Question

URS Corporation is an integrated engineering, construction, and technical services company that operates in nearly 50 countries. According to the company Web site, URS offers program management, planning, design and engineering; systems engineering and technical assistance; construction and construction management; operations and maintenance; and decommissioning services. In 2010, revenues totaled $9,177.1 million with net income of $287.0 million. In 2011, revenues increased slightly to $9,545.0 million, but URS had a net loss of $465.8 million, due primarily to an impairment of goodwill of $825.8 million.

URS’s 2010 balance sheet showed goodwill of $3,393.2 million out of total assets of $7,351.4 million and its 2011 balance sheet showed goodwill of $2,773.0 million out of total assets of $6,862.6 million. Express goodwill as a percentage of total assets for each year, and indicate what that suggests about the company’s growth.

From the information provided, can you determine whether URS engaged in any new acquisitions in 2011?

What happened to the excess earnings capacity of URS during 2011? How is this reflected in the company’s income statement and balance sheet?

Answer 1

(a)    2010 (Amount In $)   2011(Amount in $)

Goodwill 3,393.20 2,773.00

Total Assets 7,351.40 6,862.60

Goodwill as a percentage of Total assets (3393.20/7351.40)*100 (2773.00/6862.60)*100

= 46.16% = 40.41%

There is a percentage reduction in Goodwill in the year 2011, this is due to "impairment of Goodwill" where the amount of Goodwill carried to Balance Sheet is at its "Recoverable Value" and the Impairment loss is taken in the revenue Statement.

(b) New Acquisitions in 2011:-

Amount($ in millions)

Goodwill as on 2010 3393.20

Less:- Goodwill as on 2011 2773.00

Reduction in Goodwill 620.20

Value of Assets as on 2010 7351.40

Less:- reduction in Goodwill 620.20

Therefore Balance sheet after reduction in 2011 should be 6731.20

However Value of assets shown in 2011 is 6862.60

Therefore New Acquisition amounts to (6862.60-6731.20) 131.40

(c) Revenue in 2011 9545.00

Less:- Revenue in 2010 9177.10

Therefore Increase in revenue in the year 2011 is 367.90

However the Revenue Statement for the year 2011 shows a Net Loss of $ 465.8 Million. This is due to Impairment Loss of Goodwill being Debited to revenue Statement and some other expenditure(Information not given)

Similarly there is a reduction in the value of Assets in the Balance Sheet for adjustment of Goodwill, calculation as shown in (a) above.