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 27, 1997
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 4, 1997, 18,039,848 shares of the registrant's common stock,
$0.01 par value, were issued and outstanding.
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)
June 27, March 28,
Assets 1997 1997
Current: --------- ---------
Cash and cash equivalents $ 7,319 $ 12,726
Short-term investments - 5,984
Billed accounts receivable, net of allowance
for doubtful accounts of: $3,524 and $3,001 118,934 114,126
Billed contract retentions 8,252 5,095
Unbilled 58,954 56,491
--------- ---------
186,140 175,712
Deferred income taxes 4,971 4,135
Prepaid expenses and other assets 10,736 9,697
--------- ---------
Total current assets 209,166 208,254
Property and equipment, net 20,330 19,594
Goodwill of acquired businesses, net 117,630 109,626
Investments in affiliates 9,170 9,270
Other assets 9,924 11,538
--------- ---------
$366,220 $358,282
========= =========
Liabilities and shareholders' equity
Current:
Current portion of long-term debt $ 8,510 $ 11,560
Accounts payable 23,199 23,021
Accrued payroll and employee benefits 31,545 24,784
Current income taxes payable 3,596 3,145
Accrued expenses and other liabilities 23,861 30,354
--------- ---------
Total current liabilities 90,711 92,864
Long-term debt 133,580 128,542
Other long-term liabilities 6,046 5,253
Contingencies
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: 22,750,000 and 22,726,000 107,542 107,242
Retained earnings 92,120 87,979
Treasury stock, 4,707,000 and 4,714,000 (62,989) (63,070)
Other shareholders' equity (790) (528)
--------- ---------
Total shareholders' equity 135,883 131,623
--------- ---------
$366,220 $358,282
========= =========
See accompanying notes to condensed consolidated financial statements.
DAMES & MOORE
Condensed Consolidated Statements of Earnings
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
-----------------------
June 27, June 28,
1997 1996
--------- ---------
Gross revenues $171,771 $154,839
Direct costs of outside services 51,696 46,723
--------- ---------
Net revenues 120,075 108,116
--------- ---------
Operating expenses:
Salaries and related costs 84,150 75,528
General expenses 22,027 20,671
Depreciation and amortization 2,134 1,809
Amortization of goodwill 1,208 899
--------- ---------
109,519 98,907
--------- ---------
Earnings from operations 10,556 9,209
Investment and other (loss) income (106) 813
Interest expense (2,463) (1,460)
--------- ---------
Earnings before income taxes 7,987 8,562
Income taxes 3,302 3,582
--------- ---------
Net earnings $ 4,685 $ 4,980
========= =========
Earnings per share $ 0.26 $ 0.23
========= =========
Cash dividends declared per share $ 0.03 $ 0.03
========= =========
Weighted average number of shares 18,018 21,597
========= =========
See accompanying notes to condensed consolidated financial statements.
DAMES & MOORE
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
---------------------
June 27, June 28,
1997 1996
--------- ---------
Cash flows from operating activities:
Net earnings $ 4,685 $ 4,980
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,392 2,762
Unrealized (gain) on marketable securities - 18
Loss (earnings) of equity investments 379 (135)
Deferred income taxes (597) (36)
Change in assets and liabilities, net of
effects of purchases of businesses:
Short-term investments 5,984 12,729
Accounts receivable (6,677) (15,135)
Prepaid expenses and other assets 79 1,238
Income tax receivables 48 640
Accounts payable and accrued expenses (2,402) 1,870
--------- ---------
Net cash provided by operating activities 4,891 8,931
--------- ---------
Cash flows from investing activities:
Purchases of businesses, net of cash acquired (9,870) (18,740)
Purchases of property and equipment (1,988) (1,983)
Investments and other assets (165) (6,033)
--------- ---------
Net cash (used in) investing activities (12,023) (26,756)
--------- ---------
Cash flows from financing activities:
Net repayments on current portion of long-term debt (3,050) (655)
Proceeds from issuance of debt 5,038 -
Issuance of common stock 200 280
Treasury stock issued 78 60
Treasury stock purchased - (5,416)
Dividends (541) (657)
--------- ---------
Net cash provided (used in) by financing activities 1,725 (6,388)
--------- ---------
Net (decrease) increase in cash and cash equivalents (5,407) (24,213)
Cash and cash equivalents, beginning of period 12,726 55,351
--------- ---------
Cash and cash equivalents, end of period $ 7,319 $ 31,138
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 4,163 $ 164
Income tax paid 3,235 899
Non cash investing activities - business acquisitions 2,033 5,915
See accompanying notes to condensed consolidated financial statements.
