were terminated effective June 1999.
Richard C. Blum also received an additional cash amount of $23,000, $19,000, and
$21,000 for his services as a Director of the Company in fiscal 2001, 2000 and
1999, respectively.
See Note 11, Preferred Stock, for a discussion of preferred stock issued to
RCBA Strategic Partners, L.P. ("RCBA Strategic Partners").
32
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following:
October 31,
--------------------
2001 2000
-------- --------
(In thousands)
Bank term loans, payable in quarterly installments ............... $381,338 $409,432
12 1/4% Senior Subordinated Notes due 2009 ....................... 200,000 200,000
6 1/2% Convertible Subordinated Debentures due 2012
(net of bond issue costs of $26 and $29) ..................... 1,772 1,810
8 5/8% Senior Subordinated Debentures due 2004 (net of discount
and bond issue costs of $1,817 and $2,375) (effective interest
rate on date of restructuring was 25%) ....................... 4,638 4,080
10.95% note payable, due in annual installments through 2001
(net of issue costs of $0 and $26) ........................... -- 738
Obligations under capital leases ................................. 39,219 21,664
Foreign collateralized borrowings and notes payable .............. 4,162 10,627
-------- --------
631,129 648,351
Less:
Current maturities of long-term debt ......................... 39,704 28,094
Current maturities of notes payable .......................... 3,841 10,658
Current maturities of capital leases ......................... 10,880 6,471
-------- --------
$576,704 $603,128
======== ========
During fiscal 1999, the Company incurred new borrowings by establishing a
long-term senior collateralized credit facility with a syndicate of banks led by
the Bank.
Senior Collateralized Credit Facility. The senior collateralized credit
facility was funded on June 9, 1999, ("Funding Date") and provides for three
term loan facilities in the aggregate amount of $450.0 million and a revolving
credit facility in the amount of $100.0 million. The term loan facilities
consist of Term Loan A, a $250.0 million tranche, Term Loan B, a $100.0 million
tranche and Term Loan C, another $100.0 million tranche.
Principal amounts under Term Loan A became due, commencing on October 31,
1999, in the amount of approximately $3.0 million per quarter for the subsequent
three quarters. Commencing on October 31, 2000 and through June 9, 2005, annual
principal payments under Term Loan A range from $25.0 million to a maximum of
$58.0 million with Term Loan A expiring and the then-outstanding principal
amount becoming due and repayable in full on June 9, 2005. Principal amounts
under Term Loan B became due, commencing on October 31, 1999, in the amount of
$1.0 million 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
equal quarterly installments beginning on October 31, 2005. Principal amounts
under Term Loan C became due, commencing on October 31, 1999, in the amount of
$1.0 million 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 beginning on October 31, 2006. The revolving credit
facility expires, and is repayable in full, on June 9, 2005.
The term loans each bear interest at a rate per annum equal to, at the
Company's 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 the Company's option, any of 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 the Company's 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
33
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. The Company may determine which
interest rate options to use and which interest periods will apply for both the
term loans and the revolving credit facility.
At October 31, 2001 and 2000, the Company's revolving credit facility with
the Bank provided for advances up to $100.0 million. At October 31, 2001 and
2000, the Company had outstanding letters of credit in the aggregate amount of
$25.0 million and $36.5 million, respectively, which reduced the amount
available to the Company under the Company's revolving credit facility to $75.0
million and $63.5 million, respectively.
The senior collateralized credit facility is governed by affirmative and
negative covenants. These covenants include restrictions on incurring additional
debt, paying dividends or making distributions to its stockholders, repurchasing
or retiring capital stock and making subordinated junior debt payments, as well
as other restrictions. 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, an EBITDA minimum of $160.0 million and a maximum leverage ratio of 3.50
to 1.00 for the fiscal year ended October 31, 2001. The Company is required to
submit quarterly compliance certification to the Bank. The Company was fully
compliant with these covenants as of October 31, 2001.
Notes
12 1/4% Senior Subordinated Notes. The Company's notes are due in 2009.
Each note bears interest at 12 1/4% per annum. Interest on the notes is payable
semi-annually on May 1 and November 1 of each year, commencing on November 1,
1999. The notes are subordinate to the senior collateralized credit facility. As
of October 31, 2001, the Company owed $200.0 million on the notes.
Certain of the Company's wholly owned subsidiaries fully and
unconditionally guarantee the notes on a joint and several basis. The Company
may redeem any of the notes beginning May 1, 2004. The initial redemption price
is 106.125% of the principal amount, plus accrued and unpaid interest. The
redemption price will decline each year after 2004 and will be 100% of the
principal amount, plus accrued and unpaid interest beginning on May 1, 2007. In
addition, at any time prior to May 1, 2002, the Company 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.
Debentures
8 5/8% Senior Subordinated Debentures ("8 5/8% Debentures"). The Company's
8 5/8% Debentures are due in 2004. Interest is payable semiannually in January
and July. The 8 5/8% Debentures are subordinate to the senior collateralized
credit facility. As of October 31, 2001, the Company owed approximately $6.5
million on the 8 5/8% Debentures.
6 1/2% Convertible Subordinated Debentures ("6 1/2% Debentures"). The
Company's 6 1/2% Debentures are due in 2012 and are convertible into shares of
the Company's common stock at the rate of $206.30 per share. Interest is payable
semiannually in February and August. Sinking fund payments calculated to retire
70% of the 6 1/2% Debentures prior to maturity began in February 1998. The 6
1/2% Debentures are subordinate to the senior collateralized credit facility. As
of October 31, 2001, the Company owed approximately $1.8 million on the 6 1/2%
Debentures.
Foreign Credit Lines
The Company maintains foreign lines of credit which are collateralized by
assets of foreign subsidiaries at October 31, 2001. The interest rate for the
foreign lines of credit was 7.25% plus applicable margins consistent with market
conditions in the respective countries at October 31, 2001. At October 31, 2001
and 2000, these foreign lines
34
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of credit provided for advances up to $15.0 million and $19.0 million,
respectively. At October 31, 2001 and 2000, the Company had utilized $3.8
million and $10.6 million of outstanding foreign lines of credit, respectively.
This reduced the amount available to the Company under these foreign lines of
credit to $11.2 million and $8.4 million, respectively.
Interest Rate Swap
On December 31, 1997, the Company entered into an interest rate swap
agreement with the Bank. This interest rate swap effectively fixed the interest
rate on $48.8 million of the Company's LIBOR-based borrowings at 5.97% plus the
applicable margin. This interest rate swap expired on November 30, 2000.
Interest Rate Cap Agreement
The Company entered into an interest rate cap agreement with the Bank. This
agreement caps the Company's interest rate at 7% for $204.3 million of the
Company's LIBOR-based borrowings through July 31, 2002. From an economic
standpoint, the cap agreement provides the Company with protection against LIBOR
interest rate increases above 7%. For accounting purposes, the Company elected
not to designate the cap agreement as a hedge, and accordingly, changes in the
fair market value of the cap agreement were included in other expenses in the
Consolidated Statements of Operations. The value of the interest rate cap
agreement at October 31, 2001 was zero.
Maturities
The amounts of long-term debt outstanding (excluding capital leases and
foreign collateralized borrowings) at October 31, 2001, maturing in the next
five years are as follows:
(In thousands)
2002 ..................................... $ 39,904
2003 ..................................... 51,696
2004 ..................................... 66,606
2005 ..................................... 68,536
2006 ..................................... 70,315
Thereafter ............................... 291,212
--------
$588,269
========
NOTE 8. OBLIGATIONS UNDER LEASES
Total rental expense included in operations for operating leases for the
fiscal years ended October 31, 2001, 2000 and 1999, totaled to $76.5 million,
$70.2 million and $50.1 million, respectively. Certain of the lease rentals are
subject to renewal options and escalation based upon property taxes and
operating expenses. These operating lease agreements expire at varying dates
through 2013. Obligations under capital leases include leases on vehicles,
office equipment and other equipment. Obligations under operating leases include
building, office, and other equipment rentals.
