URS Corporation Reports Results for Two Month Transition Period Ended

URS Corporation Reports Results for Two Month Transition Period Ended December 31, 2004

    Business Editors

    SAN FRANCISCO--(BUSINESS WIRE)--Feb. 9, 2005--URS Corporation (NYSE:URS)

--	Reaffirms Fiscal 2005 Guidance including Revenues of $3.6 Billion, Net Income of $94 Million, EPS of $2.10 and $80 Million in Debt Repayment
--	Company Filed Form 10-K/A to Restate Cash Balances in Prior Periods; No Impact on Revenues, Net Income, EPS or Stockholders' Equity

    As previously announced, effective January 1, 2005, URS (NYSE: URS) began reporting its financial results on a 52/53-week fiscal year ending on the Friday closest to December 31, with interim quarters ending on the Fridays closest to March 31, June 30 and September 30. The Company is treating the period from November 1, 2004 through December 31, 2004 as a separate reporting period and today reported financial results for this transition period.
    Revenues for the two month transition period ended December 31, 2004 increased to $567.0 million, or 15.8%, compared with $489.7 million in revenues for the corresponding two months in 2003. The Company noted that the two months ended December 31, 2004 contained more working days than the corresponding period in 2003, which contributed to approximately half of the increase in revenues in the 2004 transition period.
    Commenting on the Company's financial results, Martin M. Koffel, Chairman and Chief Executive Officer, stated: "We achieved year-over-year revenue growth for the November-December period, even after adjusting for the lower number of working days included in the corresponding period in 2003. While November and December historically have been our slowest months due to seasonal factors including holidays, vacations, and winter weather, our results for the transition period were in-line with our expectations. Our federal, state and local government and private sector businesses continue to perform as anticipated, giving us additional confidence in our financial outlook for the 2005 fiscal year, which began on January 1st."
    Net income for the two months ended December 31, 2004 was $1.2 million, compared to $5.5 million for the corresponding period in 2003. Earnings per share ("EPS") were $0.03, fully diluted, for the 2004 transition period compared with EPS of $0.16, fully diluted, for the two months ended December 31, 2003.
    Mr. Koffel said: "Our profitability in the transition period is not indicative of trends for fiscal 2005, and we are on track to achieve top and bottom line growth in line with our guidance for 2005. We also are on track to meet our debt reduction targets for the 2005 fiscal year." Koffel noted that, "higher employee benefit costs for the transition period, an expected business mix change reflecting higher activity levels in the Middle East, and an anomalous increase in the effective tax rate related to seasonal business trends in the transition period affected comparisons with the two month period ended December 31 a year ago. The transition period benefited from lower interest expense due to the Company's debt reductions during 2004."
    The increase in employees' holiday benefits costs was caused by applying the Company's standard accounting method, which required the costs for holidays that fell during the two months ended December 31, 2004 be recognized during the period, rather than over an annual 12-month reporting period. Therefore, because the transition period was considered a complete accounting cycle, all holiday costs incurred were expensed. As a result, the two months ended December 31, 2004 included an incremental $9.7 million in costs for the four holidays that fell during that period, rather than the costs of one and one-half holidays that were included in the two months ended December 31, 2003.
    The change in business mix reflects the higher volume of operations and maintenance work performed during the transition period by the EG&G Division for equipment returning from -- and being deployed to -- the Middle East. This work, which was performed under contracts with the Department of Defense, has lower margins than those typically achieved through the Company's historic portfolio of contracts.
    The Company's effective tax rate increased to 49% for the two months ended December 31, 2004 compared with 40% in the same period of 2003 due to an increase in non-deductible expenses as well as expected seasonal losses incurred by foreign subsidiaries. In addition, interest expense declined to $6.6 million in the two months ended December 31, 2004, compared to $12.4 million for the corresponding two months in 2003 due to lower debt levels.
    Weighted-average shares outstanding for the transition period for purposes of calculating diluted EPS were 45.3 million, compared to 34.8 million weighted-average shares outstanding for the corresponding period in 2003. The increase was primarily due to the Company's April 2004 public stock offering and to additional shares issued pursuant to the Company's stock option and purchase plans.
    The Company reported cash and cash equivalents of $108.0 million at December 31, 2004, and a book overdraft of $70.9 million consisting primarily of outstanding checks. For the reasons explained below, the Company also has restated these items in the October 31, 2004 Consolidated Balance Sheet to provide a consistent method of presentation in accordance with FIN 39.
    As of December 31, 2004, the Company's backlog was $3.633 billion, compared to $3.823 billion as of October 31, 2004 and $3.399 billion as of December 31, 2003.

    Business Segments

    In addition to providing consolidated financial results, URS provided separate financial information for its two segments, the URS Division and the EG&G Division:
    URS Division. For the two months ended December 2004, the URS Division reported revenues of $370.3 million and operating income of $5.5 million.
    EG&G Division. For the two months ended December 2004, the EG&G Division reported revenues of $197.0 million and operating income of $8.0 million.

