1 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 September 27, 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 November 1, 1996, 21,800,448 shares of the registrant's common stock,
$0.01 par value, were issued and outstanding.
2
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
Sept. 27, March 29,
1996 1996
Current:
Cash and cash equivalents $ 17,715 $ 55,351
Marketable securities and short-term investments 6,268 14,936
Accounts receivable, clients:
Billed, net of allowance for doubtful
accounts of: $2,588 and $1,886 113,806 84,616
Billed contract retentions 8,304 7,295
Unbilled 49,213 43,813
171,323 135,724
Prepaid expenses and other assets 14,120 10,180
Total current assets 209,426 216,191
Property and equipment, net 19,418 14,871
Intangibles of acquired businesses 109,443 84,294
Equity investments and other assets 8,014 1,923
$346,301 $317,279
Liabilities and Shareholders' Equity
Current:
Notes payable $ 8,328 $ -
Accounts payable, trade 24,388 20,162
Accrued payroll and employee benefits 26,565 26,733
Current income taxes payable 2,841 2,800
Accrued expenses and other liabilities 27,141 20,682
Total current liabilities 89,263 70,377
Commitments and contingencies
Long-term debt 75,000 75,000
Other long-term liabilities 4,544 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 81,522 75,295
Treasury stock, 923,360 and 1,150,000 (10,844) (13,859)
Other shareholders' equity (408) (293)
Total shareholders' equity 177,494 167,947
$346,301 $317,279
See accompanying notes to condensed consolidated financial statements.
3
DAMES & MOORE
Condensed Consolidated Statements of Earnings
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
Gross revenues $163,110 $141,786 $317,948 $283,642
Direct costs of outside services 47,737 41,294 94,460 82,496
Net revenues 115,373 100,492 223,488 201,146
Operating expenses:
Salaries and related costs 80,400 70,662 155,929 140,672
General expenses 20,184 17,856 40,719 36,739
Depreciation 2,253 1,553 4,062 2,907
Amortization of goodwill 955 853 1,853 1,652
103,792 90,924 202,563 181,970
Earnings from operations 11,581 9,568 20,925 19,176
Investment and other income 288 1,140 966 2,005
Interest expense (1,434) (709) (2,894) (1,461)
Earnings before income taxes 10,435 9,999 18,997 19,720
Income taxes 4,413 4,196 7,995 8,190
Net earnings $ 6,022 $ 5,803 $ 11,002 $ 11,530
Earnings per share $ 0.28 $ 0.26 $ 0.51 $ 0.51
Cash dividends declared per share $ 0.03 $ 0.03 $ 0.06 $ 0.06
Weighted average number of shares 21,823 22,662 21,717 22,662
See accompanying notes to condensed consolidated financial statements.
4
DAMES & MOORE
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Six Months Ended
Sept. 27, Sept. 29,
1996 1995
Cash Flow from operating activities:
Net earnings $ 11,002 $ 11,530
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 6,023 4,678
Unrealized gain on marketable securities (16) (1,392)
Earnings of equity investments (188) (92)
Deferred income taxes 237 183
Change in assets and liabilities, net of
effects of purchases of businesses:
Marketable securities
and short-term investments 8,684 1,418
Accounts receivable (20,213) (14,516)
Prepaid expenses and other assets (2,845) (4,362)
Income tax refunds 640 -
Accounts payable and accrued expenses (4,706) 5,298
Net cash (used in) provided by operating activities (1,382) 2,745
Cash flows from investing activities:
Purchases of businesses, net of cash acquired (24,324) (38,072)
Purchases of property and equipment (4,585) (3,078)
Equity investments and other assets, net (5,727) (22)
Net cash (used in) investing activities (34,636) (41,172)
Cash flows from financing activities:
Net change in short-term debt 5,777 13,114
Proceeds from issuance of debt - 25,780
Issuance of common stock 280 720
Restricted stock repurchased - (76)
Treasury stock issued 60 -
Treasury stock purchased (6,449) -
Dividends paid (1,286) (1,362)
Net cash (used in) provided by financing activities (1,618) 38,176
Net (decrease) in cash and cash equivalents (37,636) (251)
Cash and cash equivalents, beginning of period 55,351 13,300
Cash and cash equivalents, end of period $ 17,715 $ 13,049
Supplemental disclosures of cash flow information:
Interest paid $ 260 $ 1,212
Income tax paid 7,207 8,322
Non cash investing activities - business acquisitions 7,381 886
See accompanying notes to condensed consolidated financial statements.