DAMES & MOORE
Notes to Condensed Consolidated Financial Statements
(In thousands, except share amounts)
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 1997 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 June 27, 1997 and March 28, 1997; and the results of operations for
the three-month periods ended June 27, 1997 and June 28, 1996. Certain
items in the prior year's financial statements have been reclassified
to be consistent with the 1998 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 three-month periods ended June 27, 1997 and June 28, 1996
were each comprised of 13 weeks.
Note 2 - Restructuring Costs:
During the fourth quarter of fiscal 1997, the Company recorded a
provision of $2,651 pretax, for the restructuring of its international
operations and construction and project management subsidiary. At
June 27, 1997 approximately $1,056 of these costs had been expended,
leaving a balance of $1,595 to be expended to complete the restructuring.
Note 3 - Shareholders' Equity:
The Company declared a quarterly cash dividend of $0.03 per share on its
common stock, totaling $541, during the first quarter of fiscal 1998,
and issued 23,300 shares of Restricted Stock under its Amended and
Restated 1991 Long-Term Incentive Plan.
The Company's Board of Directors authorized the Company to purchase up
to 2,500,000 shares of its common stock on the open market. During the
first quarter the Company did not acquire any additional shares, but did
reissue 6,100 shares of treasury stock. As of June 27, 1997, in addition
to the private acquisition of 3,700,000 shares of the Company's common
stock from Hocktief AG, the Company has repurchased 1,818,700 shares
and reissued 811,440 shares.
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Dollars in thousands)
From time to time, the Company or its representatives may make forward-
looking statements in this report or elsewhere relating to such matters as
anticipated financial performance, including projections of revenues,
expenses, earnings, liquidity, capital resources or other financial items;
business plans, objectives and prospects; technological developments; and
similar matters. Forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 frequently are identified
by the use of terms such as "expect", "believe", "estimate", "may",
"should", "will" or similar expressions.
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 forward-looking
statements made by the Company or its representatives. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include the following, among other
factors: (a) the ability to attract and retain qualified professional
personnel; (b) potential liability for consulting services relating to toxic
and hazardous materials and the ability to insure such risks; (c) dependence
on environmental regulation including decreased revenues that may result
from a reduction in laws, regulations and programs related to environmental
issues or from changes in governmental policies regarding the funding,
implementation or enforcement of such laws, regulations and programs; (d)
increasing competition faced by the Company in its service areas; and (e)
periodic fluctuations in general business conditions and in demand for the
types of services provided by the Company.
Acquisitions and Operations
During the first quarter of fiscal 1998, the Company acquired SRA
Technologies, Inc., a professional services company providing specialized
clinical laboratory services, contract research, analysis and management
services to both government and commercial clients in the areas of life
sciences, environmental health service studies, and energy.
All acquisitions are accounted for as purchases; accordingly, the difference
between the purchase cost and the fair value of the net assets of acquired
businesses is amortized on a straight-line basis over various periods not
exceeding 40 years. Results of operations for all acquisitions have been
included in the consolidated financial statements from the date of the
respective acquisition.
Results of Operations
First Quarter 1998 Compared with First Quarter 1997
The Company uses a 52-53 week fiscal year ending the last Friday in March.
The first quarter for both fiscal year 1998 and 1997 were comprised of 13
weeks.
1998 Increase 1997
-------- -------- --------
Net Revenues $120,075 11.06% $108,116
The 11.06% increase in net revenues in the first quarter of 1998 as
compared to the first quarter of 1997 is in part a result of a full quarter's
operating results from the Company's fiscal 1997 acquisitions, which
contributed $8,329 of the increase, or 7.7%. The remaining increase of
$3,630, or 3.36%, represents growth from the Company's existing lines of
business.
1998 Increase 1997
------- -------- -------
Salaries and Related Costs $84,150 11.42% $75,528
Salaries and related costs increased by 11.42% in the first quarter of
1998 as compared to the first quarter of 1997. Acquisitions completed in
fiscal 1997 represent $5,449, or 7.2%, of this increase. The remaining
increase represents increased hiring, primarily where net revenues have
been growing, and annual salary increases. Salaries and related costs
represent 70.1% and 69.9% of net revenues for the first quarter of 1998
and 1997, respectively.
1998 Increase 1997
------- -------- -------
General Expenses $22,027 6.56% $20,671
Acquisitions completed in fiscal 1997 accounted for an increase of $1,823,
or 8.82%, in general expenses. General expenses from existing lines of
businesses declined in part due to one-time costs for an image program and
consultant fees incurred in the first quarter of 1997. As a percentage of
net revenues, general expenses represent 18.3% and 19.1% of net
revenues for the first quarter of 1998 and 1997, respectively.
