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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 28, 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 1-11075
DAMES & MOORE, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4316617
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
911 Wilshire Blvd., Suite 700, Los Angeles, California 90017
(Address, including zip code, of principal executive offices)
(213) 683-1560
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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
As of August 1, 1996, 21,882,248 shares of the registrant's common stock,
$0.01 par value, were issued and outstanding.
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Part I. Financial Information
Item 1. Financial Statements
DAMES & MOORE
Condensed Consolidated Statements of Financial Position
(In thousands, except share and per share amounts)
(unaudited)
Assets
June 28, March 29,
1996 1996
Current:
Cash and cash equivalents $ 31,138 $ 55,351
Marketable securities 2,189 14,936
Accounts receivable, clients:
Billed, net of allowance for doubtful
accounts of: $2,515 and $1,886 109,400 84,616
Billed contract retentions 8,160 7,295
Unbilled 45,603 43,813
163,163 135,724
Prepaid expenses and other assets 9,395 10,180
Total current assets 205,885 216,191
Property and equipment, net 18,807 14,871
Intangibles of acquired businesses 103,490 84,294
Equity investments and other assets 8,139 1,923
$336,321 $317,279
Liabilities and Shareholders' Equity
Current:
Notes payable $ 430 $ -
Accounts payable, trade 26,821 20,162
Accrued payroll and employee benefits 28,389 26,733
Current income taxes payable 4,901 2,800
Accrued expenses and other liabilities 23,495 20,682
Total current liabilities 84,036 70,377
Commitments and contingencies
Long-term debt 75,000 75,000
Other long-term liabilities 4,122 3,955
Shareholders' equity:
Preferred stock, $0.01 par value,
shares authorized: 1,000,000
shares issued: none - -
Common stock and capital in excess of $0.01
par value, shares authorized: 27,000,000
shares issued: 22,724,000 and 22,686,000 107,224 106,804
Retained earnings 76,129 75,295
Treasury stock, 837,160 and 1,150,000 (9,811) (13,859)
Deferred compensation (379) (293)
Total shareholders' equity 173,163 167,947
$336,321 $317,279
See accompanying notes to condensed consolidated financial statements.
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DAMES & MOORE
Condensed Consolidated Statements of Earnings
(In thousands, except per share amounts)
(unaudited)
Three Months Ended
June 28, June 30,
1996 1995
Gross revenues $154,839 $141,856
Direct costs of outside services 46,723 41,202
Net revenues 108,116 100,654
Operating expenses:
Salaries and related costs 75,528 70,010
General expenses 20,535 18,883
Depreciation 1,809 1,354
Amortization of goodwill 899 799
98,771 91,046
Earnings from operations 9,345 9,608
Investment and other income 677 865
Interest expense (1,460) (752)
Earnings before income taxes 8,562 9,721
Income taxes 3,582 3,994
Net earnings $ 4,980 $ 5,727
Earnings per share $ 0.23 $ 0.25
Cash dividends declared per share $ 0.03 $ 0.03
Weighted average number of shares 21,597 22,681
See accompanying notes to condensed consolidated financial statements.
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DAMES & MOORE
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Three Months Ended
June 28, June 30,
1996 1995
Cash flows from operating activities:
Net earnings $ 4,980 $ 5,727
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,762 2,217
Unrealized (gain) loss on marketable securities 18 (598)
Earnings of equity investments (135) -
Deferred income taxes (36) 198
Change in assets and liabilities, net of
effects of purchases of businesses:
Marketable securities 12,729 1,380
Accounts receivable (15,135) (11,684)
Prepaid expenses and other assets 1,238 274
Income tax refunds 640 -
Accounts payable and accrued expenses 1,870 7,362
Net cash provided by operating activities 8,931 4,876
Cash flows from investing activities:
Purchases of businesses, net of cash acquired (18,740) (37,532)
Purchase of property and equipment (1,983) (1,172)
Equity investments and other assets, net (6,033) 60
Net cash used in investing activities (26,756) (38,644)
Cash flows from financing activities:
Net change in short-term debt (655) 9,069
Proceeds from issuance of debt - 25,575
Issuance of common stock 280 720
Restricted stock repurchased - (36)
Treasury stock issued 60 -
Treasury stock purchased (5,416) -
Dividends paid (657) (681)
Net cash provided by (used in) financing activities (6,388) 34,647
Net increase (decrease) in cash and cash equivalents (24,213) 879
Cash and cash equivalents, beginning of period 55,351 13,300
Cash and cash equivalents, end of period $31,138 $14,179
Supplemental disclosures of cash flow information:
Interest paid $ 164 $ 275
Income tax paid 899 1,606
Non cash investing activities - business acquisitions 5,915 -
See accompanying notes to condensed consolidated financial statements.
