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URS Corporation Message Board

  • dnaplsucker dnaplsucker Dec 15, 2000 1:16 PM Flag

    anybody home

    <EOM>

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    • Is that based on the numbers from the last two
      quarters and from the FY, there has been no debt paid down
      by operations derived income. I am not saying they
      can't, I am saying they haven't. So to talk about
      reduction of the debt load compared to revenues and to
      attribute it to increased revenues is incorrect. The debt
      to revenue ratio now may be better than a year ago,
      but it certainly isnt better than it was before they
      bought DM.

      Before I say what I have to say next,
      let me explain something so you understand where I am
      coming from. I am not an investor. I don't own or plan
      to own URS stock. I am an env. consultant, and I
      used to work for DM before I left for a better offer
      well before the URS acquisition of DM. What my
      interest in this company and its stock relates to is my
      focus on the future of our industry. There was a time
      about 3 years ago when everybody was convinced that the
      large publicly held firms were going to buy everybody
      out and there was going to be no room for anybody but
      a few mom and pops and a few niche players. The two
      firms that symbolized this trend were IT and URS/DM.
      Now that both companies have buried themselves in
      debt, my interest is to see if they can show revenues
      and earnings sufficient to allow them to dump the
      debt and go on buying other companies.

      My
      argument on this board last year was that URS bought
      market share when it bought DM, and that the market
      share was represented in hundreds or maybe thousands of
      mid and upper level project managers and senior
      technical personnel who had clients and projects they
      managed. Not long after the merger, we saw a lot of those
      people bailing out and forming new companies or joining
      smaller firms and in many cases taking their projects
      with them. My test case for URS is to see if the large
      firm mentality is correct...to see if the clients
      really do want one company who can do it all for them in
      any corner of the globe...or if they want a few good
      project managers and firms they trust and are comfortable
      with to do all their work in whatever place it happens
      to turn up. The reason the stock price factors in
      and the reason for my interest in the finacials is
      that I don't believe URS is getting the benefit they
      hoped from buying the DM/Radian/WC market share. It is
      showing up in that the revenue has gone up accordingly
      with the accretion of companies together, but the
      earnings aren't going up along with it. After more than a
      year together, the extra expenses should be gone and I
      think the next 2 quarters are crucial to URS. The
      engine they need for future acquisitions and future cash
      to make improvements is their stock price. They are
      buried in debt for the foreseeable future. Therefore,
      they have to get a healthy stock price to be able to
      generate any more money to make changes. They have not
      been able to pay down the debt AND show increases in
      earnings without dipping into cash and selling assets. In
      the next two quarters, IMHO, they have to show wall
      street they can generate real earnings to have a hope of
      regaining some of the stock momentum they had before
      acquiring DM. If that momentum doesn't return, IMHO, it
      signals a shift in the industry...It will be a long time
      before URS can go on another buying spree, and it will
      give plenty of time for more firms to grow in and fill
      in the cracks. It will be hard to justify the idea
      that the big firms are going to swallow everybody up
      if they remain too buried in debt to acquire anymore
      companies.

    • I think URS has no incentive to pay down debt.
      The redemption price on the senior subordinated notes
      is 106.125% of their principal amount, plus accrued
      and unpaid interest (until 2004, when the redemption
      price begins to decline). True, there are interest
      savings from lowering the debt, but the 6.125% prepayment
      premium may tend to push management towards retaining
      earnings and fueling revenue growth rather than using
      operating income for debt repayment. As I noted in my last
      posting, the debt as a function of revenues has declined
      significantly over the last year or two thanks to large revenue
      growth and modest reductions in long-term debt. As long
      as the margins stay where they are, I think URS is
      in good shape.

