-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PKZcdhZPBwPSBCoaHqNIjIP1hjzelUV/zyFFT2BobHkqI6MvSuM84jrx19O1GjJe QMCxwbEZ6nq9lGT+x+HPTg== 0000950005-00-000082.txt : 20000203 0000950005-00-000082.hdr.sgml : 20000203 ACCESSION NUMBER: 0000950005-00-000082 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 20000131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: URS CORP /NEW/ CENTRAL INDEX KEY: 0000102379 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 941381538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07567 FILM NUMBER: 517236 BUSINESS ADDRESS: STREET 1: 100 CALIFORNIA ST STREET 2: STE 500 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4157742700 MAIL ADDRESS: STREET 1: 100 CALIFORNIA STREET STREET 2: SUITE 500 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 FORMER COMPANY: FORMER CONFORMED NAME: THORTEC INTERNATIONAL INC DATE OF NAME CHANGE: 19900222 FORMER COMPANY: FORMER CONFORMED NAME: URS CORP /DE/ DATE OF NAME CHANGE: 19871214 10-K 1 10-K FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES [ ] EXCHANGE ACT OF 1934 For the Fiscal Year Ended October 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from_____to_____ Commission file number 1-7567 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, 94111-4529 San Francisco, California (Zip Code) (Address of principal executive offices) (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 New York Stock Exchange due 2004 6 1/2% Convertible Subordinated Debentures New York Stock Exchange due 2012 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. Yes X 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. [ ] On January 3, 2000, there were 15,930,855 Common Shares outstanding, and the aggregate market value of the shares of Common Stock of URS Corporation held by nonaffiliates was approximately $285.5 million based on the closing sales price 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 21, 2000. 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 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 185 principal offices and have approximately 15,700 employees located throughout the world, including the United States, Europe and the Asia/Pacific region. Acquisitions Woodward-Clyde Group, Inc. In November 1997, we acquired privately-held Woodward-Clyde Group, Inc. of Denver, Colorado, a firm specializing in geotechnical and environmental engineering ("W-C"). For a discussion of the effect of the W-C acquisition upon our operations, see Management's Discussion and Analysis of Results of Operations and Financial Condition. Thorburn Colquhoun Holdings plc. In February 1999, we acquired privately-held Thorburn Colquhoun Holdings plc, a civil and structural engineering consulting firm based in the United Kingdom ("T-C"). For a discussion of the effect of the T-C acquisition upon our operations see Management's Discussion and Analysis of Results of Operations and Financial Condition. Dames and Moore Group. 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. Because we can draw from our large and diverse network of professional and technical resources, we have the capability to market and perform large multi-disciplinary projects throughout the world. Planning. Planning covers a broad range of assignments ranging 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. Our professionals 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 1 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 analysis, 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 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 which includes 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. In this market, we serve 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. Our architects and engineers specialize in the design 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, the 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, 2 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. In this market, 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 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, waste water treatment agencies, environmental protection agencies, schools and colleges, law enforcement, judiciary, hospitals and healthcare providers. We provide services to Federal agencies, including 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 years ended October 31, 1999, our revenues were attributed to the following categories:
1999 1998 1997 1996 1995 --------------------- ------------------- ------------------- ------------------- -------------------- (Dollars in thousands) Domestic: Local and state agencies ......... $ 480,922 34% $346,072 43% $255,423 63% $198,472 65% $ 99,871 56% Federal agencies .... 235,039 17 116,340 14 67,042 17 64,226 21 58,751 33 Private businesses 558,314 39 288,067 36 83,986 20 42,772 14 21,147 11 International ...... 144,247 10 55,467 7 -- -- -- -- -- -- ---------- --- -------- --- -------- --- -------- --- -------- --- Total ............ $1,418,522 100% $805,946 100% $406,451 100% $305,470 100% $179,769 100% ========== === ======== === ======== === ======== === ======== ===
International Business We currently derive approximately 10% 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 primarily located in the United Kingdom, Western Europe and the Asia/Pacific region, including Australia, New Zealand, Singapore and the Philippines. 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 actual total 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 3 contract modification to receive payment for such overage. Our profit margin will increase to the extent we are able to reduce actual costs below the estimates used to produce the negotiated fixed prices on contracts not covered by Federal Acquisition Regulations. Conversely, our profit margin will decrease and we may realize a loss on the project if we do not control costs and exceed the overall estimates used to produce the negotiated fixed price. 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. 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 payment adjustments if we over-estimate or under-estimate the number of labor hours 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 the number of labor hours and other costs are below the contracted amounts. The profit margin will decrease and we may realize a loss on the project if the number of labor hours required and other 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 $1,260 million at October 31, 1999, compared to $675 million at October 31, 1998. 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 $1,260 million at October 31, 1999, we expect to fill approximately 70%, or approximately $880 million, within the next fiscal year ending October 31, 2000. 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 which we expect clients to issue in the immediate future. We estimated total contract designations to be $775 million at October 31, 1999, as compared to $504 million at October 31, 1998. Typically, a significant portion of designations are converted into signed contracts. However, we cannot provide any assurance that this experience will continue to occur in the future. 4 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 assure you 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, 1999, the potential values of 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) ...... 1997-2002 $ 200.0 $ 23.9 $ 16.2 $ -- $ 159.9 MRS OAMS(2) ......... 1997-2003 150.0 1.0 6.5 -- 142.5 METRIC(3) ......... 1997-2004 190.0 5.6 4.3 -- 180.1 METRIC(4) ......... 1996-2003 190.0 6.1 5.9 -- 178.0 EPA RAC 9(5) ...... 1998-2008 140.0 2.5 1.7 2.7 133.1 ------- ------ ------ ---- ------- Total ............ $ 870.0 $ 39.1 $ 34.6 $2.7 $ 793.6 ======= ====== ====== ==== ======= - ------------ 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) Department of the Air Force, McClellan Remedial Systems Operations and Maintenance Services. (3) Department of the Air Force, McClellan Environmental Remedial Implementation Contract. (4) Department of the Air Force, Environmental Technology Remediation Contract. (5) United States Environmental Protection Agency, Response Action Contract, Region 9.
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. 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 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. 5 Insurance Currently, we have limits of $100 million per loss and $100 million in the annual aggregate for general liability, professional errors and omissions liability, and contractor's pollution liability insurance. These programs each have a self-insured claim retention of $0.1 million, $1.0 million, and $0.25 million, respectively. In respect of D-M claims arising from professional errors and omissions prior to acquisition, we have maintained a self insured retention of $5 million per claim. We believe that our claim reserves combined with our insurance coverage will be adequate for our present and reasonable foreseeable operations. We have no reason to believe that adequate coverage will not continue to be available, but we cannot assure that it will be. We also cannot assure that our liabilities will not exceed the policy limits. However we have maintained insurance without lapse for many years with limits in excess of losses sustained. Employees As of October 31, 1999, we had approximately 15,700 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 three hundred sixty of 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 185 principal 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 2007. 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, which substantially exceed our insurance coverage. As our experience is that most legal proceedings settle for less than any claimed damages, we do not believe that any of these proceedings are likely to result in a judgment against, or settlement by, us materially exceeding our insurance coverage or to have a material adverse effect on our consolidated financial position and operations. 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We held a special meeting of stockholders on October 12, 1999. Our stockholders voted on the following matters: The approval of an amendment to our Certificate of Incorporation to increase the authorized number of shares of Common Stock from 20,000,000 shares to 50,000,000 shares and to increase the authorized number of shares of preferred stock from 1,000,000 shares to 3,000,000 shares. 9,738,302 votes were cast in favor of the amendment, 3,422,340 votes were cast against. There were 16,111 abstentions, and -0- broker non votes. The approval of an amendment to and restatement of our Employee Stock Purchase Plan. 8,889,793 votes were cast in favor of the amendment and restatement, 4,268,004 votes were cast against. There were 18,956 abstentions, and -0- broker non votes. The approval of the 1999 Equity Incentive Plan. 8,079,498 votes were cast in favor of the 1999 Equity Incentive Plan, 5,051,692 votes were cast against. There were 45,563 abstentions, and -0- broker non votes. The approval of the issuance of Series B Exchangeable Convertible Preferred Stock to RCBA Strategic Partners, L.P. ("RCBA Strategic Partners") in exchange for the shares of Series A and Series C Preferred Stock issued to RCBA Strategic Partners in connection with the acquisition of D-M. 12,429,789 votes were cast in favor of the exchange, 665,559 votes were cast against. There were 81,405 abstentions, and -0- broker non votes. 7 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position Held Age - --------------------------- ------------------------------------------------------------ ----- Martin M. Koffel ......... Chief Executive Officer, President and Director of the 60 Company from May 1989; Chairman of the Board from June 1989. Kent P. Ainsworth ......... Executive Vice President from April 1996; Vice 53 President and Chief Financial Officer of the Company from January 1991; Secretary of the Company from May 1994. Joseph Masters ............ Vice President and General Counsel of the Company since 43 July 1997; Vice President, 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 the Company from January 1990 to May 1992. Irwin L. Rosenstein ....... President of General Engineering Group ("GEG"), a 63 principal operating group of the Company 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"), the Company's former principal operating division, from November 1997 to October 1998; President of URS Consultants, Inc. ("URSC"), the Company's former principal operating division, from February 1989 to November 1997; Director of the Company since February 1989; Vice President of the Company since 1987. Jean-Yves Perez ........... Director of the Company and Executive Vice President of 54 GEG since November 1999; Executive Vice President of URSGWC, the Company's former principal operating division, from November 1998 to October 1999; President of Woodward-Clyde Group, Inc. ("W-C"), a division of the Company from November 1997 to October 1998; Director of the Company 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 40 October 1999; Vice President of URSGWC, the Company's former principal operating division, from November 1998 to October 1999; Vice President of URSG, the Company's former principal operating division, from November 1997 to October 1998; Vice President of URSC, the Company's former principal operating division, from March 1992 to November 1997. Wayne P. Somrak ........... Vice President and Corporate Controller of the Company 54 since November 1999; Vice President and Corporate Controller of Varian, Inc. from 1991 to 1999. David C. Nelson ........... Vice President and Treasurer of the Company since 46 December 1999; Assistant Treasurer 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.
8 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 3, 2000, we had approximately 3,340 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: 1998: First Quarter .............................. $ 12.13 $ 16.38 Second Quarter .............................. $ 13.00 $ 16.50 Third Quarter .............................. $ 16.00 $ 18.81 Fourth Quarter .............................. $ 14.06 $ 17.94 1999: First Quarter .............................. $ 17.94 $ 24.00 Second Quarter .............................. $ 15.75 $ 23.44 Third Quarter .............................. $ 22.06 $ 29.31 Fourth Quarter .............................. $ 18.00 $ 25.88 2000: First Quarter .............................. $ 17.25 $ 21.75 (through January 3, 2000)
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 8, Notes Payable and Long-Term Debt and Note 13, Stockholders' Equity. 9 ITEM 6. SUMMARY OF SELECTED FINANCIAL INFORMATION The following table sets forth our selected financial data for the five years ended October 31, 1999. 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, ---------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ---------- ---------- ---------- ---------- Income Statement Data: Revenues ..................... $1,418,522 $805,946 $406,451 $305,470 $179,769 ----------- --------- --------- --------- -------- Expenses: Direct operating ............ 854,520 478,640 241,002 187,129 108,845 Indirect, general and administrative ............ 463,132 277,065 141,442 102,389 63,217 Interest expense, net ......... 34,589 8,774 4,802 3,897 1,351 ---------- -------- -------- -------- -------- 1,352,241 764,479 387,246 293,415 173,413 ---------- -------- -------- -------- -------- Income before taxes ............ 66,281 41,467 19,205 12,055 6,356 Income tax expense ............ 29,700 18,800 7,700 4,700 1,300 ---------- -------- -------- -------- -------- Net income ..................... 36,581 22,667 11,505 7,355 5,056 Preferred stock dividend ...... 3,333 -- -- -- -- ---------- ------- - -------- -------- -------- Net income available for common stockholders ......... 33,248 22,667 11,505 7,355 5,056 Other comprehensive income, net of tax: Foreign currency translation adjustments .................. 197 -- -- -- -- ---------- -------- -------- -------- -------- Comprehensive income ......... $ 33,445 $ 22,667 $ 11,505 $ 7,355 $ 5,056 ========== ======== ======= = ======== ======== Net income per common share: Basic ........................ $ 2.14 $ 1.51 $ 1.15 $ .92 $ .72 ========== ======== ======== ======== ======== Diluted ..................... $ 1.98 $ 1.43 $ 1.08 $ .81 $ .66 ========== ======== ======== ======== ======== As of October 31, -------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ---------- ---------- ---------- -------- Balance Sheet Data: Working capital ......... $ 359,087 $130,969 $ 63,236 $ 57,570 $ 36,307 Total assets ............... $1,437,487 $451,704 $210,091 $194,932 $ 75,935 Total debt ............... $ 688,380 $116,016 $ 48,049 $ 61,263 $ 9,999 Stockholders' equity ...... $ 310,502 $166,360 $ 77,151 $ 56,694 $ 39,478
10 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. We recognize revenues by the percentage completion method, based primarily on contract costs incurred to date compared with total estimated contract 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 also include those expenses associated with a specific design project 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 and 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 to 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 1999 Compared with Fiscal 1998 Revenues in fiscal 1999 were $1,418.5 million, or 76% over the amount reported in fiscal 1998. The growth in revenues is primarily attributable to the acquisition and integration of D-M, the results of which are included commencing June 1999. Accordingly, in fiscal 1999, the results of operations of D-M were included for only five months. Direct operating expenses increased $375.9 million, or 79%, over the amount reported in fiscal 1998. The increase is due to the addition of the direct operating expenses of D-M and to increases in subcontractor costs and direct labor costs as well. Indirect, general and administrative expenses ("IG&A") increased to $463.1 million in fiscal 1999 from $277.1 million in fiscal 1998 as a result of the addition of the D-M overhead as well as an increase in business activity. IG&A expenses in 1999 also include $6.0 million in fees incurred in connection with the acquisition of D-M. Finally, IG&A included a $4.0 million reversal of a previously established reserve related to a settlement of a lawsuit. Expressed as a percentage of revenues, IG&A expenses decreased slightly from 34% in fiscal 1998 to 33% in fiscal 1999. We attribute this stability to cost control. Net interest expense increased to $34.6 million in fiscal 1999 from $8.8 million in fiscal 1998 as a result of increased borrowings incurred in connection with the acquisition of D-M. With an effective income tax rate of 45% in 1999, we earned net income available for common stockholders of $33.2 million while in 1998 net income available for common stockholders was $22.7 million after an effective income tax rate of 45%. We earned $1.98 per share on a diluted basis in fiscal 1999 compared to $1.43 per share in fiscal 1998. Our backlog of signed and funded contracts at October 31, 1999, was $1,260 million as compared to $675 million at October 31, 1998. The value of our designations was $775 million at October 31, 1999, as compared to $504 million at October 31, 1998. Fiscal 1998 Compared with Fiscal 1997 Revenues in fiscal 1998 were $805.9 million, or 98% over the amount reported in fiscal 1997. The growth in revenues is primarily attributable to the acquisition of W-C, the results of which are included commencing November 1, 1997. Direct operating expenses increased $237.6 million, or 99%, over the amount reported in fiscal 1997. The increase is due to the addition of the direct operating expenses of W-C and to increases in subcontractor costs and direct labor costs as well. IG&A expenses increased to $277.1 million in fiscal 1998 from 11 $141.4 million in fiscal 1997 as a result of the addition of the W-C overhead as well as an increase in business activity. Expressed