35
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Obligations under non-cancelable lease agreements are as follows:
Capital Operating
Leases Leases
-------------------------
(In thousands)
2002 ................................................ $14,735 $ 66,883
2003 ................................................ 11,911 58,021
2004 ................................................ 9,796 50,748
2005 ................................................ 7,131 42,827
2006 ................................................ 2,874 32,773
Thereafter .......................................... -- 92,721
------- --------
Total minimum lease payments ........................ 46,447 $343,973
========
Less: amounts representing interest ................. 7,228
-------
Present value of net minimum lease payments ......... $39,219
=======
NOTE 9. SEGMENT AND RELATED INFORMATION
Management has organized the Company by geographic divisions. The
geographic divisions are Parent, Domestic and International. The Parent division
comprises the Parent Company. The Domestic division comprises all offices
located in United States of America. The International division comprises all
offices in the Americas (e.g., Canada, Mexico, Central and South America), in
Europe and in Asia/Pacific (e.g., Australia, Indonesia, Singapore, New Zealand
and the Philippines).
Accounting policies for each of the reportable segments are the same as
those of the Company. The Company provides services throughout the world.
Services to other countries may be performed within the United States of
America, and generally, revenues are classified within the geographic area where
the services are performed.
The following table shows summarized financial information (in thousands)
on the Company's reportable segments. Included in the "Eliminations" column are
elimination of inter-segment sales and elimination of investment in
subsidiaries.
As of and for the fiscal year ended October 31, 2001:
Parent Domestic International Eliminations Total
------ -------- ------------- ------------ -----
Revenue .................................... $ -- $2,109,173 $216,975 $ (6,798) $2,319,350
Segment operating income (loss) ............ $ (2,980) $ 172,164 $ 557 $ -- $ 169,741
Total accounts receivable .................. $ -- $ 667,009 $ 78,170 $ -- $ 745,179
Total assets ............................... $ 665,015 $1,574,865 $116,995 $(893,499) $1,463,376
As of and for the fiscal year ended October 31, 2000:
Parent Domestic International Eliminations Total
------ -------- ------------- ------------ -----
Revenue .................................... $ 800 $1,989,259 $235,683 $ (20,164) $2,205,578
Segment operating income ................... $ 39,160 $ 116,630 $ 7,669 $ -- $ 163,459
Total accounts receivable .................. $ (7,814) $ 634,350 $ 82,469 $ -- $ 709,005
Total assets ............................... $ 680,824 $1,272,340 $116,310 $(642,340) $1,427,134
36
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of and for the fiscal year ended October 31, 1999:
Parent Domestic International Eliminations Total
------ -------- ------------- ------------ -----
Revenue .................................... $ -- $1,268,925 $154,211 $ (4,614) $1,418,522
Segment operating income (loss) ............ $ (14,541) $ 114,633 $ 778 $ -- $ 100,870
Total accounts receivable .................. $ (15,000) $ 590,143 $ 90,818 $ -- $ 665,961
Total assets ............................... $ 493,938 $1,653,928 $130,779 $(834,120) $1,444,525
Operating income is defined as income before income taxes and net interest
expense.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Currently, the Company has limits of $125.0 million per loss and $125.0
million in the annual aggregate for general liability, professional errors and
omissions liability, and contractor's pollution liability insurance. These
programs each have a self-insured claim retention of $0.1 million, $1.0 million,
and $0.25 million, respectively. With respect to various claims of D-M that
arose from professional errors and omissions prior to acquisition, the Company
has maintained a self-insured retention of $5.0 million per claim. 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. The Company intends 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. The Company believes that any
settlement of these claims will not have a material adverse effect on its
consolidated financial position and operations.
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,
parties are seeking damages, including punitive or treble damages that
substantially exceed the Company's insurance coverage. Based on the Company's
previous experience with claims settlement and the nature of the pending legal
proceedings, the Company does not believe that any of the legal proceedings are
likely to result in a judgment against, or settlement by the Company, that would
materially exceed its insurance coverage or have a material adverse effect on
its consolidated financial position and operations.
NOTE 11. PREFERRED STOCK
In June 1999, the Company issued 46,082.95 shares of its Series A Preferred
Stock and 450,000 shares of its Series C Preferred Stock to RCBA Strategic
Partners, L.P. for an aggregate consideration of $100.0 million. The proceeds of
this issuance were used in connection with the D-M acquisition. The Company paid
a transaction fee of $1.5 million to RCBA Strategic Partners, L.P. in connection
with this placement. In October 1999, the Company issued 46,083 shares of its
Series B Exchangeable Convertible Preferred Stock ("Series B Stock") to RCBA
Strategic Partners, L.P. in exchange for the shares of Series A and Series C
Preferred Stock.
The Company has authorized for issuance 3,000,000 shares of preferred stock
with a $1.00 par value. Of these 3,000,000 shares, 150,000 shares have been
designated Series B Stock. At October 31, 2001 and 2000, the Company had 55,345
and 51,159 shares, respectively, of Series B Stock outstanding. The Series B
Stock has a liquidation preference equal to its original purchase price plus
certain formulaic adjustments calculated at the time of liquidation. The Series
B Stock is senior to the common stock and has voting rights equal to that number
of shares of common stock into which it can be converted. Cumulative dividends
are payable in-kind in additional shares of Series B Stock each calendar quarter
at a dividend rate of 8%. Each share of the Series B Stock may be converted into
shares of common stock at the option of the holder at any time (approximately
5,535,000 shares in the aggregate as of October 31, 2001). In addition, the
Company will have the right, on or after June 2002, to convert all, but not
37
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
less than all, of the outstanding shares of Series B Stock into common stock if
the price of the Company's common stock on the relevant stock exchanges reaches
certain levels for certain minimum periods of time. In June 2011, the Company is
obligated to redeem any outstanding shares of Series B Stock for cash. If the
Company fails to repurchase all of the outstanding shares of Series B Stock, the
dividend rate will increase to 12%, and three months after that the rate will
increase to 15%.
NOTE 12. STOCKHOLDERS' EQUITY
Declaration of dividends, except preferred stock dividends, is restricted
by the senior collateralized credit facility with the Bank and the indentures
governing the 8 5/8% Debentures and the 12 1/4% Senior Subordinated Notes.
Further, declaration of dividends may be precluded by existing Delaware law.
On October 12, 1999, the stockholders approved the 1999 Equity Incentive
Plan ("1999 Plan"). An aggregate of 1,500,000 shares of common stock initially
has been reserved for issuance under the 1999 Plan. In July 2000, an additional
1,076,000 shares were reserved for issuance under the 1999 Plan. As of October
31, 2001, the Company had issued options and restricted stock in the aggregate
amount of 1,339,272 shares under the 1999 Plan.
On March 26, 1991, the stockholders approved the 1991 Stock Incentive Plan
("1991 Plan"). The 1991 Plan provides for the grant not to exceed 3,310,000
Restricted Shares, Stock Units and Options. As of October 31, 1999, the Company
had issued options and restricted stock in the aggregate amount of 1,041,700
shares under the 1991 Plan.
Stock options expire in ten years from the date granted and vest over
service periods that range from three to five years.
Under the Employee Stock Purchase Plan ("ESP Plan") implemented in
September 1985, employees may purchase shares of common stock through payroll
deductions of up to 10% of the employee's base pay. Contributions are credited
to each participant's account on the last day of each six-month participation
period of the ESP Plan (which commences on January 1 and July 1 of each year).
