ITEM 1. BUSINESS
URS Corporation (the "Company") offers a broad range of planning, design and program and construction management services. The Company serves public and private sector clients on infrastructure projects involving transportation systems, facilities and environmental programs.
The Company conducts its business through offices located throughout the United States. The Company has approximately 3,300 employees, many of whom hold advanced or technical degrees and have extensive experience in sophisticated disciplines applicable to the Company's business. The Company believes that its geographic and technical diversity allow it to compete for local, regional and national projects, and enable it to apply to each project a variety of resources from its national network.
Acquisitions
In January 1995, the Company acquired, for $3.6 million, privately-held E.C. Driver & Associates, Inc. ("ECD") of Tallahassee, Florida, an engineering firm specializing in bridge and highway design.
In March 1996, the Company acquired, for $78.8 million, publicly-held Greiner Engineering, Inc., an Irving, Texas engineering and architectural design services firm ("Greiner"). For a complete discussion of the impact of the acquisition of Greiner upon the operations of the Company, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
On November 14, 1997, the Company acquired, for approximately $100 million, privately-held Woodward-Clyde Group, Inc. ("W-C") of Denver, Colorado, an engineering firm. The description of the Company contained in this Part I does not take into account the acquisition of W-C which was consummated after the Company's fiscal year ended on October 31, 1997. See Item 8, Consolidated Financial Statements and Supplementary Data, Note 16, Subsequent Event.
Services
The Company provides professional services in three major areas: planning, design and program and construction management through the Company's 35 principal offices. Each of these offices is responsible for obtaining local or regional contracts. This approach allows regional government agencies and private clients to view the Company's offices as local businesses with superior service delivery capabilities.
Because the Company can draw from its large and diverse network of professional and technical resources, the Company has the capability to market and perform large multi-state projects.
Planning
Planning covers a broad range of assignments ranging from conceptual design and technical and economic feasibility studies to community involvement programs. Planning services also involve developing alternative concepts for project implementation and analyzing the impacts of each alternative.
In addition to traditional engineering and architectural planning services, the Company has extensive expertise in a number of highly specialized areas, including toll facilities, health care facility renovation, environmental site analysis, water quality planning for urban storm water management and site remediation assignments.
Design
The Company's professionals provide a broad range of design and design-related services, including computerized mapping, architectural and interior design, civil, sanitary and geotechnical engineering, process design and seismic (earthquake) analysis and design. For each project, the Company identifies the project requirements and then integrates and coordinates the various design elements. The result is a set of contract documents that may include plans, specifications and cost estimates that are used to build a project. These documents detail design characteristics and set forth for the contractor the materials which should be used 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
The Company's 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 and bid management. Once construction has begun, the Company supervises and coordinates the activities of the construction contractor. This frequently involves acting as the owner's representative for on-site supervision and inspection of the contractor's work. In this role, the Company's objective is to monitor a project's schedule, cost and quality. The Company generally does not take contractual responsibility for the contractor's risks and methods, nor for site safety conditions.
Markets
The Company's strategy is to focus on the infrastructure market which includes surface and air transportation systems, institutional and commercial facilities, and environmental programs involving pollution control, water resources and hazardous waste management.
Surface and Air Transportation Systems. The Company's engineers, designers, planners and managers provide services for projects involving all types of transportation systems and networks, such as highways, roadways, streets, bridges, rapid and mass transit, airports and marine facilities. These services range from the design of interstate highways to harbor traffic simulation studies and may extend from conceptual planning through the preliminary and final design to construction management. Historically, the Company's emphasis in this market area has been on the design of new transportation systems, but in recent years the rehabilitation of existing systems has become a major focus.
Institutional and Commercial Facilities. The Company provides architectural, engineering design, space planning and construction supervision services to this market area. Demand for low-maintenance, energy efficient facilities drives today's market for commercial and industrial buildings. In addition, there is increased pressure to renovate facilities to meet changing needs and current building standards.
Pollution Control. The Company's principal services in this market include the planning and design of new wastewater facilities, such as sewer systems and wastewater treatment plants, and the analysis and expansion of existing systems. The types of work performed by the Company include infiltration/inflow studies, combined sewer overflow studies, water quality facilities planning projects and design and construction management services for wastewater treatment plants.
Water Resources. The Company's capabilities in this market area include the planning, design and program and construction management of water supply, storage, distribution and treatment systems, as well as work in basin plans, groundwater supply, customer rate studies, urban run-off, bond issues, flood control, water quality analysis and beach erosion control.
Hazardous Waste Management. In this market segment, the Company conducts initial site investigations, designs remedial actions for site clean-up and provides construction management services during site clean-up. This market involves identifying and developing measures to effectively dispose of hazardous and toxic waste at contaminated sites. The Company also provides air quality monitoring and designs individual facility modifications required to meet local, state and Federal air quality standards. This work requires specialized knowledge of and compliance with complex Federal and state regulations, as well as the permitting and approval processes. Solid waste management services provided by the Company include facility siting, transfer station design and community-wide master planning.
Clients
General
Contract Pricing and Terms of Engagement
Under its cost-plus contracts, the Company charges clients negotiated rates based on the Company's direct and indirect costs. Labor costs and subcontractor services are the principal components of the Company's direct costs. Federal Acquisition Regulations limit the recovery of certain specified indirect costs on contracts subject to such regulations. In negotiating a cost-plus contract, the Company estimates all recoverable direct and indirect costs and then adds 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. The Company receives 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, the Company must obtain a contract modification to receive payment for such overage. The Company's profit margin will increase to the extent the Company is able to reduce actual costs below the estimates used to produce the negotiated fixed prices on contracts not covered by Federal Acquisition Regulations; conversely, the Company's profit margin will decrease and the Company may realize a loss on the project if the Company does not control costs and exceeds the overall estimates used to produce the negotiated price. Cost-plus contracts covered by Federal Acquisition Regulations require an audit of actual costs and provide for upward or downward adjustments if actual recoverable costs differ from billed recoverable costs. The Defense Contract Audit Agency, auditors for the Department of Defense and other Federal agencies, has completed incurred cost audits of the Company's Federal contracts for fiscal years ended through October 31, 1988, resulting in immaterial adjustments. Under its fixed-price contracts, the Company receives an agreed sum negotiated in advance for the specified scope of work. Under fixed-price contracts, no payment
adjustments are made if the Company over-estimates or under-estimates the number of labor hours required to complete the project, unless there is a change of scope in the work to be performed. Accordingly, the Company's 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 the Company may realize a loss on the project if the number of labor hours required and other costs exceed the estimates. For the fiscal year ended October 31, 1997, the percentage of revenues attributable to cost-plus contracts was 48.4% and the percentage of revenues attributable to fixed-price contracts was 27.8%.