    Earnings Outlook

    URS reaffirmed its outlook for the fiscal year ending on December 30, 2005. The Company expects revenues of approximately $3.6 billion. Assuming it meets this revenue expectation, the Company expects that net income will be approximately $94 million and EPS will be approximately $2.10 for fiscal 2005. In addition, the Company continues to expect its first quarter EPS will be between 19% and 23% of its full year 2005 EPS guidance of $2.10. This EPS guidance does not include the potential impacts of Statement of Financial Accounting Standards 123 (Revised) ("FAS 123R") "Share-Based Payment," which requires that the costs resulting from share-based payment transactions be recognized in financial statements. FAS 123R becomes effective for the Company on July 1, 2005.

    Restatements

    As noted above, the Company has restated certain items in its October 31, 2004 Consolidated Balance Sheet. Previously, the Company had reported some of its book overdrafts as current liabilities, while others were offset against its cash and cash equivalents on the Consolidated Balance Sheet. The Company has determined, however, that such offsetting is not permitted under FIN 39. Consequently, the Company has filed a Form 10-K/A to correct the classification and presentation of cash and cash equivalents, book overdrafts and related items in its Consolidated Balance Sheets as of October 31, 2004 and 2003, and to incorporate the impact of these changes into its Consolidated Statements of Cash Flows for the three years ended October 31, 2004, 2003 and 2002. These restatements have no impact on revenues, net income, EPS or stockholders' equity in any of the periods.
    As a result of these restatements, at October 31, 2004 cash and cash equivalents increased to $69.3 million from $32.3 million, book overdrafts increased to $60.3 million from zero, and accrued expenses decreased to $60.5 million from $83.8 million. As of October 31, 2003, cash and cash equivalents increased to $36.3 million from $15.5 million, book overdrafts increased to $30.3 million from zero, and accrued expenses decreased to $70.4 million from $79.9 million.
    For the three years ended October 31, 2004, 2003 and 2002, net cash provided by operating activities changed from $109.3 million, $166.1 million and $88.5 million, to $95.5 million, $177.1 million and $68.1 million, respectively, and net cash provided by financing activities changed from negative $73.5 million, negative $142.4 million and positive $286.2 million, to negative $43.5 million, negative $155.3 million and positive $307.4 million, respectively.
    URS Corporation offers a comprehensive range of professional planning and design, systems engineering and technical assistance, program and construction management, and operations and maintenance services for transportation, commercial/industrial, facilities, environmental, water/wastewater, homeland security, installations and logistics, and defense systems. Headquartered in San Francisco, the Company operates in more than 20 countries with approximately 27,500 employees providing engineering and technical services to federal, state and local governmental agencies as well as private clients in the chemical, pharmaceutical, oil and gas, power, manufacturing, mining and forest products industries (www.urscorp.com).

    Statements contained in this earning release that are not historical facts may constitute forward-looking statements, including statements relating to the Company's revenues, debt repayment and earning projections. The Company believes that its expectations are reasonable and are based on reasonable assumptions. However, such forward-looking statements by their nature involve risks and uncertainties that could cause actual results to differ materially from the results predicted. The potential risks and uncertainties include, but are not limited to: the ongoing economic downturn; the Company's ability to comply with government contract procurement regulations; changes in the Company's book of business; the Company's dependence on government appropriations and procurements; the Company's ability to profitably execute its contracts and guarantees; the Company's leveraged position; the Company's ability to service its debt; liability for pending and future litigation; the impact of changes in laws and regulations; the Company's ability to maintain adequate insurance coverage; a decline in defense spending; industry competition; the Company's ability to attract and retain key individuals; risks associated with international operations; the Company's ability to successfully integrate its accounting and project management software; the Company's relationship with its labor unions; and other factors discussed more fully in the Company's Form 10-Q for the transition period from November 1, 2004 through December 31, 2004, as well as in other reports subsequently filed from time to time with the Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statements.

URS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)