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DAMES & MOORE
Notes to Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation:
The accompanying condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
disclosures included in the Company's 1996 annual report to
shareholders. The condensed consolidated financial statements include
all adjustments (consisting only of normal recurring items) which
management considers necessary to present fairly the financial
position and results of operations of the Company as of June 28, 1996
and June 30, 1995. Certain items in the prior year's financial
statements have been reclassified to be consistent with the 1997
presentation.
The results of operations for the interim periods are not necessarily
indicative of operating results to be expected for the full year.
Fiscal Year:
The Company uses a 52-53 week fiscal year ending the last Friday in
March. The three-month periods ended June 28, 1996 and June 30, 1995
were each comprised of 13 weeks.
Note 2 - Credit Facilities:
The Company recently amended its existing revolving lines of credit
with a number of banks. The Company has available $70,300,000 for
borrowing in U.S. dollars, offshore foreign currencies or foreign
domestic currencies and for the issuance of letters of credit and
purchase of foreign currency exchange contracts. The lines of credit
mature as follows: $14,500,000 in November 1996, $5,800,000 in February
1998, and $50,000,000 in January 1999. Interest rates are charged
under several pricing options, including the bank's reference rates or
alternative variable rates, at the Company's option. These lines
involve no compensating balance requirements or material commitment fee
arrangements. The agreements contain limitations on additional
indebtedness, sales of assets, acquisitions and capital expenditures,
as well as covenants as to minimum ratios and balances as to net worth,
fixed charge coverage, leverage ratio, asset coverage and net funded
debt to earnings, as defined; such requirements were satisfied as of
June 28, 1996. As of June 28, 1996, the Company has standby letters of
credit under these lines totalling $15,073,000, principally for project
performance, advance payment guarantees and the Company's domestic
insurance program; and $586,000 for guarantees of officer loans.
Note 3 - Shareholders' Equity:
The Company declared a quarterly cash dividend of $0.03 per share of
common stock, totaling $656,600, during the first quarter of 1997, and
issued 37,700 shares of Restricted Stock under its amended and
restated 1991 Long-Term Incentive Plan.
The Board of Directors has authorized the Company to repurchase up to
2,000,000 shares of its common stock. The Company has repurchased
1,642,500 shares through June 28, 1996 and reissued 805,340 shares.
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Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Acquisitions
During the first quarter of fiscal 1997, the Company acquired two companies.
DecisionQuest, Inc., is a company specializing in litigation support for
corporate clients. Services include trial strategy consulting, development of
case themes, juror analysis and selection, preparation of demonstrative trial
graphics, and witness preparation. BRW Group, Inc. provides project planning,
design and construction phase services for transportation and infrastructure
projects.
All acquisitions are accounted for as purchases; accordingly, the purchase
prices in excess of net assets acquired were recognized and are being amortized
over periods up to 40 years. The operating results of the acquisitions have
been included in the Company's consolidated financial statements from the date
of each acquisition.
Results of Operations
First Quarter 1997 Compared with First Quarter 1996
The Company uses a 52-53 week fiscal year ending the last Friday in March. The
first quarter for both Fiscal Year 1997 and 1996 were comprised of 13 weeks.
1997 Increase 1996
Net Revenues $108,116,000 7.41% $100,654,000
The 7.41% increase in net revenues in the first quarter of 1997 as compared to
the first quarter of 1996 was primarily a result of the Company's new
acquisitions, which contributed $6,672,000 for the quarter, representing a
6.63% increase from the prior year's first quarter. The remaining increase
of $789,000, or .78%, represents growth in the Company's ongoing businesses.
1997 Increase 1996
Salaries and Related Costs $75,528,000 7.88% $70,010,000
Of the 7.88% increase in salaries and related costs in the first quarter of
1997, the acquisitions accounted for $3,877,000, or 5.54%, with the remaining
increase attributable to annual salary raises granted at the beginning of the
Company's 1997 fiscal year. Salaries and related costs represent 69.9% and
69.6% of net revenues for the first quarter of 1997 and 1996, respectively.
1997 Increase 1996
General Expenses $20,535,000 8.75% $18,883,000
The majority of the increase, $1,589,000 or 8.42%, is attributable to the new
acquisitions. Savings were realized in insurance costs but offset by one-time
costs for an image program and consultant fees. As a percentage of net
revenues, general expenses represent 19% and 18.8% of net revenues for the
first quarter of 1997 and 1996, respectively.