The purchase price for each share of common stock is the lower of 85% of the
fair market value of such share on the last trading day before the participation
period commences or 85% of the fair market value of such share on the last
trading day in the participation period. Employees purchased 602,522 shares
under the ESP Plan in fiscal 2001 and 495,017 shares in fiscal 2000.
38
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its 1991 Plan and 1999 Plan. Accordingly, no compensation cost
has been recognized for its 1991 and 1999 Plans. Had compensation cost for the
Company's 1991 and 1999 Plans been determined consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced to the proforma amounts indicated below:
Years Ended October 31,
------------------------------------
2001 2000 1999
---- ---- ----
(In thousands, except per share data)
Net income available for common stockholders:
As reported ................................................... $ 48,623 $ 41,561 $ 33,248
Proforma ...................................................... $ 45,496 $ 38,171 $ 32,367
Basic earnings per share:
As reported ................................................... $ 2.79 $ 2.55 $ 2.14
Proforma ...................................................... $ 2.61 $ 2.35 $ 2.09
Net income before preferred stock dividends:
As reported ................................................... $ 57,852 $ 49,898 $ 36,581
Proforma ...................................................... $ 54,725 $ 46,508 $ 35,700
Dilutive earnings per share:
As reported ................................................... $ 2.41 $ 2.27 $ 1.98
Proforma ...................................................... $ 2.28 $ 2.11 $ 1.93
A summary of the status of the stock options granted under the
Company's 1991 and 1999 Plans for the fiscal years ended October 31, 2001, 2000,
and 1999, is presented below:
2001 2000 1999
---------------------- ---------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of year .................. 3,829,084 $ 14.64 2,394,709 $ 11.97 2,031,094 $ 11.12
Granted ......................................... 1,234,272 $ 20.33 1,613,017 $ 18.51 835,500 $ 16.81
Exercised ....................................... (812,142) $ 8.78 (80,716) $ 8.11 (350,099) $ 6.67
Forfeited ....................................... (117,677) $ 17.02 (97,926) $ 18.87 (121,786) $ 15.22
--------- --------- ----------
Outstanding at end of year ........................ 4,133,537 $ 17.39 3,829,084 $ 14.64 2,394,709 $ 11.97
========= ========= ==========
Options exercisable at year-end ................... 1,585,242 $ 14.52 1,554,426 $ 10.04 1,133,788 $ 7.72
Weighted-average fair value of
options granted during the year ................ $ 8.48 $ 5.30 $ 6.53
39
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about stock options outstanding
at October 31, 2001, under the 1991 and 1999 Plans:
Outstanding Exercisable
------------------------------------------------- ------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
$ 5.70 - $ 8.55 263,300 3.1 $ 6.48 263,300 $ 6.48
$ 8.55 - $11.40 148,000 4.6 $10.32 148,000 $10.32
$11.40 - $14.25 312,532 8.0 $13.81 121,211 $13.88
$14.25 - $17.10 1,334,112 7.5 $15.53 770,871 $15.35
$17.10 - $19.95 594,510 9.4 $17.62 -- --
$19.95 - $22.80 823,833 8.0 $21.44 248,525 $21.45
$22.80 - $25.65 587,750 10.0 $23.03 -- --
$25.65 - $28.50 69,500 8.2 $27.93 33,335 $28.10
--------- ---------
4,133,537 1,585,242
========= =========
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
2001 2000 1999
---- ---- ----
Risk-free interest rates.............. 4.62%-5.28% 5.72%-6.36% 4.70%-5.97%
Expected life......................... 4 years 4 years 4 years
Volatility............................ 44.58% 42.54% 41.06%
Expected dividends.................... None None None
NOTE 13. EMPLOYEE RETIREMENT PLANS
The Company has defined contribution retirement plans under Internal
Revenue Code Section 401(k). The plans cover all full-time employees who are at
least 18 years of age. Contributions by the Company are made at the discretion
of the Board of Directors. The Company made contributions in the amounts of
$12.0 million, $10.4 million and $7.7 million to the plans in fiscal years 2001,
2000 and 1999, respectively.
In July 1999, the Company entered into a Supplemental Executive Retirement
Agreement (the "Agreement") with Martin M. Koffel, the Company's Chief Executive
Officer (the "Executive"). The Executive will be eligible to receive a benefit
under this agreement following his termination of employment with the Company
(the "Benefit"). The Benefit shall be an annual amount, payable for the life of
the Executive with a guarantee of payments for at least ten years. The Benefit
is equal to a percentage of the Executive's final average compensation, reduced
by the annual social security benefit to which the Executive is entitled based
on his age at the termination of employment. The Benefits payable under this
Agreement shall be "unfunded," as that term is used in Sections 201(2),
301(a)(3), 401(a)(10) and 4021(a)(6) of the Employee Retirement Income
Securities Act ("ERISA").
40
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Management's estimate of accumulated benefits for the Executive's
Supplemental Executive Retirement Plan as of October 31, 2001 and 2000, was as
follows:
Actuarial present value of accumulated benefits:
2001 2000
------- -------
(In thousands)
Vested .................................................... $ 3,091 $ 1,319
Non-vested ................................................ -- --
------- -------
Total ..................................................... $ 3,091 $ 1,319
======= =======
Change in projected benefit obligation (PBO):
PBO at beginning of the year .............................. $ 2,774 $ 745
Service cost .............................................. 1,469 794
Interest cost ............................................. 166 48
Amortization of unrecognized service cost ................. -- --
------- -------
Net period cost ..................................... 1,635 842
------- -------
Actuarial loss ............................................ 403 1,187
Benefit payments .......................................... -- --
------- -------
PBO at the end of the year ................................ $ 4,812 $ 2,774
======= =======
The funded status of the plans:
Projected benefit obligation .............................. $ 4,812 $ 2,774
Plan assets available for benefits ........................ -- --
------- -------
Deficiency of assets over projected benefit obligations.... 4,812 2,774
Unrecognized actuarial loss ............................... (1,378) (1,263)
Unrecognized prior service costs .......................... -- --
------- -------
Accrued pension liability ................................. $ 3,434 $ 1,511
======= =======
The weighted-average discount rate used to determine the above amounts was 5.5%
for 2001 and 6.0% for 2000.
Certain of the Company's foreign subsidiaries have trustee retirement plans
covering substantially all of their employees. These pension plans are not
required to report to government agencies pursuant to ERISA and do not otherwise
determine the actuarial value of accumulated benefits or net assets available
for benefits. The aggregate pension expense for these plans for the fiscal years
ended October 31, 2001 and 2000 was $1.8 million and $0.8 million, respectively.
The Company, upon acquiring D-M, assumed certain of Radian International
LLC defined benefit pension plans ("Radian pension plans"), and several
post-retirement benefit plans. These plans cover a select group of Radian
employees and former employees who will continue to be eligible to participate
in the plans.
The Radian pension plans include a Supplemental Executive Retirement Plan
("SERP") and Salary Continuation Agreement ("SCA") which are intended to
supplement retirement benefits provided by other benefit plans upon the
participant's meeting minimum age and years of service requirements. The plans
are unfunded. However, at October 31, 2001 and 2000, the Company had designated
and deposited $7.2 million in a trust account for the SERP. Radian also has a
post-retirement benefit program that provides certain medical insurance benefits
to participants upon meeting minimum age and years of service requirements. This
plan is also unfunded.
