SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
-----
Exchange Act of 1934
For the quarterly period ended August 31, 1996 or
----- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------- --------
Commission file number 0-16169
HARDING LAWSON ASSOCIATES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0132062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7655 Redwood Boulevard
Novato, California 94945
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 892-0821
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
At October 9, 1996 the registrant had issued and outstanding an aggregate of
4,986,960 shares of its common stock.
INDEX
HARDING LAWSON ASSOCIATES GROUP, INC.
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
August 31, 1996 (Unaudited) and May 31, 1996............................3
Condensed Consolidated Statements of Income -
Three Months Ended August 31, 1996
and August 31, 1995 (Unaudited).........................................4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended August 31, 1996 and
August 31, 1995 (Unaudited).............................................5
Notes to Condensed Consolidated Financial Statements
August 31, 1996 (Unaudited).............................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..............................10
SIGNATURES..................................................................11
INDEX TO EXHIBITS...........................................................12
-2-
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
August 31, 1996 May 31, 1996
- ------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $16,133 $19,012
Accounts receivable 26,096 24,080
Unbilled work in progress 8,646 4,903
Less allowances for receivables and
unbilled work (1,404) (1,476)
Prepaid expenses 2,057 1,304
Deferred income taxes 1,387 1,474
- ---------------------------------------------------------------------------
Total current assets 52,915 49,297
- ---------------------------------------------------------------------------
Equipment 21,537 21,021
Less accumulated depreciation (17,126) (16,677)
- ----------------------------------------------------------------------------
Net equipment 4,411 4,344
- ---------------------------------------------------------------------------
Deposits and other assets 6,692 6,723
- ---------------------------------------------------------------------------
Total assets $64,018 $60,364
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,015 $ 2,754
Accrued expenses 4,735 5,936
Accrued compensation 5,210 5,086
Income taxes payable 205 ---
- ---------------------------------------------------------------------------
Total current liabilities 16,165 13,776
- ---------------------------------------------------------------------------
Other liabilities 2,241 1,983
- ---------------------------------------------------------------------------
Total liabilities 18,406 15,759
- ---------------------------------------------------------------------------
Commitments and Contingencies --- ---
Minority interest in subsidiaries 303 248
- ---------------------------------------------------------------------------
Shareholders' equity:
Preferred stock--$.01 par value;
authorized shares 1,000,000;
issued and outstanding--none
Common stock--$.01 par value;
authorized shares 10,000,000;
issued and outstanding--
4,986,960 and 4,845,207 at
August 31, 1996 and May 31,
1996, respectively 50 48
Additional paid-in capital 18,866 18,142
Retained earnings 26,393 26,167
- ---------------------------------------------------------------------------
Total shareholders' equity 45,309 44,357
- ---------------------------------------------------------------------------
Total liabilities and
shareholders' equity $64,018 $60,364
===========================================================================
The accompanying notes are an integral part of these financial statements.
-3-
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended August 31,
1996 1995
Gross revenue $30,944 $31,748
Less: Cost of outside services 9,965 9,040
- ----------------------------------------------------------------------------
Net revenue 20,979 22,708
- ----------------------------------------------------------------------------
Costs and expenses:
Payroll and benefits 14,787 15,310
General expenses 5,888 6,042
- ----------------------------------------------------------------------------
Total costs and expenses 20,675 21,352
- ----------------------------------------------------------------------------
Operating income 304 1,356
Interest in loss of unconsolidated
subsidiary (53) ---
Interest income, net 184 176
- ----------------------------------------------------------------------------
Income before provision for income
taxes and minority interest 435 1,532
Provision for income taxes 205 602
Minority interest 4 (5)
- ----------------------------------------------------------------------------
Net income $ 226 $ 935
============================================================================
Net income per common share $ 0.05 $ 0.19
============================================================================
Shares used in per share calculation 4,920 4,804
============================================================================
The accompanying notes are an integral part of these financial statements.
-4-
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended August 31,
1996 1995
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 226 $ 935
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 624 606
Net increase in current assets (6,486) (837)
Net increase (decrease) in current
liabilities 3,054 (788)
Other, net 305 146
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (2,277) 62
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of equipment, net (649) (457)
- --------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (649) (457)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of stock 58 ---
Principal payments on capital lease
obligations (11) ---
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 47 ---
- --------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,879) (395)
Cash and cash equivalents at
beginning of period 19,012 12,648
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $16,133 $12,253
================================================================================
The accompanying notes are an integral part of these financial statements.
-5-
HARDING LAWSON ASSOCIATES GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
August 31, 1996
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
without audit by Harding Lawson Associates Group, Inc. (the "Company") in
accordance with generally accepted accounting principles for interim financial
statements and pursuant to the rules of the Securities and Exchange Commission
for Form 10-Q. Certain information and footnotes required by generally accepted
accounting principles for complete financial statements have been omitted. It is
the opinion of management that all adjustments considered necessary for a fair
presentation have been included, and that all such adjustments are of a normal
and recurring nature. For further information, refer to the audited financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1996. Reclassification of certain balances for
the fiscal year ended May 31, 1996 have been made to conform to the August 31,
1996 presentation.