as a percentage of revenues, IG&A expenses decreased slightly from 35% in fiscal 1997 to 34% in fiscal 1998. We attribute this stability to cost control. Net interest expense increased to $8.8 million in fiscal 1998 from $4.8 million in fiscal 1997 as a result of increased borrowings incurred in connection with the acquisition of W-C. With an effective income tax rate of 45% in 1998, we earned net income of $22.7 million while in 1997 net income was $11.5 million after an effective income tax rate of 40%. The increase in the effective tax rate was primarily due to the consolidation of W-C and to nondeductible goodwill, state taxes, and operating in countries outside the United States with higher tax rates. We earned $1.43 per share on a diluted basis in fiscal 1998 compared to $1.08 per share in fiscal 1997. Our backlog of signed and funded contracts at October 31, 1998, was $675 million as compared to $470.4 million at October 31, 1997. The value of our designations was $504 million at October 31, 1998, as compared to $446 million at October 31, 1997. Income Taxes We currently have $3.8 million net operating loss ("NOL") carryforwards which are limited to $750,000 per year, pursuant to Section 382 of the Internal Revenue Code, related to our October 1989 quasi-reorganization. This NOL expires fiscal year beginning 2004. We also have available $17.3 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 increased primarily because of nondeductible goodwill and other liabilities related to the acquisition of D-M. The valuation allowance related to deferred tax assets was increased by $1.7 million resulting from the D-M and T-C acquisitions and by $1.2 million for current year foreign losses not benefited. In addition, the valuation allowance was decreased by $260,000 due to the utilization of net operating losses. Liquidity and Capital Resources At October 31, 1999, we had working capital of $359.1 million, an increase of $228.1 million from October 31, 1998, due primarily to the D-M acquisition. Our operating cash flow and working capital requirements have grown substantially due to our acquisition growth strategy. As a professional services organization, we are not capital intensive. Capital expenditures historically have been for computer-aided design and general purpose computer equipment to accommodate our growth. Capital expenditures during fiscal years 1999, 1998 and 1997 were $20.2 million, $12.2 million and $5.1 million, respectively. We expect to continue to have capital outlays consistent with the resulting relative growth of the Company. Substantially all of our cash flow is generated by our subsidiaries. As a result, funds necessary to meet our debt service obligations are provided in large part by distributions to or advances from our subsidiaries. Under certain circumstances, legal and contractual restrictions as well as the financial condition and reporting requirements of the subsidiaries may limit our ability to obtain cash from the subsidiaries. Our liquidity and capital measurements are set forth below: Years Ended October 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- (Dollars in thousands) Working capital ..................... $359,087 $130,969 $63,236 Working capital ratio ............... 1.9 to 1 1.8 to 1 1.7 to 1 Average days to convert billed accounts receivable to cash .................. 75 72 71 Percentage of debt to equity ......... 220.3% 69.7% 62.2% Our cash and cash equivalents amounted to $36.5 million at October 31, 1998, an increase of $14.4 million from the prior fiscal year-end, principally as a result of the increase in cash generated by domestic operations. During fiscal year 1998, we repaid debt of $83.2 million, including scheduled principal payments on long-term debt of $12.3 million and loan payoffs of $65.2 million. We also funded other operating requirements. 12 Cash and cash equivalents amounted to $45.7 million at October 31, 1999, an increase of $9.2 million from the prior fiscal year-end, principally as a result of the increase in cash generated by domestic operations. During fiscal 1999, cash flow provided by operating activities totaled $8.8 million. This represented a decrease of $32.0 million from 1998, primarily due to funding working capital required to support the expansion of our business as well as an increase in accounts receivable due to the installation of a new accounting system. This caused a delay in billings which resulted in a corresponding decrease in cash provided by operating activities. The majority of the operating cash flow was generated by domestic operations. Our working capital has increased primarily due to the acquisitions of D-M and W-C. We intend to satisfy our working capital needs primarily through internal cash generation. Our primary sources of liquidity will be cash flow from operations and borrowings under the senior collateralized credit facility. Our primary uses of cash will be to fund our working capital and capital expenditures and to service our debt. During fiscal 1999, we paid $376.2 million for the purchase of D-M, and incurred new borrowings of $650 million from establishing a long-term senior collateralized credit facility with a syndicate of banks led by Wells Fargo Bank, N.A. ("the Bank") and from the issuance of the 12 1/4% senior subordinated notes ("Notes"). We also issued 46,082.95 shares of our Series A Preferred Stock and 450,000 shares of our Series C Preferred Stock to RCBA Strategic Partners, L.P. for an aggregate consideration of $100 million. The net proceeds of the debt were incurred to fund a portion of the D-M acquisition and refinance bank debt previously incurred in the acquisition of W-C. Senior collateralized credit facility. The senior collateralized credit facility was funded June 9, 1999 ("Funding Date") and provides for three term loan facilities in the aggregate amount of $450 million and a revolving credit facility in the amount of $100 million. The term loan facilities consist of Term Loan A, a $250 million tranche, Term Loan B, a $100 million tranche and Term Loan C, another $100 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 following four quarters. Thereafter and through the sixth anniversary of the Funding Date, annual principal payments under Term Loan A range from $25.0 million to a maximum of $62.5 million with Term Loan A expiring and the then-outstanding principal amount becoming due and repayable in full on the sixth anniversary of the Funding Date. Principal amounts under Term Loan B become due, commencing on October 31, 1999, in the amount of $1.0 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 four equal quarterly installments in year seven. Principal amounts under Term Loan C become due, commencing on October 31, 1999, in the amount of $1.0 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 in year eight. The revolving credit facility expires, and is repayable in full, on the sixth anniversary of the Funding Date. The term loans each bear interest at a rate per annum equal to, at our option, either the Base Rate or LIBOR, in each case plus an applicable margin. The revolving credit facility bears interest at a rate per annum equal to, at our option, either the Base Rate, LIBOR or the Adjusted Sterling Rate, in each case plus an applicable margin. The applicable margin adjusts according to a performance pricing grid based on our ratio of Consolidated Total Funded Debt to Consolidated Earnings Before Income Taxes, Depreciation and Amortization ("EBITDA"). The "Base Rate" is defined as the higher of the Bank's Prime Rate and the Federal Funds Rate plus 0.50%. "LIBOR" is defined as the offered quotation by first class banks in the London interbank market to the Bank for dollar deposits, as adjusted for reserve requirements. The "Adjusted Sterling Rate" is defined as the rate per annum displayed by Reuters at which Sterling is offered to the Bank in the London interbank market as determined by the British Bankers' Association. We may determine which interest rate options to use and interest periods will apply for such periods for both term loans and the revolving credit facility. At October 31, 1999, our revolving credit facility with the Bank provides for advances up to $100 million. Also at October 31, 1999, we had outstanding letters of credit aggregating $40.0 million, which reduced the amount available to us under our revolving credit facility to $60.0 million. 13 The senior collateralized credit facility is governed by affirmative and negative covenants. These covenants include restrictions upon incurring additional debt, paying dividends, or making distributions to our stockholders, repurchasing or retiring capital stock, making subordinated junior debt payments and submitting quarterly compliance certification. The financial covenants include maintenance of a minimum current ratio of 1.20 to 1.00, a minimum fixed charge coverage ratio of 1.10 to 1.00, a proforma EBITDA minimum of $142 million and a maximum leverage ratio of 4.75 to 1.00 for the year ended October 31, 1999. We were fully compliant with these covenants as of October 31, 1999. We believe that our existing financial resources, together with our planned cash flow from operations and its existing credit facilities, will provide sufficient resources to fund its combined operations and capital expenditure needs for the foreseeable future. 12 1/4% senior subordinated notes. Our Notes are due in 2009. Each note will initially bear interest at 12 1/4% per annum. Interest on the Notes will be payable semiannually on May 1 and November 1 of each year, commencing November 1, 1999. The Notes are subordinate to the senior collateralized credit facility. As of October 31, 1999, we owed $200 million on our Notes. The Notes are fully and unconditionally guaranteed on a joint and several basis by certain of our wholly owned subsidiaries. We may redeem any of the Notes beginning May 1, 2004. The initial redemption price is 106.125% of their principal amount, plus accrued and unpaid interest. The redemption price will decline each year after 2004 and will be 100% of their principal amount, plus accrued and unpaid interest beginning on May 1, 2007. In addition, at any time prior to May 1, 2002, we may redeem up to 35% of the principal amount of the Notes with net cash proceeds from the sale of capital stock. The redemption price will be equal to 112.25% of the principal amount of the redeemed Notes. Interest Rate Swaps. We have entered into an interest rate swap agreement with the Bank. This interest rate swap effectively fixes the interest rate on $8.5 million of our LIBOR based borrowings at 6.92% plus the applicable margin through April 30, 2000. The actual borrowing cost to us with respect to indebtedness covered by the interest rate swap will depend upon the applicable margin over LIBOR for such indebtedness, which will be determined by the terms of the relevant debt instruments. Currently, it is expected that the contractual margin will range from 2.75% to 3.50%, which will provide for an all-in annual interest rate range from 9.67% to 10.42%. We have entered into an additional interest rate swap agreement with the Bank. This interest rate swap effectively fixes the interest rate on $45.8 million of our LIBOR based borrowings at 5.97% plus the applicable margin through January 31, 2001. The actual borrowing cost to us with respect to indebtedness covered by the interest rate swap will depend upon the applicable margin over LIBOR for such indebtedness, which will be determined by the terms of the relevant debt instruments. Currently, it is expected that the contractual margin will range from 2.75% to 3.50%, which will provide for an all-in annual interest rate range from 8.72% to 9.47%. Interest Rate Cap Agreements. We entered into two interest rate cap agreements with the Bank. These agreements cap our interest rate at 7% for $161.5 million and $9.2 million of our LIBOR based borrowings through July 31, 2002, and April 30, 2000, respectively. The following table represents cash paid during the period for:
Years Ended October 31, -------------------------------- 1999 1998 1997 --------- --------- -------- (In thousands) Interest ......... $24,903 $ 7,857 $5,181 Income taxes ...... $22,562 $18,398 $8,780
Other related party transactions. On February 12, 1997, the Bank exercised the 435,562 warrants held by the Bank at $4.34 per share, resulting in the issuance of an additional 435,562 shares to the Bank and additional paid-in capital of approximately $1.9 million. On February 14, 1997, various partnerships managed by BLUM Capital Partners, L.P. ("BLUM") (formerly Richard C. Blum & Associates, L.P.) exercised the 1,383,586 warrants held by such entities at $4.34 per share. The exercise price of these warrants was paid by a combination of cash and the cancellation of the $3.0 million face amount of debt 14 drawn under our then line of credit with certain BLUM entities. The line of credit with certain BLUM entities was then cancelled. The exercise resulted in the issuance of an additional 1,383,586 shares to the BLUM entities and additional paid-in capital of approximately $5.0 million. Mr. Koffel and Mr. Ainsworth have disposed of shares of our Common Stock in connection with cashless exercises of stock options and payment of withholding taxes due on such exercises and on the grant and vesting of restricted stock, and we have accepted this stock as payment therefor. The cashless exercise of stock options resulted in a charge of $1.7 million which is included in IG&A for the year ended October 31, 1999. Mr. Koffel, Mr. Ainsworth and other executives may continue to dispose of shares of our Common Stock in such manner and for such purposes. Acquisitions In November 1997, we acquired W-C for Common Stock, cash and debt of $132.4 million. (In thousands) Purchase price of W-C (net of prepaid loan fees of $4.0 million) ....................................... $ 128,366 Fair value of assets acquired ........................ (36,194) --------- Excess purchase price over net assets acquired ...... $ 92,172 ========= On February 1, 1999, we acquired privately-held T-C, for an aggregate purchase price of $13.6 million including assumption of its debt. In June 1999, we acquired D-M for cash and debt of $376.2 million. (In thousands) Purchase price of D-M (net of debt) ............... $ 357,429 Acquisition costs (net of financing fees) ......... 18,738 Fair value of assets acquired ..................... (148,154) ---------- Incremental additional excess purchase price over net assets acquired .................................... 228,013 ---------- D-M historical goodwill, net ........................ 160,378 ---------- Aggregate goodwill ................................. $ 388,391 ========== During the year ended October 31, 1999, the Company provided for $37.0 million of costs in connection with the acquisition of D-M and the Company's reorganization plans to integrate D-M's operations into the Company. This consists of project claims and cost over-runs, lease fees, severance and miscellaneous items. This estimate might increase due to additional expenses directly related to the transaction not identified as of October 31, 1999. The following table summarizes the activity in the 1999 D-M merger-related accruals during the year ended October 31, 1999. The balance of the accrual at October 31, 1999, is included in Accrued Expenses on the consolidated balance sheet. Merger- Balance Related October 31, Accruals Payments 1999 ---------- ---------- ------------- (In millions) Project claims .................. $ 10.0 $ -- $ 10.0 Severance and related costs ...... 7.0 (2.1) 4.9 Lease termination fees and project cost over-runs .................. 15.0 (0.5) 14.5 Miscellaneous expenses ............ 5.0 (1.4) 3.6 ------- ------ ------- Total ........................... $ 37.0 $ (4.0) $ 33.0 ======= ====== ======= 15 During the year ended October 31, 1998, the Company provided for $10.8 million of costs related to the acquisition of W-C and the Company's reorganization plans to integrate W-C's operations into the Company. This consisted of project claims, lease fees, severance and miscellaneous items. The following table summarizes the activity in the W-C merger-related accruals during the year ended October 31, 1999. The balance of the accrual at October 31, 1999, is included in Accrued Expenses on the consolidated balance sheet. Merger- Balance Related October 31, Accruals Payments 1999 ---------- -------------- ----------- (In millions) Project claims .................. $ 2.2 $ -- $ 2.2 Severance and related costs ...... 3.9 (3.9) -- Lease termination fees ............ 1.5 (0.6) 0.9 Miscellaneous expenses ............ 3.2 (3.2) -- ------ ------ ------ Total ........................... $10.8 $ (7.7) $ 3.1 ====== ====== ====== 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: We may not be able to integrate D-M successfully and achieve anticipated cost savings and other benefits from the D-M acquisition. We will achieve the efficiencies, cost reductions and other benefits that we expect to result from the D-M acquisition only if we can successfully integrate each company's administrative, finance, technical and marketing organizations, and implement appropriate operations, financial and management systems and controls. The integration of D-M into our operations will involve a number of risks, including: * the possible diversion of our management's attention from other business concerns; * the potential inability to successfully pursue some or all of the anticipated revenue opportunities associated with the D-M acquisition; * the possible loss of D-M's or our key professional employees; * the potential inability to successfully replicate our operating efficiencies in D-M's operations; * insufficient management resources to accomplish the integration; * our increased complexity and diversity compared to our operations prior to the D-M acquisition; * the possible negative reaction of clients to the D-M acquisition; and * unanticipated problems or legal liabilities. The occurrence of any of the above events, as well as any other difficulties which may be encountered in the transition and integration process, could have a material adverse effect on our business, financial condition and results of operations. Our substantial indebtedness could adversely affect our financial condition. We are a highly leveraged company. As of October 31, 1999, we had approximately $688 million of outstanding indebtedness following consummation of the D-M acquisition and the related financing plan. This level of indebtedness could have important consequences, including the following: * it may limit our ability to borrow money or sell stock for working capital, capital expenditures, debt service requirements or other purposes; 16 * it may limit our flexibility in planning for, or reacting to, changes in our business; * we could be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage; * it may make us more vulnerable to a downturn in our business or the economy; and * a substantial portion of our cash flow from operations could be dedicated to the repayment of our indebtedness and would not be available for other purposes. To service our indebtedness we will require a significant amount of cash. The ability to generate cash depends on many factors beyond our control. Our ability to make payments on our indebtedness depends on our ability to generate cash in the future. If we do not generate sufficient cash flow to meet our debt service and working capital requirements, we may need to seek additional financing or sell assets. This need may make it more difficult for us to obtain financing on terms that are acceptable to us, or at all. Without this financing, we could be forced to sell assets to make up for any shortfall in our payment obligations under unfavorable circumstances. Our senior collateralized credit facility and our obligations under the Notes limit our ability to sell assets and also restrict the use of proceeds