<PAGE>
UNITED STATES
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 Quarter Ended June 30, 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 1-10867
GENERAL PHYSICS CORPORATION
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 52-0845774
- - ---------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 400, 6700 Alexander Bell Drive, Columbia, MD 21046
- - -------------------------------------------------- ---------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (410) 290-2300
---------------------
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
----- -----
At August 12, 1996, the Registrant had 10,483,985 shares of Common Stock, $.025
par value, issued and outstanding.
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GENERAL PHYSICS CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
<S> <C>
Consolidated Balance Sheets as of December 31, 1995
and June 30, 1996 (unaudited)........................................................ 1
Consolidated Statements of Operations for the three and six months
ended June 30, 1995 and 1996 (unaudited)............................................. 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1995 and 1996 (unaudited)............................................. 4
Notes to Consolidated Financial Statements (unaudited)................................. 5
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................. 5
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings................................................................... 7
ITEM 4 - Submission of Matters to a Vote
of Security Holders................................................................. 8
ITEM 6 - Exhibits and Reports on Form 8-K.................................................... 8
Signature........................................................................... 9
</TABLE>
i
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
General Physics Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
------------- -----------
1995 1996
------------- -----------
(Unaudited)
(in thousands)
Assets
<S> <C> <C>
Current assets:
Cash......................................... $ 108 $ 129
Accounts receivable, less allowance for
doubtful accounts of $1,000 and $991........ 25,066 25,374
Costs and estimated earnings in excess of
billings on uncompleted contracts........... 9,118 9,425
Income taxes recoverable..................... 777 195
Prepaid expenses and other current assets.... 1,063 1,256
Deferred income taxes........................ -- 83
------- -------
Total current assets..................... 36,132 36,462
------- -------
Property and equipment, at cost............... 5,625 6,781
Less accumulated depreciation and
amortization................................. (1,924) (2,568)
------- -------
Net property and equipment............... 3,701 4,213
------- -------
Excess of costs over net assets of
subsidiaries acquired, less accumulated
amortization of $1,571 and $1,716............ 9,887 9,342
Other assets.................................. 1,573 1,665
------- -------
$51,293 $51,682
======= =======
</TABLE>
(continued)
1
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
---- ----
(Unaudited)
Liabilities and Stockholders' Equity (in thousands)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses........................................ $ 6,770 $ 7,008
Billings in excess of costs and estimated
earnings on uncompleted contracts........................................... 8,301 8,211
Short-term borrowings........................................................ 3,450 2,950
Capital lease obligation..................................................... 119 122
Dividends payable............................................................ 623 626
Deferred income taxes........................................................ 54 --
------- -------
Total current liabilities................................................ 19,317 18,917
------- -------
Senior subordinated debentures................................................ 11,173 11,370
Capital lease obligation...................................................... 1,206 1,145
------- -------
Total liabilities........................................................ 31,696 31,432
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Stockholders' equity:
Preferred stock, par value $.025 per share,
5,000,000 shares authorized; none issued.................................... -- --
Common stock, par value $.025 per share,
20,000,000 shares authorized; 11,085,720
and 11,085,960 shares issued................................................ 277 277
Additional paid-in capital................................................... 25,074 24,687
Accumulated deficit.......................................................... (657) (465)
Treasury stock at cost, 750,722 and
625,341 shares.............................................................. (5,097) (4,249)
------- -------
Net stockholders' equity................................................. 19,597 20,250
------- -------
$51,293 $51,682
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
General Physics Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1995 1996 1995 1996
---- ---- ---- ----
(in thousands, except (in thousands, except
per share amounts) per share amounts)
<S> <C> <C> <C> <C>
Revenue..................................................... $27,205 $28,050 $54,282 $55,770
Cost of revenue............................................. 24,199 24,653 48,099 49,160
------- ------- ------- -------
Gross profit........................................... 3,006 3,397 6,183 6,610
General and administrative and other
expenses.................................................. 1,618 1,761 3,276 3,384
Interest expense............................................ 637 440 1,190 889
Other income/(expenses), net................................ 2 55 (18) 70
------- ------- ------- -------
Income before income taxes and equity
in net earnings of investee company................... 753 1,251 1,699 2,407
Income taxes................................................ 326 544 735 1,032