5
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
of the Company as of September 27, 1996 and March 29, 1996 and the
results of operations for the six month periods ended September 27, 1996
and September 29, 1995. Certain items in the prior year's financial
statements have been reclassified to be consistent with the 1997 fiscal
year 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 six-month periods ended September 27, 1996 and September
29, 1995 were each comprised of 26 weeks.
Note 2 - Long-term Debt
The Company 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
September 27, 1996. As of September 27, 1996, under these lines,
the Company had borrowings of $6,862,000, standby letters of credit
totaling $17,170,000, principally for project performance, advance
payment guarantees and the Company's domestic insurance program; and
$527,000 for guarantees of officer loans.
On September 30, 1996 the Company borrowed the remaining $25,000,000
available from the Senior Notes, see the Company's annual report for the
year ended March 29, 1996.
6
DAMES & MOORE
Notes to Condensed Consolidated Financial Statements
Note 3 - Shareholders' Equity:
The Company declared quarterly cash dividends of $0.03 per share of
common stock, totaling $1,285,700, during the first two quarters of
fiscal 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
2,500,000 shares of its common stock. The Company has repurchased
1,728,700 shares through September 27, 1996 and reissued 805,340
shares.
Note 4 - Foreign Currency Translation:
The Company's foreign subsidiaries and branches have been using the
U.S. dollar as their functional currency. The Company has determined,
that due to growth and expansion in these countries, the majority of
these entities have become self-contained and integrated within the
countries' economic environment. Accordingly, effective August 3, 1996
the functional currencies for these entities will be their respective
local currency. The monetary assets and liabilities are translated into
U.S. dollars using exchange rates in effect at period end. Revenue and
expenses are translated at the average rates of exchange prevailing
during the period. The resulting translation adjustments are reported
as a separate component of shareholders' equity.
Note 5 - Stock Repurchase Agreement:
On November 5, 1996, the Company reached agreement in principle with
Hochtief Aktiengesellschaft vorm. Gebr. Helfmann (Hochtief AG) to
repurchase all of the 3,700,000 shares of Dames & Moore common stock
held by the German civil engineering and construction company. The
agreement is subject to certain approvals and the satisfaction of
certain contingencies. The Company intends to use the acquired shares
to facilitate acquisitions or may remarket them if market conditions
permit.
7
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company, from time to time, may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements.
The risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include the following among
other factors: the ability to attract and retain professional personnel;
potential liability for consulting services relating to toxic and hazardous
materials and the availability to insure such risks; dependence on
environmental regulation; and the competitive markets in the Company's service
areas.
Acquisitions
During the first quarter of fiscal 1997, the Company acquired two companies.
DecisionQuest, Inc., a company specializing in litigation support for
corporate clients, provides services in 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.
The Company completed several smaller acquisitions during the second quarter of
fiscal 1997. The Company acquired an engineering and consulting firm
specializing in the design of facilities related to water reclamation and
reuse, treatment and supply. In addition, the Company purchased the
remaining interest in an international agricultural consulting firm, in which
it previously held a non-controlling minority interest. Lastly, the
Company acquired a 40% interest in a high-tech engineering firm in Britain
with expertise in finding practical applications using state of the art
research and technological advances. Their expertise is in designing and
modeling the effects of impacts and deformations on critical structures.
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
Second Quarter 1997 Compared with Second Quarter 1996
The Company uses a 52-53 week fiscal year ending the last Friday in March. The
second quarter for both fiscal year 1997 and 1996 were comprised of 13 weeks.
1997 Increase 1996
Net Revenues $115,373,000 14.81% $100,492,000
The 14.81% increase in net revenues in the second quarter of 1997 as compared
to the second quarter of 1996 was primarily a result of the Company's new
acquisitions, which contributed $13,739,000 for the quarter, representing a
13.67% increase from the prior year's second quarter. The remaining increase
of $1,141,000, or 1.14%, represents growth in the Company's ongoing
businesses.
8
1997 Increase 1996
Salaries and Related Costs $80,400,000 13.78% $70,662,000
Of the 13.78% increase in salaries and related costs in the second quarter of
1997, the acquisitions accounted for $8,867,000, or 12.55%, 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 69.7% and
70.3% of net revenues for the second quarter of 1997 and 1996, respectively.