from any such sale. Moreover, the senior collateralized credit facility is secured by substantially all of our assets. Furthermore, a substantial portion of our assets are, and may continue to be, intangible assets. Therefore, we cannot assure you that our assets could be sold quickly enough or for sufficient amounts to enable us to meet our debt obligations. Restrictive covenants in our senior collateralized credit facility and the indenture relating to the Notes may restrict our ability to pursue business strategies. Our senior collateralized credit facility and indenture relating to the Notes restrict our ability, among other things, to: * incur additional indebtedness or contingent obligations; * pay dividends or make distributions to our stockholders; * repurchase or redeem our stock; * make investments; * grant liens; * make capital expenditures; * enter into transactions with our stockholders and affiliates; * sell assets; and * acquire the assets of, or merge or consolidate with, other companies. In addition, our senior collateralized credit facility requires us to maintain certain financial ratios. We may not be able to maintain these ratios. Additionally, covenants in the senior collateralized credit facility and the indenture relating to the Notes may impair our ability to finance future operations or capital needs or to engage in other favorable business activities. If we default under our various debt obligations, the lenders could require immediate repayment of the entire principal. If the lenders require immediate repayment, we will not be able to repay them, and our inability to meet our debt obligations could have a material adverse effect on our business, financial condition and results of operations. We derive approximately half of our revenues from contracts with government agencies. Any disruption in government funding or in our relationship with those agencies could adversely affect our business and our ability to meet our debt obligations. We derive approximately half of our revenues from local, state and Federal government agencies. The demand for our services will be directly related to the level of government program funding that is 17 allocated to rebuild and expand the nation's infrastructure. We believe that the success and further development of our business depend upon the continued funding of these government programs and upon our ability to participate in these government programs. We cannot assure you that governments will have the available resources to fund these programs, that these programs will continue to be funded even if governments have available financial resources, or that we will continue to win government contracts under these or other programs. Some of these government contracts are subject to renewal or extension annually, so we cannot assure you of our continued work under these contracts in the future. Unsuccessful bidders may protest or challenge the award of these contracts. In addition, government agencies can terminate these contracts at their convenience. Consequently, we may incur costs in connection with the termination of these contracts. Also, contracts with government agencies are subject to substantial regulation and an audit of actual costs incurred. Consequently, there may be a downward adjustment in our revenues if actual recoverable costs exceed billed recoverable costs. We must maintain our present responsibility to be eligible to perform government contracts. From time to time allegations of improper conduct in connection with government contracting have been made against us and these could be the subject of suspension or debarment consideration. We investigate all such allegations thoroughly and believe that appropriate actions have been taken in all cases. Additionally, we maintain a compliance program in an effort to assure that no improper conduct occurs in connection with government contracting. We may be unable to estimate accurately our cost in performing services for our clients. This may cause us to have low profit margins or incur losses. We submit proposals on projects with an estimate of the costs we will likely incur. To the extent we cannot control overhead, general and administrative and other costs, or underestimate such costs, we may have low profit margins or may incur losses. We are subject to risks from changes in environmental legislation, regulation and governmental policies. Federal laws, such as the Resource Conservation and Recovery Act of 1976, as amended, and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, ("CERCLA"), and various state and local laws, strictly regulate the handling, removal, treatment and transportation of toxic and hazardous substances and impose liability for environmental contamination caused by such substances. Moreover, so-called "toxic tort" litigation has increased markedly in recent years as people injured by hazardous substances seek recovery for personal injuries or property damage. We directly handle, remove, treat and transport toxic or hazardous substances. Consequently, we may be exposed to claims for damages caused by environmental contamination. Federal and state laws, regulations, and programs related to environmental issues will generate, either directly or indirectly, much of our environmental business. Accordingly, a reduction of these laws and regulations, or changes in governmental policies regarding the funding, implementation or enforcement of these programs, could have a material effect on our business. Environmental laws, regulations and enforcement policies remained essentially unchanged during fiscal year 1999, including further deferral of congressional reauthorization of CERCLA. The outlook for congressional action on CERCLA legislation in fiscal year 2000 remains unclear. Our liability for damages due to legal proceedings may be significant. Our insurance may not be adequate to cover this risk. Various legal proceedings are pending against us alleging, among other things, breaches of contract or negligence in connection with our performance of professional services. In some actions punitive or treble damages are sought which substantially exceed our insurance coverage. If we sustain damages greater than our insurance coverage, there could be a material adverse effect on our business, financial condition and results of operations. Our engineering practices, including general engineering and civil engineering services, involve professional judgments about the nature of soil conditions and other physical conditions, including the 18 extent to which toxic and hazardous materials are present, and about the probable effect of procedures to mitigate problems or otherwise affect those conditions. If the judgments and the recommendations based upon those judgments are incorrect, we may be liable for resulting damages that our clients incur. The failure to attract and retain key professional personnel could adversely affect our business. The ability to attract, retain and expand our staff of qualified technical professionals will be an important factor in determining our future success. A shortage of qualified technical professionals currently exists in the engineering and design industry. The market for these professionals is competitive, and we cannot assure you that we will be successful in our efforts to continue to attract and retain such professionals. In addition, we will rely heavily upon the experience and ability of our senior executive staff and the loss of a significant number of such individuals could have a material adverse effect on our business, financial condition and results of operations. We may be unable to compete successfully in our industry. This could adversely affect our business. We are engaged in highly fragmented and very competitive markets in our service areas. We will compete with firms of various sizes, several of which are substantially larger than us and which possess greater technical resources. Furthermore, the engineering and design industry is undergoing consolidation, particularly in the United States. As a result, we will compete against several larger companies which have the ability to offer more diverse services to a wider client base. These competitive forces could have a material adverse effect on our business, financial condition and results of operations. Our international operations are subject to a number of risks that could adversely affect the results from these operations and our overall business. As a worldwide provider of engineering services, we have operations in over 40 countries and derive approximately 10% of our revenues from international operations. International business is subject to the customary risks associated with international transactions, including political risks, local laws and taxes, the potential imposition of trade or currency exchange restrictions, tariff increases and difficulties or delays in collecting accounts receivable. Weak foreign economies and/or a weakening of foreign currencies against the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations. Additional acquisitions may adversely affect our ability to manage our business. Historically, we have completed numerous acquisitions and, in implementing our business strategy, we may continue to do so in the future. We cannot assure you that we will identify, finance and complete additional suitable acquisitions on acceptable terms. We may not successfully integrate future acquisitions. Any acquisitions may require substantial attention from our management, which may limit the amount of time that management can devote to day-to-day operations. Also, future acquisitions could have an adverse effect on us. Our inability to find additional attractive acquisition candidates or to effectively manage the integration of any businesses acquired in the future could adversely affect our business, financial condition and results of operations. Year 2000 computer problems may adversely affect our business. Many installed computer systems and software products were programmed to accept only two digits in the date code field. As of January 1, 2000, these date code fields needed to accept four digit entries to distinguish years beginning with "19" from those beginning with "20". Otherwise computer systems using time-sensitive software could shut down or perform incorrect computations. We undertook a project (the "Year 2000 Project") to identify and assess the readiness of our computer systems, programs and other infrastructure that could be affected by the Year 2000 issue and to remedy the problems identified. Our Year 2000 Project also included an assessment of the Year 2000 readiness of key third parties on whom our operations depend. We also developed contingency plans to permit us to continue operations, consistent with the highest quality standards, in the event Year 2000 problems arose. 19 To date, we have not experienced any material Year 2000 problems. However, monitoring will continue at least through the first quarter of 2000. Corrective action will be taken if we encounter any previously unidentified Year 2000 problems internally or in interfacing with third parties, and our contingency plans remain available. We have not incurred any material costs to date related to our Year 2000 Project, but if we encounter problems in the future related to our own systems or to those of key third parties, it is possible that we would incur costs that could adversely affect our financial condition. 20 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 at October 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1999 in conformity with accounting principles generally accepted in the United States. 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 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 17, 1999 F-1 URS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
October 31, ---------------------------- 1999 1998 ------------ ------------- ASSETS Current assets: Cash and cash equivalents .................................................... $ 45,687 $ 36,529 Accounts receivable, including retainage amounts of $41,724 and $16,101, less allowance for doubtful accounts of $23,771 and $7,206 ................... 453,960 161,742 Costs and accrued earnings in excess of billings on contracts in process, less allowance for losses of $16,840 and $6,896 .................................. 212,001 77,881 Deferred income taxes ....................................................... 10,005 -- Prepaid expenses and other assets ........................................... 24,111 10,033 ---------- -------- Total current assets ....................................................... 745,764 286,185 Property and equipment at cost, net ........................................... 93,165 29,517 Goodwill, net ................................................................... 529,697 129,748 Other assets ................................................................... 68,861 6,254 ---------- -------- $1,437,487 $451,704 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Long-term debt, current portion .............................................. $ 17,625 $ 16,400 Notes payable ................................................................ 17,040 1,943 Obligations under capital leases .............................................. 4,758 2,717 Accounts payable ............................................................. 130,045 34,519 Accrued salaries and wages ................................................. 89,023 34,797 Accrued expenses and other ................................................. 57,873 29,385 Billings in excess of costs and accrued earnings on contracts in process ................................................................ 70,313 35,455 ---------- -------- Total current liabilities ................................................. 386,677 155,216 Long-term debt ................................................................ 635,286 87,925 Obligations under capital leases ................................................. 13,671 7,032 Deferred income taxes .......................................................... 15,267 5,377 Deferred compensation and other ................................................. 76,084 29,794 ---------- -------- Total liabilities .......................................................... 1,126,985 285,344 ---------- -------- Commitments and contingencies (Note 11) Mandatorily redeemable Series B exchangeable convertible preferred stock, par value $1.00, authorized 150 shares, issued 48 and 0, respectively, liquidation preference $103,333 103,333 -- ---------- -------- Stockholders' equity: Common stock, par value $.01; authorized 50,000 shares; issued 15,925 and 15,206 shares, respectively ................................................. 159 152 Treasury stock ............................................................. (287) (287) Additional paid-in capital ................................................. 125,462 117,842 Foreign currency translation adjustment ..................................... 197 -- Retained earnings since February 21, 1990, date of quasi-reorganization ....... 81,638 48,653 ---------- -------- Total stockholders' equity ................................................. 207,169 166,360 ---------- -------- $1,437,487 $451,704 ========== ======== See Notes to Consolidated Financial Statements
F-2 URS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Years Ended October 31, ---------------------------------- 1999 1998 1997 ----------- -------- -------- Revenues .......................................... $1,418,522 $805,946 $406,451 ---------- -------- -------- Expenses: Direct operating .............................. 854,520 478,640 241,002 Indirect, general and administrative ............ 463,132 277,065 141,442 Interest expense, net ........................... 34,589 8,774 4,802 ---------- -------- -------- 1,352,241 764,479 387,246 ---------- -------- -------- Income before taxes .............................. 66,281 41,467 19,205 Income tax expense ................................. 29,700 18,800 7,700 ---------- -------- -------- Net income ....................................... 36,581 22,667 11,505 Preferred stock dividend ........................... 3,333 -- -- ---------- -------- -------- Net income available for common stockholders ...... 33,248 22,667 11,505 Other comprehensive income, net of tax: Foreign currency translation adjustments ...... 197 -- -- ---------- -------- -------- Comprehensive income .............................. $ 33,445 $ 22,667 $ 11,505 ========== ======== ======== Net income per common share: Basic .......................................... $ 2.14 $ 1.51 $ 1.15 ========== ======== ======== Diluted ....................................... $ 1.98 $ 1.43 $ 1.08 ========== ======== ======== See Notes to Consolidated Financial Statements
F-3 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' Number Amount Stock Capital Income Earnings Equity ------- -------- ---------- ------------ --------------- ---------- --------------- Balances, October 31, 1996 ......... 8,640 $ 86 $ (287) $ 41,894 $ -- $ 15,001 $ 56,694 Employee stock purchases ............ 282 3 -- 2,026 -- -- 2,029 Issuance of 1,819,148 shares in connection with the exercise of warrants ........................... 1,819 18 -- 6,905 -- -- 6,923 Quasi-reorganization NOL carryforward ..................... -- -- -- 260 -- (260) -- Net income ........................ -- -- -- -- -- 11,505 11,505 ------ ------ ------- -------- --- -------- -------- Balances, October 31, 1997 ......... 10,741 107 (287) 51,085 -- 26,246 77,151 Employee stock purchases ............ 420 4 -- 4,601 -- -- 4,605 Issuance of 4,044,804 shares in connection with the Woodward-Clyde Group, Inc. acquisition ........................ 4,045 41 -- 61,896 -- -- 61,937 Quasi-reorganization NOL carryforward ..................... -- -- -- 260 -- (260) -- Net income ........................ -- -- -- -- -- 22,667 22,667 ------ ------ ------- -------- --- -------- -------- 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, net of tax of $273 ..................... -- -- -- -- 197 -- 197 Net income ........................ -- -- -- -- -- 36,581 36,581 Preferred stock dividends ............ -- -- -- -- -- (3,333) (3,333) ------ ------ ------- -------- ---- -------- -------- Balances, October 31, 1999 ......... 15,925 $ 159 $ (287) $125,462 $197 $ 81,638 $207,169 ====== ====== ======= ======== ==== ======== ======== See Notes to Consolidated Financial Statements
