<PAGE> 1
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 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- ---------
Commission File No. 0-4643
ROY F. WESTON, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1501990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 WESTON WAY, P.O. BOX 2653
WEST CHESTER, PENNSYLVANIA 19380
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 701-3000
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 July 28, 2000, the registrant had outstanding 7,878,825 shares of
Series A common stock and 2,089,019 shares of common stock.
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Page
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Index
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 1-2
Consolidated Statements of Operations -
Three Months Ended June 30, 2000 and 1999 3
Consolidated Statements of Operations -
Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II - Other Information
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
<PAGE> 3
ROY F. WESTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
(Thousands of Dollars)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,299 $ 4,355
Accounts receivable, trade, net of allowance for doubtful
accounts of $2,166 in 2000 and $2,040 in 1999 58,033 56,919
Unbilled costs and estimated earnings on contracts in process 25,129 27,291
Deferred income taxes 3,397 2,202
Other 5,742 4,760
-------- --------
Total current assets 93,600 95,527
-------- --------
PROPERTY AND EQUIPMENT
Land 215 215
Buildings and improvements 11,253 11,196
Furniture and equipment 33,182 32,643
Leasehold improvements 1,863 1,846
Construction in progress 140 132
-------- --------
Total property and equipment 46,653 46,032
Less accumulated depreciation and amortization 36,837 36,184
-------- --------
Property and equipment, net 9,816 9,848
-------- --------
OTHER ASSETS
Goodwill, net of accumulated amortization of $4,231 in
2000 and $4,200 in 1999 1,723 1,754
Deferred income taxes 3,258 5,634
Other 9,480 8,664
-------- --------
Total other assets 14,461 16,052
-------- --------
TOTAL ASSETS $117,877 $121,427
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
(Thousands of Dollars)
<S> <C> <C>
CURRENT LIABILITIES
Borrowings under line of credit $ 3,502 $ 3,400
Current maturities of long-term debt 3,358 3,284
Accounts payable and accrued expenses 17,156 17,299
Billings on contracts in process in excess of costs and
estimated earnings 7,444 11,867
Employee compensation, benefits and payroll taxes 9,632 8,732
Income taxes payable 467 288
Other 6,108 5,916
-------- --------
Total current liabilities 47,667 50,786
-------- --------
LONG-TERM DEBT 6,648 9,648
-------- --------
OTHER LIABILITIES 3,968 3,830
-------- --------
CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 10,500,000 shares authorized;
3,170,294 shares issued in 2000 and 1999 317 317
Series A common stock, $.10 par value, 20,500,000 shares
authorized; 8,650,778 shares issued in 2000 and 1999 865 865
Unrealized gain on investments 286 419
Additional paid-in capital 55,928 55,928
Retained earnings 7,208 4,695
-------- --------
64,604 62,224
Less treasury stock at cost, 1,081,275 common shares in 2000
and 1999; 762,975 Series A common shares in 2000 and
783,043 Series A common shares in 1999 5,010 5,061
-------- --------
Total stockholders' equity 59,594 57,163
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $117,877 $121,427
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
ROY F. WESTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
2000 1999
(Thousands of Dollars)
<S> <C> <C>
Gross revenues $ 68,977 $ 60,065
Direct project costs 28,352 24,012
------------ ------------
Net revenues 40,625 36,053
------------ ------------
Expenses:
Direct salaries and other operating costs 34,650 31,107
General and administrative expenses 4,030 4,556
------------ ------------
38,680 35,663
------------ ------------
Income from operations 1,945 390
------------ ------------
Other income (expense):
Investment income 216 137
Interest expense (445) (381)
Equity in earnings of affiliate 1,000 --
Other 63 6
------------ ------------
834 (238)
------------ ------------
Income before income taxes 2,779 152
Provision for income taxes 1,011 61
------------ ------------
Net income $ 1,768 $ 91
============ ============
Basic earnings per share $ .18 $ .01
============ ============
Weighted average shares outstanding - basic 9,971,548 9,946,992
============ ============
Diluted earnings per share $ .18 $ .01
============ ============
Weighted average shares outstanding - diluted 10,026,394 10,006,483
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
ROY F. WESTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
(Thousands of Dollars)
<S> <C> <C>
Gross revenues $ 138,677 $ 132,869
Direct project costs 59,361 59,001
----------- -----------
Net revenues 79,316 73,868
----------- -----------
Expenses:
Direct salaries and other operating costs 68,484 63,830
General and administrative expenses 8,007 8,931
----------- -----------
76,491 72,761
----------- -----------
Income from operations 2,825 1,107
----------- -----------
Other income (expense):
Investment income 442 342
Interest expense (875) (722)
Equity in earnings of affiliate 1,315 --
Other 313 43
----------- -----------
1,195 (337)
----------- -----------
Income before income taxes 4,020 770
Provision for income taxes 1,507 308
----------- -----------