1997 Increase 1996
General Expenses $20,184,000 13.04% $17,856,000
General expenses increased by $3,103,000, or 17.38%, due to the new
acquisitions. This increase was reduced by savings realized in insurance
costs. As a percentage of net revenues, general expenses represent 17.5% and
17.8% of net revenues for the second quarter of 1997 and 1996, respectively.
1997 Increase 1996
Depreciation $2,253,000 45.11% $1,553,000
New acquisitions were responsible for $415,000, or 26.7%, 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 2% and 1.6% of net revenues
for the second quarter of 1997 and 1996, respectively.
1997 Increase 1996
Amortization of Goodwill $955,000 11.87% $853,000
Amortization of goodwill increased due to the Company's acquisitions. Future
acquisitions will continue this trend.
1997 Increase 1996
Earnings from Operations $11,581,000 21.04% $9,568,000
The Company's operating margin as a percentage of net revenues was 10% and 9.5%
for the second quarter of 1997 and 1996, respectively.
1997 Decrease 1996
Investment and Other Income $288,000 (74.7%) $1,140,000
The decline in investment and other income is a result of the Company's
liquidation of the captive insurance subsidiary's equity portfolio and the
subsequent reinvestment in less volatile but lower yielding instruments.
1997 Increase 1996
Interest Expense $1,434,000 102.36% $709,000
Funding of acquisitions and related business ventures has been financed with
long-term debt. Consequently, interest expense has and will continue to
increase. See "Liquidity and Capital Resources."
1997 Increase 1996
Income Taxes $4,413,000 5.18% $4,196,000
Income taxes as a percentage of earnings before income taxes was 42.3% and 42%
for the second quarter of 1997 and 1996, respectively.
1997 Increase 1996
Net Earnings $6,022,000 3.77% $5,803,000
Net earnings as a percentage of net revenues were 5.2% and 5.8% for the second
quarter of 1997 and 1996, respectively. The decrease as a percentage of net
revenues is a result of interest costs and reduced income from our captive
insurance subsidiary investment portfolio, offset partially by savings realized
in insurance costs.
9
First Two Quarters 1997 Compared with First Two Quarters 1996
The Company uses a 52-53 week fiscal year ending the last Friday in March. The
first two quarters for both fiscal year 1997 and 1996 were comprised of 26
weeks.
1997 Increase 1996
Net Revenues $223,488,000 11.11% $201,146,000
The 11.11% increase in net revenues in the first two quarters of 1997 as
compared to the first two quarters of 1996 was primarily a result of the
Company's new acquisitions, which contributed $20,412,000, representing a
10.15% increase from the prior year's first two quarters. The remaining
increase of $1,930,000, or .96%, represents growth in the Company's ongoing
businesses.
1997 Increase 1996
Salaries and Related Costs $155,929,000 10.85% $140,672,000
Of the 10.85% increase in salaries and related costs in the first two quarters
of 1997, the acquisitions accounted for $12,744,000, or 9.06%, 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 69.8% and 69.9% of net revenues for the first two quarters of 1997
and 1996, respectively.
1997 Increase 1996
General Expenses $40,719,000 10.83% $36,739,000
General expenses increased by $4,580,000, or 12.47%, due to the new
acquisitions. Savings realized in insurance costs were further offset by
one-time costs for an image program and consultant fees. As a percentage of
net revenues, general expenses represent 18.2% and 18.3% of net revenues for
the first two quarters of 1997 and 1996, respectively.
1997 Increase 1996
Depreciation $4,062,000 39.76% $2,907,000
New acquisitions were responsible for $577,000, or 19.8%, 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 1.8% and 1.4% of net revenues
for the first two quarters of 1997 and 1996, respectively.
1997 Increase 1996
Amortization of Goodwill $1,853,000 12.17% $1,652,000
Amortization of goodwill increased due to the Company's acquisitions. Future
acquisitions will continue this trend.
1997 Increase 1996
Earnings from Operations $20,925,000 9.12% $19,176,000
The Company's operating margin as a percentage of net revenues was 9.4% and
9.5% for the first two quarters 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 $966,000 (51.82%) $2,005,000
The decline in investment and other income is a result of the Company's
liquidation of the captive insurance subsidiary's equity portfolio in April and
May and the subsequent reinvestment in less volatile but lower yielding
instruments.