Backlog, Project Designations and Indefinite Delivery Contracts
The Company's contract backlog was $470.4 million at October 31, 1997, compared to $399.2 million at October 31, 1996. The Company's contract backlog consists of the amount billable at a particular point in time for future services under executed funded contracts. Indefinite delivery contracts, which are executed contracts requiring the issuance of task orders, are included in contract backlog only to the extent the task orders are actually issued and funded. Of the contract backlog of $470.4 million at October 31, 1997, approximately 30%, or $141.1 million, is not reasonably expected to be filled within the next fiscal year ending October 31, 1998.
The Company has also been designated by customers as the recipient of certain future contracts. These "designations" are projects that have been awarded to the Company but for which contracts have not yet been executed. Task orders under executed indefinite delivery contracts which are expected to be issued in the immediate future are included in designations. Total contract designations were estimated to be $446.0 million at October 31, 1997, as compared to $295.9 million at October 31, 1996. Typically, a significant portion of designations are converted into signed contracts. However, there is no assurance this will continue to occur in the future.
Competition
The engineering and architectural services industry is highly fragmented and very competitive. As a result, in each specific market area the Company competes with many engineering and consulting firms, several of which are substantially larger than the Company and which possess greater financial resources. No firm currently dominates any significant portion of the Company's market areas. Competition is based on quality of service, expertise, price, reputation and local presence. The Company believes that it competes favorably with respect to each of these factors in the market areas it serves.
Employees
The Company has approximately 3,300 employees, many of whom hold advanced or technical degrees and have extensive experience in a variety of disciplines applicable to the Company's business. The Company also employs, at various times on a temporary basis, up to several hundred additional persons to meet contractual requirements. Fourteen of the Company's employees are covered by a collective bargaining agreement. The Company has never experienced a strike or work stoppage. The Company believes that employee relations are good.
ITEM 2.
ITEM 2. PROPERTIES
The Company leases office space in 35 principal locations throughout the United States. Most of the leases are written for a minimum term of three years with options for renewal, sublease rights and allowances for improvements. Significant lease agreements expire at various dates through the year 2005. The Company believes that its current facilities are sufficient for the operation of its business and that suitable additional space in various local markets is available to accommodate any needs that may arise.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company or its subsidiaries alleging breaches of contract or negligence in connection with the Company's performance of professional services. In some actions, damages (including punitive or treble damages) are sought which substantially exceed the Company's insurance coverage. Based upon management's experience that most legal proceedings settle for less than any claimed damages, at this time management does not believe that any of such proceedings are likely to result in a judgment against, or settlement by, the Company materially exceeding the Company's insurance coverage or have a material adverse effect on the consolidated financial position and operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended October 31, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position Held Age - ---- ------------- ---
Martin M. Koffel.............Chief Executive Officer, President 58 and Director of the Company from May 1989; Chairman of the Board from June 1989; Director, Regent Pacific Management Corporation since 1993.
Kent P. Ainsworth............Executive Vice President and Chief 51 Financial Officer of the Company from January 1991; Secretary of the Company from May, 1994.
Robert L. Costello ..........Executive Vice President, URS Greiner, 46 a wholly-owned subsidiary of the Company, since November 1996; Vice President and Director of the Company since April 1996; President of Greiner Engineering, Inc., a wholly-owned subsidiary of the Company, and Director of same since April 1995; President and Chief Operating Officer of same from August 1994 to August 1995; Executive Vice President and Chief Financial Officer of same from August 1988 to August 1994.
Name Position Held Age - ---- ------------- ---
Joseph Masters...............General Counsel of the Company 41 since July 1997, Vice President of the Company since July 1994; Vice President, Director of Legal Affairs of URS Consultants, Inc., a wholly-owned subsidiary of the Company, from April 1994 to July 1994; Vice President, Associate General Counsel of same from May 1992 to April 1994; outside counsel to the Company from January 1990 to May 1992.
Irwin L. Rosenstein..........President, URS Greiner, a wholly-owned 61 subsidiary of the Company, since November 1996; President of URS Consultants, Inc., a wholly-owned subsidiary of the Company and Director of the Company since February 1989; Vice President of the Company since 1987.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of the Company's Common Stock are listed on the New York Stock Exchange and the Pacific Exchange (under the symbol "URS"). At December 19, 1997, the Company had approximately 3,336 stockholders of record. The following table sets forth the high and low closing sale prices of the Company's Common Stock, as reported by The Wall Street Journal for the periods indicated.
MARKET PRICE ------------ LOW HIGH --- ---- Fiscal Period: 1996: First Quarter ............................. $ 6.38 $ 7.25 Second Quarter ............................ $ 6.25 $ 7.25 Third Quarter ............................. $ 6.88 $ 8.25 Fourth Quarter ............................ $ 7.00 $ 8.88 1997: First Quarter ............................. $ 7.75 $ 10.38 Second Quarter ............................ $ 9.50 $ 10.88 Third Quarter ............................. $ 9.63 $ 15.06 Fourth Quarter ............................ $ 13.13 $ 18.81 1998: First Quarter ............................. $ 12.75 $ 16.38 (through December 19, 1997)
The Company has not paid cash dividends since 1986 and at the present time, management of the Company does not anticipate paying dividends in the near future. Further, the Company is precluded from paying dividends on its outstanding common stock pursuant to its senior secured revolving credit facility with its lender and the Indenture governing the 85/8% Debentures. See Item 8, Consolidated Financial Statements and Supplementary Data, Note 8, Long Term Debt and Note 11, Stockholders' Equity.
