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 November 30, 1995 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
HARDING ASSOCIATES, INC.
(Former name, if changed since last report)
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 January 3, 1996 the registrant had issued and outstanding an aggregate of
4,845,090 shares of its common stock.
INDEX
HARDING LAWSON ASSOCIATES GROUP, INC.
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
November 30, 1995 (Unaudited) and
May 31, 1995............................................ 3
Condensed Consolidated Statements of Income -
Three and Six Months Ended November 30, 1995 and
November 30, 1994 (Unaudited)........................... 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended November 30, 1995 and
November 30, 1994....................................... 5
Notes to Condensed Consolidated Financial Statements
November 30, 1995 (Unaudited)........................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 7-9
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..... 10
Item 6. Exhibits and Reports on Form 8-K........................ 11
SIGNATURES ........................................................ 12
EXHIBIT INDEX ........................................................ 13
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARDING LAWSON ASSOCIATES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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November 30, 1995 May 31, 1995
- --------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $13,831 $12,648
Accounts receivable 31,685 28,343
Unbilled work in progress 5,359 6,935
Less allowances for receivables and
unbilled work (1,562) (1,553)
Prepaid expenses 1,453 925
Deferred income taxes 1,165 2,235
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Total current assets 51,931 49,533
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Equipment 21,840 21,208
Less accumulated depreciation (17,387) (16,766)
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Net equipment 4,453 4,442
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Deposits and other assets 6,766 6,813
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Total assets $63,150 $60,788
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,032 $3,383
Accrued expenses 4,548 5,642
Accrued compensation 5,698 6,518
Income taxes payable 326 621
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Total current liabilities 15,604 16,164
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Other liabilities 1,960 1,715
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Total liabilities 17,564 17,879
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Commitments and Contingencies -- --
Minority interest in subsidiary 288 224
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Shareholders' equity:
Preferred stock--$.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--4,845,090
and 4,719,320 at November 30, 1995
and May 31, 1995, respectively 48 47
Additional paid-in capital 18,142 17,424
Retained earnings 27,108 25,214
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Total shareholders' equity 45,298 42,685
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Total liabilities and
shareholders' equity $63,150 $60,788
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The accompanying notes are an integral part of these financial statements.
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HARDING LAWSON ASSOCIATES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
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Three Months Ended Six Months Ended
November 30, November 30,
1995 1994 1995 1994
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Gross revenue $35,554 $34,445 $67,302 $67,825
Less: Cost of outside services 12,853 10,346 21,893 20,715
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Net revenue 22,701 24,099 45,409 47,110
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Costs and expenses:
Payroll and benefits 15,044 16,400 30,354 31,792
General expenses 6,282 6,249 12,324 12,416
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Total costs and expenses 21,326 22,649 42,678 44,208
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Operating income 1,375 1,450 2,731 2,902
Interest income, net 194 51 370 70
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Income before provision for income
taxes and minority interest 1,569 1,501 3,101 2,972
Provision for income taxes 621 593 1,223 1,174
Minority interest (11) -- (16) --
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Net income $ 959 $ 908 $ 1,894 $ 1,798
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Net income per common share $ .20 $ .19 $ .39 $ .37
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Shares used in per share calculation 4,871 4,793 4,837 4,809
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The accompanying notes are an integral part of these financial statements.
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HARDING LAWSON ASSOCIATES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six Months Ended November 30,
1995 1994
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OPERATING ACTIVITIES
Net income $1,894 $1,798
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,236 1,646
Net increase in current assets (1,215) (2,037)
Net increase in current liabilities 158 74
Other increase (decrease) 153 (58)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,226 1,423
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INVESTING ACTIVITIES
Net purchase of equipment (1,043) (600)
Investment in acquisition (net of acquired cash) -- (1,683)
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NET CASH USED IN
INVESTING ACTIVITIES (1,043) (2,283)
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FINANCING ACTIVITIES
Repayment of debt -- (2,015)
Proceeds from sale of common stock -- 116
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NET CASH USED IN
FINANCING ACTIVITIES -- (1,899)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,183 (2,759)
Cash and cash equivalents at beginning of period 2,648 8,896
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $13,831 $6,137
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The accompanying notes are an integral part of these financial statements.
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HARDING LAWSON ASSOCIATES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
November 30, 1995
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
without audit by Harding Lawson Associates Group, Inc., formerly Harding
Associates, 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 dated May 31, 1995. Reclassification of
certain balances for the fiscal year ended May 31, 1995 have been made to
conform to the November 30, 1995 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, a lawsuit was
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 suit seeks monetary damages in the
amount of $7.9 million for alleged breach of contract and negligence in the
performance of certain engineering services. The Company believes it has
meritorious defenses to this suit. 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.
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HARDING LAWSON ASSOCIATES GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 revenue, and (ii) the percentage increase (decrease) in
dollar amount of such items from year to year.