NOTE 2: COMMITMENTS AND CONTINGENCIES
On May 19, 1995, the Company filed a lawsuit in Texas State Court, Harris
County, Texas, entitled Harding Lawson Associates, Inc., a wholly owned
subsidiary of Harding Associates, Inc. vs. Bailey Site Settlors Committee, an
unincorporated association, seeking collection of approximately $1.0 million in
fees billed for engineering services performed. On June 21, 1995, lawsuits were
filed against the Company in Federal District Court, Jefferson County, Texas,
and in Texas State Court, Orange County, Texas, entitled Bailey Site Settlors
Committee vs. Harding Lawson Associates. The suits seek monetary damages in the
amount of $7.9 million for alleged breach of contract and negligence in the
performance of certain engineering services. The suits filed in Jefferson and
Orange counties have been dismissed or stayed. Subsequently, a counterclaim
containing similar allegations was filed against the Company in the Harris
County suit. The Company believes it has meritorious defenses to these
allegations. The Company is currently subject to certain other claims and
lawsuits arising in the ordinary course of its business. In the opinion of
management, adequate provision has been made for all known liabilities that are
currently expected to result from these claims and lawsuits, and in the
aggregate such claims are not expected to have a material effect on the
financial position of the Company. The estimates used in establishing these
provisions could differ from actual results. Should these provisions change
significantly, the effect on operations for any quarterly or annual reporting
period could be material.
-6-
HARDING LAWSON ASSOCIATES GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The statements in this report that are forward-looking are based on current
expectations, and actual results may differ materially. The forward-looking
statements include those regarding cost controls and reductions, the possible
impact of current and future claims against the Company based upon negligence
and other theories of liability and the possibility of the Company's making
acquisitions during the next 12 to 18 months. Forward-looking statements involve
numerous risks and uncertainties that could cause actual results to differ
materially, including, but not limited to, the possibilities that the demand for
the Company's services may decline as a result of possible changes in general
and industry specific economic conditions and the effects of competitive
services and pricing; one or more current or future claims made against the
Company may result in substantial liabilities; and such other risks and
uncertainties as are described in reports and other documents filed by the
Company from time to time with the Securities and Exchange Commission.
Results of Operations
(In thousands, except share data)
The following table sets forth, for the periods indicated, (i) the percentage
that certain items in the condensed consolidated income statements of the
Company bear to net revenues, and (ii) the percentage increase (decrease) in
dollar amount of such items from year to year.
Percentage of
Net Revenue
For Three Months Percentage
Ended August 31, Increase/(Decrease)
1996 1995
---- ----
Net revenue 100.0% 100.0% (7.6)%
Costs and expenses
Payroll and benefits 70.4 67.4 (3.4)
General expenses 28.1 26.6 (2.6)
Operating income/margin 1.5 6.0 (77.6)
Interest income, net and
interest in loss of
unconsolidated subsidiary 0.6 0.7 (25.5)
Income before income taxes
and minority interest 2.1 6.7 (71.6)
Provision for income taxes 1.0 2.6 (65.9)
Net income 1.1 4.1 (75.8)
First Quarter Comparison for Fiscal Years 1996 and 1995
Net revenue for the fiscal quarter ended August 31, 1996 totaled $20,979, a
decrease of 7.6 percent from net revenue of $22,708 for the first quarter of the
prior fiscal year. The decline in net revenue for the quarter ended August 31,
1996 was primarily due to a 24 percent decline in federal net revenue, partially
offset by a 50 percent increase in international net revenue. Excluding
international, the decrease in net revenue was due to lower demand for the
Company's services while prices were essentially unchanged compared to the same
period in the prior fiscal year. Sales of services to all public sector clients
decreased by approximately 14 percent from the same period in the prior year.
Overall, net revenue from public sector clients accounted for 43 percent of
-7-
total net revenue compared to 47 percent in the prior year. Net revenue from
domestic industrial sector clients, while improved from the prior fiscal
quarter, was 3 percent lower than in the first quarter of the prior fiscal year.
International net revenue for the fiscal quarter ended August 31, 1996 was
$1,607 or 8 percent of total net revenue compared to $1,074 or 5 percent of
total net revenue in the same quarter of the prior fiscal year.
A significant portion of the services provided by the Company to its public
sector clients are performed under a relatively small number of larger contracts
compared to industrial sector clients. During fiscal 1997, certain of these
public sector contracts will be substantially completed. The Company has been
awarded certain contracts that potentially could offset revenue which has and
will be lost under nearly completed contracts. However, if the Company is
unsuccessful in realizing the full potential of these contracts or winning new
contracts, or if funding delays are experienced on these or previously awarded
federal contracts, a material decline in revenue could result. Further,
management believes that the outlook for the industrial sector is uncertain and
will continue to be strongly influenced by general economic conditions and any
congressional action on pending environmental regulations.