ITEM 6.
ITEM 6. SUMMARY OF SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial data of the Company for the five years ended October 31, 1997. The data presented below should be read in conjunction with the Consolidated Financial Statements of the Company including the notes thereto.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1997 Compared with Fiscal 1996
Revenues in fiscal 1997 were $406.5 million, or 33% over the amount reported in fiscal 1996. The growth in revenues is primarily attributable to the acquisition of Greiner, the results of which are included commencing April 1, 1996. Accordingly, in fiscal 1997 the results of operations of Greiner were included for twelve months compared to only seven months in fiscal 1996. Revenues generated from the Company's three largest contracts; Navy CLEAN, EPA ARCS 9&10 and EPA ARCS 6, 7 & 8, decreased in fiscal 1997 to $26.5 million as compared to $30.2 million in fiscal 1996. The decrease in revenues from these contracts is primarily due to a decrease in the number of task orders for hazardous waste services on all of the above EPA ARCS contracts.
Direct operating expenses, which consist of direct labor and direct expenses including subcontractor costs, increased $53.9 million, or 29%, over the amount reported in fiscal 1996. The increase is due to the addition of the direct operating expenses of Greiner and to increases in subcontractor costs and direct labor costs as well. Indirect general and administrative expenses ("IG&A") increased to $141.4 million in fiscal 1997 from $102.4 million in fiscal 1996 which is the result of the addition of the Greiner overhead as well as an increase in business activity. Expressed as a percentage of revenues, IG&A expenses increased slightly from 34% in fiscal 1996 to 35% in fiscal 1997. The Company attributes this stability to the cost controls exercised by the Company. Net interest expense increased to $4.8 million in fiscal 1997 from $3.9 million in fiscal 1996 as a result of increased borrowings incurred in connection with the acquisition of Greiner.
With an effective income tax rate of 40% in 1997, the Company earned net income of $11.5 million while in 1996 net income was $7.4 million after an effective income tax rate of 39%. The Company earned $1.06 per share on a fully-diluted basis in fiscal 1997 compared to $.80 per share in fiscal 1996.
The Company's backlog of signed and funded contracts at October 31, 1997 was $470.4 million as compared to $399.2 million at October 31, 1996. The value of the Company's designations was $446.0 million at October 31, 1997, as compared to $295.9 million at October 31, 1996.
Fiscal 1996 Compared with Fiscal 1995
Revenues in fiscal 1996 were $305.5 million, or 70% over the amount reported in fiscal 1995. The growth in revenues is primarily attributable to the acquisition of Greiner, the results of which are included commencing April 1, 1996, and to a lesser extent, an increase in revenues derived from existing areas of the Company's business, particularly transportation and other infrastructure projects in the Northeast. Revenues generated from the Company's three largest contracts; Navy CLEAN, EPA ARCS 9&10 and EPA ARCS 6, 7 & 8, decreased in fiscal 1996 to $30.2 million as compared to $37.1 million in fiscal 1995. The decrease in revenues from these contracts is primarily due to a decrease in the number of task orders for hazardous waste services on all of the above EPA ARCS contracts.
Direct operating expenses, which consist of direct labor and direct expenses including subcontractor costs, increased $78.3 million, or 72%, over the amount reported in fiscal 1995. The increase is due to the addition of the direct operating expenses of Greiner and to increases in subcontractor costs and direct labor costs as well. IG&A expenses increased to $102.4 million in fiscal 1996 from $63.2 million in fiscal 1995 which is the result of the addition of the Greiner overhead as well as an increase in business activity. Expressed as a percentage of revenues, IG&A expenses decreased from 35% in fiscal 1995 to 34% in fiscal 1996. The Company attributes this decrease to the cost controls exercised by the Company. Net interest expense increased to $3.9 million in fiscal 1996 from $1.4 million in fiscal 1995 as a result of increased borrowings incurred in connection with the acquisition of Greiner.
With an effective income tax rate of 39% in 1996, the Company earned net income of $7.4 million while in 1995 net income was $5.1 million after an effective income tax rate of 20% when the Company had available net operating loss ("NOL") carryforwards which partially offset otherwise taxable income for Federal income tax purposes. The Company earned $.80 per share on a fully-diluted basis in fiscal 1996 compared to $.67 per share in fiscal 1995.
The Company's backlog of signed and funded contracts at October 31, 1996 was $399.2 million as compared to $196.4 million at October 31, 1995. The value of the Company's designations was $295.9 million at October 31, 1996, as compared to $194.1 million at October 31, 1995.
Income Taxes
The Company currently has a $5.3 million NOL carryforward which is limited to $750,000 per year, pursuant to Section 382 of the Internal Revenue Code, related to its October 1989 quasi-reorganization.
Liquidity and Capital Resources
The Company's liquidity and capital measurements are set forth below:
October 31, ------------------------------------------ 1997 1996 1995 ------------------------------------------ Working capital $63,236,000 $57,570,000 $36,307,000 Working capital ratio 1.7 to 1 1.7 to 1 2.4 to 1 Average days to convert billed accounts receivable to cash 71 85 62 Percentage of debt to equity 62.2% 107.7% 25.0%
The Company is a professional services organization and, as such, is not capital intensive. Capital expenditures during fiscal years 1997, 1996 and 1995 were $5.1 million, $3.0 million, and $1.6 million, respectively. The expenditures were principally for computer-aided design and general purpose computer equipment to accommodate the Company's growth. The Company expects fiscal 1998 capital expenditures to increase over fiscal 1997 as a result of the W-C acquisition.