41
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Management's estimate of accumulated benefits for the Radian SERP and
SCA as of October 31, 2001 and 2000, was as follows:
Actuarial present value of accumulated benefits:
2001 2000
-------- --------
(In thousands)
Vested .................................................... $ 9,726 $ 10,295
Non-vested ................................................ 789 657
-------- --------
Total ..................................................... $ 10,515 $ 10,952
======== ========
Change in projected benefit obligation (PBO):
PBO at the beginning of the year .......................... $ 10,952 $ 11,542
Service cost .............................................. 12 62
Interest cost ............................................. 727 784
Amortization of unrecognized service cost ................. -- --
-------- --------
Net period cost ..................................... 739 846
-------- --------
Actuarial (gain) loss ..................................... (301) (631)
Benefit payments .......................................... (875) (805)
-------- --------
PBO at the end of the year ................................ $ 10,515 $ 10,952
======== ========
The funded status of the plans:
Projected benefit obligation .............................. $ 10,515 $ 10,952
Plan assets available for benefits ........................ -- --
-------- --------
Deficiency of assets over projected benefit obligations.... 10,515 10,952
Unrecognized actuarial gain ............................... 904 631
Unrecognized prior service costs .......................... -- --
-------- --------
Accrued pension liability ................................. $ 11,419 $ 11,583
======== ========
The weighted-average discount rate used to determine the above amounts was 7.25%
for 2001 and 7.75% for 2000.
Management's estimate of the funded status of the Radian post-retirement
program at October 31, 2001 and 2000, was as follows:
2001 2000
-------- --------
(In thousands)
Accumulated post-retirement benefit obligation ("APBO"):
Retirees ............................................ $ 204 $ 191
Active plan participants, fully eligible ............ 145 131
Active plan participants, not yet fully eligible .... 789 608
-------- --------
Total APBO ................................................... 1,138 930
Unrecognized net loss from past experience
different from that assumed and from changes
in assumptions ...................................... -- --
-------- --------
Accrued post-retirement benefits ............................. $ 1,138 $ 930
======== ========
The weighted-average discount rate used to determine the APBO was 7.25% for 2001
and 7.75% for 2000.
42
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14. VALUATION AND ALLOWANCE ACCOUNTS
Beginning Ending
Balance Additions Deductions Balance
------- --------- ---------- -------
(In thousands)
October 31, 2001
Allowances for losses and doubtful accounts .................... $36,826 $ 6,091 $14,345 $28,572
October 31, 2000
Allowances for losses and doubtful accounts .................... $40,611 $25,306 $29,091 $36,826
October 31, 1999
Allowances for losses and doubtful accounts .................... $14,102 $40,772 $14,263 $40,611
The allowances for losses and doubtful accounts increased significantly in
fiscal 1999 due to the acquisition of D-M.
NOTE 15. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Selected quarterly financial data for fiscal 2001 and 2000 is summarized as
follows:
Fiscal 2001 Quarters Ended
-----------------------------------------------------------
Jan. 31 Apr. 30 July 31 Oct. 31
------- ------- ------- -------
(In thousands, except per share data)
Revenues ....................................................... $515,624 $545,996 $591,198 $666,532
Operating income ............................................... $ 34,573 $ 40,558 $ 44,715 $ 49,895
Net income available for common stockholders ................... $ 7,241 $ 10,646 $ 13,352 $ 17,384
Net income ..................................................... $ 9,455 $ 12,881 $ 15,674 $ 19,842
Income per share:
Basic ...................................................... $ .43 $ .62 $ .76 $ .98
======== ======== ======== ========
Diluted .................................................... $ .42 $ .55 $ .64 $ .80
======== ======== ======== ========
Weighted-average number of shares:
Basic ...................................................... 16,889 17,202 17,695 17,953
======== ======== ======== ========
Diluted .................................................... 22,673 23,621 24,696 24,870
======== ======== ======== ========
Fiscal 2000 Quarters Ended
-----------------------------------------------------------
Jan. 31 Apr. 30 July 31 Oct. 31
------- ------- ------- -------
(In thousands, except per share data)
Revenues ....................................................... $512,877 $535,401 $558,534 $598,766
Operating income ............................................... $ 33,667 $ 39,761 $ 43,944 $ 46,087
Net income available for common stockholders ................... $ 6,582 $ 9,022 $ 12,038 $ 13,919
Net income ..................................................... $ 8,634 $ 11,081 $ 14,181 $ 16,002
Income per share:
Basic ...................................................... $ .41 $ .56 $ .73 $ .85
======== ======== ======== ========
Diluted .................................................... $ .40 $ .51 $ .64 $ .72
======== ======== ======== ========
Weighted-average number of shares:
Basic ...................................................... 15,943 16,052 16,498 16,609
======== ======== ======== ========
Diluted .................................................... 21,784 21,549 22,328 22,492
======== ======== ======== ========
Operating income is defined as income before income taxes and net interest
expense.
43
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16. SUPPLEMENTAL GUARANTOR INFORMATION
In June 1999, the Company completed a private placement of $200.0 million
principal amount of the 12 1/4% Senior Subordinated Exchange Notes due in the
year 2009, which notes were exchanged in August 1999 for 12 1/4% Senior
Subordinated Notes due in the year 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,
contractual 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 October 31, 2001 and 2000, and the condensed
consolidating statements of operations and cash flows for the three fiscal years
ended October 31, 2001. 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.
44
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
October 31, 2001
----------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash .................................................. $ 1,699 $ 9,371 $ 12,328 $ -- $ 23,398
Accounts receivable, net .............................. -- 667,009 78,170 -- 745,179
Prepaid expenses and other assets ..................... 16,615 17,416 1,034 -- 35,065
----------- ----------- --------- ----------- ----------
Total current assets ............................... 18,314 693,796 91,532 -- 803,642
Property and equipment, net ................................ 820 96,193 9,984 -- 106,997
Goodwill, net .............................................. 385,749 114,537 -- -- 500,286
Investment in unconsolidated subsidiaries .................. 247,643 631,103 14,753 (893,499) --
Other assets ............................................... 12,489 39,236 726 -- 52,451
----------- ----------- --------- ----------- ----------
$ 665,015 $ 1,574,865 $ 116,995 $ (893,499) $1,463,376
=========== =========== ========= =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ...................... $ 39,794 $ 10,803 $ 3,828 $ -- $ 54,425
Accounts payable ....................................... 1,012 120,414 13,640 -- 135,066
Inter-company payable .................................. (32,720) (13,341) 47,130 (1,069) --
Accrued expenses and other ............................. 6,672 68,945 15,597 -- 91,214
Billings in excess of costs and accrued
earnings on contracts in process ..................... -- 84,411 11,109 -- 95,520
----------- ----------- --------- ----------- ----------
Total current liabilities .......................... 14,758 271,232 91,304 (1,069) 376,225
Long-term debt .............................................. 547,954 28,276 474 -- 576,704
Other ....................................................... 40,035 27,286 525 -- 67,846
----------- ----------- --------- ----------- ----------
Total liabilities .................................. 602,747 326,794 92,303 (1,069) 1,020,775
Mandatorily redeemable Series B exchangeable convertible
preferred stock .......................................... 120,099 -- -- -- 120,099
Total stockholders' equity .................................. (57,831) 1,248,071 24,692 (892,430) 322,502
----------- ----------- --------- ----------- ----------
$ 665,015 $ 1,574,865 $ 116,995 $ (893,499) $1,463,376
=========== =========== ========= =========== ==========
45
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
Year Ended October 31, 2001
---------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Revenues .................................................. $ -- $ 2,109,173 $ 216,975 $ (6,798) $ 2,319,350
Expenses:
Direct operating ....................................... -- 1,283,880 116,736 (6,798) 1,393,818
