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 26, 1998
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 GROUP
(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
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(Address, including Zip Code, of Principal Executive Offices)
(213) 996-2200
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(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 3, 1998, 18,367,767 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 GROUP
Condensed Consolidated Statements of Financial Position
(In thousands, except share and per share amounts)
(Unaudited)
June 26, March 27,
1998 1998
-------- --------
Assets
Current:
Cash and cash equivalents $ 11,135 $ 9,493
Marketable securities 785 1,031
Accounts receivable, net of allowance
for doubtful accounts of: $3,738 and $3,408 136,821 135,298
Billed contract retentions 12,348 10,992
Unbilled receivables 63,678 55,844
--------- --------
Total accounts receivable 212,847 202,134
Deferred income taxes 4,303 4,303
Prepaid expenses and other assets 13,285 11,168
--------- --------
Total current assets 242,355 228,129
Property and equipment, net 24,305 23,397
Goodwill of acquired businesses, net 121,896 117,849
Investments in affiliates 7,221 4,868
Other assets 14,499 12,118
--------- --------
$ 410,276 $386,361
========= ========
Liabilities and shareholders' equity
Current:
Current portion of long-term debt $ 14,281 $ 9,614
Accounts payable 35,040 31,990
Accrued payroll and employee benefits 29,103 26,364
Current income taxes payable 6,256 6,864
Accrued expenses and other liabilities 24,799 23,727
--------- --------
Total current liabilities 109,479 98,559
Long-term debt 139,000 132,010
Other long-term liabilities 6,134 5,883
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: 22,777,000 and 22,740,000 108,010 107,512
Retained earnings 108,905 104,952
Treasury stock, 4,383,000 and 4,573,000 (58,614) (61,157)
Accumulated other comprehensive income (2,016) (1,289)
Other shareholders' equity (622) (109)
-------- -------
Total shareholders' equity 155,663 149,909
-------- --------
$410,276 $386,361
======== ========
See accompanying notes to condensed consolidated financial statements.
DAMES & MOORE GROUP
Condensed Consolidated Statements of Earnings
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
----------------------
June 26, June 27,
1998 1997
-------- --------
Gross revenues $189,150 $171,771
Direct costs of outside services 60,346 51,986
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Net revenues 128,804 119,785
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Operating expenses:
Salaries and related costs 90,013 84,447
General expenses 24,290 21,440
Depreciation and amortization 2,251 2,134
Amortization of goodwill 1,187 1,208
-------- --------
117,741 109,229
-------- --------
Earnings from operations 11,063 10,556
Investment and other income (loss) (155) (106)
Interest expense (2,663) (2,463)
-------- --------
Earnings before income taxes 8,245 7,987
Income taxes 3,558 3,302
-------- --------
Net earnings $ 4,687 $ 4,685
======== ========
Cash dividends declared per share $ 0.03 $ 0.03
======== ========
Earnings per share - Basic $ 0.26 $ 0.26
======== ========
Earnings per share - Diluted $ 0.26 $ 0.26
======== ========
Weighted average number of shares - Basic 18,262 17,890
======== ========
Weighted average number of shares - Diluted 18,336 18,041
======== ========
See accompanying notes to condensed consolidated financial statements.
DAMES & MOORE GROUP
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
-------------------
June 26, June 27,
1998 1997
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Cash flows from operating activities:
Net earnings $ 4,687 $ 4,685
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,495 3,392
Loss on equity investments 440 379
Deferred income taxes 537 (597)
Change in assets and liabilities, net of
effects of purchases of businesses:
Marketable securities - 5,984
Accounts receivable (10,714) (6,677)
Prepaid expenses and other assets (2,140) 127
Accounts payable and accrued expenses 4,913 (2,402)
-------- --------
Net cash provided by operating activities 1,218 4,891
-------- --------
Cash flows from investing activities:
Purchases of businesses, net of cash acquired (3,685) (9,870)
Purchases of property and equipment (2,989) (1,988)
Investments and other assets (4,974) (165)
Proceeds from sales of investment and other property 295 -
-------- --------
Net cash (used in) investing activities (11,353) (12,023)
-------- --------
Cash flows from financing activities:
Repayments on lines of credit (10) (3,050)
Proceeds from debt instruments 12,000 5,038
Issuance of common stock 393 278
Stock repurchased (54) -
Dividends (552) (541)
-------- --------
Net cash provided by financing activities 11,777 1,725
-------- --------
Net increase (decrease) in cash and cash equivalents 1,642 (5,407)
Cash and cash equivalents, beginning of period 9,493 12,726
-------- --------
Cash and cash equivalents, end of period $ 11,135 $ 7,319
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 4,605 $ 4,163
Income tax paid 3,559 3,235
Non cash investing activities - business acquisitions 2,563 2,033
See accompanying notes to condensed consolidated financial statements.