At October 31, 1997, the Company's senior secured revolving credit facility, with Wells Fargo Bank, N.A. (the "Bank"), provides for advances up to $20.0 million. Also at October 31, 1997, the Company had outstanding letters of credit totaling $1.0 million which reduced the amount available to the Company under its revolving credit facility to $19.0 million.
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 Richard C. Blum & Associates, Inc. ("RCBA") 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 drawn under the Company's line of credit with certain RCBA entities. The exercise resulted in the issuance of an additional 1,383,586 shares to the RCBA entities and additional paid-in capital of approximately $5.0 million.
On August 18, 1997, the Company executed an agreement to acquire W-C. W-C is a professional services firm operating in the engineering services industry and is headquartered in Denver, Colorado. The acquisition price consisted of approximately $100 million and was approved by the Company's and W-C's stockholders. The transaction closed November 14, 1997. To finance the cash portion of the transaction, prior to October 31, 1997, the Company negotiated with its lenders to obtain a $40,000,000 revolving credit facility with a term of five years and a $110,000,000 term loan maturing six years from the closing of the loan, which facilities are secured by guarantees from and pledges of the stock of the Company's major subsidiaries. The new revolving credit facility and term loan replaces the Company's current senior secured revolving credit facility and term loan.
The Company believes that its existing financial resources, together with its planned cash flow from operations and its existing credit facilities, will provide sufficient capital to fund its combined operations and capital expenditure needs for the foreseeable future.
Cash paid during the period for: Years Ended October 31, ----------------------- 1997 1996 1995 ------ ------ ------ (In thousands)
Interest $5,181 $4,142 $ 891 Income taxes $8,780 $6,483 $1,358
Acquisitions
On January 4, 1995, the Company acquired ECD for an aggregate purchase price of $3.6 million, which was paid in cash. In conjunction with the acquisition, liabilities were assumed as follows:
(In thousands) Fair value of assets acquired $4,952 Cash paid for the capital stock (3,596) ------- Liabilities assumed $ 1,356 =======
On March 29, 1996, the Company acquired all of the capital stock of Greiner for $78.8 million, comprised of cash of $69.3 million, and 1.4 million shares of the Company's Common Stock.
(In thousands) Purchase price of Greiner (net of prepaid loan fees of $1.6 million) $77,184 Fair value of assets acquired (39,510) ------- Excess purchase price over net assets acquired $37,674 =======
On November 14, 1997, the Company acquired W-C for approximately $100 million. See Item 8, Consolidated Financial Statements and Supplementary Data, Note 16, Subsequent Event.
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of URS Corporation:
We have audited the accompanying consolidated balance sheets of URS Corporation and its subsidiaries as of October 31, 1997 and 1996, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended October 31, 1997. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of URS Corporation and its subsidiaries as of October 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 1997, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P. ------------------------------- COOPERS & LYBRAND L.L.P.
San Francisco, California December 19, 1997
URS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Years Ended October 31, -------------------------------------- 1997 1996 1995 -------- -------- -------- Revenues $406,451 $305,470 $179,769 -------- -------- -------- Expenses: Direct operating 241,002 187,129 108,845 Indirect, general and administrative 141,442 102,389 63,217 Interest expense, net 4,802 3,897 1,351 -------- -------- -------- 387,246 293,415 173,413 -------- -------- -------- Income before taxes 19,205 12,055 6,356 Income tax expense 7,700 4,700 1,300 -------- -------- -------- Net income $ 11,505 $ 7,355 $ 5,056 ======== ======== ======== Net income per share: Primary $ 1.06 $ .82 $ .68 ======== ======== ======== Fully diluted $ 1.06 $ .80 $ .67 ======== ======== ========
See Notes to Consolidated Financial Statements
URS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
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 consolidated financial statements account for the acquisition of Greiner Engineering, Inc. ("Greiner") in March, 1996 as a purchase. 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 U.S. 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 1989 through fiscal 1997 are subject to review by the U.S. Government.
Concentration of Credit Risk
The Company provides services primarily to local, state and Federal government agencies. The Company believes the credit risk associated with these types of revenues is minimal. However, the Company does perform ongoing credit evaluations of its customers and, generally, requires no collateral. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. Substantially all cash balances are held in one financial institution and at times exceed federally 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.
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 over the useful service lives of the assets. Leasehold improvements are amortized over the length of the lease or estimated useful life, whichever is less.
Income Per Share
The computation of earnings per common and common equivalent share is based upon the weighted average number of common shares outstanding during the period plus (in periods in which they have a dilutive effect) the effect of common shares contingently issuable, primarily from stock options, warrants and the potential conversion of convertible debentures, less the number of shares assumed to be purchased from the exercise proceeds using the average market price of the Company's common stock.
The fully diluted per share computation reflects the effect of common and common equivalent shares based upon the weighted average number of common shares outstanding during the period plus (in periods in which they have a dilutive effect) the effect of common
shares contingently issuable, primarily from stock options, exercise of warrants and the potential conversion of convertible debentures, less the number of shares assumed to be purchased from the exercise proceeds using the closing market price of the Company's common stock, when higher than the average price for the period.
Industry Segment Information
The Company's single business segment, consulting, provides engineering and architectural services to local and state governments, the Federal government and the private sector. The Company's services are primarily utilized for planning, design and program and construction management of infrastructure projects.
Adoption of Statements of Financial Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") SFAS 128 establishes standards for computing and presenting earnings per share ("EPS"). It amends the standards in Accounting Principles Board Opinion ("APB")-15 (Earnings per Share) for computing EPS by replacing primary earnings per share with basic earnings per share and by altering the calculation of diluted EPS, which replaces fully diluted EPS. Basic EPS excludes potential dilution and is calculated by dividing income available to common stockholders by the weighted average number of outstanding common shares.
Basic and diluted EPS figures are required on the face of the income statement for all entities with complex capital structures. In addition, required disclosures include a reconciliation of the numerator and denominator used to calculate basic EPS to the numerator and denominator used to calculate diluted EPS.