1997 Increase 1996
Depreciation $1,809,000 33.62% $1,354,000
New acquisitions were responsible for $162,000, or 11.9%, of the increase in
depreciation and the balance of the increase in depreciation was attributable
to new purchases of property and equipment for previously acquired
companies and the core business. Depreciation represents 1.7% and 1.4% of
net revenues for the first quarter of 1997 and 1996, respectively.
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1997 Increase 1996
Amortization of Goodwill $899,000 12.48% $799,000
Amortization of goodwill increased due to the Company's acquisitions.
Completion of future acquisitions will continue this trend.
1997 Decrease 1996
Earnings from Operations $9,345,000 (2.75%) $9,608,000
The Company's operating margin as a percentage of net revenues was 8.6% and
9.6% for the first quarter of 1997 and 1996, respectively. Higher margins
from the new acquisitions were offset by several administrative charges
related to acquisition closings, relocation costs for senior management
personnel, consultant expenses and costs associated with the Company's new
image program.
1997 Decrease 1996
Investment and Other Income $677,000 (21.64%) $865,000
The decline in investment and other income is a result of the Company's
liquidating the captive insurance subsidiary's equity portfolio in April and
May, and investing in less volatile but lower yielding instruments.
<CAPTION >
1997 Increase 1996
Interest Expense $1,460,000 94.16% $752,000
Funding of acquisitions and related business ventures has been financed with
long-term financing. Consequently, interest expense has and will continue to
increase. See "Liquidity and Capital Resources."
1997 Decrease 1996
Income Taxes $3,582,000 (10.33%) $3,994,000
Income taxes as a percentage of earnings before income taxes was 41.8% and
41.1% for the first quarter of 1997 and 1996, respectively.
1997 Decrease 1996
Net Earnings $4,980,000 (13.04%) $5,727,000
Net earnings as a percentage of net revenues were 4.6% and 5.7% for the first
quarter of 1997 and 1996, respectively. The decrease is a result of the
administrative charges previously mentioned, interest costs and reduced income
from our captive insurance subsidiary investment portfolio.
Liquidity and Capital Resources
The Company's working capital of $121,849,000 at June 28, 1996 has declined
from $145,814,000 at March 29, 1996. Cash and cash equivalents total
$31,138,000 at June 28, 1996, compared to $55,351,000 at March 29, 1996. The
primary source of cash in the first quarter of 1997 consisted of funds from
operations of $8,900,000. The primary uses of cash in the first quarter of
1997 consisted of funding acquisitions, approximately $18,700,000; equity
investments in new ventures, approximately $6,000,000; and repurchase of common
stock, approximately $5,400,000.
Accounts receivable increased 20% since March 29, 1996. Companies acquired in
the first quarter accounted for over half of the increase and the balance
related to a higher level of business activity in the last two months of the
quarter.
Property and equipment increased 12% since March 29, 1996 primarily as a result
of the acquisitions in the first quarter and purchases of new equipment.
On March 29, 1996, the Company closed its $100,000,000 Senior Notes credit
facility, providing long-term financing to the Company. On closing,
$75,000,000 of the total was funded. The remaining $25,000,000 must be drawn
upon by September 30, 1996.
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The Company has available separate multi-year lines of credit totaling
$70,300,000. Outstanding at June 28, 1996 are: standby letters of credit
totaling $15,073,000, principally for project performance, advance payment
guarantees, and the Company's domestic insurance program; and $586,000 for
guarantees of officer loans.
The Board of Directors has authorized the Company to repurchase up to 2,000,000
shares of its common stock. The Company has repurchased 1,642,500 shares
through June 28, 1996, 492,500 of which were purchased in its first quarter.
The Company will continue to purchase shares on the open market.
Subsequent to June 28, 1996 the Company acquired two small companies for
approximately $3,600,000 cash plus possible future payments based on future
earnings. The Company is currently evaluating other acquisitions.
While the Company anticipates continuing capital requirements to support its
growth and diversification of services, and to fund acquisitions, as well as
new ventures, the Company believes that cash generated from operations, funding
from the Senior Notes and its available lines of credit will be sufficient to
meet its requirements for the foreseeable future.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27.1 Financial Data Schedule (included only in the electronic
filing).
(b) There have been no reports on Form 8-K filed during the quarter for
which this report on Form 10-Q is being filed.
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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.
DAMES & MOORE, INC.
Date: August 7, 1996 Arthur C. Darrow
Arthur C. Darrow
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 7, 1996 Robert M. Perry
Robert M. Perry
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 7, 1996 Leslie S. Puget
Leslie S. Puget
Corporate Controller
(Principal Accounting Officer)
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Exhibit Index
Exhibit
Number Description
27 Financial Data Schedule, which is included only in the electronic
submission to the Securities and Exchange Commission.