F-4 URS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended October 31, --------------------------------------- 1999 1998 1997 ---------- --------- --------- Cash flows from operating activities: Net income .......................................... $ 36,581 $ 22,667 $ 11,505 ---------- --------- --------- Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization ........................ 33,764 18,556 7,927 Allowance for doubtful accounts and losses ......... (285) (2,351) 1,540 Stock compensation ................................. 1,726 -- -- 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 ...... (86,266) (12,961) (14,193) Prepaid expenses and other assets .................. (1,737) (25) 461 Accounts payable, accrued salaries and wages and accrued expenses .................................... (15,215) 2,186 3,426 Billings in excess of costs and accrued earnings on contracts in process .............................. 33,307 23 4,839 Deferred income taxes .............................. 5,831 12,695 322 Other, net .......................................... 1,047 -- (3,292) ---------- --------- --------- Total adjustments ................................. (27,828) 18,123 1,030 ---------- --------- --------- Net cash provided by operating activities ............ 8,753 40,790 12,535 ---------- --------- --------- Cash flows from investing activities: Payment for business acquisition, net of cash acquired .......................................... (316,167) (36,937) -- Capital expenditures ................................. (20,248) (12,201) (5,127) ---------- --------- --------- Net cash (used) by investing activities ............ (336,415) (49,138) (5,127) ---------- --------- --------- Cash flows from financing activities: Payments of merger fees ................................. (18,738) (4,705) -- Proceeds from issuance of debt ........................ 854,739 110,000 -- Principal payments on long-term debt .................. (593,222) (83,157) (13,568) Proceeds from sale of common shares ..................... 4,775 2,622 1,028 Proceeds from exercise of stock options ............... 2,363 1,983 1,001 Proceeds from exercise of warrants ..................... -- -- 3,895 Proceeds from issuance of preferred stock ............... 100,000 -- -- Payment of financing fees .............................. (11,597) (4,000) -- Payment of financing fees related to issuance of preferred stock ....................................... (1,500) -- -- ---------- --------- --------- Net cash provided (used) by financing activities ...... 336,820 22,743 (7,644) ---------- --------- --------- Net increase (decrease) in cash ........................ 9,158 14,395 (236) Cash at beginning of year .............................. 36,529 22,134 22,370 ---------- --------- --------- Cash at end of year .................................... $ 45,687 $ 36,529 $ 22,134 ========== ========= ========= See Notes to Consolidated Financial Statements
F-5 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ACCOUNTING POLICIES Business URS Corporation 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 40 countries with approximately 15,700 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 URS Corporation and its subsidiaries (the "Company"), 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 account for the acquisitions of Woodward-Clyde Group, Inc. ("W-C") in November 1997, Thorburn Colquhoun Holdings, plc ("T-C") in February 1999, and Dames & Moore Group ("D-M") in June 1999, respectively, as purchases. See Note 3, Acquisitions. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect 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 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. 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 United States Government 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 1997 through fiscal 1999 are subject to review by the United States Government. 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 F-6 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) due to the large numbers of customers comprising the Company's customer base and their dispersion across different business and geographic areas. As of October 31, 1999 and 1998, 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 balances are held in financial institutions in concentrations that may exceed insured limits. 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 an 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. Interest Rate Risk Management The Company has entered into various interest rate protection agreements (swap and cap) on $225 million of the Company's London Interbank Offered Rate ("LIBOR") bank term loan borrowings. The related cost of these agreements is amortized over the life of the bank term loan borrowings and such amortization is recorded to interest expense. The Company enters into interest rate risk management arrangements with financial institutions meeting certain minimum financial criteria, and the related credit risk of non-performance by counter-parties is not deemed to be significant. 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 included 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 The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share, effective November 1, 1997. SFAS 128 requires the presentation of basic and diluted income per common share. Basic income per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted income per common share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants for all periods and convertible preferred stock for the year ended October 31, 1999. F-7 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) In accordance with the disclosure requirement of SFAS 128, a reconciliation of the numerator and denominator of basic and diluted income per common share is provided as follows (in thousands, except per share data):
Years ended October 31, ----------------------------- 1999 1998 1997 ------- ------- ------- Numerator--Basic Net income available for common stockholders ...... $33,248 $22,667 $11,505 ======= ======= ======= Denominator--Basic Weighted-average common stock outstanding ......... 15,499 14,963 10,018 ======= ======= ======= Basic income per share $ 2.14 $ 1.51 $ 1.15 ======= ======= ======= Numerator--Diluted Net income available for common stockholders ...... $33,248 $22,667 $11,505 Preferred stock dividend ........................... 3,333 -- -- ------- ------- ------- Net income .......................................... $36,581 $22,667 $11,505 ======= ======= ======= Denominator--Diluted Weighted-average common stock outstanding ......... 15,499 14,963 10,018 Effect of dilutive securities: Stock options .................................... 1,180 845 647 Convertible preferred stock ........................ 1,805 -- -- ------- ------- ------- 18,484 15,808 10,665 ======= ======= ======= Diluted income per share .............................. $ 1.98 $ 1.43 $ 1.08 ======= ======= =======
Stock options to purchase 13,525 shares of Common Stock at prices ranging from $13.63 to $31.25 per share were outstanding at October 31, 1997, 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 common shares. Convertible subordinated debt was not included in the computation of diluted income per share because it would be anti-dilutive. Stock options to purchase 7,000 shares of Common Stock at prices ranging from $16.13 to $31.25 per share were outstanding at October 31, 1998, 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 common shares. 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 the common shares. Convertible subordinated debt was not included in the computation of diluted income per share because it would be anti-dilutive. 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. F-8 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) Reporting Comprehensive Income The Company adopted Statement of Financial Accounting Standards No. 130 "Reporting of Comprehensive Income" ("SFAS 130"), in fiscal 1999. SFAS 130 establishes new standards for reporting and display of comprehensive income and its components. Other comprehensive income refers to revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net earnings as these amounts are recorded directly as an adjustment to stockholders' equity. The Company's comprehensive income is primarily comprised of foreign currency translation adjustments. Adoption of Statements of Financial Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments that are embedded in other contracts, and for hedging activities. However, SFAS 133 was effective for all fiscal quarters of all fiscal years beginning after June 15, 1999; however, in July 1999, the FASB issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date until the first quarter ending June 30, 2000. The Company will adopt SFAS 133 in its quarter ending July 31, 2000 and does not expect such adoption to have a material adverse effect on its financial position or results of operations. Reclassifications Certain reclassifications have been made to the 1997 and 1998 financial statements to conform to the 1999 presentation with no effect on net income as previously reported. NOTE 2. QUASI-REORGANIZATION In conjunction with a restructuring completed in fiscal year 1990, the Company, with the approval of its Board of Directors, implemented a quasi-reorganization effective February 21, 1990 and revalued certain assets and liabilities to fair value as of that date. The fair values of the Company's assets and liabilities at the date of the quasi-reorganization were determined by management to approximate their carrying value and no further adjustment of historical bases was required. No assets were written-up in conjunction with the revaluation. As part of the quasi-reorganization, the deficit in retained earnings of $92.5 million was eliminated against additional paid-in capital. The balance in retained earnings at October 31, 1999, represents the accumulated net earnings subsequent to the date of the quasi-reorganization. NOTE 3. ACQUISITIONS During the 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 $388.3 million has been allocated to goodwill and is being amortized over 40 years. The operating results of D-M are included in the Company's results of operations from the date of purchase. F-9 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) The following unaudited proforma summary presents the consolidated results of operations as if the D-M acquisition had occurred at the beginning of periods presented and does not purport to indicate what would have occurred had the acquisition been made as of that date or of results which may occur in the future. Years Ended October 31: 1999 1998 ------------ ------------ (In thousands, except per share amounts) unaudited Revenues .................. $2,089,701 $1,895,184 Net income ............... $ 31,101 $ 11,071 Net income per share ...... $ 1.46 $ .70 During the year ended October 31, 1999, the Company acquired privately-held T-C for an aggregate purchase price of $13.6 million including assumption of its debt. The total purchase price was paid in cash. The acquisition has been accounted for by the purchase method of accounting and the excess of the fair value of the net assets acquired over the purchase price in the amount of $10.0 million has been allocated to goodwill and is being amortized over 30 years. The operating results of T-C are included in the Company's results of operations from the date of purchase. Pro forma operating results for the twelve months ended October 31, 1999 and 1998, as if the acquisition had been made on November 1, 1997, are not presented because they would not be materially different from the Company's reported results. During the year ended October 31, 1998, the Company acquired W-C for an aggregate purchase price of $132.4 million, comprising cash of $39.2 million, assumption of debt of $31.1 million, and 4 million shares of the Company's Common Stock valued at $61.9 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 $92.1 million has been allocated to goodwill and is being amortized over 30 years. The operating results of W-C 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 W-C acquisition had occurred at the beginning of fiscal year end October 31, 1997, and does not purport to indicate what would have occurred had the acquisition been made as of that date or of results which may occur in the future. Fiscal Year Ended October 31: 1997 --------------------------------------- (In thousands, except per share data) unaudited Revenues .................. $753,430 Net income ............... $ 16,211 Net income per share ...... $ 1.09 During the year ended October 31, 1999, the Company provided for $37.0 million of costs in connection with the acquisition of D-M and the Company's reorganization plans to integrate D-M's operations into the Company. This consists of project claims and cost over-runs, lease fees, severance and miscellaneous items. This estimate might increase due to additional expenses directly related to the transaction not identified as of October 31, 1999. F-10 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) The following table summarizes the activity in the 1999 D-M merger-related accruals during the year ended October 31, 1999. The balance of the accrual at October 31, 1999, is included in Accrued Expenses on the consolidated balance sheet. Merger- Balance Related October 31, Accruals Payments 1999 ---------- ---------- ------------- (In millions) Project claims .................. $ 10.0 $ -- $ 10.0 Severance and related costs ...... 7.0 (2.1) 4.9 Lease termination fees and project cost over-runs .................. 15.0 (0.5) 14.5 Miscellaneous expenses ............ 5.0 (1.4) 3.6 ------ ------ ------ Total ........................... $ 37.0 $ (4.0) $ 33.0 ====== ====== ====== During the year ended October 31, 1998, the Company provided for $10.8 million of costs related to the acquisition of W-C and the Company's reorganization plans to integrate W-C's operations into the Company. This consisted of project claims, lease fees, severance and miscellaneous items. The following table summarizes the activity in the W-C merger-related accruals during the year ended October 31, 1999. The balance of the accrual at October 31, 1999 is included in Accrued Expenses on the consolidated balance sheet. Merger Balance Related October 31, Accruals Payments 1999 ---------- ---------- ------------- (In millions) Project claims .................. $ 2.2 $ -- $ 2.2 Severance and related costs ...... 3.9 (3.9) -- Lease termination fees ............ 1.5 (0.6) 0.9 Miscellaneous expenses ............ 3.2 (3.2) -- ----- ------ ----- Total ........................... $10.8 $ (7.7) $ 3.1 ===== ====== ===== NOTE 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following: October 31, ------------------------ 1999 1998 -------- --------- (In thousands) Equipment ....................................... $124,061 $ 55,628 Furniture and fixtures ........................... 22,581 17,417 Leasehold improvements ........................... 14,400 7,773 Building .......................................... 487 -- Land ............................................. 117 -- -------- --------- 161,646 80,818 Less: accumulated depreciation and amortization (68,481) (51,301) -------- --------- Net property and equipment ..................... $ 93,165 $ 29,517 ======== ========= Depreciation expense for the years ended 1999, 1998 and 1997 was $17.3 million, $9.7 million and $5.7 million, respectively. F-11 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) NOTE 5. 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, 1999 and 1998, was $26.9 million and $14.8 million, respectively. Goodwill is amortized on the straight-line method over periods ranging from 30 to 40 years. NOTE 6. INCOME TAXES The components of income tax expense applicable to the operations each year are as follows: Years Ended October 31, ------------------------------------ 1999 1998 1997 --------- --------- ------------ (In thousands) Current: Federal ........................... $17,820 $ 11,170 $ 7,580 State and local .................. 3,380 1,920 1,860 Foreign ........................... 450 220 -- ------ ------- -------- Subtotal ........................... 21,650 13,310 9,440 ------ ------- -------- Deferred: Federal ........................... 7,687 5,320 (1,450) State and local .................. 583 170 (290) Foreign ........................... (220) -- -- ------ ------- -------- Subtotal ........................... 8,050 5,490 (1,740) ------ ------- -------- Total tax provision ...... $29,700 $ 18,800 $ 7,700 ====== ======= ======== As of October 31, 1999, the Company has available net operating loss ("NOL") carryforwards for Federal income tax and financial statement purposes of $3.8 million which expires fiscal year beginning 2004. The Company's NOL utilization is limited to $750,000 per year pursuant to Section 382 of the Internal Revenue Code, related to the Company's October 1989 quasi-reorganization. The Company also has available $17.3 million of foreign NOLs. These NOLs are available only to offset income earned in foreign jurisdictions and these NOLs 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. F-12 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, -------------------------- 1999 1998 ----------- ------------ (In thousands) Current: Allowance for doubtful accounts ............ $ 3,645 $ 861 Payroll related accruals .................. 9,956 2,286 Restructuring contingency accrual ......... 2,827 764 Other accruals .............................. 4.990 1,296 -------- -------- Current deferred tax asset .................. 21,418 5,207 -------- -------- Revenue retentions ........................ (1,548) (3,614) Acquisition liabilities ..................... (9,865) (1,593) -------- -------- Current deferred tax liability ............ (11,413) (5,207) ------- - -------- Net current deferred tax asset ............ $ 10,005 $ -- ======== ======== Non-Current: Deferred compensation and pension ......... $ 1,725 $ 609 Self-insurance contingency accrual ......... 1,971 2,244 Depreciation and amortization ............... 1,251 -- Foreign tax credit ........................ 1,583 -- Net operating loss ........................ 6,888 4,330 -------- -------- Gross non-current deferred tax asset ...... 13,418 7,183 Valuation allowance ........................ (6,888) (4,330) -------- -------- Net non-current deferred tax asset ......... 6,530 2,853 -------- -------- Cash to accrual ........................... (3,252) -- Acquisition liabilities ..................... (5,950) (3,097) Other deferred gain and unamortized bond premium .............................. (1,099) (1,269) Mark to market .............................. (1,731) (2,645) Depreciation and amortization ............... (5,802) (218) Other accruals .............................. (3,963) (1,001) ------- - -------- Non-current deferred tax liability ......... (21,797) (8,230) -------- -------- Net non-current deferred tax liability ...... $(15,267) $ (5,377) ======== ======== The net change in the total valuation allowance related to deferred tax assets for the year ended October 31, 1999, was a decrease of $260,000 due to the utilization of net operating losses, an increase of $1.2 million for current year foreign losses not benefited, and an increase of $1.7 million resulting from the D-M and T-C acquisitions. F-13 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, ------------------------------------ 1999 1998 1997 ---------- --------- ----------- (In thousands) Federal income tax expense based upon Federal statutory tax rate of 35% ................................................ $23,140 $14,520 $ 6,720 Nondeductible goodwill amortization ........................... 3,080 1,460 620 Meals and entertainment ....................................... 988 777 346 Non-deductible expenses ....................................... 925 53 134 NOL carryforwards utilized .................................... (263) (260) (260) Unbenefited foreign losses ....................................... 900 -- -- Foreign tax credit utilized .................................... (250) -- -- Foreign earnings taxed at rates lower than U.S. statutory rate ... (410) -- -- State taxes, net of Federal benefit ........................... 2,700 1,890 1,120 Adjustment due to change in Federal and state rates ............ -- (420) (610) Utilization of deferred tax allowance and other adjustments ...... (1,110) 780 (370) ------- ------- ------ Total taxes provided .......................................... $29,700 $18,800 $ 7,700 ======= ======= ======