Percentage of Net Revenue Percentage
Three Months Ended Six Months Ended Increase/(Decrease)
November 30, November 30, November 30,
Three Months Six Months
1995 1994 1995 1994 1995 vs 1994 1995 vs 1994
---- ---- ---- ---- ------------ ------------
Gross revenue 156.6% 142.9% 148.2% 144.0% 3.2% (.8)%
Net revenue 100.0 100.0 100.0 100.0 (5.8) (3.6)
Costs and expenses
Payroll and benefits 66.3 68.1 66.9 67.5 (8.3) (4.5)
General expenses 27.7 25.9 27.1 26.3 .5 (.7)
Operating income/margin 6.0 6.0 6.0 6.2 (5.2) (5.9)
Net interest income .9 .2 .8 .1 280.4 428.6
Income before income taxes
and minority interest 6.9 6.2 6.8 6.3 4.5 4.3
Provision for taxes 2.7 2.5 2.7 2.5 4.7 4.2
Net income 4.2 3.8 4.1 3.8 5.6 5.3
Second Quarter Comparison for Fiscal Years 1996 and 1995
Gross revenue includes, as an adjunct to the Company's labor services, the
revenue on services subcontracted to third parties that will be reimbursed under
terms of the Company's contracts, and revenue from the utilization of certain
company owned equipment. The contribution to net revenue derived from the sale
of subcontracted services and company owned equipment was essentially unchanged
at 6.7 percent of net revenue in the second quarter of fiscal 1996 and 6.6
percent in fiscal 1995. Net revenue, which is a more accurate measure of revenue
earned for services provided directly by the Company, is recorded by deducting
from gross revenue the costs of services contracted to third parties. Outside
services revenue as a percent of total gross revenue was 37.5 percent and 31.4
percent for the second quarter of fiscal 1996 and 1995, respectively.
Net revenue for the fiscal quarter ended November 30, 1995 totaled $22,701, a
decrease of six percent from net revenue of $24,099 for the second quarter of
the prior fiscal year. The decrease in net revenue was primarily due to the
impact of an additional week's activity in the second quarter of the prior year.
After adjusting for this impact, net revenue was essentially unchanged from
fiscal 1995. In domestic operations, the Company experienced lower demand for
its services, partially offset by slightly improved pricing compared to the
second quarter of fiscal 1995. The lower demand was in the public sector and was
attributed primarily to a slowdown in federal funding for environmental
contracts and reduced infrastructure spending in the California, Hawaii and
Washington markets. On a comparable basis to the prior year, net revenue from
such 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 48 percent of total net revenue compared to 56 percent in the
prior year. Net revenue from industrial sector clients continued to show
improvement with an increase of approximately
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nine percent over the prior year. International operations accounted for five
percent of net revenue in the second fiscal quarter of 1996. There were no
international sales reported in the second quarter of the prior year.
Operating income amounted to $1,375, a decrease of 5.2 percent from $1,450 for
the same period in fiscal 1995. Operating margin was unchanged at 6.0 percent of
net revenue compared to the same period in the prior fiscal year. The lower
operating income was primarily due to the lower net revenue discussed above,
partially offset by lower labor related expenses. The lower labor expenses
reflect both staff reductions and reduced incentive compensation expenses. As in
the first quarter, operating margins in the fiscal 1996 second quarter also
benefited from the favorable performance of several firm fixed price contracts
in both private and public sectors. There can be no assurance that such
contracts will continue to be available to the Company in the future or that the
performance of such contracts will have a favorable outcome.
Interest income for the second quarter of fiscal 1996 was $222 before interest
expense of $28 and was higher compared to interest income of $63 before interest
expense of $12 for the second quarter of the prior fiscal year. Net interest
income was higher due to the Company's increased cash position that resulted in
higher balances of invested cash, and to a lesser extent, improved interest
rates.
The effective tax rate was 39.5 percent for the second quarter of both fiscal
1996 and 1995.
Net income for the quarter was $959 compared with $908 in the second quarter of
1995, an increase of 5.6 percent. Earnings per share were $0.20 on 4,871,000
weighted average shares outstanding compared to $0.19 per share on 4,793,000
weighted average shares outstanding in the same period last year.
Six Month Comparison for Fiscal Years 1996 and 1995
Net revenue for the six months ended November 30, 1995 (26 weeks) amounted to
$45,409 a decrease of 3.6 percent from net revenue of $47,110 for the six months
ended November 30, 1994 (27 weeks). The decrease in net revenue was due
primarily to lower public sector work and, to a lesser extent, the impact of the
additional week in the prior fiscal year. On a comparable basis with the prior
year, the Company experienced lower demand for its services that was partially
offset by slightly improved pricing for those services.
Operating income amounted to $2,731, a decrease of 5.9 percent from operating
income of $2,902 for the first six months of the prior year. The operating
margin decreased to 6.0 percent from 6.2 percent a year ago. While the Company
continued to lower its operating costs, such reductions were not sufficient to
offset the effect of lower revenue discussed above.
Interest income for the six months was $399 before interest expense of $29, up
from $108 before interest expense of $38 in the same period in the prior year.
The increase in net interest income was due primarily to the Company's increased
cash position that resulted in higher balances of invested cash and improved
interest rates.
The effective tax rate for the six months ended November 30, 1995 was 39.4
percent and for the six months ended November 30, 1994 was 39.5 percent.