------- ------- ------- -------
Income before equity in net earnings of
investee company...................................... 427 707 964 1,375
Equity in net earnings of investee
company, net of income taxes.............................. 38 24 63 69
------- ------- ------- -------
Net Income............................................. $ 465 $ 731 $ 1,027 $ 1,444
======= ======= ======= =======
Net income per share........................................ $.05 $.07 $.10 $.14
======= ======= ======= =======
Weighted average number of shares
outstanding............................................... 10,196 10,430 10,149 10,399
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
General Physics Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1995 1996
---- ----
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................. $ 1,027 $ 1,444
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 619 986
Provision for doubtful accounts....................... 47 91
Provision for deferred income taxes................... 428 (137)
Equity in net earnings of investee company............ (63) (69)
Issuance of treasury stock to benefit plan............ 521 461
Changes in operating assets and liabilities:
Accounts receivable.................................. 13 --
Costs and estimated earnings in excess of billings
on uncompleted contracts............................ 4,100 (307)
Income taxes recoverable............................. 156 727
Prepaid expenses and other current assets............ (84) (338)
Accounts payable and accrued expenses................ (3,462) 238
Billings in excess of costs and estimated earnings
on uncompleted contracts............................ (74) (90)
Other................................................ 58 (22)
------- -------
Net cash provided by operating activities............... 3,286 2,984
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment..................... (646) (1,156)
------- -------
Net cash used in investing activities................... (646) (1,156)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments).................. 50 (500)
Principal payments on obligations under capital leases.. (41) (58)
Payment of dividends.................................... (1,230) (1,249)
------- -------
Net cash used in financing activities................... (1,221) (1,807)
------- -------
Increase in cash........................................ 1,419 21
Cash at beginning of period............................. 328 108
------- -------
Cash at end of period................................... $ 1,747 $ 129
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
General Physics Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Consolidated Financial Statements
The consolidated financial statements of General Physics Corporation ("GPC"
or "the Company") included herein do not include all information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles. For further information, such as
significant accounting policies followed by the Company, refer to the notes to
consolidated financial statements set forth in the Company's 1995 Annual Report.
In the opinion of management, the consolidated financial statements
included herein include all necessary adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods presented. The
results of operations for the periods ended June 30, 1996 are not necessarily
indicative of the operating results to be expected for the full year.
The balance sheet at December 31, 1995 has been derived from the audited
financial statements of the Company at that date.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company and its subsidiaries provide engineering, environmental,
training, analytical and technical support services to commercial nuclear and
fossil power utilities, the United States Departments of Defense and Energy,
Fortune 500 companies and other commercial and governmental customers. The
Company is organized into four groups: Training and Technology; Engineering and
Applied Sciences; Federal Systems and Department of Energy. The Company's
performance is significantly affected by the timing of performance on contracts.
Results of operations are not seasonal, since contracts are performed throughout
the year.
Since mid-1992, the Company has experienced lower levels of contract
activity at United States Department of Energy ("DOE") facilities which resulted
in declining revenue. In addition, at the DOE's Savannah River Site, the volume
of contract activity for which the Company is eligible to compete has been
further reduced since 1994 by the award to small businesses of certain types of
work which have been performed by the Company. However, the lower level of
contract activity has been somewhat offset by task orders issued under an
architect engineering contract awarded to the Company by Westinghouse Savannah
River Company, in July 1995. The eventual value of the contract to the Company
is not presently determinable.
The Company has also experienced decreasing revenues from commercial
nuclear power utilities over the last three years as a result of cost reduction
efforts at many of the utilities. During the first six months of 1996, revenues
from the commercial nuclear power group were up slightly from the first six
months of 1995. The cost reduction efforts by utilities are expected to
continue, but the long term effect on the Company is not presently determinable.
While the Company continues to provide services to the DOE and Department
of Defense and the commercial nuclear power industry, it is unsure what effect
continued cutbacks will have on the Company's future results. In response to
these factors, the Company has focused its marketing resources on expanding
management and technical training services to manufacturing and process
industries and specialized engineering services to federal agencies and process
industries. During 1995 and the first six months of 1996, the Company
experienced growth in these areas and anticipates future growth to come from
these areas.