Indirect, general and administrative ................... 2,980 653,129 99,682 -- 755,791
Interest expense, net .................................. 64,455 (3,227) 4,361 -- 65,589
----------- ----------- --------- ----------- -----------
67,435 1,933,782 220,779 (6,798) 2,215,198
----------- ----------- --------- ----------- -----------
Income (loss) before taxes ................................ (67,435) 175,391 (3,804) -- 104,152
Income tax expense ........................................ 41,632 1,492 3,176 -- 46,300
----------- ----------- --------- ----------- -----------
Net income (loss) ......................................... (109,067) 173,899 (6,980) -- 57,852
Preferred stock dividend .................................. 9,229 -- -- -- 9,229
----------- ----------- --------- ----------- -----------
Net income (loss) available for common stockholders
(118,296) 173,899 (6,980) -- 48,623
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ............... -- -- (1,550) -- (1,550)
----------- ----------- --------- ----------- -----------
Comprehensive income (loss) ............................... $ (118,296) $ 173,899 $ (8,530) $ -- $ 47,073
=========== =========== ========= =========== ===========
46
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
Year Ended October 31, 2001
---------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income (loss) ............................................ $(109,067) $ 173,899 $ (6,980) $ -- $ 57,852
--------- --------- -------- -------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................ 10,552 29,474 2,117 -- 42,143
Amortization of financing fees ............................... 3,663 -- -- -- 3,663
Receivable allowances ........................................ (7,814) (2,092) 1,652 -- (8,254)
Stock compensation ........................................... 1,964 -- -- -- 1,964
Tax benefit of stock options ................................. 3,899 -- -- -- 3,899
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings in
excess of billings on contracts in process ................ -- (30,566) 2,646 -- (27,920)
Income taxes recoverable ..................................... 4,997 -- -- -- 4,997
Prepaid expenses and other assets ............................ (4,002) 98 (1,640) -- (5,544)
Accounts payable, accrued salaries and wages and accrued
expenses .................................................. 107,469 (126,354) 7,889 2,512 (8,484)
Billings in excess of costs and accrued earnings on
contracts in process ...................................... -- 242 4,803 -- 5,045
Deferrals and other, net ..................................... (3,275) (6,340) (10,184) (2,512) (22,311)
--------- --------- -------- -------- --------
Total adjustments ......................................... 117,453 (135,538) 7,283 -- (10,802)
--------- --------- -------- -------- --------
Net cash provided by operating activities .................... 8,386 38,361 303 -- 47,050
--------- --------- -------- -------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiaries ........................... -- 3,530 -- -- 3,530
Capital expenditures ......................................... (528) (18,184) (1,066) -- (19,778)
--------- --------- -------- -------- --------
Net cash (used) by investing activities ...................... (528) (14,654) (1,066) -- (16,248)
--------- --------- -------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt, bank borrowings and
capital lease obligations ................................. (28,832) (8,516) (5,521) -- (42,869)
Proceeds from sale of common shares and exercise of stock
options ................................................... 11,772 -- -- -- 11,772
--------- --------- -------- -------- --------
Net cash (used) by financing activities ...................... (17,060) (8,516) (5,521) -- (31,097)
--------- --------- -------- -------- --------
Net (decrease) increase in cash ................................... (9,202) 15,191 (6,284) -- (295)
Cash and cash equivalents at beginning of year .................... 10,901 (5,820) 18,612 -- 23,693
--------- --------- -------- -------- --------
Cash and cash equivalents at end of year .......................... $ 1,699 $ 9,371 $ 12,328 $ -- $ 23,398
========= ========= ======== ======== ========
47
URS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
October 31, 2000
----------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash ................................................. $ 10,901 $ (5,820) $ 18,612 $ -- $ 23,693
Accounts receivable, net ............................. (7,814) 634,350 82,469 -- 709,005
Prepaid expenses and other assets .................... 22,086 21,303 463 -- 43,852
----------- ----------- --------- ----------- ----------
Total current assets .............................. 25,173 649,833 101,544 -- 776,550
Property and equipment, net ............................... 442 77,184 11,035 -- 88,661
Goodwill, net ............................................. 395,063 119,548 -- -- 514,611
Investment in unconsolidated subsidiaries ................. 245,127 396,293 920 (642,340) --
Other assets .............................................. 15,019 29,482 2,811 -- 47,312
----------- ----------- --------- ----------- ----------
$ 680,824 $ 1,272,340 $ 116,310 $ (642,340) $1,427,134
=========== =========== ========= =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..................... $ 28,924 $ 6,576 $ 9,723 $ -- $ 45,223
Accounts payable ...................................... 15,606 99,214 10,345 -- 125,165
Inter-company payable ................................. (174,043) 150,053 36,099 (12,109) --
Accrued expenses and other ............................ 33,291 55,478 32,358 -- 121,127
Billings in excess of costs and accrued
earnings on contracts in process .................... -- 84,169 6,306 -- 90,475
----------- ----------- --------- ----------- ----------
Total current liabilities ......................... (96,222) 395,490 94,831 (12,109) 381,990
Long-term debt ............................................. 587,136 15,892 100 -- 603,128
Other ...................................................... 19,902 51,712 1,595 -- 73,209
----------- ----------- --------- ----------- ----------
Total liabilities ................................. 510,816 463,094 96,526 (12,109) 1,058,327
Mandatorily redeemable Series B exchangeable convertible
preferred stock ......................................... 111,013 -- -- -- 111,013
Total stockholders' equity ................................. 58,995 809,246 19,784 (630,231) 257,794
----------- ----------- --------- ----------- ----------
$ 680,824 $ 1,272,340 $ 116,310 $ (642,340) $1,427,134
=========== =========== ========= =========== ==========
48
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
Year Ended October 31, 2000
---------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Revenues .................................................. $ 800 $ 1,989,259 $ 235,683 $ (20,164) $ 2,205,578
----------- ----------- --------- ----------- -----------
Expenses:
Direct operating ....................................... -- 1,226,077 139,155 (20,164) 1,345,068
Indirect, general and administrative ................... (38,360) 646,552 88,859 -- 697,051
Interest expense, net .................................. 71,800 (316) 377 -- 71,861
----------- ----------- --------- ----------- -----------
33,440 1,872,313 228,391 (20,164) 2,113,980
----------- ----------- --------- ----------- -----------
Income (loss) before taxes ................................ (32,640) 116,946 7,292 -- 91,598
Income tax expense ........................................ 40,246 1,201 253 -- 41,700
----------- ----------- --------- ----------- -----------
Net income (loss) ......................................... (72,886) 115,745 7,039 -- 49,898
Preferred stock dividend .................................. 8,337 -- -- -- 8,337
----------- ----------- --------- ----------- -----------
Net income (loss) available for common stockholders
(81,223) 115,745 7,039 -- 41,561
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ............... -- -- (2,609) -- (2,609)
----------- ----------- --------- ----------- -----------
Comprehensive income (loss) ............................... $ (81,223) $ 115,745 $ 4,430 $ -- $ 38,952
=========== =========== ========= =========== ===========
49
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
Year Ended October 31, 2000
---------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income (loss) ............................................ $(72,886) $ 115,745 $ 7,039 $ -- $ 49,898
-------- --------- -------- -------- --------
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization ................................ 10,130 28,908 2,791 -- 41,829
Amortization of financing fees ............................... 3,467 -- -- -- 3,467
Receivable allowances ........................................ (7,186) 6,202 (2,801) -- (3,785)
Stock compensation ........................................... 1,179 -- -- -- 1,179
Tax benefit of stock options ................................. 2,455 -- -- -- 2,455
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings
in excess of billings on contracts in process ............. -- (50,409) 11,150 -- (39,259)
Income taxes recoverable ..................................... -- (16,668) -- -- (16,668)