Net income for the six months was $1,894, up from net income of $1,798 for the
six month period in the prior year, an increase of 5.3 percent. Earnings per
share were $0.39 on 4,837,000 weighted average shares outstanding compared to
$0.37 per share on 4,809,000 weighted average shares outstanding in the first
six month period of the prior year.
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Due to seasonal factors, operating results for the six month period ending
November 30, 1995 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending May 31, 1996.
Liquidity and Capital Resources
For the six months ended November 30, 1995, net cash provided by operations was
$2,226 compared with net cash provided by operations of $1,423 for the same
period last year. The increase in cash provided by operations was primarily due
to lower payments related to the settlement of legal claims compared to the
prior year, and to a lesser extent, improved accounts receivable balances.
Accounts receivable in the prior year were adversely affected by delays in
invoicing certain public sector projects.
The Company made net capital expenditures of $1,043 in the first six months of
fiscal 1996 compared to net capital expenditures of $600 in the first six months
of the prior year. The Company anticipates that its capital expenditures,
excluding investments in acquisitions, for the current fiscal year will be at
slightly higher levels than those incurred in the prior fiscal year.
The Company is a consulting engineering services firm engaged in providing
environmental, infrastructure and geotechnical 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 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 adverse impact on the financial
position and liquidity of the Company. Prior to May 1994, the Company was
provided a professional liability insurance policy through a wholly owned
subsidiary of the Company, and as such, was self insured for the liabilities
covered by that policy. Currently, the Company is provided a $5 million
professional liability insurance policy through an unrelated, rated carrier.
At November 30, 1995, the Company had cash on hand and cash equivalents of
$13,831. The Company has a $20 million revolving credit line agreement which
expires in October 1997. At November 30, 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 6.0 percent at November 30,
1995, and at 6.1 percent at May 31, 1995. The Company is in compliance with all
covenants pertaining to the credit line agreement.
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 to 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 investments in acquisitions.
Forward-Looking Statements
Except for the historical information contained herein, certain of the matters
discussed in this report are forward-looking statements that involve risks and
uncertainties, including the demand for the Company's services and the strength
of the economy domestically and internationally, and such risks and
uncertainties as are described in the registration statement, reports and other
documents filed by the Company from time to time with the Securities and
Exchange Commission.
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HARDING LAWSON ASSOCIATES GROUP, INC.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the Registrant was held on November 1, 1995 and five
proposals were presented to security holders for a vote; election of one
director, approval of an amendment to the Restated Certificate of Incorporation,
approval of the Company's 1995 Executive Stock Incentive Plan, approval of an
amendment to the 1991 Employee Stock Purchase Plan, and ratification of
independent auditors.
The five-member Board of Directors is divided into three classes. Each year one
of the classes stands for election to a term of three years. The class standing
for election at the 1995 annual meeting was Class II, consisting of one
incumbent director: Richard D. Puntillo. The terms for Class III Directors,
Richard S. Harding and Donald L. Schreuder, expire in 1996 and the terms of
Class I Directors, Retired Rear Admiral Stuart F. Platt and Barton W.
Shackelford expire in 1997.
The following table lists the votes cast:
For Withheld
--- --------
Proposal 1
Election of Director
Richard D. Puntillo 3,581,477 54,280
For Against Abstain Non-Votes
--- ------- ------- ---------
Proposal 2
Approval of an Amendment to the
Restated Certificate of Incorporation
changing the name of the corporation
from Harding Associates, Inc. to
Harding Lawson Associates Group, Inc. 3,572,437 49,192 14,128 --
Proposal 3
Approval of the Company's 1995
Executive Stock Incentive Plan 2,074,017 777,921 15,983 767,836
Proposal 4
Approval of an Amendment to the
1991 Employee Stock Purchase Plan
increasing the shares under the
plan from 150,000 to 250,000. 2,757,803 74,971 14,610 788,373
Proposal 5
Ratification of Ernst & Young, LLP
Independent Auditors 3,602,933 19,501 13,323 --
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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 November 30, 1995:
Exhibit No. 3.1 Restated Certificate of Incorporation
Exhibit No. 3.2 Amendment to Restated Certificate of Incorporation
Exhibit No. 10.1 1995 Executive Stock Plan
Exhibit No. 11 Computation of Per Share Earnings
Exhibit No. 27 Financial Data Schedule (Electronic Filing Only)
b. Reports on Form 8-K
None
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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.
HARDING LAWSON ASSOCIATES GROUP, INC.
Date: /s/ Donald L. Schreuder
---------------- ------------------------------------------
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: /s/ Gregory A. Thornton
---------------- ------------------------------------------
Gregory A. Thornton
Vice President and Chief Financial Officer
(Principal Accounting Officer)
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HARDING LAWSON ASSOCIATES GROUP, INC.
EXHIBIT INDEX
Exhibit No.
3.1 Restated Certificate of Incorporation
3.2 Amendment to Restated Certificate of Incorporation
10.1 1995 Executive Stock Plan
11 Computation of Per Share Earnings
27 Financial Data Schedule (Electronic Filing Only)
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