December 31 October 31, 2004 2004 ----------- ----------- ASSETS (unaudited) Current assets: Cash and cash equivalents, including $58,000 and $25,000 of short-term money market funds, respectively $ 108,007 $ 69,267 Accounts receivable, including retainage of $43,844 and $41,382, respectively 581,628 575,939 Costs and accrued earnings in excess of billings on contracts in process 398,743 413,391 Less receivable allowances (38,719) (37,292) ----------- ----------- Net accounts receivable 941,652 952,038 Deferred income taxes 20,614 16,612 Prepaid expenses and other assets 18,863 21,043 ----------- ----------- Total current assets 1,089,136 1,058,960 Property and equipment at cost, net 142,907 143,212 Goodwill 1,004,680 1,004,680 Purchased intangible assets, net 7,749 8,244 Other assets 52,010 53,654 ----------- ----------- $2,296,482 $2,268,750 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Book overdraft $ 70,871 $ 60,282 Current portion of long-term debt 48,338 41,619 Accounts payable and subcontractors payable, including retainage of $13,302 and $13,414, respectively 138,250 177,322 Accrued salaries and wages 171,004 153,175 Accrued expenses and other 58,901 60,517 Billings in excess of costs and accrued earnings on contracts in process 84,393 79,474 ----------- ----------- Total current liabilities 571,757 572,389 Long-term debt 508,584 502,118 Deferred income taxes 36,305 31,477 Other long-term liabilities 97,715 95,542 ----------- ----------- Total liabilities 1,214,361 1,201,526 ----------- ----------- Commitments and contingencies Stockholders' equity: Common shares, par value $.01; authorized 100,000 shares; 43,838 and 43,593 shares issued, respectively; and 43,786 and 43,542 shares outstanding, respectively 438 435 Treasury stock, 52 shares at cost (287) (287) Additional paid-in capital 734,843 727,134 Accumulated other comprehensive income 6,418 395 Retained earnings 340,709 339,547 ----------- ----------- Total stockholders' equity 1,082,121 1,067,224 ----------- ----------- $2,296,482 $2,268,750 =========== ===========

URS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - UNAUDITED (In thousands, except per share data)

Two Months Ended December 31, ------------------- 2004 2003 --------- ---------

Revenues $566,997 $489,665 Direct operating expenses 369,527 314,485 --------- --------- Gross profit 197,470 175,180 Indirect, general and administrative expenses 188,626 153,702 --------- --------- Operating income 8,844 21,478 Interest expense, net 6,561 12,400 --------- --------- Income before income taxes 2,283 9,078 Income tax expense 1,120 3,630 --------- --------- Net income 1,163 5,448 Other comprehensive income (loss): Minimum pension liability adjustments, net of tax 4,141 -- Foreign currency translation adjustments 1,882 (48) --------- --------- Comprehensive income $ 7,186 $ 5,400 ========= ========= Net income per common share: Basic $ 0.03 $ 0.16 ========= ========= Diluted $ 0.03 $ 0.16 ========= ========= Weighted-average shares outstanding: Basic 43,643 33,682 ========= ========= Diluted 45,313 34,782 ========= =========

URS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (In thousands)

Two Months Ended December 31, -------------------- 2004 2003 --------- ---------

Cash flows from operating activities: Net income $ 1,163 $ 5,448 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,909 7,200 Amortization of financing fees 978 1,343 Provision for doubtful accounts 2,673 1,082 Deferred income taxes 827 674 Stock compensation 1,058 398 Tax benefit of stock compensation 1,465 200 Changes in assets and liabilities: Accounts receivable and costs and accrued earnings in excess of billings on contracts in process 7,713 (29,312) Prepaid expenses and other assets 2,180 (1,753) Accounts payable, accrued salaries and wages and accrued expenses (22,860) (28,659) Billings in excess of costs and accrued earnings on contracts in process 4,919 5,411 Other long-term liabilities 2,174 (250) Other, net 5,800 (1,317) --------- --------- Total adjustments and changes 13,836 (44,983) --------- --------- Net cash provided (used) by operating activities 14,999 (39,535) --------- --------- Cash flows from investing activities: Capital expenditures, less equipment purchased through capital leases (1,597) (2,830) --------- --------- Net cash used by investing activities (1,597) (2,830) --------- --------- Cash flows from financing activities: Long-term debt principal payments (990) (275) Long-term debt borrowings 21 20 Net borrowings under the line of credit 12,750 20,038 Net change in book overdraft 10,589 24,007 Capital lease obligation payments (3,724) (2,214) Short-term note borrowings 1,583 -- Short-term note payments (79) (6) Proceeds from sale of common stock from employee stock purchase plan and exercise of stock options 5,188 871 Payments for financing fees -- (1,607) --------- --------- Net cash provided by financing activities 25,338 40,834 --------- --------- Net increase (decrease) in cash and cash equivalents 38,740 (1,531) Cash and cash equivalents at beginning of period 69,267 36,275 --------- --------- Cash and cash equivalents at end of period $108,007 $ 34,744 ========= ========= Supplemental information: Interest paid $ 4,982 $ 17,268 ========= ========= Taxes paid $ 10,217 $ 251 ========= ========= Equipment acquired through capital lease obligations $ 3,541 $ 148 ========= =========

--30--RG/ny*

CONTACT: URS Corporation Kent P. Ainsworth Executive Vice President & Chief Financial Officer or David C. Nelson Vice President, Investor Relations 415-774-2700 or Citigate Sard Verbinnen Hugh Burns/Jamie Tully 212-687-8080

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: AEROSPACE/DEFENSE GOVERNMENT ENVIRONMENT EARNINGS SOURCE: URS Corporation

Copyright Business Wire 2005