Prepaid expenses and other assets ............................ (3,788) 1,111 1,453 -- (1,224)
Accounts payable, accrued salaries and wages and accrued
expenses .................................................. 88,206 (64,602) (28,139) (23,085) (27,620)
Billings in excess of costs and accrued earnings on
contracts in process ...................................... -- 18,136 2,026 -- 20,162
Deferrals and other, net ..................................... (12,868) (42,242) 12,615 23,085 (19,410)
-------- --------- -------- -------- --------
Total adjustments ......................................... 81,595 (119,564) (905) -- (38,874)
-------- --------- -------- -------- --------
Net cash provided (used) by operating activities ............. 8,709 (3,819) 6,134 -- 11,024
-------- --------- -------- -------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiaries ........................... 25,354 -- -- -- 25,354
Capital expenditures ......................................... (118) (14,404) (1,363) -- (15,885)
-------- --------- -------- -------- --------
Net cash provided (used) by investing activities ............. 25,236 (14,404) (1,363) -- 9,469
-------- --------- -------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt, bank borrowings
and capital lease obligations ............................. (37,805) (4,625) (8,096) -- (50,526)
Proceeds from sale of common shares and exercise of
stock options ............................................. 8,039 -- -- -- 8,039
-------- --------- -------- -------- --------
Net cash (used) by financing activities ...................... (29,766) (4,625) (8,096) -- (42,487)
-------- --------- -------- -------- --------
Net increase (decrease) in cash ................................... 4,179 (22,848) (3,325) -- (21,994)
Cash and cash equivalents at beginning of year .................... 6,722 17,028 21,937 -- 45,687
-------- --------- -------- -------- --------
Cash and cash equivalents at end of year .......................... $ 10,901 $ (5,820) $ 18,612 $ -- $ 23,693
======== ========= ======== ======== ========
50
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
Year Ended October 31, 1999
---------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Revenues .................................................... $ -- $ 1,268,925 $ 154,211 $ (4,614) $1,418,522
----------- ----------- --------- ----------- ----------
Expenses:
Direct operating ........................................ -- 765,527 93,607 (4,614) 854,520
Indirect, general and administrative .................... 14,541 388,765 59,826 -- 463,132
Interest expense, net ................................... 34,069 -- 520 -- 34,589
----------- ----------- --------- ----------- ----------
48,610 1,154,292 153,953 (4,614) 1,352,241
----------- ----------- --------- ----------- ----------
Income (loss) before taxes .................................. (48,610) 114,633 258 -- 66,281
Income tax expense .......................................... 29,130 8 562 -- 29,700
----------- ----------- --------- ----------- ----------
Net income (loss) ........................................... (77,740) 114,625 (304) -- 36,581
Preferred stock dividend .................................... 3,333 -- -- -- 3,333
----------- ----------- --------- ----------- ----------
Net income (loss) available for common stockholders
(81,073) 114,625 (304) -- 33,248
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ................ -- -- 197 -- 197
----------- ----------- --------- ----------- ----------
Comprehensive income (loss) ................................. $ (81,073) $ 114,625 $ (107) $ -- $ 33,445
=========== =========== ========= =========== ==========
51
URS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
Year Ended October 31, 1999
---------------------------
Subsidiary
Subsidiary Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income (loss) ............................................... $ (77,740) $ 114,625 $ (304) $ -- $ 36,581
--------- --------- -------- -------- ---------
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization ................................... 7,075 23,162 1,940 -- 32,177
Amortization of financing fees .................................. 1,587 -- -- -- 1,587
Receivable allowances ........................................... -- (234) (51) -- (285)
Stock compensation .............................................. 1,726 -- -- -- 1,726
Changes in current assets and liabilities:
Accounts receivable and costs and accrued earnings in
excess of billings on contracts in process ..................... -- (56,055) (30,211) -- (86,266)
Prepaid expenses and other assets ................................ (3,376) 403 1,236 -- (1,737)
Accounts payable, accrued salaries and wages and accrued
expenses ....................................................... 63,181 (67,679) 38,084 (48,801) (15,215)
Billings in excess of costs and accrued earnings on
contracts in process ........................................... -- 30,044 3,263 -- 33,307
Deferrals and other, net ......................................... (10,033) (30,015) (1,875) 48,801 6,878
--------- --------- -------- -------- ---------
Total adjustments ....................................... 60,160 (100,374) 12,386 -- (27,828)
--------- --------- -------- -------- ---------
Net cash (used) provided by operating activities ................. (17,580) 14,251 12,082 -- 8,753
--------- --------- -------- -------- ---------
Cash flows from investing activities:
Payment for business acquisition, net of cash acquired ........... (316,167) -- -- -- (316,167)
Capital expenditures ............................................. (41) (16,760) (3,447) -- (20,248)
--------- --------- -------- -------- ---------
Net cash (used) by investing activities .......................... (316,208) (16,760) (3,447) -- (336,415)
--------- --------- -------- -------- ---------
Cash flows from financing activities:
Payments on merger fees .......................................... (18,738) -- -- -- (18,738)
Proceeds from issuance of debt ................................... 817,162 24,335 13,242 -- 854,739
Principal payments on long-term debt, bank borrowings and
capital lease obligations ...................................... (578,904) (11,336) (2,982) -- (593,222)
Proceeds from sale of common shares and exercise of stock
options ........................................................ 7,138 -- -- -- 7,138
Proceeds from issuance of preferred stock ........................ 100,000 -- -- -- 100,000
Payments on financing fees ....................................... (11,597) -- -- -- (11,597)
Payments on financing fees related to issuance of preferred
stock .......................................................... (1,500) -- -- -- (1,500)
--------- --------- -------- -------- ---------
Net cash provided by financing activities ........................ 313,561 12,999 10,260 -- 336,820
--------- --------- -------- -------- ---------
Net (decrease) increase in cash ..................................... (20,227) 10,490 18,895 -- 9,158
Cash and cash equivalents at beginning of year ...................... 26,949 6,538 3,042 -- 36,529
--------- --------- -------- -------- ---------
Cash and cash equivalents at end of year ............................ $ 6,722 $ 17,028 $ 21,937 $ -- $ 45,687
========= ========= ======== ======== =========
52
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
Incorporated by reference from the information under the captions "Election of
Directors" and "Compliance with Section 16(a) of Securities Exchange Act" in our
definitive proxy statement for the Annual Meeting of Stockholders to be held on
March 26, 2002 and from Item 4A--"Executive Officers of the Registrant" in Part
I.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the caption "Executive
Compensation" in our definitive proxy statement for the Annual Meeting of
Stockholders to be held on March 26, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the caption "Security
Ownership of Certain Beneficial Owners and Management" in our definitive proxy
statement for the Annual Meeting of Stockholders to be held on March 26, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from Item 8, Consolidated Financial Statements and
Supplementary Data, Note 6, Related Party Transactions and Note 11, Preferred
Stock.
53
PART IV
ITEM 14. EXHIBITS. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Item 8. Consolidated Financial Statements and Supplementary Data
Report of Independent Accountants
Consolidated Balance Sheets as at October 31, 2001 and October 31, 2000
Consolidated Statements of Operations for the fiscal years ended October 31,
2001, 2000 and 1999
Consolidated Statements of Changes in Stockholders' Equity for the fiscal years
ended October 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the fiscal years ended October 31,
2001, 2000 and 1999 Notes to Consolidated Financial Statements
Schedules are omitted because they are not applicable, not required or because
the required information is included in the Consolidated Financial Statements or
Notes thereto.
(a)(2) Exhibits
2.1 Agreement and Plan of Merger, dated May 5, 1999, by and among Dames &
Moore Group, URS Corporation and Demeter Acquisition Corporation,
filed as Exhibit 2.1 to our Current Report on Form 8-K, dated May 7,
1999, and incorporated herein by reference.