      I agree that the amount of
      cash on hand bears watching, but I don't see the
      relatively small reduction from one accounting period to
      another as being significant. It may reflect an
      insignificant fluccuation in the numbers or at the worst it was
      a one-time move to bolster reported earnings (I
      tend to be cynical about corporate accounting and all
      the companies that consistently beat earnings
      expectations by one cent per share each quarter). What's
      important to me is that I see no sign of a cash crunch at
      the moment nor any concerns about operating capital.


      Again I'm somewhat optimistic that revenue growth
      combined with the lower expense structure going forward
      will maintain or accelerate earnings growth. The big
      unknown as I see it is how aggressively management will
      be to curtail costs if and when a slowdown in
      business hits.

    • I disagree in two ways with what you are saying.


      The first is that they do have to pay down the debt.
      Sure as an operating principal, they can make minimal
      payments on the debt and survive financially. However, two
      things are important in that respect. First is that
      there is a due date on the debt and they are obligated
      to pay off the debt by then or refinance it.
      Refinancing the debt won't be easy next time if it is shown
      that their earnings (after removal of "non-operational
      income") are not growing year to year, and that they didnt
      pay it off as originally scheduled. Second, the debt
      load they are carrying right now is huge compared to
      their net income and no serious institutional investors
      are going to be comfortable picking this stock as a
      winner until URS shows they can reduce the debt
      significantly AND maintain earnings growth from
      "operations-derived" income.

      The second way I disagree with
      your assessment is that the cash drawdown is very
      significant in what it represents. It may only be a small
      portion of the revenue, but it is a huge portion if not
      all of the earnings growth when taken in aggregate
      with the sale of assets and stock. As I have said all
      along, if you take away the cash drawdown and asset
      sales, you take away most of the earnings growth for the
      3Q, 4Q, and FY2000. So I hardly think the drawdown is
      insignificant when it is taken in the context of how much debt
      is left and how little cash they have left to spend
      on it.

      Again...my humble opinion...do your
      own research.

      fdm

    • I read with interest the recent posts dissecting
      the end of the year financials. At least one of the
      posters has indicated they are a short seller, so they
      would have some incentive to accentuate the negative.
      In any event, I think they missed the key issue. URS
      is under no obligation to pay down its debt. It
      would be a prudent move to do so, but they can also
      grow out from under it. Plus, servicing the debt
      includes some repayment of principal, so merely meeting
      the minimum interest payments will (very) gradually
      pay down the debt.

      Comparing the FY2000
      results with the FY1999 results is difficult because the
      D&M numbers are only included for five months of
      FY1999. It is simpler and more meaningful to compare
      FY2000 with FY1998. The thing that impressed me was that
      revenues for URS in FY2000 were about 38% greater than
      they were for the two companies in FY1998 ($2,206 vs.
      $806 for URS in fiscal year 1998 plus about $800 for
      D&M that same year). All dollar figures are in
      millions.

      This increase in revenues is due to increased market
      share, as I don't think the overall construction and
      environmental markets have been booming. I estimate the URS
      profit margin at about 7.4% on revenue (with profit
      margin defined as net income + tax expense + interest
      expense = $49.9 + $41.7 + $71.8 = $163.4 vs. $2,206 of
      revenue), so any future revenue growth should help generate
      cash at about this rate to pay down debt, if URS
      chooses to do so.

      I do expect expenses to decline
      somewhat in FY2001 as there were some costs related to
      office consolidations and cleaning up problems overseas
      that shouldn't be repeated this coming
      year.

      Given the high tax rate on pre-tax income (46%), I
      wonder if URS should pay down debt rather than show
      earnings for the next couple of years (assuming any debt
      payments can be used to reduce pre-tax income - I don't
      know).

      So, we're seeing some very good top line growth and a
      reduction in long-term debt from $649 to $603 (which will
      save about $5/year in interest payments assuming a 12%
      rate on the worst of the debt. To me, the trends seem
      to be positive. The change in cash on hand is a
      negative, but it only represents 1% of annual revenue and
      therefore may be lost in the noise. The next few quarterly
      numbers should tell us. Until then, I'm guardedly
      optimistic and long.

