Ending a period in
which millions of shares of its stock were put on sale in
large blocks, URS Corp. has trimmed its heavy debt significantly.
To pay for the debt buyback, San Francisco-based URS sold
$214 million worth of stock in late April. The offering, originally
priced at $30 a share, was sold at $26.50 a share.
With the proceeds, URS cut its
$834-million debt by $180 million, placing its debt-to-total
capitalization ratio below 40%. The firm now begins saving
$27 million in annual interest paid on the debt. These
transactions will improve our financial strength, enhance
stockholder value and allow us to continue to invest in the
business and further enhance our ability to perform for clients,
says CEO Martin M. Koffel.
The move fulfills a corporate goal
and has earned an improved rating from Standard & Poors.
The rating agency, like ENR, is a unit of the McGraw-Hill
URS big debt had been used
to finance acquisitions that boosted its size and market share,
with $3.19 billion in fiscal 2003 revenue, up from $2.43 billion
the previous year. Net income was $58.1 million in fiscal
2003, compared to $55.2 million in 2002. The firm ranked number
one on ENRs list of Top Design Firms (ENR 4/19 p. 56).
In 2002, URS acquired EG&G
Technical Services from The Carlyle Group, a Washington, D.C.,
investment firm. URS paid for the purchase partly by borrowing
another $675 million.
But observers say URS sees itself
as a clever operator of engineering and construction businesses,
not as a consolidator. Management wanted to trim debt so that
URS balance sheet more closely resembled balance sheets
of other large publicly traded engineers and contractors,
such as Fluor Corp. and Jacobs Engineering Group Inc. They
have comparatively little or no debt, says a source
URS shares have slipped somewhat
since the equity offering at $26.50. That shares were repriced
down from $30 worries one sell-side stock analyst whose main
interest is whether the firm hits its announced earnings target
Another potentially worrisome sign
of how financial markets regard URS is Carlyles exit
last September as a shareholder, according to a Sept. 30,
2003, filing with the Securities and Exchange Commission.
The investment firm, which received URS stock as part of its
compensation, sold off more than 7 million shares at a per-share
price of $18.38.
That the share price for
the equity offering had to be cut to less than the originally
announced $30 per share shows the level of interest in the
stock wasnt as hot as [URS] would like it to be,
says the analyst. URS officials declined to discuss the Carlyle
stock sale or the corporate share offering.
Even so, URS has size and wide-ranging
expertise that should help it over the long run. Its services
now include more logistics and military support. Earlier this
year, URS won several joint venture construction management
contracts in Iraq.
At the time of the EG&G
buy, Koffel said he would continue building value through
growth and diversification. That tends to bolster the image
of the company as an acquisition machine, but one executive
counters: We are operators.