SFAS 128 is effective for fiscal years beginning after December 15, 1997, with earlier adoption permitted. The Company will adopt SFAS 128 effective for its fiscal year ending October 31, 1998. The Company does not believe that adoption of SFAS 128 will have a material adverse effect on its financial position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which is effective for fiscal years beginning after December 15, 1997. SFAS 130 requires that certain items that qualify as part of comprehensive income be presented in the financial statements. The Company does not expect the impact on its financial statements, if any, to be material.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial statements to conform to the 1997 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, 1997 represents the accumulated net earnings arising subsequent to the date of the quasi-reorganization.
NOTE 3. ACQUISITIONS
During the year ended October 31, 1995, the Company acquired E.C. Driver & Associates, Inc. ("ECD") for an aggregate purchase price of $3.6 million, and the assumption of ECD's liabilities totaling $1.4 million. This acquisition was accounted for by the purchase method of
accounting and the net assets of ECD are included in the Company's consolidated balance sheet as of October 31, 1995 based upon their estimated fair value at the transaction's effective date of January 4, 1995. Pro forma operating results for the years ended October 31, 1994 and 1995, as if the acquisition had been made on November 1, 1993, are not presented as they would not be materially different from the Company's reported results. The excess of the purchase price over the estimated fair value of the assets acquired has been allocated to goodwill.
During the year ended October 31, 1996, the Company acquired Greiner for an aggregate purchase price of $78.8 million, comprised of cash of $69.3 million, and 1.4 million shares of the Company's Common Stock. The acquisition has been accounted for by the purchase method of accounting and the excess of the fair value of the net assets acquired over the purchase price has been allocated to goodwill. The operating results of Greiner are included in the Company's results of operations from the date of purchase.
The purchase price consisted of: (In thousands) Cash paid $ 19,321 Term debt-current portion 4,675 Term debt-long-term portion 45,325 Common Stock 9,463 -------- $ 78,784 The purchase price of Greiner (net of prepaid loan fees of $1.6 million) $ 77,184 Fair value of assets acquired (39,510) -------- Excess purchase price over net assets acquired (Goodwill) $ 37,674 ========
The following unaudited pro forma summary presents the consolidated results of operations as if the Greiner acquisition had occurred at the beginning of the periods presented and does not purport to indicate what would have occurred had the acquisition been made as of those dates or of results which may occur in the future.
Fiscal Years Ended October 31:
1996 1995 ---- ---- (In thousands, except per share data) Revenues $368,572 $334,904 Net income $ 4,691 $ 2,868 Net income per share $ .49 $ .33
On August 18, 1997, the Company and Woodward-Clyde Group, Inc. ("W-C") executed an agreement to acquire W-C. The transaction closed on November 14, 1997. See Note 16, Subsequent Event.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following: October 31, ----------- 1997 1996 -------- -------- (In thousands) Equipment $ 29,871 $ 26,924 Furniture and fixtures 5,335 5,972 Leasehold improvements 2,249 2,767 -------- -------- 37,455 35,663 Less: accumulated depreciation and amortization (19,607) (19,848) -------- -------- Net property and equipment $ 17,848 $ 15,815 ======== ========
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, 1997 and 1996 was $9.7 million and $7.7 million, respectively. Goodwill is amortized on the straight-line method over 30 years.
NOTE 6. INCOME TAXES
The components of income tax expense applicable to the operations each year are as follows: Years Ended October 31, ---------------------------------------- 1997 1996 1995 ------- ------- ------- (In thousands) Current: Federal $ 7,580 $ 5,020 $ 1,330 State and local 1,860 1,560 590 ------- ------- ------- Subtotal 9,440 6,580 1,920 ------- ------- -------
Deferred: Federal (1,450) (1,320) (390) State and local (290) (560) (230) ------- ------- ------- Subtotal (1,740) (1,880) (620) ------- ------- ------- Total tax provision $ 7,700 $ 4,700 $ 1,300 ======= ======= =======
As of October 31, 1997, the Company has available net operating loss ("NOL") carryforwards for Federal income tax and financial statement purposes of $5.3 million. The NOL utilization is limited to $750,000 per year pursuant to section 382 of the Internal Revenue Code, related to its October 1989 quasi-reorganization.
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.
The significant components of the Company's deferred tax assets and liabilities as of October 31 are as follows:
Deferred tax assets/(liabilities) - due to: 1997 1996 -------- -------- (In thousands) Allowance for doubtful accounts $ 400 $ 1,520 Other accruals and reserves 6,620 6,630 Net operating loss 1,840 2,050 -------- -------- Total 8,860 10,200
Valuation allowance (2,460) (3,120) -------- -------- Deferred tax asset 6,400 7,080 -------- --------
Other deferred gain and unamortized bond premium (1,450) (2,160) Depreciation and amortization (1,110) (750) -------- --------
Deferred tax liability (2,560) (2,910) -------- --------
Net deferred tax asset $ 3,840 $ 4,170 ======== ========
The net change in the total valuation allowance for the year ended October 31, 1997 was a decrease of $660,000 due to the utilization of net operating losses and other changes in deferred tax assets.
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, ----------------------------- 1997 1996 1995 ------- ------- ------- (In thousands) Federal income tax expense based upon federal statutory tax rate of 35% $ 6,720 $ 4,100 $ 2,160 Nondeductible goodwill amortization 620 400 160 Nondeductible expenses 480 240 210 NOL carryforwards utilized (260) (250) (1,140) AMT credit utilized -- -- (330) State taxes, net of Federal benefit 1,120 660 240 Adjustment due to change in Federal and state (610) -- -- rates Utilization of deferred tax allowance and other (370) (450) -- adjustments ------- ------- -------
Total taxes provided $ 7,700 $ 4,700 $ 1,300 ======= ======= =======
NOTE 7. RELATED PARTY TRANSACTIONS
Interest paid to related parties in connection with the January Notes was $131,068, $260,712 and $194,000 in fiscal 1997, 1996 and 1995, respectively. See Note 8, Long-Term Debt.