3(i) Certificate of Incorporation of URS Corporation, filed as Exhibit 3.1
to our Annual Report on Form 10-K for the fiscal year ended October
31, 1991 (the "1991 Form 10-K"), and incorporated herein by reference.
3(ii) Bylaws of URS Corporation, filed as Exhibit 3(ii) to the Form 10-Q for
the quarter ended July 31, 1999, and incorporated herein by reference.
4.1 Indenture, dated as of February 15, 1987, between URS Corporation and
First Interstate Bank of California, Trustee, relating to $57.5
million of our 6 1/2% Convertible Subordinated Debentures Due 2012,
filed as Exhibit 4.10 to our Registration Statement on Form S-2
(Commission File No. 33-11668), and incorporated herein by reference.
4.2 Amendment Number 1 to Indenture governing 6 1/2% Convertible
Subordinated Debentures due 2012, dated February 21, 1990, between URS
Corporation and First Interstate Bank of California, Trustee, filed as
Exhibit 4.9 to our Registration Statement on Form S-1 (Commission File
No. 33-56296) (the "1990 Form S-1"), and incorporated herein by
reference.
4.3 Indenture, dated as of March 16, 1989, between URS Corporation and
MTrust Corp., National Association, Trustee relating to our 8 5/8%
Senior Subordinated Debentures due 2004, filed as Exhibit 13C to our
Form T-3 under the Trust Indenture Act of 1939 (Commission File No.
22-19189), and incorporated herein by reference.
4.4 Amendment Number 1 to Indenture governing 8 5/8% Senior Subordinated
Debentures due 2004, dated as of April 7, 1989, filed as Exhibit 4.11
to the 1990 Form S-1 and incorporated herein by reference.
4.5 Amendment Number 2 to Indenture governing 8 5/8% Senior Subordinated
Debentures due 2004, dated February 21, 1990, between URS Corporation
and MTrust Corp. National Association, Trustee, filed as Exhibit 4.12
to the 1990 Form S-1 and incorporated herein by reference.
4.6 Credit Agreement, dated as of June 9, 1999, by and among URS
Corporation, the lenders named therein, Wells Fargo Bank, N.A., as
Co-Lead Arranger and Administrative Agent, and Morgan Stanley Senior
Funding, Inc. as Co-Lead Arranger and Syndication Agent, filed as
Exhibit 2.2 to our Current Report on Form 8-K, dated June 11, 1999,
and incorporated herein by reference.
4.7 Note Purchase Agreement, dated as of June 9, 1999, by and between
Morgan Stanley Senior Funding, Inc. and URS Corporation, filed as
Exhibit 2.3 to our Current Report on Form 8-K, dated June 11, 1999,
and incorporated herein by reference.
54
4.8 Securities Purchase Agreement, dated as of May 5, 1999, by and between
RCBA Strategic Partners, L.P. and URS Corporation, filed as Exhibit
2.4 to our Current Report on Form 8-K, dated June 11, 1999, and
incorporated herein by reference.
4.9 Indenture, dated as of June 23, 1999, by and among Firststar Bank of
Minnesota, N.A., URS Corporation and Subsidiary Guarantors defined
therein relating to our 12 1/4% Senior Subordinated Notes due 2009,
filed as Exhibit 2.5 to our Current Report on Form 8-K, dated July 1,
1999, and incorporated herein by reference.
4.10 Registration Rights Agreement, dated June 23, 1999 by and among Morgan
Stanley & Co. Incorporated, URS Corporation and the Guarantors listed
therein, filed as Exhibit 2.6 to our Current Report on Form 8-K, dated
July 1, 1999, and incorporated herein by reference.
4.11 Placement Agreement, dated June 18, 1999, by and among Morgan Stanley
& Co. Incorporated, URS Corporation and the Guarantors named therein,
filed as Exhibit 2.7 to our Current Report on Form 8-K, dated July 1,
1999, and incorporated herein by reference.
4.12 Form of URS Corporation 12 1/4% Senior Subordinated Notes due 2009,
included as an exhibit to Exhibit 4.9, filed as Exhibit 2.5 to our
Current Report on Form 8-K, dated July 1, 1999, and incorporated
herein by reference.
4.13 Form of URS Corporation 12 1/4% Senior Subordinated Exchange Notes due
2009, included as an exhibit to Exhibit 4.9, filed as Exhibit 2.5 to
our Current Report on Form 8-K, dated July 1, 1999, and incorporated
herein by reference.
4.14 Certificate of Designation of Series A Preferred Stock of URS
Corporation, included as an exhibit to Exhibit 4.8, filed as Exhibit
2.4 to our Current Report on Form 8-K, dated June 11, 1999, and
incorporated herein by reference.
4.15 Certificate of Designation of Series B Preferred Stock of URS
Corporation, included as an exhibit to Exhibit 4.8, filed as Exhibit
2.4 to our Current Report on Form 8-K, dated June 11, 1999, and
incorporated herein by reference.
4.16 Certificate of Designation of Series C Preferred Stock of URS
Corporation, included as an exhibit to Exhibit 4.8, filed as Exhibit
2.4 to our Current Report on Form 8-K, dated June 11, 1999, and
incorporated herein by reference.
10.1* 1991 Stock Incentive Plan of URS Corporation, as amended effective
December 17, 1996, filed as Appendix A to our definitive proxy
statement for the 1997 Annual Meeting of Stockholders, filed with the
SEC on February 13, 1997, and incorporated herein by reference.
10.2* Employee Stock Purchase Plan of URS Corporation, as amended effective
October 12, 1999, filed as Exhibit A to our definitive proxy statement
for the 1999 Special Meeting of Stockholders, filed with the SEC on
September 7, 1999, and incorporated herein by reference.
10.3* 1999 Equity Incentive Plan of URS Corporation, effective October 12,
1999, filed as Exhibit B to our definitive proxy statement for the
1999 Special Meeting of Stockholders, filed with the SEC on September
7, 1999, and incorporated herein by reference.
10.4* Non-Executive Directors Stock Grant Plan of URS Corporation, adopted
December 17, 1996, filed as Exhibit 10.5 to our 1996 Form 10-K filed
with the SEC on January 14, 1997, and incorporated herein by
reference.
10.5* Selected Executive Deferred Compensation Plan of URS Corporation,
filed as Exhibit 10.3 to the 1990 Form S-1, and incorporated herein by
reference.
10.6* 1999 Incentive Compensation Plan of URS Corporation, filed as Appendix
A to our definitive proxy statement for the 1999 Annual Meeting of
Shareholders, filed with the SEC on February 17, 1999, and
incorporated herein by reference.
10.7* Non-Executive Directors Stock Grant Plan, as amended, filed as Exhibit
10.1 to the Form 10-Q for the quarter ended January 31, 1998, and
incorporated herein by reference.
55
10.8* Contingent Restricted Stock Award Agreement dated as of December 16,
1997, between URS Corporation and Martin M. Koffel, filed as Exhibit
10.12 to our Annual Report on Form 10-K for the fiscal year ended
October 31, 1998 (the "1998 Form 10-K"), filed with the SEC on January
29, 1999, and incorporated herein by reference.
10.9* Contingent Restricted Stock Award Agreement dated as of December 16,
1997, between URS Corporation and Kent P. Ainsworth, filed as Exhibit
10.13 to our 1998 Form 10-K filed with the SEC on January 29, 1999,
and incorporated herein by reference.
10.10* Employment Agreement, dated December 16, 1991, between URS Corporation
and Martin M. Koffel, filed as Exhibit 10.13 to our 1991 Form 10-K and
incorporated herein by reference.
10.11* Employment Agreement, dated September 8, 2000, between URS Corporation
and Kent P. Ainsworth, filed as Exhibit 10.11 to our 2000 Form 10-K
and incorporated herein by reference.