Operating income amounted to $304, a decrease of 77.6 percent from $1,356 for
the same period in fiscal 1996. Operating margin decreased to 1.5 percent of net
revenue in the current quarter compared to 6.0 percent in the first quarter of
fiscal 1996. While the Company continued to lower its operating costs, such
reductions were not sufficient to offset the effect of lower net revenue
discussed above. Management is continuing its efforts to better align the
Company's cost structure with current revenue levels.
Interest income for the first quarter of fiscal 1997 was $194 before interest
expense of $10 compared to interest income of $177 before interest expense of $1
for the first quarter of the prior fiscal year. Net interest income was higher
due to the Company's increased cash position which resulted in higher balances
of invested cash, and to a lesser extent, improved interest rates.
At the end of the prior fiscal year, the Company invested in the start-up of a
limited liability company, Integrated Software Systems, LLC which specializes in
software for the mining industry. The minority position in this entity is
accounted for using the equity method. The Company's portion of the first
quarter loss for this investment was $53.
The effective tax rate was 47.2 percent for the first quarter of fiscal 1997 and
was 39.3 percent in the first quarter of the prior year. The effective tax rate
in fiscal 1997 reflects the impact of losses from the start-up of certain
international operations for which no tax benefit has been realized.
Net income for the quarter was $226 compared with $935 in the first quarter of
1996, a decrease of 75.8 percent. Earnings per share were $0.05 on 4,920,000
weighted average shares outstanding compared to $0.19 per share on 4,804,000
weighted average shares outstanding in the same period last year.
Liquidity and Capital Resources
For the three months ended August 31, 1996, net cash used in operations was
$2,277 compared to net cash provided by operations of $62 for the same period
last year. The increase in cash used in operations was primarily due to an
increase in the Company's receivables partially offset by an increase in trade
payables in the current fiscal year. The increase in receivables primarily
reflects a significant increase in first quarter fiscal 1997 gross revenue over
the prior fiscal quarter compared to the prior year when gross revenue was
relatively flat from the fourth to first quarter.
The Company made capital expenditures of $649 in the first three months of
fiscal 1997 compared to capital expenditures of $457 in the first three months
of the prior year. The Company anticipates that its capital expenditures,
excluding acquisitions, for the current fiscal year will be approximately the
same as those incurred in the prior fiscal year.
-8-
The Company is a consulting engineering services firm engaged in providing
environmental, infrastructure, geotechnical and construction related services,
and encounters potential liability including claims for errors and omissions
resulting from construction defects, construction cost overruns or environmental
or other damage in the normal course of business. The Company is a party to
lawsuits and is aware of potential exposure related to certain claims. In the
opinion of management, adequate provision has been made for all known
liabilities that are currently expected to result from these matters and in the
aggregate, such claims are not expected to have a material impact on the
financial position and liquidity of the Company. The Company is provided a $5
million per occurrence professional liability policy and a $5 million per
occurrence contractor's pollution insurance policy through an unrelated, rated
carrier. The Company also maintains general liability insurance policy with an
unrelated, rated carrier.
At August 31, 1996, the Company had cash on hand and cash equivalents of
$16,133. The Company has a $20 million revolving credit line agreement which
expires in October 1997. At August 31, 1996 and 1995, the Company had no
borrowings outstanding under its line of credit leaving $20 million available to
the Company. Borrowings were available to the Company at 5.4 percent at August
31, 1996, and at 5.4 percent at May 31, 1996. The Company is in compliance with
all covenants pertaining to the credit line agreement.
The Board of Directors' of the Company has approved a Common Stock Repurchase
Program that authorizes the Company to purchase up to a maximum of 500,000
shares of stock on the open market from time to time over the next 18 months,
for the purpose of funding the Company's various employee stock programs. To
date, no repurchases have been made under this authorization.
The Company believes that its available cash and cash equivalents, as well as
cash generated from operations and its available credit line, will be sufficient
to meet the Company's cash requirements for the balance of the fiscal year. The
Company intends to actively continue its search for acquisitions to expand its
geographical representation and enhance its technical capabilities. The Company
expects to utilize a portion of its liquidity over the next 12 to 18 months for
capital expenditures, including acquisitions and investments in aligned
businesses.
-9-
HARDING LAWSON ASSOCIATES GROUP, INC.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following exhibits are furnished along with this
Form 10-Q Quarterly Report for the period ended
August 31, 1996:
Exhibit No. 11 Computation of Per Share Earnings
Exhibit No. 27 Financial Data Schedule
b. Reports on Form 8-K
None
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARDING LAWSON ASSOCIATES GROUP, INC.
Date: 10-11-96 /s/ Donald L. Schreuder
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: 10-11-96 /s/ Gregory A. Thornton
Gregory A. Thornton
Vice President and Chief Financial
Officer
(Principal Accounting Officer)
-11-
HARDING LAWSON ASSOCIATES GROUP, INC.
EXHIBIT INDEX
Exhibit No.
11 Computation of Per Share Earnings
27 Financial Data Schedule
-12-