The Company has agreements for business consulting services to be provided by Richard C. Blum & Associates, Inc. ("RCBA") and Richard C. Blum, a Director of the Company. Under these agreements, the Company paid $90,000 and $60,000 to RCBA and Richard C. Blum, respectively, during each of fiscal 1997, 1996 and 1995. Richard C. Blum also received an additional cash amount of $15,000, $23,000 and $25,000 for his services as a Director of the Company in fiscal 1997, 1996 and 1995, respectively.
NOTE 8. LONG-TERM DEBT
Long-term debt consists of the following: October 31, ----------------- 1997 1996 ------- ------- (In thousands) Third party: Bank term loan, payable in quarterly installments $35,655 $49,207
6 1/2% Convertible Subordinated Debentures due 2012 (net of bond issue costs of $36 and $39) 2,108 2,106
85/8% Senior Subordinated Debentures due 2004 (net of discount and bond issue costs of $3,437 and $3,657) (effective interest rate on date of restructuring was 25%) 3,018 2,798 Obligations under capital leases 7,268 4,173 ------- ------- 48,049 58,284 Less: Current maturities of long-term debt 4,775 4,675 Current maturities of capital leases 1,826 1,219 ------- ------- $41,448 $52,390 ======= =======
Related parties: January Notes (net of discount of $-0- and $1,021) $ -- $ 2,979 ======= =======
At October 31, 1997, the Company's senior secured revolving credit facility with Wells Fargo Bank, N.A. (the "Bank") provides for advances up to $20.0 million and expires March 29, 1999. Borrowings on the revolving credit facility bear interest at the option of the Company based on rate indexes selected by the Company, with variable spreads over the selected index based on loan maturity and the Company's financial performance. At October 31, 1997, the interest rate was based on the London Interbank Offered Rate ("LIBOR") of 5.66%, plus spreads of 1.38% to 3.0%. At October 31, 1997, the Company had outstanding letters of credit totaling $1.0 million which reduced the amount available to the Company under its revolving credit facility to $19.0 million.
Also at October 31, 1997, the Company had outstanding with the Bank $35.7 million of senior secured term loans payable over seven years beginning October 1996. The loans bear interest based on rate indexes selected by the Company, with variable spreads over the selected index based on loan maturity and the Company's financial performance. At October 31, 1997, the interest rate was based on the LIBOR of 5.66%, plus spreads of 1.38% to 3.0%.
On August 18, 1997, the Company and W-C executed an agreement to acquire W-C. The transaction closed on November 14, 1997 and involved the revision of the Company credit facility with the Bank and an increase in term debt. See Note 16, Subsequent Event.
Related Parties
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 an additional paid-in capital of approximately $1.9 million.
On February 14, 1997, various partnerships managed by RCBA 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 RCBA entities. The exercise resulted in the issuance of an additional 1,383,586 shares to the RCBA entities. These equity transactions are reflected in the Company's financial statements.
Debentures
The Company's 6 1/2% Convertible Subordinated Debentures due 2012 are convertible into the Company's common shares at the rate of $206.30 per share. Sinking fund payments are calculated to retire 70% of the debentures prior to maturity beginning in February 1998. Interest is payable semi-annually in February and August. Interest is payable semi-annually in January and July on the Company's 8 5/8% Senior Subordinated Debentures due 2004 ("8 5/8% Debentures"). Both the 6 1/2% Convertible Subordinated Debentures and the 8 5/8% Debentures are subordinate to all debt to the Bank.
Maturities
The amounts of long-term debt outstanding at October 31, 1997 maturing in the next five years are as follows: (In thousands)
1998 $ 4,775 1999 5,175 2000 5,575 2001 6,175 2002 7,175 Thereafter 11,906
Amounts payable under capitalized lease agreements are excluded from the above table.
NOTE 9. OBLIGATIONS UNDER LEASES
Total rental expense included in operations for operating leases for the fiscal years ended October 31, 1997, 1996 and 1995 amounted to $14.9 million, $10.9 million and $5.7 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 2005.
Obligations under non-cancelable lease agreements are as follows:
Capital Operating Leases Leases ------- --------- (In thousands) 1998 $ 2,130 $12,800 1999 1,761 10,404 2000 1,494 8,314 2001 1,274 6,889 2002 609 4,577 Thereafter -- 10,968 ------- -------
Total minimum lease payments $ 7,268 $53,952 =======
Less amounts representing interest 1,428 ------- Present value of net minimum lease payments $ 5,840 =======
NOTE 10. COMMITMENTS AND CONTINGENCIES
Currently, the Company has $51.0 million per occurrence and $52.0 million aggregate commercial general liability insurance coverage. The Company is also insured for professional errors and omissions ("E&O") and contractor pollution liability ("CPL") claims with an aggregate limit of $30.0 million after a self-insured retention of $.5 million. The E&O and CPL 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 this policy, it will have no coverage under the policy 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 this type of coverage, but there can be no assurance that the Company can maintain its existing coverage, that claims will not exceed the amount of insurance coverage or that there will not be claims relating to prior periods that were subject only to "claims made" coverage.
Various legal proceedings are pending against the Company or its subsidiaries alleging 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 11. STOCKHOLDERS' EQUITY
Declaration of dividends, except Common Stock dividends, is restricted by the senior secured credit facility with the Bank and the Indenture governing the 8 5/8% Debentures. 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 March 26, 1991, the stockholders approved the 1991 Stock Incentive Plan (the "1991 Plan"). The 1991 Plan provides for the grant not to exceed 2,250,000 Restricted Shares, Stock Units and Options. As of October 1997, the Company had issued 21,200 shares of Restricted Stock under the 1991 Plan.