DAMES & MOORE GROUP
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per 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 1998 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 26, 1998 and March 27, 1998; and the results of operations for the
three-month periods ended June 26, 1998 and June 27, 1997. Certain items in
the prior year's financial statements have been reclassified to be
consistent with the 1999 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 26, 1998 and June 27, 1997 were each
comprised of 13 weeks.
Note 2 - Restructuring Costs:
In fiscal 1997, the Company recorded a provision for the restructuring of
its international operations and construction and project management
subsidiary. At June 26, 1998 approximately $209 remains 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 $552, during the first quarter of fiscal 1999. Under
the Company's Amended and Restated 1991 Long-Term Incentive Plan, it issued
65,891 shares of Restricted Stock of which 33,110 shares were from treasury
stock; repurchased 5,393 shares of Restricted Stock; and stock options for
9,536 common shares were exercised.
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 of fiscal 1999 the Company did not acquire any additional shares,
but did reissue 156,991 shares of treasury stock. As of June 26, 1998, in
addition to the private acquisition of 3,700,000 shares of the Company's
common stock from Hocktief AG, the Company has repurchased 1,847,400 shares
and reissued 1,164,600 shares.
Note 4 - Comprehensive Income:
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130 "Reporting of Comprehensive Income", effective with its fiscal year 1999.
SFAS No. 130 established standards for the reporting and display of
comprehensive income and its components. Other comprehensive income of the
Company consists of unrealized losses on marketable securities and foreign
currency translation adjustments. SFAS No. 130 does not affect the
measurement of the items included in other comprehensive income; it affects
only where those items are displayed and how they are described.
Comprehensive income is as follows:
Three Months Ended
-----------------------
June 26, June 27,
1998 1997
------- -------
Net earnings $ 4,687 $ 4,685
Other comprehensive income, net of tax:
Unrealized losses on marketable securities (154) -
Foreign currency translation adjustments (573) (196)
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(727) (196)
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Comprehensive income $ 3,960 $ 4,489
======= =======
Note 5 - Subsequent Event:
The Company has executed an agreement to purchase Radian International LLC,
("Radian") a leading multi-national engineering, consulting and construction
firm, for $117 million in cash, subject to post-closing adjustments. Upon
closing of the purchase, the net book value of Radian is guaranteed to be at
least $93 million. The acquisition will be funded by an increase in the
Company's bank lines, which will also be expanded to retire the outstanding
Senior Notes. This transaction will be accounted for as a purchase. The
transaction closed on July 31, 1998.
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 engineering services; (c) potential
liability for consulting services relating to toxic and hazardous materials
and the ability to insure such risks; (d) 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; (e) increasing
competition faced by the Company in its service areas; (f) periodic
fluctuations in general business conditions and in demand for the types of
services provided by the Company; and (g) foreign operations which expose
the Company to political, economic and other uncertainties such as
fluctuating currency values and exchange controls of foreign countries.
Acquisitions and Operations
During the first quarter of fiscal 1999, the Company acquired Signet Testing
Laboratories, Inc., a materials engineering and testing firm focused on the
areas of structural steel and concrete testing and inspections.
All acquisitions have been 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 1999 Compared with First Quarter 1998
The Company uses a 52-53 week fiscal year ending the last Friday in March.
The first quarter for both fiscal year 1999 and 1998 were each comprised of
13 weeks.
1999 Increase 1998
-------- -------- --------
Net Revenues $128,804 7.5% $119,785
The 7.5% increase in net revenues in the first quarter of 1999 as compared
to the first quarter of 1998 is in part a result of a full quarter's
operating results from the Company's fiscal 1998 and 1999 acquisitions,
which contributed $8,317 of the increase, or 6.9%. The remaining increase of
$702, or 0.6%, represents growth from the Company's transportation and
construction services divisions.
1999 Increase 1998
------- -------- -------
Salaries and Related Costs $90,013 6.6% $84,447
Salaries and related costs increased by 6.6% in the first quarter of 1999 as
compared to the first quarter of 1998. Acquisitions completed in fiscal
1998 and 1999 represent $5,840, or 6.9%, of this increase. Lower bonus and
profit sharing partially offset this increase. Salaries and related costs
represent 69.9% and 70.5% of net revenues for the first quarter of 1999 and
1998, respectively.
1999 Increase 1998
------- -------- -------
General Expenses $24,290 13.3% $21,440
Acquisitions completed in fiscal 1998 and 1999 accounted for an increase of
$1,717, or 8.0%, in general expenses. The remainder of the increase was
primarily due to increases for professional services and allowance for
doubtful accounts. As a percentage of net revenues, general expenses
represent 18.9% and 17.9% of net revenues for the first quarter of 1999 and
1998, respectively.