Net income $ 2,513 $ 462
=========== ===========
Basic earnings per share $ .25 $ .05
=========== ===========
Weighted average shares outstanding - basic 9,967,844 9,946,992
=========== ===========
Diluted earnings per share $ .25 $ .05
=========== ===========
Weighted average shares outstanding - diluted 9,982,152 9,959,943
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
ROY F. WESTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,513 $ 462
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,008 1,865
Provision for losses on accounts receivable 137 274
Equity in undistributed earnings of affiliate (1,315) --
Other 62 (318)
Change in assets and liabilities:
Accounts receivable, trade (1,251) 8,622
Unbilled costs and estimated earnings on contracts in process 2,162 (6,488)
Other current assets (988) (891)
Accounts payable and accrued expenses (143) (3,326)
Billings on contracts in excess of costs and estimated earnings (4,423) (1,839)
Employee compensation, benefits and payroll taxes 900 (38)
Income taxes 185 18
Deferred income taxes 1,249 261
Other current liabilities 130 (1,210)
Other assets and liabilities (45) 432
------- -------
Net cash provided by (used for) operating activities 1,181 (2,176)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 304 1,727
Payments for purchase of investments (12) --
Capital expenditures (1,487) (2,810)
------- -------
Net cash used for investing activities (1,195) (1,083)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 102 1,600
Principal payments under long-term debt (3,195) (1,866)
Other, net 51 --
------- -------
Net cash used for financing activities (3,042) (266)
------- -------
Net decrease in cash and cash equivalents (3,056) (3,525)
Cash and cash equivalents:
Beginning of period 4,355 3,993
------- -------
End of period $ 1,299 $ 468
======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 8
ROY F. WESTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The unaudited consolidated financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
and should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1999 Annual Report to Shareholders which
is incorporated by reference in its Form 10-K filed with the Securities and
Exchange Commission. Results for the three months and six months ended June 30,
2000 are not necessarily indicative of results for the full year 2000.
NOTE 2 - LINE OF CREDIT AGREEMENT
On April 26, 2000, the Company entered into a new revolving credit facility with
a maximum capacity of $15,000,000 to provide cash borrowings and letters of
credit. Use of the facility is limited by a borrowing base calculated on the
basis of the Company's eligible accounts receivable. The facility is
collateralized by liens on substantially all of the Company's tangible and
intangible assets, excluding real estate. The facility, which replaced the
Company's previous credit arrangements, is for a three-year period and is
available for working capital and other general corporate purposes. At June 30,
2000 the available unused portion of the facility was $9,446,000.
Under the terms of the agreement, cash borrowings bear interest at 1/2% over the
prime rate or, at the Company's option, other variable rates. The Company is
subject to a 3/8% annual charge on the unused portion of the facility. The
agreement requires the Company to maintain minimum levels of tangible net worth
and certain financial ratios and restricts certain expenditures and debt outside
the agreement.
NOTE 3 - SEGMENTS
Net revenues and segment profit (loss) for the three months and six months ended
June 30, 2000 and 1999 were as follows:
6
<PAGE> 9
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues:
Infrastructure Redevelopment $ 35,988* $ 29,486 $ 69,254 $ 59,780
Federal Programs 3,714 5,447 8,124 11,588
Knowledge Systems and Solutions 623 674 1,299 1,452
Corporate 300 446 639 1,048
-------- -------- -------- --------
Consolidated $ 40,625 $ 36,053 $ 79,316 $ 73,868
======== ======== ======== ========
Segment profit (loss):
Infrastructure Redevelopment $ 5,615* $ 3,125 $ 8,816 $ 5,973
Federal Programs 1,473 681 2,804 2,047
Knowledge Systems and Solutions (57) (288) (49) (505)
Corporate (4,252) (3,366) (7,551) (6,745)
-------- -------- -------- --------
Consolidated $ 2,779 $ 152 $ 4,020 $ 770
======== ======== ======== ========
</TABLE>
* Includes approximately $1,900,000 of net revenues from an industrial
brownfields redevelopment project. A substantial portion of such net
revenues is included in segment profit.
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income consists of net income, adjusted for other increases and
decreases affecting stockholders' equity that, under generally accepted
accounting principles, are excluded from the determination of net income.
The calculation of comprehensive income for the three months and six months
ended June 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,768 $ 91 $ 2,513 $462
Unrealized gain (loss) on
investments, net of tax (201) 182 (133) 169
------- ---- ------- ----
Comprehensive income $ 1,567 $273 $ 2,380 $631
======= ==== ======= ====
</TABLE>
7
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NOTE 5 - CONSOLIDATED STATEMENTS OF CASH FLOW
Cash payments for income taxes were $81,000 and $24,000 in the first six months
of 2000 and 1999, respectively. Cash payments for interest were $733,000 and
$663,000 in the six months ended June 30, 2000 and 1999, respectively.