1998 Increase 1997
------ -------- ------
Depreciation and Amortization $2,134 17.93% $1,809
Fiscal 1997 acquisitions were responsible for $191, or 10.56%, of the
increase in depreciation and amortization. The balance of the increase is
due to new purchases of property and equipment for previously acquired
companies in fiscal 1996 and 1995. Depreciation and amortization represents
1.8% and 1.7% of net revenues for the first quarter of 1998 and 1997,
respectively.
1998 Increase 1997
------ -------- ------
Amortization of Goodwill $1,208 34.46% $899
Amortization of goodwill increased $147, or 16.3%, due to the Company's
fiscal 1997 acquisitions, future acquisitions will continue this trend.
The balance of the increase is due to the write-off of the remaining
goodwill of a previously acquired small business which has been discontinued.
1998 Increase 1997
------- -------- ------
Earnings from Operations $10,556 14.63% $9,209
The Company's operating margin as a percentage of net revenues was 8.8%
and 8.5% for the first quarter of 1998 and 1997, respectively.
1998 Decrease 1997
------ --------- ------
Investment and Other (Loss) Income $(106) (113.04%) $813
The decline in investment and other (loss) income reflects a reduction of
interest income from the interim investment of long-term borrowings that
was awaiting deployment to fund acquisitions and stock repurchases. In
1997 the Company acquired the majority interest in a company in which it
had previously held a minority interest; as a result their operating results
are now a part of earnings from operations. The balance of the change
represents losses from Dames & Moore Ventures which had just commenced
operations in the first quarter of 1997.
1998 Increase 1997
------ -------- ------
Interest Expenses $2,463 68.71% $1,460
The Company's stock repurchases and funding of acquisitions have been
financed with long-term debt. Consequently, interest expense has and may
continue to increase. See "Liquidity and Capital Resources."
1998 Decrease 1997
------ -------- -------
Income Taxes $3,302 (7.81%) $3,582
Income taxes as a percentage of earnings before income taxes were 41.3%
and 41.8% for the first quarter of 1998 and 1997, respectively.
1998 Decrease 1997
------ -------- ------
Net Earnings $4,685 (5.93%) $4,980
Net earnings as a percentage of net revenues were 3.9% and 4.6% for the
first quarter of 1998 and 1997, respectively. The decrease as a percentage
of net revenues is primarily due to increased interest costs resulting
from acquisitions and the repurchase of the Company's common stock.
Liquidity and Capital Resources
Cash and cash equivalents total $7,319 at June 27, 1997, compared to
$12,726 at March 28, 1997. The Company's working capital of $118,455 at
June 27, 1997 remains relatively unchanged from $115,390 at March 28, 1997.
The primary sources of cash in the first quarter of 1998 consisted of funds
from operations of $4,891 and net proceeds from issuance of debt of $1,988.
The primary uses of cash in the first quarter of 1998 consisted of
acquisitions totaling $9,870.
The changes in the balance sheet accounts are in part due to the inclusion
of newly acquired companies. Accrued payroll and employee benefits
increased due to the timing of the Company's payroll. Only one-week
accrual of payroll was required at March 28, 1997, instead of a two-week
accrual at June 27, 1997. Accrued expenses and other liabilities declined
due to payment of accrued interest on debt, application of client advances
and deferred payments made on several acquisitions.
The Company has $79,789 available 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.
As of June 27, 1997, under these lines, the Company had borrowings of
$20,500, and standby letters of credit totaling $15,526 principally for
project performance, advance payment guarantees and the Company's domestic
insurance program.
While the Company anticipates continuing capital requirements to support
growth and diversification of services, funding of acquisitions and new
ventures, management believes that cash generated from operations and
existing lines of credit will be sufficient to meet requirements for the
foreseeable future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk:
Not applicable.
Part II. Other Information
Item 2. Changes in Securities
On March 29, 1997, the Company issued from its treasury 6,100 shares of
its common stock to its non-employee directors. A portion of the
directors' fees and meeting fees, in the amount of $77,500, and cash of
$1,038 was the consideration for this purchase. The securities were
exempt from registration under Section 4(2) of the Securities Act of 1933
because they were offered and sold in a transaction that did not involve a
public offering.
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 of which this report on Form 10-Q is being filed.
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 5, 1997 ARTHUR C. DARROW
--------------------------
Arthur C. Darrow
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 5, 1997 MARK A. SNELL
--------------------------
Mark A. Snell
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 5, 1997 LESLIE S. PUGET
--------------------------
Leslie S. Puget
Corporate Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule, which is included only in the
electronic submission to the Securities and Exchange Commission.