    • I was surprised (as an employee) to learn through
      MK's conference call for Q4 results that we had made
      some more assets sales totalling $5-10 million (not
      DecisionQuest). As predicted here several months ago, they were
      pieces of Radian's specialty businesses.

      I'm
      concerned that NOWHERE in any of our fancy corporate info
      systems or on our intraweb or our web sites can you find
      ANY press release on information about these sales.
      Is it because Kent isn't proud of having to get
      Glenn Martin to sell stuff on eBay to pay off the
      debt?

      The conference call also had very interesting
      comments regarding DSO bloat and working capital problems
      as a function of the fiscal year and as a function
      of merging the different accounting systems. I also
      learned in the call (must have been napping on this one)
      that URS shut down SFO accounting as well to move all
      of it to Austin.

      On another matter, look for
      the last two weeks revenue to really suck - unlike
      the old D&M, doesn't look like anybody's managing
      time off - I'm working in a ghost town...

      Happy
      New Year (BTW - no uptick yet today...)

    • Tricky stuff in the financials? Nope.
      Want to
      glean cash flow generating capability of the business?
      Yup. Got any ideas on how to do it? Just don't like
      roulette, and prefer slightly better odds, that's all.

    • There is an implicit undercurrent in your
      reasoning that there is tricky stuff to be ferreted out in
      the financial statements and that only by
      hypercritical analysis of the financial statements will there
      be a revelation of the true worth of the stock. Bah!
      Humbug! The stock market relies more on the roulette
      wheel.

    • I strongly disagree. Ultimately, URS's stock
      price will come to approximate the fair economic value
      of its common equity--arguably it does already. URS
      must deleverage and pay down its debt, and that will
      happen only 2 ways: 1) cash flow from operations, and 2)
      asset sales. #2 is not practical. So it's cash flow,
      baby. And the only way an investor can measure cash
      flow is through URS's financial reports. The reporting
      is complex, and the financial statements need to be
      parsed and analyzed like a Clinton sentence to really
      understand whether there is real cash flow. The accounting
      matters a lot.

    • Tis the season to be agreeable. I suspect 100% of
      this message board agrees that the risk associated
      with the debt is partially responsible for the decline
      in stock price. So what would you do about it?
      Showing how beans can be shuffled within accounting rules
      may be analytically interesting but, in my view,
      irrelevant to the price of stock.

    • <<I believe that accrued expenses
      mushroomed right after the last large acquisition as URS
      took reserves for severance payments, office
      consolidations, the kitchen sink, etc>>

      Agreed,
      except for the portion related to the severance costs;
      those costs are housed (I believe) under deferred
      compensation. The problem I have is that some of the major
      components housed in the accrued expenses accounts would be
      for liability reserves associated with a screwup. URS
      bought a great deal of those liabilities when they
      acquired DM, but I do recall the DM folks had accrued for
      the boo-boos. After that, it was reported here (yes I
      know, truth is warehoused on a message board... LOL)
      that the screwups were bigger than accrued. So, if the
      problems weren't nearly as bad, URS picks up earnings. My
      problem with that is a 50% rollback in one year! It would
      seem there not even covering the minimums on their
      exposures.

      <<I am much more concerned about fdm's cash flow
      analysis of the most recent quarter>>

      Right
      on, except that I would apply it for a full year.
      Consider that the reported net income was 33% more than
      the prior year, yet net cash from operations was flat
      compared to last year. Ouch!

      <<Now
      what?>>

      Well, Q1 is usually the worst quarter for cash inflows;
      I recall URS suffered a decrease in cash of about
      $20M last year in Q1. If history repeats itself,
      you're likely to see LT debt on the rise to counteract,
      or sale of a non-core asset (unlikely on the
      latter). Now, we'll really see what kind of managers
      Koeffel and his team really are!

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URS
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