The Company incurred $269,000 and $268,000 of capital lease obligations in the
six months ended June 30, 2000 and 1999, respectively, when the Company entered
into leases for office equipment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following information should be read in conjunction with the unaudited
interim consolidated financial statements and the notes thereto included in this
Quarterly Report and the audited financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1999.
On April 27, 2000 the Company announced that it had retained Raymond James &
Associates, Inc. to help the Company explore its strategic alternatives; that
the Company's Board of Directors had appointed a special committee of
independent directors to evaluate the alternatives on behalf of the holders of
the Company's publicly traded Series A common shares; and that members of the
Weston family who control a majority of the Company's non-publicly traded Common
shares were working with the special committee and Raymond James. The Company
continues to explore its strategic alternatives.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Net income for the three months ended June 30, 2000 was $1,768,000, or $.18 per
share, compared to $91,000, or $.01 per share, for the three months ended June
30, 1999. Net income for the six months ended June 30, 2000 was $2,513,000, or
$.25 per share, compared to $462,000, or $.05 per share, for the six months
ended June 30, 1999.
Net revenues increased 13% to $40,625,000 for the three months ended June 30,
2000 and 7% to $79,316,000 for the six months ended June 30, 2000 compared to
the 1999 periods. Gross revenues increased 15% to $68,977,000 for the three
months ended June 30, 2000 and 4% to $138,677,000 for the six months ended June
30, 2000 compared to the 1999 periods. Net revenues from the Company's
Infrastructure Redevelopment segment increased $6,502,000, or 22%, and
$9,474,000, or 16%, in the three months and six months ended June 30, 2000,
primarily due to increased volume of work as a result of higher contract
bookings in 1999 and 2000. The three months and six months ended June 30, 2000
included net revenues of approximately $1,900,000 and $2,300,000, respectively,
from an industrial brownfields redevelopment project. Net revenues from Federal
Programs declined $1,733,000, or 32%, and $3,464,000, or 30%, in the three
months and six months ended June 30, 2000 primarily due to the loss of one large
contract in the middle of 1999.
8
<PAGE> 11
The Company had income from operations of $1,945,000 and $2,825,000 in the three
months and six months ended June 30, 2000, respectively, compared to $390,000
and $1,107,000 in the three months and six months ended June 30, 1999,
respectively. The increases in 2000 income from operations for the respective
periods was principally realized from the aforementioned increased net revenues.
In particular, a substantial portion of the Company's income from operations for
the three months ended June 30, 2000 was attributable to the industrial
brownfields redevelopment project referred to above which was completed as of
June 30, 2000. General and administrative expenses declined $526,000, or 12%,
and $924,000, or 10%, in the three months and six months ended June 30, 2000 due
principally to continued cost containment and operating efficiencies. The 1999
periods included unusually high computer training costs related to the
implementation of new systems. The three months and six months ended June 30,
1999 included a $500,000 reduction in the Company's estimated insurance claim
liabilities.
The Company had $834,000 and $1,195,000 of other income in the three months and
six months ended June 30, 2000, respectively, compared to other expense of
$238,000 and $337,000 in the three months and six months ended June 30, 1999,
respectively. The 2000 periods include equity in undistributed earnings of a
limited liability company 40%-owned by the Company, which began operations in
late 1999. Other income includes $210,000 and $52,000 in the six months ended
June 30, 2000 and June 30, 1999, respectively, of gains on redemption of the
Company's 7% Convertible Subordinated Debentures. Interest expense increased
$64,000, or 17%, and $153,000, or 21% in the three months and six months ended
June 30, 2000, respectively, due to increased borrowings under the Company's
line of credit, partially offset by reductions of 7% convertible subordinated
debt outstanding.
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents decreased $3,056,000 in the first six months of 2000
to $1,299,000 from $4,355,000 at December 31, 1999.
Operating activities provided cash of $1,195,000 for the first six months of
2000, compared to using cash of $2,176,000 in the comparable 1999 period.
Capital expenditures were $1,487,000 in the first six months of 2000, compared
to $2,810,000 in the comparable 1999 period. The Company used cash of $3,042,000
in financing activities in the first six months of 2000, compared to $266,000 in
the comparable 1999 period. The six months ended June 30, 2000 included the
repurchase of $3,015,000 principal amount of the Company's 7% Convertible
Subordinated Debentures in order to satisfy the April 15, 2000 sinking fund
requirement. Further debenture repurchases of $3,028,000 are required before
April 15, 2001.