NOTE 7. RELATED PARTY TRANSACTIONS The Company had agreements for business consulting services to be provided by BLUM Capital Partners, L.P. ("BLUM"), (formerly Richard C. Blum & Associates L.P.) and Richard C. Blum, a Director of the Company. Under these agreements, the Company paid $60,000, $90,000 and $90,000; $40,000, $60,000 and $60,000 to BLUM and Richard C. Blum, respectively, during each of fiscal 1999, 1998 and 1997. However, these agreements were terminated effective June 1999. Richard C. Blum also received an additional cash amount of $21,000, $21,500 and $15,000 for his services as a Director of the Company in fiscal 1999, 1998 and 1997, respectively. On February 12, 1997, Wells Fargo Bank, N.A. ("the Bank") exercised the 435,562 warrants held by the Bank at $4.34 per share, resulting in the issuance of an additional 435,562 shares of Common Stock to the Bank and an additional paid-in capital of approximately $1.9 million. On February 14, 1997, various partnerships managed by BLUM exercised 1,383,586 warrants held by such entities at $4.34 per share. The exercise price of these warrants was paid by a combination $2.0 million of cash and the cancellation of the $3.0 million amount of debt drawn under the Company's line of credit with certain BLUM entities That line of credit was then cancelled. The exercise resulted in the issuance of an additional 1,383,586 shares of Common Stock to the BLUM entities. These equity transactions are reflected in the Company's financial statements. See Note 12, Preferred Stock, for a discussion of preferred stock issued to RCBA Strategic Partners, L.P. ("RCBA Strategic Partners"). F-14 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) NOTE 8. NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt consists of the following:
October 31, ----------------------- 1999 1998 ---------- ---------- (In thousands) Third party: Bank term loans, payable in quarterly installments ............... $446,756 $ 97,778 12 1/4% Senior Subordinated Notes due 2009 ...................... 200,000 -- 6 1/2% Convertible Subordinated Debentures due 2012 (net of bond issue costs of $31 and $34) ........................ 1,904 2,003 8 5/8% Senior Subordinated Debentures due 2004 (net of discount and bond issue costs of $2,815 and $3,162) (effective interest rate on date of restructuring was 25%) ...... 3,640 3,293 10.95% note payable, due in annual installments through 2001 (net of issue costs of $26 and $52) .............................. 1,377 1,951 Obligations under capital leases ................................. 18,429 10,071 Foreign collateralized lines of credit ........................... 16,274 920 -------- -------- 688,380 116,016 Less: Current maturities of long-term debt ........................... 17,625 16,501 Current maturities of notes payable ........................... 17,040 1,519 Current maturities of capital leases ........................... 4,758 3,039 -------- -------- $648,957 $ 94,957 ======== ========
During fiscal 1999, the Company incurred new borrowings from 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 June 9, 1999, ("Funding Date") and provides for three term loan facilities in the aggregate amount of $450 million and a revolving credit facility in the amount of $100 million. The term loan facilities consist of Term Loan A, a $250 million tranche, Term Loan B, a $100 million tranche and Term Loan C, another $100 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 following four quarters. Thereafter and through the sixth anniversary of the Funding Date, annual principal payments under Term Loan A range from $25.0 million to a maximum of $62.5 million with Term Loan A expiring and the then-outstanding principal amount becoming due and repayable in full on the sixth anniversary of the Funding Date. Principal amounts under Term Loan B become due, commencing on October 31, 1999, in the amount of $1.0 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 four equal quarterly installments in year seven. Principal amounts under Term Loan C become due, commencing on October 31, 1999, in the amount of $1.0 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 in year eight. The revolving credit facility expires, and is repayable in full, on the sixth anniversary of the Funding Date. The term loans each bear interest at a rate per annum equal to, at 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, either the Base Rate, LIBOR or the Adjusted F-15 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) 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 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 interest periods will apply for such periods for both term loans and the revolving credit facility. The revolving credit facility is governed by affirmative and negative covenants. These covenants include restrictions upon incurring additional debt, paying dividends, or making distributions to its stockholders, repurchasing or retiring capital stock, making subordinated junior debt payments and submitting quarterly compliance certification. The financial covenants include maintenance of a minimum current ratio of 1.20 to 1.00, a minimum fixed charge coverage ratio of 1.10 to 1.00, a proforma EBITDA minimum of $142 million and a maximum leverage ratio of 4.75 to 1.00 for the year ended October 31, 1999. The Company was fully compliant with these covenants as of October 31, 1999. Notes 12 1/4% senior subordinated notes ("Notes"). The Company's Notes are due in 2009. Each note will initially bear interest at 12 1/4% per annum. Interest on the Notes will be payable semiannually on May 1 and November 1 of each year, commencing November 1, 1999. The Notes are subordinate to the senior collateralized credit facility. As of October 31, 1999, the Company owed $200 million on its Notes. The Notes are fully and unconditionally guaranteed on a joint and several basis by certain of the Company's wholly owned subsidiaries. The Company may redeem any of the Notes beginning May 1, 2004. The initial redemption price is 106.125% of their principal amount, plus accrued and unpaid interest. The redemption price will decline each year after 2004 and will be 100% of their principal amount, plus accrued and unpaid interest beginning on May 1, 2007. In addition, at any time prior to May 1, 2002, 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, 1999, the Company owed approximately $6.6 million on its 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 its common shares 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, 1999, the Company owed approximately $1.9 million on its 6 1/2% Debentures. Promissory Note As part of the W-C acquisition, the Company assumed the responsibility for a 10.95% promissory note payable to Weyerhaeuser Company. The note is paid in annual installments of $.8 million each January 31, 1998, 1999, 2000 and 2001. F-16 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) The Company maintains foreign lines of credit which are collateralized by assets of foreign subsidiaries having a carrying value of approximately $21.3 million at October 31, 1999. The interest rates for the foreign lines of credit were 7.21% plus applicable margins consistent with market conditions in the respective countries at October 31, 1999. The approximate weighted average interest rates on the foreign lines of credit ranged from 5.44% to 9.50% at October 31, 1999. Interest Rate Swaps The Company has entered into an interest rate swap agreement with the Bank. This interest rate swap effectively fixes the interest rate on $8.5 million of the Company's LIBOR based borrowings at 6.92% plus the applicable margin through April 30, 2000. The actual borrowing cost to the Company with respect to indebtedness covered by the interest rate swap will depend upon the applicable margin over LIBOR for such indebtedness, which will be determined by the terms of the relevant debt instruments. Currently, it is expected that the contractual margin will range from 2.75% to 3.50%, which will provide for an all-in annual interest rate range from 9.67% to 10.42%. The Company has entered into an additional interest rate swap agreement with the Bank. This interest rate swap effectively fixes the interest rate on $45.8 million of the Company's LIBOR based borrowings at 5.97% plus the applicable margin through January 31, 2001. The actual borrowing cost to the Company with respect to indebtedness covered by the interest rate swap will depend upon the applicable margin over LIBOR for such indebtedness, which will be determined by the terms of the relevant debt instruments. Currently, it is expected that the contractual margin will range from 2.75% to 3.50%, which will provide for an all-in annual interest rate range from 8.72% to 9.47%. Interest Rate Cap Agreements The Company entered into two interest rate cap agreements with the Bank. These agreements cap the Company's interest rate at 7% for $161.5 million and $9.2 million of the Company's LIBOR based borrowings through July 31, 2002, and April 30, 2000, respectively. Maturities The amounts of long-term debt outstanding (excluding foreign collateralized lines of credit and capital leases) at October 31, 1999, maturing in the next five years are as follows: (In thousands) 2000 ................................... $ 18,393 2001 ................................... 30,955 2002 ................................... 42,712 2003 ................................... 55,208 2004 ................................... 71,034 Thereafter ............................. 435,375 -------- $653,677 ======== < NOTE 9. OBLIGATIONS UNDER LEASES Total rental expense included in operations for operating leases for the fiscal years ended October 31, 1999, 1998 and 1997, amounted to $50.1 million, $30.6 million and $14.9 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. F-17 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) 2000 ............................................. $ 6,039 $ 52,930 2001 ............................................. 5,905 46,483 2002 ............................................. 4,476 35,365 2003 ............................................. 3,148 26,282 2004 ............................................. 1,448 18,464 Thereafter ....................................... 552 42,774 ------- -------- Total minimum lease payments ..................... 21,568 $222,298 ======== Less: amounts representing interest ............ 3,139 ------- Present value of net minimum lease payments ...... $18,429 ======= NOTE 10. SEGMENT AND RELATED INFORMATION In fiscal 1999, we adopted SFAS No. 131. SFAS No. 131 establishes standards for reporting information about operating segments and related disclosures about products, geographic information and major customers. Management has organized the Company by geographic divisions. The geographic divisions are Domestic and International. The Domestic division comprises all offices located in North America. The International division is comprised of all offices in Europe and Asia/Pacific (Australia, Indonesia, Singapore, New Zealand and the Philippines). Accounting policies for each of the reportable segments are the same as those described in Note 1, Accounting Policies. The Company provides services throughout the world. Services to other countries may be performed within the United States, generally revenues are classified within the geographic area where the services were performed. The following table shows summarized financial information on the Company's reportable segments. Included in the "Other" column are corporate related items and the elimination of inter-segment sales which are not significant. As of and for the year ended October 31, 1999:
Domestic International Other Total ---------- --------------- ------------ ---------- Revenue ..................... $1,270,517 $154,211 $ (6,206) $1,418,522 Segment operating income ...... $ 101,293 $ 778 $ (1,201) $ 100,870 Total accounts receivable ... $ 389,488 $ 66,169 $ (1,697) $ 453,960 Total assets ............... $2,142,028 $130,779 $(834,120) $1,437,487 As of and for the year ended October 31, 1998: Domestic International Other Total ---------- --------------- ------------ ---------- Revenue ..................... $ 752,196 $55,467 $ (1,717) $ 805,946 Segment operating income ... $ 48,269 $ 1,972 $ -- $ 50,241 Total accounts receivable ... $ 150,190 $11,552 $ -- $ 161,742 Total assets ............... $ 565,910 $32,117 $(146,323) $ 451,704
F-18 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) As of and for the year ended October 31, 1997:
Domestic International Other Total ---------- --------------- ------- ---------- Revenue ........................ $406,451 $ -- $ -- $406,451 Segment operating income ...... $ 24,007 $ -- $ -- $ 24,007 Total accounts receivable ...... $ 80,251 $ -- $ -- $ 80,251 Total assets .................. $210,091 $ -- $ -- $210,091
The Company's reportable segments are measured based upon segment operating income. The next table provides a reconciliation of operating income to consolidated income before income taxes. October 31, -------------------------------- 1999 1998 1997 -------- ------- ------- Segment operating income ...... $100,870 $50,241 $24,007 Interest expense, net ......... 34,589 8,774 4,802 -------- ------- ------- Income before taxes ............ $ 66,281 $41,467 $19,205 ======== ======= ======= The Company provides services to local, state and Federal government agencies, private businesses and internationally. For the three years ended October 31, 1999, our revenues were attributed to the following categories:
October 31, ------------------------------------------------------------------------ 1999 1998 1997 ----------------------- --------------------- ---------------------- (Dollars in thousands) Domestic: Local and state agencies $ 480,922 34% $346,072 43% $255,423 63% Federal agencies ......... 235,039 17 116,340 14 67,042 17 Private businesses ...... 558,314 39 288,067 36 83,986 20 International ............... 144,247 10 55,467 7 -- -- ---------- --- -------- --- -------- --- Total .................. $1,418,522 100% $805,946 100% $406,451 100% ========== === ======== === ======== ===
NOTE 11. COMMITMENTS AND CONTINGENCIES Currently, the Company has limits of $100 million per loss and $100 million in the annual aggregate for general liability, professional errors and omissions liability, and contractor's pollution liability insurance. Excess limits provided for these coverages are on a "claims made" basis, covering only claims actually made during the policy period currently in effect. Thus, if the Company does not continue to maintain these excess policies, it will have no coverage for claims made after its termination date even if the occurrence was during the term of coverage. It is the Company's intent to maintain these policies, but there can be no assurance that the Company can maintain existing coverages or that claims will not exceed the available amount of insurance. Various legal proceedings are pending against the Company or its subsidiaries alleging among other things breaches of contract or negligence in connection with the performance of professional services. In some actions punitive or treble damages are sought which substantially exceed the Company's insurance coverage. The Company's management does not believe that any of such proceedings will have a material adverse effect on the consolidated financial position and operations of the Company. NOTE 12. 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 for an aggregate consideration of $100 F-19 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) 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 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 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, 1999, the Company had 47,618 shares 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 4,600,000 shares in the aggregate as of October 31, 1999). In addition, the Company will have the right, on or after June 2002, to convert all, but not 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 exchange 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 13. 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 Notes. Further, declaration of dividends may be precluded by existing Delaware law. During fiscal year 1995, the Company repurchased a total of 42,000 shares of its Common Stock at an average repurchase price of $5.43, pursuant to a systematic repurchase plan approved by the Company's Board of Directors on September 13, 1994. The systematic repurchase plan expired on September 13, 1995. The Company, as of that date, had repurchased a total of 52,000 shares of its Common Stock at an average repurchase price of $5.49. 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 have been reserved for issuance under the 1999 Plan. As of October 31, 1999, the Company has not issued any restricted 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 206,200 shares of Restricted Stock 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 shall be 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 282,505 shares under the ESP Plan in fiscal 1999 and 209,482 shares in fiscal 1998. F-20 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) The Company applies APB 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 Plan 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, -------------------------------- 1999 1998 1997 --------- --------- --------- (In thousands, except per share data) Net income available for common stockholders: As reported. .............................. $ 33,248 $22,667 $11,505 Proforma .................................... $ 32,367 $22,343 $11,237 Basic earnings per share: As reported ................................. $ 2.14 $ 1.51 $ 1.15 Proforma .................................... $ 2.09 $ 1.49 $ 1.04 Dilutive earnings per share: As reported ................................. $ 1.98 $ 1.43 $ 1.08 Proforma ................................. $ 1.93 $ 1.41 $ 1.04
A summary of the status of the stock options granted under the Company's 1991 Plan for the years ended October 31, 1999, 1998, and 1997, is presented below:
1999 1998 1997 ------------------------- ------------------------- -------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------ ----------- ------------ ----------- ------------- ----------- Outstanding at beginning of year 2,031,094 $1.12 1,508,280 $ 7.70 1,382,434 $ 6.64 Granted. ........................ 835,500 $6.81 644,500 $14.63 280,000 $10.63 Exercised ........................ (350,099) $6.67 (98,356) $ 7.07 (138,287) $ 7.52 Forfeited ........................ (121,786) $5.22 (23,330) $14.40 (15,867) $ 7.68 --------- --------- ---------- Outstanding at end of year ...... 2,394,709 $1.97 2,031,094 $11.12 $1,508,280 $ 7.70 ========= ========= ========== Options exercisable at year-end ... 1,133,788 $7.72 1,154,388 $ 6.96 1,064,683 $ 6.50 Weighted-average fair value of options granted during the year 6.53 3.55 3.30
F-21 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) The following table summarizes information about stock options outstanding at October 31, 1999, 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 - ----------------- ------------- ------------------ ------------------ ------------- ------------------ $ 2.85 - $ 5.70 251,000 1.3 $ 3.19 251,000 $ 3.19 $ 5.70 - $ 8.55 534,800 4.2 $ 6.85 533,800 $ 6.05 $ 8.55 - $11.40 269,758 6.5 $10.33 185,471 $10.25 $11.40 - $14.25 50,000 8.0 $13.98 20,001 $13.92 $14.25 - $17.10 1,205,151 9.0 $15.35 143,516 $14.72 $19.96 - $22.80 24,000 9.3 $21.91 -- $ -- $25.65 - $28.50 60,000 8.1 $28.08 -- $ -- --------- --------- 2,394,709 1,133,788 ========= =========