Under the Employee Stock Purchase Plan (the "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 140,469 shares under the ESP Plan in fiscal 1997 and 69,692 shares in fiscal 1996.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its 1991 Plan. Accordingly, no compensation cost has been recognized for its 1991 Plan. Had compensation cost for the Company's 1991 Plan been determined consistent with SFAS Statement No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 -------- ------- ------- (In thousands, except per share data) Net income As Reported $ 11,505 $ 7,355 $ 5,056 Pro forma $ 11,237 $ 7,223 $ 4,994
Primary earnings As Reported $ 1.06 $ .82 $ .68 per share Pro forma $ 1.04 $ .81 $ .67
Fully diluted As Reported $ 1.06 $ .80 $ .67 earnings per share Pro forma $ 1.04 $ .78 $ .66
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
1997 1996 1995 ---- ---- ---- Risk-free interest rates 5.81%-6.35% 5.46%-6.53% 6.09%-7.79% Expected life 4 Years 4 Years 4 Years Volatility 24.73% 24.73% 24.73% Expected dividends None None None
NOTE 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for: Years Ended October 31, -------------------------------------- 1997 1996 1995 ------ ------ ------ (In thousands)
Interest $5,181 $4,142 $ 891 Income taxes $8,780 $6,483 $1,358
In connection with the exercise of certain warrants, outstanding debt owed to a related party aggregating approximately $3.0 million was canceled.
Equipment purchased through capital lease obligations was $4.3 million, $1.5 million and $1.4 million for the years ended October 31, 1997, 1996 and 1995.
On January 4, 1995, the Company purchased all of the capital stock of ECD for $3.6 million. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 4,952 Cash paid for the capital stock (3,596) ------- Liabilities assumed $ 1,356 =======
On March 29,1996, the Company acquired all of the capital stock of Greiner for $78.8 million.
Purchase price of Greiner (net of prepaid loan fees of $1.6 million) $ 77,184 Fair value of assets acquired (39,510) -------- Excess purchase price over net assets acquired $ 37,674 ========
NOTE 13. DEFINED CONTRIBUTION PLAN
The Company has a defined contribution retirement plan under Internal Revenue Code Section 401(k). The plan covers 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. Contributions in the amount of $2.0 million, $1.6 million and $.8 million were made to the plan in fiscal 1997, 1996 and 1995, respectively.
NOTE 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal 1997 and 1996 is summarized as follows:
Fiscal 1997 Quarters Ended ----------------------------------------------- Jan. 31 Apr. 30 July 31 Oct. 31 -------- -------- -------- -------- (In thousands, except per share data)
Revenues $ 95,541 $ 99,759 $100,196 $110,955 Operating income 5,081 5,458 6,280 7,188 Net income $ 2,196 $ 2,457 $ 3,181 $ 3,671 Income per share: Primary $ .22 $ .24 $ .28 $ .32 ======== ======== -------- ======== Fully diluted $ .22 $ .24 $ .28 $ .32 ======== ======== ======== ======== Weighted average number of shares 10,102 10,226 11,318 11,518 ======== ======== ======== ========
Fiscal 1996 Quarters Ended ----------------------------------------------- Jan. 31 Apr. 30 July 31 Oct. 31 -------- -------- -------- -------- (In thousands, except per share data)
Revenues $ 48,503 $ 64,864 $ 89,734 $102,369 Operating income 1,637 3,270 4,863 6,182 Net income $ 812 $ 1,522 $ 2,072 $ 2,949 Income per share: Primary $ .11 $ .18 $ .22 $ .31 ======== ======== ======== ======== Fully diluted $ .11 $ .18 $ .22 $ .29 ======== ======== ======== ======== Weighted average number of shares 8,713 9,188 10,096 10,093 ======== ======== ======== ========
Operating income represents continuing operations before interest income and interest expense.
NOTE 16. SUBSEQUENT EVENT (UNAUDITED)
During the year ended October 31, 1997 the Company and W-C executed an agreement to acquire W-C for an aggregate purchase price of $100 million. The acquisition was completed on November 14, 1997.
The purchase price consisted of: (In thousands)
Cash paid $ 6,866 Term debt 31,198 Common stock 61,936 ---------
$ 100,000 =========
The purchase price of W-C (net of prepaid loan fees of $4 million) $ 96,000 Fair value of assets acquired (43,949) --------- Excess purchase price over net assets acquired (Goodwill) $ 52,051 =========
The following unaudited pro forma summary presents the consolidated results of operations as if the W-C acquisition had occurred at the beginning of the periods presented and does not purport to indicate what would have occurred had the acquisition been made as of those dates or of results which may occur in the future.
Fiscal Years Ended October 31: 1997 1996 -------- -------- (In thousands, except per share data) Revenues $753,430 $625,698 Net income $ 16,211 $ 6,029 Net income per share $ 1.09 $ .43
To finance the cash portion of the transaction, prior to October 31, 1997, the Company negotiated with its lenders to obtain a $40,000,000 revolving credit facility with a term of five years and a $110,000,000 term loan maturing six years from the closing of the loan, which facilities are secured by guarantees from and pledges of the stock of the Company's major subsidiaries. The new revolving credit facility and term loan replaces the Company's current senior secured revolving credit facility and term loan.
ITEM 9.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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 the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on March 24, 1998 and from Item 4a -- "Executive Officers of the Registrant" in Part I.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the caption "Executive Compensation" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on March 24, 1998.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the caption "Stock Ownership" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on March 24, 1998.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from Item 8, Financial Statement and Supplementary Data, Note 8, Long-Term Debt and Note 7, Related Party Transactions.
PART IV
ITEM 14.
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, 1997 and October 31, 1996
Consolidated Statements of Operations For the years ended October 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity For the years ended October 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows For the years ended October 31, 1997, 1996 and 1995
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
3.1 Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1991 (the "1991 Form 10-K"), and incorporated herein by reference.
3.2 Bylaws of the Company, filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1996 (the "1996 Form 10-K"), and incorporated herein by reference.
4.1 Indenture, dated as of February 15, 1987, between the Company and First Interstate Bank of California, Trustees, relating to $57.5 million of the Company's 6 1/2% Convertible Subordinated Debentures Due 2012, filed as Exhibit 4.10 to the Company's 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 the Company and First Interstate Bank of California, Trustee, filed as Exhibit 4.9 to the Company's Registration Statement on Form S-1 (Commission File No. 33-56296) ("1990 Form S- 1") and incorporated herein by reference.