On April 26, 2000, the Company entered into a new three-year revolving credit
facility with a maximum capacity of $15,000,000. The facility, which replaced
the Company's previous credit arrangements, increases the Company's access to
working capital borrowings needed to finance the growth of the Company's
business. The Company is required to maintain minimum levels of tangible net
worth and certain financial ratios and certain expenditures and debt outside the
facility are restricted. [See Note 2 to the unaudited consolidated financial
statements.]
9
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FORWARD LOOKING STATEMENTS
From time to time, the Company, its management, or other Company representatives
may make or publish statements that contain projections, beliefs, expectations,
predictions or intentions relating to anticipated financial performance,
business prospects, potential contract value, business strategy and plans,
technological developments, and other matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for these forward looking statements,
including statements contained in this report. In order to comply with the terms
of the safe harbor, the Company notes that a number of factors could cause the
Company's actual results, experience or outcome to differ materially from
projections, beliefs, expectations, predictions, or intentions expressed in
forward looking statements. These risks and uncertainties which may affect the
operations, performance, development, and results of the Company's business,
include, but are not limited to, the following:
o The highly competitive marketplace in which the Company operates.
o Changes in and levels of enforcement of federal, state and local
environmental legislation and regulations.
o The Company's ability to obtain new contracts from existing as well as new
clients, and the uncertain timing of awards and contracts.
o The Company's ability to execute new projects and those currently in backlog
within reasonable cost estimates, as well as other contract performance
risks, including successful resolution of any contract disputes.
o Funding appropriation, funding delay, and the issuance of work orders on
government projects.
o The Company's ability to achieve any planned overhead or other cost
reductions while maintaining adequate work flow.
o The Company's ability to obtain adequate financing for its current
operations and future expansion, including adequate financing to fund
working capital needs and the Company's acquisition strategy.
o The Company's ability to execute its strategic plan through successful
marketing activities and continued cost containment.
o The nature of the Company's work with hazardous materials, toxic wastes, and
other pollutants, and the potential for uninsured claims or claims in excess
of insurance limits, including professional liability and pollution claims.
o The Company's ability to conclude and implement acquisitions of other
businesses consistent with the Company's acquisition strategy.
o The Company's ability to retain key personnel.
10
<PAGE> 13
o The Company's ability to successfully complete its ongoing exploration and
evaluation of strategic alternatives.
The Company disclaims any intent or obligation to update forward looking
statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 14, 2000, the Company filed a Preliminary Complaint
against the United States in the United States Court of
Federal Claims (Roy F. Weston, Inc. v. The United States, C.A.
No. 00-213c). The Complaint arises out of a thermal
remediation project that the Company performed under a
contract with the United States Army Corps of Engineers
("USACE") in St. Charles, Missouri during 1998 and 1999. In
its Preliminary Complaint, the Company seeks to recover
approximately $13 million, plus interest and legal costs,
relating to contract modifications requested by the Company
for work performed on the project, which had been denied by
the USACE project contracting officer. The Company also
disputes the contracting officer's finding that the Company
has been overpaid by approximately $2.6 million. The Company's
Preliminary Complaint asserts that the Company encountered
site conditions that were materially different from those
indicated in the contract documents, as well as other grounds
for relief.
Although the outcome of any litigation is uncertain, the
Company believes that its position is sound and that it will
achieve a favorable result in the litigation, in which event
the Company could recognize a significant gain. In the event
of an unfavorable resolution, the Company could sustain a
material loss.
11
<PAGE> 14
Item 4. Submission of Matters to a Vote of Security Holders
1. Annual Meeting of Shareholders
The Annual Meeting of Shareholders of the registrant was held
on May 15, 2000. All of the following persons nominated were
elected to serve as directors and received the number of votes
set forth opposite their respective names:
For Against
--------- -------
R. L. Armitage 2,689,509 23,528
J. L. Brown 2,689,499 23,537
T. E. Carroll 2,689,509 23,528
T. Harvey 2,689,499 23,537
W.F. Hosking, Jr. 2,689,232 23,804
W. L. Robertson 2,689,499 23,537
K. W. Swoyer 2,689,183 23,854
T. M. Swoyer, Jr. 2,689,197 23,839
A. F. Thompson 2,689,286 23,750
R. F. Weston 2,590,286 122,750
J. H. Wolfe 2,689,509 23,528
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits are numbered in accordance with the Exhibit
Table of Item 601 of Regulation S-K.
Exhibit No. Description
----------- -----------
11 Statements of Computation of Basic and
Diluted Earnings Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K in the
three months ended June 30, 2000.
12
<PAGE> 15
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.
ROY F. WESTON, INC.
(Registrant)
Date: August 4, 2000 By: /s/ William Robertson
-------------------------
William Robertson
Chief Executive Officer
(Duly Authorized Officer)
Date: August 4, 2000 By: /s/ William G. Mecaughey
----------------------------
William G. Mecaughey
Vice President and
Chief Financial Officer
(Chief Accounting Officer)