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: 1999 1998 1997 ------------- ------------- ------------- Risk-free interest rates ...... 4.70%-5.97% 4.43%-5.79% 5.81%-6.53% Expected life .................. 4 years 4 years 4 years Volatility ..................... 41.06% 28.30% 24.73% Expected dividends ............ None None None NOTE 14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Years Ended October 31, -------------------------------- 1999 1998 1997 --------- --------- -------- (In thousands) Interest ............................... $24,903 $ 7,857 $5,181 Income taxes ............................ $22,562 $18,398 $8,780 In February 1997, BLUM exercised certain warrants. The exercise price of these warrants was paid by a combination of $2.0 million of cash and the cancellation of $3.0 million of debt drawn under the Company's line of credit with certain BLUM entities. The Company's operating cash flow and working capital requirements have grown substantially due to its acquisition growth strategy. The Company intends to satisfy its working capital needs primarily through internal cash generation. As a professional services organization, the Company is not capital intensive. Capital expenditures, historically, have been for computer-aided design and general purpose computer equipment to accommodate its growth. Capital expenditures during fiscal years 1999, 1998 and 1997 were $20.2 million, $12.2 million and $5.1 million, respectively. The Company expects to continue to have capital outlays consistent with the resulting relative growth of the Company. NOTE 15. 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 $7.7 million, $4.9 million and $2.0 million to the plans in fiscal 1999, 1998 and 1997, respectively. F-22 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) 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 ERISA. For the year ended October 31, 1999, the Company expensed $669,000 for this Agreement. Due to the acquisition of D-M, certain of the Company's foreign subsidiaries have trusteed 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 year ending October 31, 1999 was $963,000. 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, 1999, 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. Management's estimate of accumulated benefits for the Radian SERP and SCA as of October 31, 1999, were as follows: Actuarial present value of accumulated benefits: (In thousands) Vested ............................................. $10,674 Non-vested .......................................... 868 ------- Total ................................................ $11,542 ======= The weighted-average discount rate used for the period was 7.0%. Change in benefit obligation: Benefit obligation June 1999, D-M acquisition ...... $11,196 Service cost ....................................... 28 Interest cost ....................................... 326 Amortization of unrecognized service cost ......... -- ------- Net period cost ..................................... 354 ------- Actuarial loss .................................... -- Benefit payments .................................... (8) ------- Benefit obligation at October 31, 1999 ............ $11,542 ======= F-23 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) The funded status of the plans at October 31, 1999: Projected benefit obligation ............................. $11,542 Plan assets available for benefits ....................... -- ------- Deficiency of assets over projected benefit obligations .. 11,542 Unrecognized actuarial loss ............................. -- Unrecognized prior service costs ....................... -- ------- Accrued pension liability ................................ $11,542 ======= Management's estimate of the funded status of the Radian post-retirement program at October 31, 1999, is as follows: Accumulated post-retirement benefit obligation ("APBO"): Retirees .................................................... $204 Active plan participants, fully eligible ................... 139 Active plan participants, not yet fully eligible ............. 558 ----- Total APBO .................................................... 901 Unrecognized net loss from past experience different from that assumed and from changes in assumptions ...................... -- ----- Accrued post-retirement benefits ............................ $901 ===== The weighted-average discount rate used in determining the APBO was 6.75%. NOTE 16. VALUATION AND ALLOWANCE ACCOUNTS
Additions Charged to Deductions Beginning Costs and from Ending Balance Expenses Reserves Balance ----------- ------------ ----------- --------- (In thousands) October 31, 1999 Allowances for losses and doubtful accounts ... $ 14,102 $ 40,772 $14,263 $40,611 October 31, 1998 Allowances for losses and doubtful accounts ... $ 3,326 $ 11,721 $ 945 $14,102 October 31, 1997 Allowances for losses and doubtful accounts ... $ 4,866 $ 995 $ 2,535 $ 3,326
The allowances for losses and doubtful accounts increased significantly in fiscal 1999 and 1998 due to the acquisitions of D-M and W-C. F-24 URS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued) NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (unaudited) Selected quarterly financial data for fiscal 1999 and 1998 is summarized as follows:
Fiscal 1999 Quarters Ended ----------------------------------------------- Jan. 31 Apr. 30 July 31 Oct. 31 -------- -------- -------- -------- (In thousands, except per share data) Revenues .......................................... $199,057 $222,219 $428,482 $568,764 Operating income ................................. $ 11,992 $ 15,189 $ 29,565 $ 44,124 Net income available for common stockholders ...... $ 5,672 $ 6,995 $ 9,051 $ 11,530 Income per share: Basic .......................................... $ .37 $ .46 $ .58 $ .73 ======== ======== ======== ======== Diluted ....................................... $ .35 $ .42 $ .53 $ .68 ======== ======== ======== ======== Weighted-average number of shares .................. 16,371 16,532 19,578 21,513 Fiscal 1998 Quarters Ended ----------------------------------------------- Jan. 31 Apr. 30 July 31 Oct. 31 -------- -------- -------- -------- (In thousands, except per share data) Revenues .......................................... $186,156 $195,182 $207,484 $217,124 Operating income ................................. $ 9,578 $ 11,416 $ 14,271 $ 14,976 Net income available for common stockholders ...... $ 4,169 $ 4,943 $ 6,389 $ 7,166 Income per share: Basic .......................................... $ .28 $ .33 $ .43 $ .47 ======== ======== ======== ======== Diluted ....................................... $ .27 $ .31 $ .40 $ .45 ======== ======== ======== ======== Weighted-average number of shares .................. 15,632 15,723 15,970 15,961
Operating income represents income from operations before interest income and expense. NOTE 18. SUPPLEMENTAL GUARANTOR INFORMATION In June 1999, the Company completed a private placement of $200 million principal amount of its Senior Subordinated Notes due 2009, which Notes were exchanged in August 1999 for 12 1/4% Senior Subordinated Notes due 2009. The Notes are fully and unconditionally guaranteed on a joint and several basis by certain of the Company's wholly-owned subsidiaries. Substantially all of the Company's income and cash flow is generated by its subsidiaries. The Company has no operating assets or operations other than its investments in its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in large part by distributions to or advances from its subsidiaries. Under certain circumstances, contractural and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. The following information sets forth the condensed consolidating balance sheet of the Company as of October 31, 1999 and 1998, and the condensed consolidating statements of operations and cash flows for the years ended October 31, 1999 and 1998. As of and for the year ended October 31, 1997, the Company did not have material foreign operations; therefore, the subsidiary guarantor information would not be relevant and no consolidating financial statements as of and for the year then ended have been presented. 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. F-25 URS CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET (In thousands)
October 31, 1999 ---------------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------ ------------ ------------ -------------- -------------- ASSETS Current assets: Cash ................................. $ 6,722 $ 17,028 $ 21,937 $ -- $ 45,687 Accounts receivable, net ............ -- 389,488 66,169 (1,697) 453,960 Costs and accrued earnings in excess of billings on contracts in process, net ........................ (15,000) 202,671 24,649 (319) 212,001 Deferred income taxes ............... -- 8,681 1,324 -- 10,005 Prepaid expenses and other assets ..... 4,640 18,624 847 -- 24,111 --------- ---------- -------- ---------- ---------- Total current assets ............... (3,638) 636,492 114,926 (2,016) 745,764 Property and equipment, net ............ 445 81,526 11,194 -- 93,165 Goodwill, net ........................ 233,081 322,363 3,633 (29,380) 529,697 Investment in unconsolidated subsidiaries ........................ 252,025 554,834 3,231 (810,090) -- Accounts receivable, intercompany ...... -- 5,460 (4,207) (1,253) -- Other assets ........................... 12,025 46,215 2,002 8,619 68,861 --------- ---------- -------- ---------- ---------- Total assets ........................ $ 493,938 $1,646,890 $130,779 $ (834,120) $1,437,487 ========= ========== ======== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Long-term debt, current portion ...... $ 17,625 $ 11,733 $ -- $ (11,733) $ 17,625 Notes payable ........................ 767 119 16,154 -- 17,040 Obligations under capital leases ...... -- 4,662 96 -- 4,758 Trade payables ........................ 27,381 95,277 13,686 (6,299) 130,045 Intercompany payable .................. (471,007) 452,321 54,447 (35,761) -- Billings in excess of costs and accrued earnings on contracts in process .............................. -- 70,369 4,280 (4,336) 70,313 Accruals .............................. -- 68,613 28,185 50,098 146,896 --------- ---------- -------- ---------- ---------- Total current liabilities ............ (425,234) 703,094 116,848 (8,031) 386,677 Long-term debt ........................ 635,016 168 102 -- 635,286 Obligations under capital leases ...... -- 13,372 299 -- 13,671 Other ................................. 72,041 75,400 694 (56,784) 91,351 --------- ---------- -------- ---------- ---------- Total liabilities .................. 281,823 792,034 117,943 (64,815) 1,126,985 Total stockholders' equity ............ 212,115 854,856 12,836 (769,305) 310,502 --------- ---------- -------- ---------- ---------- Total liabilities and stockholders' equity ........................... $ 493,938 $1,646,890 $130,779 $ (834,120) $1,437,487 ========= ========== ======== ========== ==========
F-26 URS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In thousands)
Year Ended October 31, 1999 ------------------------------------------------------------------------ Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------ ------------ ------------ -------------- -------------- Revenues ........................ $ -- $1,270,517 $154,211 $ (6,206) $1,418,522 --------- ----------- -------- -------- ---------- Expenses: Direct operating ............... -- 765,527 93,607 (4,614) 854,520 Indirect, general and administrative ............... 14,541 389,156 59,826 (391) 463,132 Interest expense, net ............ 34,069 -- 520 -- 34,589 --------- ----------- -------- -------- ---------- 48,610 1,154,683 153,953 (5,005) 1,352,241 --------- ----------- -------- -------- ---------- Income (loss) before taxes ...... (48,610) 115,834 258 (1,201) 66,281 Income tax expense ............... 29,130 -- 562 8 29,700 --------- ----------- -------- -------- ---------- Net income ..................... (77,740) 115,834 (304) (1,209) 36,581 Preferred stock dividend ......... 3,333 -- -- -- 3,333 --------- ----------- -------- -------- ---------- Net income (loss) available for common stockholders ............ (81,073) 115,834 (304) (1,209) 33,248 Other comprehensive income, net of tax: Foreign currency translation adjustments .................. -- -- 197 -- 197 --------- ----------- -------- -------- ---------- Comprehensive income (loss) ...... $ (81,073) $ 115,834 $ (107) $ (1,209) $ 33,445 ========= =========== ======== ======== ==========
F-27 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) $ 115,834 $ (304) $ (1,209) $ 36,581 ---------- --------- --------- ---------- ---------- Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization ............ 8,662 23,162 1,940 -- 33,764 Allowance for doubtful accounts and losses ................................. -- (231) (51) (3) (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 .................. -- (221,410) (30,211) 165,355 (86,266) Prepaid expenses and other assets ......... (3,376) (6,768) 1,236 7,171 (1,737) Accounts payable, accrued salaries and wages and accrued expenses ............... 63,181 120,758 38,084 (237,238) (15,215) Billings in excess of costs and accrued earnings on contracts in process ......... -- 35,931 3,263 (5,887) 33,307 Deferrals and other, net .................. (10,033) (30,015) (1,875) 48,801 6,878 ---------- --------- --------- ---------- ---------- Total adjustments ........................ 60,160 (78,573) 12,386 (21,801) (27,828) ---------- --------- --------- ---------- ---------- Net cash provided (used) by operating activities .............................. (17,580) 37,261 12,082 (23,010) 8,753 ---------- --------- --------- ---------- ---------- Cash flows from investing activities: Payment for business acquisition, net of cash acquired ..................... (316,167) -- -- -- (316,167) Capital expenditures ..................... (41) (39,770) (3,447) 23,010 (20,248) ---------- --------- --------- ---------- ---------- Net cash (used) by investing activities . (316,208) (39,770) (3,447) 23,010 (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 ...... (578,904) (11,336) (2,982) -- (593,222) Proceeds from sale of common shares ......... 4,775 -- -- -- 4,775 Proceeds from exercise of stock options ................................. 2,363 -- -- -- 2,363 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 increase (decrease) in cash ............ (20,227) 10,490 18,895 -- 9,158 Cash at beginning of year .................. 26,949 6,538 3,042 -- 36,529 ---------- --------- --------- ---------- ---------- Cash at end of year ........................ $ 6,722 $ 17,028 $ 21,937 $ -- $ 45,687 ========== ========= ========= ========== ==========
F-28 URS CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET (In thousands)
October 31, 1998 -------------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ---------- ------------ ------------ -------------- -------------- ASSETS Current assets: Cash .......................................... $ 26,949 $ 6,538 $ 3,042 $ -- $ 36,529 Accounts receivable, net ..................... -- 150,190 11,552 -- 161,742 Costs and accrued earnings in excess of billings on contracts in process, net ...... -- 73,557 4,324 -- 77,881 Prepaid expenses and other assets ............ 1,264 8,538 231 -- 10,033 -------- -------- -------- ---------- -------- Total current assets ........................ 28,213 238,823 19,149 -- 286,185 Property and equipment, net .................. 404 26,084 3,041 (12) 29,517 Goodwill, net ................................. 89,100 40,648 (12) 12 129,748 Investment in unconsolidated subsidiaries ...... 101,251 -- -- (101,251) -- Accounts receivable, intercompany ............ 16,396 18,864 9,812 (45,072) -- Other assets ................................. 1,692 4,435 127 -- 6,254 -------- -------- -------- ---------- -------- Total assets .............................. $237,056 $328,854 $ 32,117 $ (146,323) $451,704 ======== ======== ======== ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Long-term debt, current portion ............... $ 17,101 $ 331 $ 920 $ (9) $ 18,343 Trade payables .............................. 911 34,695 1,630 -- 37,236 Intercompany payable ........................ -- 23,941 26,713 (50,654) -- Billings in excess of costs and accrued earnings on contracts in process ............ -- 34,438 1,017 -- 35,455 Accruals .................................... 9,975 49,356 4,851 -- 64,182 -------- -------- -------- ---------- -------- Total current liabilities .................. 27,987 142,761 35,131 (50,663) 155,216 Obligations under capital leases ............... -- 7,033 1 -- 7,034 Long-term debt ................................. 87,923 -- -- -- 87,923 Other .......................................... 4,786 30,091 294 -- 35,171 -------- -------- -------- ---------- -------- Total liabilities ........................... 120,696 179,885 35,426 (50,663) 285,344 Total stockholders' equity (deficit) ......... 116,360 148,969 (3,309) (95,660) 166,360 -------- -------- -------- ---------- -------- Total liabilities and stockholders' equity .................................... $237,056 $328,854 $ 32,117 $ (146,323) $451,704 ======== ======== ======== ========== ========
F-29 URS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In thousands)
Year Ended October 31, 1998 ------------------------------------------------------------------------ Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------ ------------ ------------ -------------- -------------- Revenues .............................. $ -- $752,196 $55,467 $ (1,717) $805,946 -------- -------- ------- -------- -------- Expenses: Direct operating ..................... -- 446,963 33,394 (1,717) 478,640 Indirect, general and administrative 7,137 249,827 20,101 -- 277,065 Interest expense, net ............... 8,274 -- 500 -- 8,774 -------- -------- ------- -------- -------- 15,411 696,790 53,995 (1,717) 764,479 -------- -------- ------- -------- -------- Income (loss) before taxes ............ (15,411) 55,406 1,472 -- 41,467 Income tax expense ..................... 18,447 -- 353 -- 18,800 -------- -------- ------- -------- -------- Net income (loss) ..................... $ (33,858) $ 55,406 $ 1,119 $ -- $ 22,667 ========= ======== ======= ======== ========
F-30 URS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In thousands)
Year Ended October 31, 1998 ------------------------------------------------------------------------- Subsidiary Subsidiary Non- Parent Guarantors Guarantors Eliminations Consolidated ------------- ------------ ------------ -------------- -------------- Cash flows from operating activities: Net income (loss) .................. $ (33,858) $ 55,406 $ 1,119 $ -- $ 22,667 --------- --------- -------- -------- --------- Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization ...... 6,606 11,041 909 -- 18,556 Allowance for doubtful accounts and losses ........................ -- (2,259) (92) -- (2,351) Changes in current assets and liabilities: Accounts receivable and costs and accrued earnings in excess of billings on contracts in process ... -- (16,528) (1,314) 4,881 (12,961) Prepaid expenses and other assets . 4,043 (4,597) 600 (71) (25) Accounts payable, accrued salaries and wages and accrued expenses 1,117 8,625 (362) (7,194) 2,186 Billings in excess of costs and accrued earnings on contracts in process ........................... -- (994) 1,017 -- 23 Deferred income taxes and other, net .............................. 9,272 -- 133 3,290 12,695 --------- --------- -------- -------- --------- Total adjustments .................. 21,038 (4,712) 891 906 18,123 --------- --------- -------- -------- --------- Net cash provided (used) by operating activities ............... (12,820) 50,694 2,010 906 40,790 --------- --------- -------- -------- --------- Cash flows from investing activities: Payment for business acquisition, net of cash acquired ............... (36,937) -- -- -- (36,937) Capital expenditures ............... (180) (11,516) (505) -- (12,201) --------- --------- -------- -------- --------- Net cash (used) by investing activities ........................ (37,117) (11,516) (505) -- (49,138) --------- --------- -------- -------- --------- Cash flows from financing activities: Payments of merger fees ............... (4,705) -- -- -- (4,705) Proceeds from issuance of debt ...... 110,000 -- 920 (920) 110,000 Principal payments on long-term debt .............................. (83,149) -- (22) 14 (83,157) Proceeds from sale of common shares ........................... 2,622 -- -- -- 2,622 Proceeds from exercise of stock options ........................... 1,983 -- -- -- 1,983 Payment on financing fees ............ (4,000) -- -- -- (4,000) --------- --------- -------- -------- --------- Net cash provided by financing activities ........................ 22,751 -- 898 (906) 22,743 --------- --------- -------- -------- --------- Net increase (decrease) in cash ...... (27,186) 39,178 2,403 -- 14,395 Cash at beginning of year ............ 54,135 (32,640) 639 -- 22,134 --------- --------- -------- -------- --------- Cash at end of year .................. $ 26,949 $ 6,538 $ 3,042 $ -- $ 36,529 ========= ========= ======== ======== =========