10.12* Employment Agreement, dated October 12, 2000, between URS Corporation
and Irwin L. Rosenstein, filed as Exhibit 10.12 to our 2000 Form 10-K
and incorporated herein by reference.
10.13* Employment Agreement, dated November 1, 1997, between Woodward-Clyde
Group, Inc. and Jean-Yves Perez, filed as Exhibit 10.1 to our Form
10-Q for the quarter ended April 30, 1998, and incorporated herein by
reference.
10.14* Employment Agreement, dated as of September 8, 2000, between URS
Corporation and Joseph Masters, filed as Exhibit 10.26 to our 1999
Form 10-K and incorporated herein by reference.
10.15* Amendment to Employment Agreement dated as of October 13, 1998 between
URS Corporation and Martin M. Koffel filed as Exhibit 10.21 to our
1998 Form 10-K and incorporated herein by reference.
10.16* Form of Amendment to Employment Agreement dated as of October 13, 1998
between URS Corporation, URS Greiner Woodward-Clyde Consultants, Inc.,
or URS Greiner Woodward-Clyde, Inc. and each of Martin Tanzer, and
Jean-Yves Perez filed as Exhibit 10.22 to our 1998 Form 10-K and
incorporated herein by reference.
10.17* Employment Agreement, dated November 19, 1999, between URS Corporation
and David C. Nelson, filed as Exhibit 10.1 to our Form 10-Q for the
quarter ended July 31, 2000, and incorporated herein by reference.
10.18* Employment Agreement, dated December 17, 2001, between URS Corporation
and Mark H. Perry. FILED HEREWITH.
10.19 Registration Rights Agreement, dated February 21, 1990, by and among
URS Corporation, Wells Fargo Bank, N.A. and the Purchaser Holders
named therein, filed as Exhibit 10.33 to our 1990 Form S-1 and
incorporated herein by reference.
10.20 Form of Indemnification Agreement filed as Exhibit 10.34 to URS
Corporation's Annual Report on Form 10-K for the fiscal year ended
October 31, 1992 and incorporated herein by reference; dated as of May
1, 1992 between URS Corporation and each of Messrs. Ainsworth, Blum,
Koffel, Madden, Praeger, Rosenstein and Walsh; dated as of March 22,
1994 between URS Corporation and each of Admiral Foley and Mr. Der
Marderosian; and dated as of August 5, 1999 between URS Corporation
and Marie L. Knowles; dated as of January 20, 1997 between URS
Corporation and Mr. Masters; and dated as of November 17, 1997 between
URS Corporation and Mr. Perez.
10.21 Agreement and Plan of Merger dated August 18, 1997, by and among URS
Corporation, Woodward-Clyde Group, Inc. and W-C Acquisition
Corporation, filed as Exhibit 2.1 to URS Corporation's Current Report
on Form 8-K filed on August 21, 1997 and incorporated herein by
reference.
10.22 Credit Agreement, dated as of November 14, 1997, between URS
Corporation, the Financial Institutions listed therein as Lenders and
Wells Fargo Bank, National Association, as Administrative Agent for
the Lenders, filed as Exhibit 2.2 to URS Corporation's Current Report
on Form 8-K filed on November 26, 1997, and incorporated herein by
reference.
10.23* URS Corporation Supplemental Executive Retirement Agreement, dated as
of July 13, 1999, between Martin M. Koffel and URS Corporation, filed
as Exhibit 10.1 to our Form 10-Q for the quarter ended July 31, 1999,
and incorporated herein by reference.
56
10.24* URS Corporation 1991 Stock Incentive Plan Nonstatutory Stock Option
Agreement, dated as of March 23, 1999, between URS Corporation and
Martin M. Koffel, filed as Exhibit 10.2 to our Form 10-Q for the
quarter ended July 31, 1999, and incorporated herein by reference.
10.25* Stock Option Agreement, dated as of November 5, 1999, by and between
URS Corporation and Martin M. Koffel. Filed as Exhibit 10.24 to our
Form 10-K for the fiscal year ended October 31, 1999 (the "1999 Form
10-K"), and incorporated herein by reference.
10.26* Stock Option Agreement, dated as of November 5, 1999, by and between
URS Corporation and Kent P. Ainsworth. Filed as Exhibit 10.25 to our
1999 Form 10-K and incorporated herein by reference.
10.27* Stock Option Agreement, dated as of November 5, 1999, by and between
URS Corporation and Joseph Masters. Filed as Exhibit 10.26 to our 1999
Form 10-K and incorporated herein by reference.
10.28* URS Corporation 1999 Equity Incentive Plan Restricted Stock Award
Agreement, dated as of April 25, 2001, between Martin M. Koffel and
URS Corporation. Filed as Exhibit 10.1 to our Form 10-Q for the
quarter ended April 30, 2001, and incorporated herein by reference.
10.29* Form of URS Corporation 1999 Equity Incentive Plan Nonstatutory Stock
Option Agreement, by and between each of Martin M. Koffel, Kent P.
Ainsworth, Joseph Masters and Irwin L. Rosenstein and URS Corporation,
reflecting grants dated as of April 25, 2001. Filed as Exhibit 10.2 to
our Form 10-Q for the quarter ended April 30, 2001, and incorporated
herein by reference.
21.1 Subsidiaries of URS Corporation. FILED HEREWITH.
23.1 Consent of PricewaterhouseCoopers LLP. FILED HEREWITH.
24.1 Powers of Attorney of URS Corporation's directors and officers. FILED
HEREWITH.
*Represents a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K. We filed the following reports on Form 8-K during
the quarter ended October 31, 2001:
None
57
SIGNATURES
Pursuant to the requirements of Section 13 or 19(d) of the Securities Exchange
Act of 1934, URS Corporation, the Registrant, has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
URS Corporation
(Registrant)
By /s/ Kent P. Ainsworth
--------------------------------------
Kent P. Ainsworth
Executive Vice President and
Chief Financial Officer
Dated: January 16, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ MARTIN M. KOFFEL Chairman of the Board of Directors January 16, 2002
- ---------------------------------- and Chief Executive Officer
(Martin M. Koffel)
/s/ KENT P. AINSWORTH Executive Vice President, Chief January 16, 2002
- ---------------------------------- Financial Officer, Principal Accounting
(Kent P. Ainsworth) Officer and Secretary
/s/ IRWIN L. ROSENSTEIN* Director January 16, 2002
- ----------------------------------
(Irwin L. Rosenstein)
/s/ RICHARD C. BLUM* Director January 16, 2002
- ----------------------------------
(Richard C. Blum)
/s/ RICHARD Q. PRAEGER* Director January 16, 2002
- ----------------------------------
(Richard Q. Praeger)
/s/ WILLIAM D. WALSH* Director January 16, 2002
- ----------------------------------
(William D. Walsh)
/s/ RICHARD B. MADDEN* Director January 16, 2002
- ----------------------------------
(Richard B. Madden)
/s/ ARMEN DER MARDEROSIAN* Director January 16, 2002
- ----------------------------------
(Armen Der Marderosian)
58
Signature Title Date
--------- ----- ----
/s/ ADM. S. ROBERT FOLEY, JR.,
USN (RET)* Director January 16, 2002
- --------------------------------------
(Adm. S. Robert Foley, Jr., USN (Ret.))
/s/ JEAN YVES PEREZ* Director January 16, 2002
- --------------------------------------
(Jean Yves Perez)
/s/ MARIE L. KNOWLES* Director January 16, 2002
- --------------------------------------
(Marie L. Knowles)
*By /s/ Kent P. Ainsworth
- --------------------------------------
(Kent P. Ainsworth, Attorney-in-fact)
59