4.3 Indenture, dated as of March 16, 1989, between the Company and MTrust Corp., National Association, Trustee relating to the Company's 8 5/8% Senior Subordinated Debentures due 2004, filed as Exhibit 13C to the Company's 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 the Company and MTrust Corp. National Association, Trustee, filed as Exhibit 4.12 to the 1990 Form S-1 and incorporated herein by reference.
10.1 1979 Stock Option Plan of the Company, filed as Exhibit 10.01 to the Company's Registration Statement on Form S-14 (Commission File No. 2-73909) and incorporated herein by reference.
10.2 1987 Restricted Stock Plan of the Company, filed as Appendix I to the Company's definitive proxy statement filed with the Commission on March 2, 1987 and incorporated herein by reference.
10.3 1985 Employee Stock Purchase Plan of the Company, adopted effective July 1, 1997, filed as Exhibit 10.3 to the 1996 Form 10-K and incorporated herein by reference.
10.4 1991 Stock Incentive Plan of the Company, amended and restated effective December 17, 1996, filed as Exhibit 10.4 to the 1996 Form 10-K and incorporated herein by reference.
10.5 Non-Executive Directors Stock Grant Plan of the Company, adopted December 17, 1996, filed as Exhibit 10.5 to the 1996 Form 10-K and incorporated herein by
reference.
10.6 Selected Executive Deferred Compensation Plan of the Company, filed as Exhibit 10.3 to the 1990 Form S-1 and incorporated herein by reference.
10.7 1997 Incentive Compensation Plan of the Company. FILED HEREWITH.
10.8 1997 Incentive Compensation Plan of URS Greiner. FILED HEREWITH.
10.9 Stock Appreciation Rights Agreement, dated July 18, 1989, between the Company and Irwin L. Rosenstein, filed as Exhibit 10.13 to the 1990 Form S-1 and incorporated herein by reference.
10.10 Stock Appreciation Rights Agreement, dated October 9, 1989, between the Company and Martin M. Koffel, filed as Exhibit 10.15 to the 1990 Form S-1 and incorporated herein by reference.
10.11 Employment Agreement, dated August 1, 1991, between URS Consultants, Inc. and Irwin L. Rosenstein, filed as Exhibit 10.12 to the 1991 Form 10-K and incorporated herein by reference.
10.11(a) 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.
10.12 Employment Agreement, dated December 16, 1991, between the Company and Martin Koffel, filed as Exhibit 10.13 to the 1991 Form 10-K and incorporated herein by reference.
10.13 Employment Agreement, dated May 7, 1991, between the Company and Kent P. Ainsworth, filed as Exhibit 10.16 to the 1991 Form 10-K and incorporated herein by reference.
10.14 Letter Agreement, dated February 14, 1990, between the Company and Richard C. Blum, filed as Exhibit 10.31 to the 1990 Form S-1 and incorporated herein by reference.
10.15 Letter Agreement, dated February 14, 1990, between the Company and Richard C. Blum & Associates, Inc., filed as Exhibit 10.32 to the 1990 Form S-1 and incorporated herein by reference.
10.16 Registration Rights Agreement, dated February 21, 1990, among the Company, Wells Fargo Bank, N.A. and the Purchaser Holders named therein, filed as Exhibit 10.33 to the 1990 Form S-1 and incorporated herein by reference.
10.17 Post-Affiliation Agreement, dated July 19, 1989, between the Company and URS International, Inc., filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1989 and incorporated herein by reference.
10.18 Form of Indemnification Agreement filed as Exhibit 10.34 to the Company'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 the Company and each of Messrs. Ainsworth, Blum, Koffel, Madden, Praeger, Rosenstein and Walsh; dated as
of March 22, 1994 between the Company and each of Admiral Foley and Mr. Der Marderosian; dated as of March 29, 1996 between the Company and Mr. Costello; dated as of November 6, 1996 between the Company and Mr. Glynn; dated as of January 27, 1997 between the Company and Mr. Johnston; and dated as of November 17, 1997 between the Company and each of Messrs. Waller, Perez and Wilson.
10.19 Severance Agreement, dated as of November 22, 1993, between the Company and Joseph Masters, filed as Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995 and incorporated herein by reference.
10.20 Employment Agreement, dated March 29, 1996, between Greiner, Inc. and Robert L. Costello, filed as Exhibit 10.1 to the 1996 second quarter Form 10-Q and incorporated herein by reference.
10.21 Form of Change-In-Control Agreement dated as of April 17, 1997 between Woodward-Clyde Group, Inc. and each of Frank S. Waller and Robert K. Wilson.
10.22 Agreement and Plan of Merger, dated as of January 10, 1996, between URS Corporation, URS Acquisition Corporation and Greiner Engineering, Inc., filed as Exhibit 2(a) to the Form 8-K filed on January 12, 1996, and incorporated herein by reference.
10.23 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 the Company's Current Report on Form 8-K filed on August 21, 1997 and incorporated herein by reference.
10.24 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 the Company's Current Report on Form 8-K filed on November 26, 1997, and incorporated herein by reference.
21.1 Subsidiaries of the Company. FILED HEREWITH.
23.1 Consent of Coopers & Lybrand L.L.P. FILED HEREWITH.
24.1 Powers of Attorney of the Company's directors and officers. FILED HEREWITH.
27 Financial Data Schedule. FILED HEREWITH.
(b)(1) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on August 21, 1997 disclosing under Item 5 thereof that on August 18, 1997, the Company executed an Agreement and Plan of Merger, by and among the Company, Woodward-Clyde Group, Inc. ("Woodward-Clyde"), and W-C Acquisition Corporation ("Acquisition Corp."), pursuant to which Woodward-Clyde would be merged with and into Acquisition Corp., with Acquisition Corp. as the surviving corporation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(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 19, 1998