1999 Increase 1998
------ -------- ------
Depreciation and Amortization $ 2,251 5.5% $ 2,134
Fiscal 1998 and 1999 acquisitions were responsible for $151, or 7.1%, of the
increase in depreciation and amortization. This increase is offset by a
decline in depreciation expense for the Company's remaining assets as some
become fully depreciated. Depreciation and amortization represents 1.7% and
1.8% of net revenues for the first quarter of 1999 and 1998, respectively.
1999 Increase 1998
------- -------- -------
Earnings from Operations $11,063 4.8% $10,556
The Company's operating margin as a percentage of net revenues was 8.6% and
8.8% for the first quarter of 1999 and 1998, respectively.
1999 Decrease 1998
------ -------- ------
Investment and Other Income (Loss) $ (155) (46.2%) $ (106)
The decrease in investment and other loss reflects a decline in earnings
from its joint ventures.
1999 Increase 1998
------ -------- ------
Interest Expenses $ 2,663 8.1% $ 2,463
Borrowings were approximately $12 million higher at the end of the first
quarter of 1999 than the first quarter of 1998 resulting in higher interest
costs. The Company's stock repurchases and funding of acquisitions have
been financed with long-term debt. In connection with the acquisition of
Radian, the Company is restructuring its debt, See Note 5. Consequently,
interest expense has and will continue to increase. See "Liquidity and
Capital Resources."
1999 Increase 1998
------- -------- ------
Income Taxes $ 3,558 7.8% $ 3,302
Income taxes as a percentage of earnings before income taxes were 43.2% and
41.3% for the first quarter of 1998 and 1997, respectively. Goodwill
amortization related to stock acquisitions is not deductible for tax
purposes, coupled with losses from foreign corporations where no tax benefit
has been recognized has resulted in an increasingly higher income tax rate
as a percentage of earnings.
Liquidity and Capital Resources
Cash and cash equivalents total $11,135 at June 26, 1998, compared to $9,493
at March 27, 1998. The Company's working capital of $132,876 at June 26,
1998 has improved from $129,570 at March 27, 1998. The primary sources of
cash in the first quarter of 1999 consisted of proceeds from issuance of
debt of $12,000. The primary uses of cash in the first quarter of 1999
consisted of acquisitions and investment and other assets totaling $8,659.
Net cash provided by operating activities for the first quarter of fiscal
1999 totaled $1,218 as compared to $4,891 for the first quarter of fiscal
1998. In fiscal 1998, marketable securities were sold, while none were sold
in fiscal 1999. Increases in accounts receivables and prepaid expenses
and other assets were partially offset by the increase in accounts payable
and accrued expenses.
Investing activities reflects the Company's acquisition and venture programs.
Acquisitions made by the Company in the first quarter of fiscal 1999 were for
smaller-sized companies than in the first quarter of fiscal 1998 and a
portion of the purchase price was paid for with the issuance of
the Company's treasury shares. Investments and other assets represents the
funding of several venture opportunities in the first quarter of fiscal 1999,
when none were funded in the first quarter of fiscal 1998.
Borrowings increased in the first quarter of fiscal 1999 to fund the
acquisition and investment programs noted above.
The Company's existing debt structure is being modified and expanded as a
result of the Radian acquisition, see Note 5. Management believes that
continuing capital requirements to support growth and diversification of
services, funding of acquisitions and new ventures, will be provided
by cash generated from operations and the expanded lines of credit presently
being negotiated, 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 30, 1998, the Company issued from its treasury 156,991 shares of
its common stock as part of the consideration for its acquisition of Signet
Testing Laboratories, Inc. 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 10.1 Dames & Moore, Inc. Amended and Restated 1991 Long-Term
Incentive Plan.
Exhibit 10.2 Equity Purchase Agreement by and among Dow Environmental Inc.,
TCM Technologies Inc. and Radian Acquisition Corp. dated as of June 23,
1998.
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 GROUP
Date: August 3, 1998 /s/ ARTHUR C. DARROW
----------------------------
Arthur C. Darrow
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 3, 1998 /s/ MARK A. SNELL
----------------------------
Mark A. Snell
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 3, 1998 /s/ LESLIE S. PUGET
----------------------------
Leslie S. Puget
Corporate Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 Dames & Moore, Inc. Amended and Restated 1991 Long-Term
Incentive Plan.
10.2 Equity Purchase Agreement by and among Dow Environmental Inc.,
TCM Technologies Inc. and Radian Acquisition Corp. dated
as of June 23, 1998.
27 Financial Data Schedule, which is included only in the
electronic submission to the Securities and Exchange
Commission.