F-31 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 21, 2000 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 21, 2000. 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 21, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from Item 8, Consolidated Financial Statements and Supplementary Data, Note 8, Notes Payable and Long-Term Debt and Note 7, Related Party Transactions. F-32 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 October 31, 1999 and October 31, 1998 Consolidated Statements of Operations For the years ended October 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Stockholders' Equity For the years ended October 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows For the years ended October 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements (a)(2) Financial Statement Schedules 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)(3) 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. 33 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. 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. 34 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. 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 May 7, 1991, between URS Corporation and Kent P. Ainsworth, filed as Exhibit 10.16 to our 1991 Form 10-K and incorporated herein by reference. 10.12 Employment Agreement, dated August 1, 1991, between URS Consultants, Inc. and Irwin L. Rosenstein, filed as Exhibit 10.12 to our 1991 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 March 20, 1998, between URS Corporation and Joseph Masters filed as Exhibit 10.19 to our 1998 Form 10-K and incorporated herein by reference. 10.15 Amendment to Employment Agreement, dated October 11, 1994, between URS Consultants, Inc., and Irwin L. Rosenstein, filed as Exhibit 10.12(a) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and incorporated herein by reference. 10.16 Amendment to Employment Agreement dated as of October 13, 1998 between URS Corporation and Martin M. Koffel filed as Exibit 10.21 to our 1998 Form 10-K and incorporated herein by reference. 10.17 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 Kent P. Ainsworth, Joseph Masters, Martin Tanzer, Irwin L. Rosenstein, and Jean-Yves Perez filed as Exhibit 10.22 to our 1998 Form 10-K and incorporated herein by reference. 35 10.18 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. 10.19 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. 10.20 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. 10.21 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. 10.22 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. 10.23 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. 10.24 Stock Option Agreement, dated as of November 5, 1999, by and between URS Corporation and Martin M. Koffel. FILED HEREWITH. 10.25 Stock Option Agreement, dated as of November 5, 1999, by and between URS Corporation and Kent P. Ainsworth. FILED HEREWITH. 10.26 Stock Option Agreement, dated as of November 5, 1999, by and between URS Corporation and Joseph Masters. FILED HEREWITH. 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. 27 Financial Data Schedule (filed with electronic version only). (b) Reports on Form 8-K. We filed the following reports on Form 8-K during the quarter ended October 31, 1999: * Form 8-K/A dated August 4, 1999 to file financial statements of Dames & Moore Group. 36 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 31, 2000 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 31, 2000 - ----------------------------- and Chief Executive Officer (Martin M. Koffel) /s/ KENT P. AINSWORTH Executive Vice President, Chief January 31, 2000 - ----------------------------- Financial Officer, Principal (Kent P. Ainsworth) Accounting Officer and Secretary /s/ IRWIN L. ROSENSTEIN* Director January 31, 2000 - ----------------------------- (Irwin L. Rosenstein) /s/ RICHARD C. BLUM* Director January 31, 2000 - ----------------------------- (Richard C. Blum) /s/ RICHARD Q. PRAEGER* Director January 31, 2000 - ----------------------------- (Richard Q. Praeger) /s/ WILLIAM D. WALSH * Director January 31, 2000 - ----------------------------- (William D. Walsh) /s/ RICHARD B. MADDEN* Director January 31, 2000 - ----------------------------- (Richard B. Madden) /s/ ARMEN DER MARDEROSIAN* Director January 31, 2000 - ----------------------------- (Armen Der Marderosian)
37
Signature Title Date --------- ----- ---- Signature Title Date --------- ----- ---- /s/ ADM. S. ROBERT FOLEY, JR., Director January 31, 2000 USN (RET.)* - ----------------------------- (Adm. S. Robert Foley, Jr., USN (Ret.)) /s/ JEAN-YVES PEREZ* Director January 31, 2000 - ----------------------------- (Jean-Yves Perez) /s/ MARIE L. KNOWLES* Director January 31, 2000 - ----------------------------- (Marie L. Knowles) *By /s/ KENT P. AINSWORTH - ----------------------------- (Kent P. Ainsworth, Attorney-in-fact)
39 EX-10.24 2 STOCK OPTION AGREEMENT/MARTIN M. KOFFEL URS CORPORATION 1999 EQUITY INCENTIVE PLAN NONSTATUTORY STOCK OPTION AGREEMENT This NONSTATUTORY STOCK OPTION AGREEMENT (the "Agreement"), entered into as of November 5,1999, between URS CORPORATION, a Delaware corporation (the "Company"), and MARTIN M. KOFFEL (the "Optionee"), WITNESSETH WHEREAS, the Company's Board of Directors has established the URS Corporation 1999 Equity Incentive Plan in order to provide selected employees and consultants of the Company and its Subsidiaries with an opportunity to acquire Common Shares of the Company; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the Nonstatutory Stock Option described in this Agreement to the Optionee as an inducement to enter into or remain in the service of the Company and as an incentive for extraordinary efforts during such service. NOW, THEREFORE, it is agreed as follows: I. Grant of Option. A. Option. On the terms and conditions stated below, the Company hereby grants to the Optionee the option to purchase two hundred thousand (200,000) Common Shares at a price of Twenty-one Dollars and Forty-three and three quarters cents ($21.4375) per Common Share, which is agreed to be 100% of the fair market value thereof (as defined in the Plan) as of the Date of Grant. This option is not intended to be an Incentive Stock Opition. B. Equity Incentive Plan. This option is granted pursuant to the URS Corporation Equity Incentive Plan, a copy of which the Optionee acknowledges having received, read and understood. The provisions of the Plan are incorporated into this Agreement by this reference. Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Plan. 1. II. No Transfer or Assignment of Option. Except as otherwise provided In this Agreement, this option and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of any right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, this option and the rights and privileges conferred hereby shall immediately become null and void. III. Right to Exercise. A. Vesting. Subject to the conditions stated herein, this option shall become exercisable in installments as follows: Date Percentage Exercisable March 23,2000 20% March 23,2001 40% March 23,2002 60% March 23,2003 80% March 23,2004 100% In addition, this option shall become exercisable in its entirety in the event that (i) a Change in Control occurs with respect to the Company or (ii) the Optionee's employment as a Key Employee terminates by reason of his death, Total and Permanent Disability or retirement at or after age 65. B. Minimum Number. This option shall not be exercised for less than 100 Common Shares at any one time, except that it may be exercised for all of the Common Shares then remaining subject to option, if less than 100 Common Shares. 2. IV. Exercise Procedures. A. Notice of Exercise. The Optionee or the Optionee's representative may exercise this option by giving written notice to the Secretary of the Company pursuant to Section XI.D hereof. The notice shall specify the election to exercise this option and the number of Common Shares for which it is being exercised. The notice shall be signed by the person or persons exercising this option. In the event that this option is being exercised by the representative of the Optionee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative's right to exercise this option. The Optionee or the Optionee's representative shall deliver to the Secretary of the Company, at the time of giving the notice, payment in a form described in Section V hereof for the full amount of the Purchase Price. B. Issuance of Shares. After receiving a proper notice of exercise, the Company shall cause to be issued a certificate or certificates for the Common Shares as to which this option has been exercised, registered in the name of the person exercising this option (or in the names of such person and his spouse as community property or as joint tenants with right of survivorship). The Company shall cause such certificate or certificates to be delivered to or upon the order of the person exercising this option. V. Payment for Stock. Payment of the exercise price is due in fill upon exercise of all or any part of the option. The entire Purchase Price shall be paid in lawful money of the United States of America or in one of the forms described below: A. In the Company's sole discretion at the time this option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. B. Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, by delivery of already-owned shares of Common Stock either that the Optionee has held for the period required to avoid a charge to the Company's reported earnings (generally six months) or that the Optionee did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. "Delivery" for these purposes, in the sole discretion of the Company at the time the Optionee exercises this option, shall include delivery to the Company of the Optionee's attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, the Optionee may not exercise this option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. 3. VI. Term and Expiration. A. Basic Term. This option shall be in any event expire on the date 10 years after the Date of Grant. B. Termination of Service (Except by Death). If the Optionee's service as a Key Employee terminates for any reason other than death, then this option shall expire on the earliest of the following occasions: 1. The expiration date determined pursuant to Section VI.A above; 2. The date three months after the termination of the Optionee's service as a Key Employee for any reason other than retirement from the Company on or after the date the Optionee attains age 65 or Total and Permanent Disability; 3. The date 12 months after the termination of the Optionee' s service as a Key Employee because of his Total and Permanent Disability; or 4. The date three years after the Optionee's retirement from the Company if such retirement occurs on or after the date on which the Optionee attains age 65. The Optionee may exercise all or part of this option at any time before its expiration under the preceding sentence, but only to the extent that this option had become exercisable before the Optionee's service terminated or became exercisable as a result of the termination. The balance of this option shall lapse when the Optionee' s service as a Key Employee terminates. In the event that the Optionee dies after the termination of service but before the expiration of this option, all or part of this option may be exercised (prior to expiration) by the executors or administrators of the Optionee's estate or by any person who has acquired this option directly from the Optionee by bequest, beneficiary designation or inheritance, but only to the extent that this option had become exercisable before the Optionee's service terminated. C. Death of Optionee. If the Optionee dies as a Key Employee, then this option shall expire on the earlier of the following dates: 1. The expiration date determined pursuant to Section VI.A above; or 2. The date 12 months after the Optionee's death. All or part of this option may be exercised at any time before its expiration under the preceding sentence by the executors or administrators of the Optionee's estate or by any person who has acquired this option directly from the Optionee by bequest, beneficiary designation or inheritance, but only to the extent that this option had become exercisable before the Optionee's death or became exercisable as a result of the Optionee's death. The balance of this option shall lapse when the Optionee dies. 4. D. Leaves of Absence. For purposes of this Section VI, the Key Employee relationship shall be deemed to continue during any period when the Optionee is on military leave, sick leave or other bona fide leave of absence (to be determined in the sole discretion of the Committee). VII. Legality of Initial Issuance. No Common Shares shall be issued upon the exercise of this option unless and until the Company has determined that: A. It and the Optionee have taken any actions required to register the Common Shares under the Securities Act or to perfect an exemption from the registration requirements thereof; B. Any applicable listing requirement of any stock exchange on which Common Shares are listed has been satisfied; and C. Any other applicable provision of state or federal law has been satisfied. VIII. No Registration Rights. The Company may, but shall not be obligated to, register or qualify the sale of Common Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Common Shares under this Agreement to comply with any law. IX. Restrictions on Transfer of Shares. A. Restrictions. Regardless of whether the offering and sale of Common Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge or other transfer of such Common Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any state or any other law or with restrictions imposed by the Company's underwriters. B. Investment Intent at Exercise. In the event that the sale of Common Shares under the Plan is not registered under the Securities Act but an exemption is available which requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Common Shares being acquired upon exercising this option are being acquired for investment, and not with a view to the sale or distribution thereof; and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel. C. Legend. In the event that certificates evidencing Common Shares are acquired under this Agreement in an unregistered transaction, they shall bear the following restrictive 5. legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law): "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED." D. Removal of Legends. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Common Shares sold under this Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Common Shares but lacking such legend. E. Administration. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section IX shall be conclusive and binding on the Optionee and all other persons. X. Tax Withholdlng. A. At the time Optionee exercises this option, in whole or in part, or at any time thereafter as requested by the Company, Optionee hereby authorizes withholding from payroll and any other amounts payable to Optionee, and otherwise agrees to make adequate provision for (including by means of a "cashless exercise" pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the option. B. Upon the Optionee's request and subject to approval by the Company, in its sole discretion, and compliance with any applicable conditions or restrictions of law, the Company may withhold from fully vested shares of Common Stock otherwise issuable to Optionee upon the exercise of the option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, which satisfies federal, state, local and foreign tax obligations of the Company and the Optionee; provided that the Company shall not withhold shares of Common Stock at rates in excess of the minimum statutory withholding rates imposed upon the Company for federal and state tax purposes if such withholding would result in a charge to the Company's earnings for accounting purposes. If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of the option, share withholding pursuant to the preceding sentence shall not be permitted unless Optionee makes a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of the option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of 6. Common Stock determined as of the date of exercise of the option that are otherwise issuable to Optionee upon such exercise. Any adverse consequences to Optionee arising in connection with such share withholding procedure shall be Optionee's sole responsibility. C. Optionee may not exercise this option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, Optionee may not be able to exercise the option when desired even though the option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein. XI. Miscellaneous Provisions. A. Reservation of Rights. Except as provided in the Plan, the Optionee shall have no rights by reason of (l) any subdivision or consolidation of shares of stock of any class, (2) the payment of any dividend or (3) any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of the Common Shares subject to this option. The grant of this option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. B. Rights As a Stockholder. Neither the Optionee nor the Optionee's representative shall have any rights as a stockholder with respect to any Common Shares subject to this option until such Common Shares have been issued in the name of the Optionee or the Optionee's representative. C. No Employment Rights. Nothing in this Agreement shall be construed as giving the Optionee the right to be retained as a Key Employee. The Company reserves the right to terminate the Optionee's service at any time, with or without cause (subject to any employment agreement between the Optionee and the Company). D. Notice. Any notice required by the terms of this Agreement shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail with postage and fees prepaid and addressed to the party entitled to such notice at the address shown below such party's signature on this Agreement, or at such other address as such party may designate by 10 days' advance written notice to the other party to this Agreement. E. Entire Agreement. This Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof. 7. F. Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, as such laws are applied to contracts entered into and performed in such State. XII. Definitions. "Agreement" shall mean this Nonstatutory Stock Option Agreement. "Change in Control" shall mean, for purposes of Section III.A of this Agreement only, the occurrence of any of the following events after the Date of Grant: (a) a change in control required to be reported pursuant to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act; (b) a change in the composition of the Board of Directors of the Company (the "Board"), as a result of which fewer than two-thirds of the incumbent directors are directors who either (i) had been directors of the Company 24 months prior to such change or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nomination; or (c) any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act) by the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then-outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Base Capital Stock"); except that: (i) the beneficial ownership by a person of twenty percent (20%) or more, but less than a majority, of the Base Capital Stock in the ordinary course of such person's business and not with the purpose or effect of changing or influencing the control of the Company, and otherwise in a situation where the person is eligible to file a short-form statement on Schedule 13G under Rule 13d-l under the Exchange Act with respect to such beneficial ownership, shall be disregarded; (ii) any change in the relative beneficial ownership of the Company's securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company; and (iii) the beneficial ownership by Richard C. Blum & Associates, Inc. ("RCBA") or any person "afflliated" (within the meaning of the Exchange Act) with RCBA (collectively, the "RCBA Group") of (w) shares of the Company's Series B Preferred Stock (x) additional shares of Series B Preferred Stock issued in payment of dividends on the Series B 8. Preferred Stock, (y) additional shares of the Company's Common Stock issued upon the conversion of the Series B Preferred Stock in accordance with its terms, and (z) shares of other securities of the Company issued in exchange for the Series B Preferred Stock in accordance witb its terms (collectively, the "RCBA Preferrtd Investment Shares"), shall be disregarded unless and until the RCBA Group becomes the beneficial owner, directly or indirectly, of securities of the Company (including the RCBA Preferred Investment Shares) representing more than fifty percent (50%) of the Base Capital Stock; provided that the beneficial ownership of all or a portion of the RCBA Preferred Investment Shares by a third person who acquires such shares through purchase, assignment or other transfer from RCBA or another member of the RCBA Group, and the beneficial ownership by a third person not afliliated with the RCBA Group as of the date of this Agreement who acquires control of RCBA or the RCBA Group, shall not be disregarded. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the committee of the Company's Board of Directors described in Section 3(c) of the Plan. "Common Share" shall mean one share of the common stock of the Company, as adjusted in accordance with the Plan (if applicable). "Date of Grant" shall mean the date on which the Committee resolved to grant this option, which is also the date as of which this Agreement is entered into. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Exercise Price" shall mean the amount for which one Common Share may be purchased upon exercise of this option, as specified in Section IA. "Incentive Stock Option" shall mean an employee incentive stock option described in section 422(b) of the Code. "Key Employee" shall mean (i) a key common-law employee of the Company or of a Subsidiary, as determined by the Committee or (ii) a consultant who provides services to the Company or a Subsidiary as an independent contractor and who is not a member of the Company's Board of Directors. "Plan" shall mean the TJRS Corporation 1999 Equity Incentive Plan, as in effect on the Date of Grant. "Purchase Price" shall mean the Exercise Price multiplied by the number of Common Shares with respect to which this option is being exercised. "Securities Act" shall mean the Securities Act of 1933, as amended. 9. "Subsidiary" shall mean any corporation, if the Company and/or one or more other Subsidiaries own not less than 50% of the total combined voting power of all classes of outstanding stock of such corporation. "Total and Permanent Disability" Shall mean, for purposes of this Agreement only, that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than 12 months. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its officer duly authorized to act on behalf of the Committee, and the Optionee baa personally executed this Agreement. OPTIONEE URS CORPORATION /s/ Martin M. Koffel By /s/ Joseph Masters - ---------------------------------- ---------------------------------- Martin M. Koffel Joseph Masters Optionee's Address: Company's Address: 2772 Scott Street 100 California Street, Suite 500 San Francisco, CalifornIa 94123 San Francisco, California 94111 10. EX-10.26 3 STOCK OPTION AGREEMENT/JOSEPH MASTERS URS CORPOEATIQN NONSTATUTORY STOCK OPTION GRANT NOTICE (1999 Equity Incentive Plan) URS Corporation (the "Company"), pursuant to its 1999 Equity Incentive Plan (the "Plan"), hereby grants to Optionholder a nonstatutory stock option to purchase the number of shares of the Company's Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein end In the Stock Option Agreement the Plan and the Notice of Exercise, all of which are attached hereto end incorporated herein in their entirety. Optionholder: Joseph Masters Date of Grant: November 5,1999 Number of Shares Subject to Option: 16,000; fifteen thousand Exercise Price (Per Share); $21.4375 Total Exercise Price: $321,562.50 Expiration Date: November 5, 2009 Vesting Schedule: 1/3 of the shares vest on the first anniversary of the Date of Grant. A total of 2/3 of the whores vest on the second anniversary of the Date of Grant. All of the shares vest on the third anniversary of the Date of Grant. Payment: By one or a combination of the following items (described in the Stock Option Agreement): By cash or check Pursuant to a Regulation T Program (a "same day sale" program) By delivery of already-owned shares Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands end agrees to, this Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Opionholder and the Company regarding the acquisition of stock In the Company and supersede all prior oral and written agreements on that subject with the exception of options previously granted and delivered to Optionbolder under the Plan or the Company's 1991 Stock Incentive Plan, as amended. URS CORPORATION OPTIONHOLDER: By: /s/ Kent P. Ainsworth /s/ Joseph Masters ---------------------------------- ---------------------------------- Kent P. Ainsworth Signature Title: Executive Vice President Date: Nov. 30, 99 -------------------------------- ---------------------------- Date: November 1999 --------------------------------- ATTACHMENTS: Stock Option Agreement. 1999 Equity Incentive Plan and Notice of Exercise URS CORPORATION NONSTATUTORY STOCK OPTION GRANT NOTICE (1999 Equity Incentive Plan) URS Corporation (the "Company"), pursuant to it 1999 Equity Incentive Plan (the "Plan"), hereby grants to Optionhold a nonstatutory stock option to purchase the number of shares of the Company's Common Stock set forth below. This option is subject to ali of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are axtaehed hereto and Incorporated herein In their entirety. Optionholder: Kent P. Ainsworth Date of Grant: November 5,1999 Number of Shares Subject to Option: 100,000: one hundred thousand Exercise Price (Per Share): $21.4375 Total Exercise Price: $2,143,750.00 Expiration Date: November 5, 2009 Vesting Schedule: 1/3 of the shares vest on the first anniversary of the Date of Grant. A total of 2/3 of the shares vest on the second anniversary of the Date of Grant All of the shares vest on the third anniversary of the Date of Grant Payment: By one or a combination of the following items (described in the Stock Option Agreement): By cash or check Pursuant to a Regulation T Program (a "same day sale" program) By delivery of already-owned shares Additional Terms/Acknowledgments: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of options previously granted and delivered to Optionholder under the Plan or the Company's 1991 Stock Incentive Plan, as amended. URS CORPORATION OPTIONHOLDER: By: /s/ Joseph Masters /s/ Kent P. Ainsworth --------------------------------- ---------------------------------- Joseph Masters Signature Title: Vice President Date: 12/1/99 ------------------------------ ----------------------------- Date: November 19, 1999 ------------------------------- ATTACHMENTS: Stock Option Agreement. 1999 Equity Incentive Plan and Notice of Exercise EX-21.1 4 SUBSIDIARY LIST URS CORPORATION SUBSIDIARY LIST - -------------------------------------------------------------------------------- Name of Domestic Subsidiary State of Incorporation - -------------------------------------------------------------------------------- Aman Environmental Construction, Inc. California Banshee Construction Company California Bovay Northwest, Inc. Washington BRW Group, Inc. Delaware BRW/Hazelet & Erdal of Michigan, Inc. Michigan BRW/Hazelet & Erdal of Ohio, Inc. Ohio Clay Street Properties California Cleveland Wrecking Company California Cole Sherman, Inc. (DE) Delaware Color Cave, Inc. California Contracting Resources International, Inc. Delaware Coverdale & Colpitts, Inc. New York D&M Consulting Engineers, Inc. Delaware D&M Inspection & Testing, Inc. Delaware D&M Testing, Inc. Delaware Dames & Moore America LP California Dames & Moore Foreign Branch Operations Delaware Dames & Moore Group Delaware Dames & Moore Group (NY), Inc. New York Dames & Moore Group, Ohio Ohio Dames & Moore Inc. Delaware Dames & Moore Lebron LLP Delaware Dames & Moore Servicing Company California Dames & Moore Ventures California DecisionQuest, Inc. California DM Investors Delaware DQ Squared, Inc. California E.C. Driver & Associates, Inc. Florida Ecobalance, Inc. Delaware Environmental Landfill Management, Inc. Delaware EWI Engineering Associates, Inc. Delaware Forrest & Cotton International Texas Fourth Dimension Interactive, Inc. (4Di) Delaware GEL, Inc. Nevada Geotesting Services, Inc. California GIC Services, Inc. Nevada GIE, Inc. Nevada GM Services, LLC Nevada GPI, Inc. Nevada Hospital Development Corporation Missouri M & M Aerial Surveys, Inc. California 1. Mitchell Management Systems, Inc. Delaware National Transportation Authority Texas 1, Inc. Texas National Transportation Authority Texas 2, Inc. Texas National Transportation Authority Texas 3, Inc. Texas National Transportation Authority Texas 4, Inc. Texas O'Brien Kreitzberg, Inc. California Radian Acquisition Corporation Delaware Radian Ceramic Developments Corp. Texas Radian Engineering Corp. New York Radian Int'l Overseas Mgmt. Corp. Delaware Radian International (Texas) Corp. Texas Radian International LLC Delaware Rogers & Associates Engineering Corp. Utah Seismic Risk Insurance Services, Inc. California Signet Testing Laboratories Delaware SOV Acquisition Corp. California SP Group/Southwest, Inc. Texas SRA Life Sciences, Inc. Delaware Thortec Environmental Systems, Inc. (CA) California Thortec Environmental Systems, Inc. (DE) Delaware URS Company - Kansas City Missouri URS Constructors, Inc. (DE) Delaware URS Consultants, Inc. - Florida Florida URS Consultants, Inc. - Ingeniera Delaware URS Consultants, Inc. - Texas Texas URS Greiner Woodward-Clyde Consultants of Michigan, Inc. Michigan URS Greiner Woodward-Clyde Consultants, Inc. Delaware URS Greiner Woodward-Clyde Consultants, Inc. - Colorado Colorado URS Greiner Woodward-Clyde Design, Inc. Ohio URS Greiner Woodward-Clyde Engineering, Inc. Nevada URS Greiner Woodward-Clyde Engineering, Inc. Ohio URS Architects/Engineers, Inc. New Jersey URS Group, Inc. Delaware URS Greiner Woodward-Clyde Group Consultants, Inc. New York URS Greiner Woodward-Clyde Group, Inc. Delaware URS Greiner Woodward-Clyde International Holdings, Inc. Delaware URS Greiner Woodward-Clyde International-Americas, Inc. Nevada URS Greiner Woodward-Clyde Licensing Corp. Delaware URS Greiner Woodward-Clyde of Delaware, Inc. Delaware URS Greiner Woodward-Clyde Operating Services, Inc. Delaware URS Greiner Woodward-Clyde Services, Corp. Pennsylvania URS Greiner Woodward-Clyde, Inc. - Ohio Ohio URS Greiner Woodward-Clyde, Inc. Pacific Nevada URS Greiner Woodward-Clyde, Inc. - Washington Washington URS Greiner Woodward-Clyde, Inc. Colorado 2. URS Greiner Woodward-Clyde, Inc. Connecticut URS Greiner Woodward-Clyde, Inc. Maryland URS Greiner Woodward-Clyde, Inc. New York URS Greiner Woodward-Clyde, Inc. AES Connecticut URS Greiner Woodward-Clyde, Inc.- California California URS Greiner Woodward-Clyde, Inc. Great Lakes Michigan URS Greiner Woodward-Clyde, Inc. Southern California URS Greiner Woodward-Clyde, Inc. Southwest Arizona URS Greiner Woodward-Clyde, Inc. West Coast California URS Greiner Woodward-Clyde/Tatman & Lee, Inc. Delaware URS Telecommunications, Inc. Delaware URS, P.C. District of Columbia Walk Haydel & Associates, Inc. Louisiana Woodward Investments, Inc. Delaware Woodward-Clyde International, Inc. Delaware Woodward-Clyde International-Americas (Ohio General Partnership) Ohio WVP Corporation Missouri 3. Name of Foreign Subsidiary Jurisdiction of Incorporation - -------------------------------------------------------------------------------- 4Di-Canada Canada 4Di-Denmark Denmark 653339 Ontario Inc. Canada AACM Central Europe, Limited Hungary AGC Woodward-Clyde Pty. Limited Australia Bureau voor Milieumanagement BV The Netherlands Chiyoda Dames & Moore Co., Ltd. Japan Cole Sherman Engineers & Architects Ontario, Canada Cole, Sherman & Associates Limited Ontario, Canada Cole, Sherman Transmark, Inc. Ontario, Canada Corporacion Radian S.A. de C.V. Mexico Dames & Moore (BVI), Ltd. Taiwan China/Japan Dames & Moore Ltd. Thailand Dames & Moore Argentina S.A. Argentina Dames & Moore B.V. The Netherlands Dames & Moore Canada, Inc. Canada Dames & Moore Canadian Holdings, Inc. Canada Dames & Moore Chile LTDA Chile Dames & Moore de Mexico Mexico Dames & Moore Foreign Sales Corporation Bermuda Dames & Moore GmbH & Co. KG Germany Dames & Moore Holding de Mexico Mexico Dames & Moore Iberia SA Spain Dames & Moore Indonesia Indonesia Dames & Moore Int'l SRL Japan Japan/Venezuela Dames & Moore International SRL Italy Dames & Moore (Malaysia) Sdn Bhd Malaysia Dames & Moore Pty. Ltd. Australia Dames & Moore Puerto Rico, Inc. Puerto Rico Dames & Moore SRL France Dames & Moore Servicios de Mexico Mexico Dames & Moore Singapore Singapore Dames & Moore Trust Australia Dames & Moore United Kingdom UK Dames & Moore Zuid (B.V.) The Netherlands Dames & Moore, Inc. Philippines Dames & Moore, Inc. Oman Dames & Moore, Inc. China Dames & Moore, Inc. Korea Dames & Moore, Inc. Ireland Dames & Moore, Inc. The Netherlands Dames & Moore, Inc. Lebanon Dames & Moore, Inc. Russia 4. Dames & Moore, Inc. Belgium Dames & Moore, Inc. Norway Dames & Moore, Inc. Azerbaijan Dames & Moore, Inc. United Arab Emirates Dames & Moore, Inc. Indonesia DMG Consulting Ltd. United Kingdom DMG Consulting SRL Italy Ecoaudit S.A. France Ecobilan S.A. France Ecobilan SRL Italy Food & Agricultural International, Ltd. United Kingdom Forestry & Technical Services Pty Limited Australia GCNZ Woodward-Clyde Limited (NZ) Auckland, New Zealand Greiner (Malaysia) Sdn Bhd Malaysia Greiner Engineering Limited Hong Kong Greiner FSC, Inc. Barbados Greiner International Limited Hong Kong Greiner International Ltd. Thailand Greiner Limited Hong Kong Hardcastle & Richards Australia HDML Pty., Ltd. Australia Hollingsworth D&M (PNG) Pty., Ltd. Papua New Guinea Int'l Agreement Trust/IAP Trustee Australia International Agriculture Ltd. Australia International Wastewater Consultants (Singapore) Ltd. Singapore Le Provost, and Fawcett Australia Limnos, S.A. (Spain) Spain Murray-North (Solomon Islands) Limited Solomon Islands Murray-North CMPS Ltd. (NZ) New Zealand Murray-North Consultants, Ltd. New Zealand Murray-North International Ltd. New Zealand Norcol, Dames & Moore Inc. Canada Canada Northern Energetics Company Limited United Kingdom O'Brien-Kreitzberg, Ltd. United Kingdom Organisation Et Surete Industrial France Professional Insurance Limited Bermuda PT Dames & Moore Indonesia PT Geobis Woodward-Clyde Indonesia Indonesia Radian Environmental GmbH Germany Radian (HK) Limited Canada Radian International Canada, Inc. Canada Radian International N.V. The Netherlands Radian International Pty. Ltd. Australia Radian International S.A. Argentina 5. Radian S.E.A. Limited Thailand Reverse Engineering Limited United Kingdom Reverse Engineering Norge A.S. Norway Rhosman International Ltd. Cayman Islands Roscandor Consultants Ltd. Turks & Caicos Saudi Arabian Dames & Moore Saudi Arabia Sert Ingenieurs-Conseils, S.A. (Swiss) Switzerland Technologias Servicios Ambientales Tesan S.A. Chile Thorburn Colquhoun Holdings PLC United Kingdom Transition Subsidiary, Inc. Canada Transport Technologies International, Inc. Ontario, Canada URS Greiner, Inc. Puerto Rico Puerto Rico URS Thorburn Colquhoun Limited United Kingdom Walk Haydel Arabia Ltd. Saudi Arabia WCI Ecoconcept, S.A. (France) France WCI Umwelttechnik, GMBH (Germany) Germany WCI Verfahrnstechnik, GMBH (Germany) Germany Woodward-Clyde (Malaysia) Sdn. Bhd. Malaysia Woodward-Clyde (NZ) Ltd. New Zealand Woodward-Clyde Consultants of Canada, Ltd. Ontario, Canada Woodward-Clyde de Mexico, S.A. de D.V. (Mexico) Mexico Woodward-Clyde Geo-Consulting Sdn. Bhd. Malaysia Woodward-Clyde Geo-Services Sdn. Bhd. Malaysia Woodward-Clyde International Limited (Hendrick) Hong Kong Woodward-Clyde Philippines, Inc. Philippines Woodward-Clyde, Ltd. (UK) United Kingdom 6. EX-23.1 5 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the following registration statements of URS Corporation on: Form S-8 (File No. 2-99410) for 50,000 common shares related to the 1985 Employee Stock Purchase Plan, filed August 1, 1985, Form S-8 (File No. 33-42192) for 261,177 common shares related to the 1985 Employee Stock Purchase Plan, filed August 31, 1991, Form S-8 (File No. 33-61230) for 500,000 common shares related to the 1991 Stock Incentive Plan, filed April 1, 1993, Form S-8 (File No. 333-24063) for 750,000 common shares related to the 1991 Stock Incentive Plan, filed March 27, 1997, Form S-8 (File No. 333-24067) for 250,000 common shares related to the Employee Stock Purchase Plan, filed March 27, 1997, Form S-8 (File No. 333-24069) for 55,000 common shares related to the Non-Executive Directors Stock Grant Plan, filed March 27, 1997, Form S-4/A (File No. 333-37531) for up to 5,200,000 common shares related to the acquisition of Woodward-Clyde Group, Inc., filed October 10, 1997, as amended by that Post-Effective Amendmnent No. 1, filed November 25, 1997, Form S-8 (File No. 333-48793) for 300,000 common shares related to the Employee Stock Purchase Plan, filed March 27, 1998, Form S-8 (File No. 333-48791) for 1,000,000 common shares related to the 1991 Stock Incentive Plan, filed March 27, 1998, Form S-3 (File No. 333-59203) for the resale of certain common shares, filed July 15, 1998, Form S-8 (File No. 333-91053) for 6,900,000 common shares related to the Employee Stock Purchase Plan and the 1999 Equity Incentive Plan, filed March 27, 1998, of our report dated December 17, 1999, relating to the financial statements which appear in this Form 10-K. San Francisco, California January 28, 2000 EX-24.1 6 POWER OF ATTORNEY POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints any one of MARTIN M. KOFFEL and KENT P. AINSWORTH, each with full power to act without the other, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on SEC Form 10-K for fiscal year 1999 of URS Corporation, and any or all amendments thereto, and to file the same with all the exhibits thereto, and other documents in connection therewith, with the Securities end Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all extents and purposes as he might or could do in person, thereby ratifying and confirming all that such attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. This Power of Attorney may be executed in separate counterparts. Dated: December 16, 1999. /s/ Richard C. Blum /s/ Martin M. Koffel - -------------------------- -------------------------- Richard C. Blum Martin M. Koffel Director Director /s/ Armen Der Marderosian /s/ Richard B. Madden - -------------------------- -------------------------- Armen Der Marderosian Richard B. Madden Director Director /s/ S. Robert Foley, Jr. /s/ Jean-Yves Perez - -------------------------- -------------------------- S. Robert Foley, Jr. Jean-Yves Perez Director Director /s/ Marie L. Knowles /s/ Richard O. Praeger - -------------------------- -------------------------- Marie L. Knowles Richard O. Praeger Director Director /s/ Irwin L. Rosenstein /s/ William D. Walsh - -------------------------- -------------------------- Irwin L. Rosenstein William D. Walsh Director Director EX-27 7 FINANCIAL DATA SCHEDULE
5 APPENDIX A TO ITEM 601(c) OF REGULATION S-K AS OF OCTOBER 31, 1999 AND FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1999 1,000 12-MOS OCT-31-1999 NOV-01-1998 OCT-31-1999 45,687 0 477,731 (23,771) 0 745,764 161,646 (68,481) 1,437,487 386,677 68,380 100,000 0 159 207,010 1,437,487 0 1,418,522 0 845,520 461,085 2,047 34,589 66,281 29,700 36,581 0 0 0 32,248 2.14 1.98
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