10
1997 Increase 1996
Interest Expense $2,894,000 98.14% $1,461,000
Funding of acquisitions and related business ventures has been financed with
long-term debt. Consequently, interest expense has and will continue to
increase. See "Liquidity and Capital Resources."
1997 Decrease 1996
Income Taxes $7,995,000 (2.38%) $8,190,000
Income taxes as a percentage of earnings before income taxes was 42.1% and
41.5% for the first two quarters of 1997 and 1996, respectively.
1997 Decrease 1996
Net Earnings $11,002,000 (4.58%) $11,530,000
Net earnings as a percentage of net revenues were 4.9% and 5.7% for the first
two quarters 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, offset partially by
savings realized in insurance costs.
Liquidity and Capital Resources
The Company's working capital of $120,163,000 at September 27, 1996 has
declined from $145,814,000 at March 29, 1996. Cash and cash equivalents
total $17,715,000 at September 27, 1996, compared to $55,351,000 at March 29,
1996. The primary source of cash in the first two quarters of 1997 consisted
of borrowings of $5,777,000. The primary uses of cash in the first two
quarters of 1997 consisted of funding acquisitions, approximately $24,324,000;
equity investments in new ventures, approximately $6,000,000; and repurchase of
common stock, approximately $6,449,000.
Accounts receivable increased 26% since March 29, 1996. Companies acquired in
the first two quarters accounted for 61% of the increase, and the balance
related to a higher level of business activity.
Property and equipment increased 30% since March 29, 1996 primarily as a result
of the acquisitions in the first two quarters and purchases of new equipment.
On March 29, 1996, the Company completed 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 was funded on
September 30, 1996.
The Company has available separate multi-year lines of credit totaling
$70,300,000. Outstanding at September 27, 1996 are: borrowings of $6,862,000;
standby letters of credit totaling $17,170,000, principally for project
performance, advance payment guarantees, and the Company's domestic insurance
program; and $527,000 for guarantees of officer loans.
The Board of Directors has authorized the Company to repurchase up to 2,500,000
shares of its common stock. The Company has repurchased 1,728,700 shares
through September 27, 1996, 86,200 of which were purchased in its second
quarter. The Company may continue to purchase shares on the open market
from time to time.
The Company anticipates continuing capital requirements to support its growth,
diversification of services, and funding of acquisitions. The Company
believes that cash generated from operations, coupled with funding from the
Senior Notes and its available lines of credit will be sufficient to meet
its requirements for the foreseeable future.
11
Part II. Other Information
Item 1. Legal Proceedings
In 1994, a developer and townhome association filed an action against the
Company and two other co-defendants alleging settlement problems with the
foundation of the townhomes and later a claim for sewer repairs due to
insufficient slope.
A settlement in principle has been reached in this matter that would require
the Company to pay $2.5 million contingent on the signing of a definitive
agreement and on the Court's finding that the settlement was in good faith, so
that all cross-claims by other defendants for implied indemnity would be
dismissed. The Special Master appointed by the Court has stated that he would
recommend that the Court issue such a finding as to the amount of the
settlement. The parties are drafting the appropriate documents and expect to
finalize the matter by January 31, 1997. The Company has adequately reserved
the amount of this settlement.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on August 12, 1996. Eleven
directors were elected to hold office for the coming year. The following
table lists the number of votes cast for or withheld from each:
For Withheld
Norman A. Barkeley 17,857,948 385,779
Arthur C. Darrow 17,568,346 675,381
George D. Leal 17,704,668 539,059
Robert J. Lynch, Jr. 17,855,968 387,759
Michael R. Peevey 17,771,112 472,615
Harald Peipers 17,813,015 430,712
Robert M. Perry 17,860,816 382,911
James E. Seitz* 17,857,448 386,279
John P. Trudinger 17,759,051 484,676
Richard C. Tucker 17,788,151 455,576
Anthony R. Moore 17,858,251 385,476
There were no abstentions or broker non-votes with respect to the election of
the Company's directors.
* Mr. Seitz has resigned as a director effective October 31, 1996.
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.
12
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: November 6, 1996 ARTHUR C. DARROW
Arthur C. Darrow
President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 6, 1996 MARK A. SNELL
Mark A. Snell
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 6, 1996 LESLIE S. PUGET
Leslie S. Puget
Corporate Controller
(Principal Accounting Officer)
13
Exhibit Index
Exhibit
Number Description
27 Financial Data Schedule, which is included only in the
electronic submission to the Securities and Exchange
Commission.