5
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Set forth below is a discussion and analysis of the results of operations
for the Company for the three and six month periods ended June 30, 1996 and
1995.
Revenue
Revenue for the six months ended June 30, 1996 increased by approximately
$1,488,000 or 2.7%, from revenue for the six months ended June 30, 1995. Revenue
for the three months ended June 30, 1996 increased by approximately $845,000, or
3.1%, from revenue for the three months ended June 30, 1995. The increase for
both periods was due primarily to expansion of managerial and technical training
services in manufacturing and process industries.
Gross Profit
Gross profit for the six months ended June 30, 1996 was approximately
$6,610,000 (11.9% of revenue), an increase of approximately $427,000, or 6.9%,
compared to gross profit of approximately $6,183,000 (11.4% of revenue) for the
six months ended June 30, 1995.
Gross profit for the three months ended June 30, 1996 was approximately
$3,397,000 (12.1% of revenue), compared to approximately $3,006,000 (11.0% of
revenue) for the three months ended June 30, 1995. Gross profit for both periods
increased because of higher revenue and reduced overhead costs as a percent of
revenue.
General and Administrative and Other Expenses
General and administrative and other expenses for the six months ended June
30, 1996 were approximately $3,384,000, or 6.1% of revenue, compared to
approximately $3,276,000, or 6.0% of revenue, for the six months ended June 30,
1995.
General and administrative and other expenses for the three months ended
June 30, 1996 were approximately $1,761,000, or 6.3% of revenue, compared to
approximately $1,618,000, or 5.9% of revenue, for the three months ended June
30, 1995. The increase for both periods is due to higher costs associated with
higher volume of business.
Interest Expense
Interest expense relates to interest on the Company's senior subordinated
debentures and the short-term borrowings owed to a commercial bank under the
Company's revolving credit agreement. Interest expense for the six months ended
June 30, 1996 was approximately $889,000, compared to approximately $1,190,000
for the six months ended June 30, 1995. Interest expense for the three months
ended June 30, 1996 was approximately $440,000, compared to approximately
$637,000 for the three months ended June 30, 1995. The decrease for both periods
is due to lower average outstanding borrowings under the Company's line of
credit during the first six months of 1996, compared to the first six months of
1995.
Income Before Income Taxes and Equity in Net Earnings of Investee Company
Income before income taxes and equity in net earnings of investee company
for the six months ended June 30, 1996 was approximately $2,407,000, an increase
of approximately $708,000 over the six months ended June 30, 1995.
Income before income taxes and equity in net earnings of investee company
for the three months ended June 30, 1996 was approximately $1,251,000, an
increase of approximately $498,000 over the three months ended June 30, 1995.
The increase for both periods was due primarily to increased revenue and
decreased interest expense.
6
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Income Taxes
The Company's effective income tax rates for the six months ended June 30,
1996 and 1995 were 42.9% and 43.3%, respectively, and for the three months ended
June 30, 1996 and 1995 were 43.5% and 43.3%, respectively.
Equity in Net Earnings of Investee Company
The Company accounts for its investments in GSE Systems, Inc. ("GSES")
using the equity method of accounting. For the six months ended June 30, 1996
and 1995, the Company recognized its proportionate share of the net earnings of
GSES of $69,000 and $63,000, respectively. For the three months ended June 30,
1996 and 1995, the Company recognized $24,000 and $38,000, respectively. Such
amounts are net of income taxes payable upon distribution of the earnings by the
investee.
Liquidity and Capital Resources
The Company has historically financed its operations through cash generated
from operations and bank borrowings. Working capital was $17,545,000 at June 30,
1996 and $16,815,000 at December 31, 1995.
The Company has a three-year credit agreement with a commercial bank
providing for a $20,000,000 secured revolving line of credit expiring April 10,
1998. Borrowings under the credit agreement bear interest at the prime rate
(8.25% at June 30, 1996) or at LIBOR plus 1.75% (7.25% at June 30, 1996),
whichever is elected by the Company. The credit agreement is secured by liens on
accounts receivable of the Company and its domestic subsidiaries, and contains
covenants that, among other things, limit the Company's ability to dispose of
assets, incur debt, create liens, make capital expenditures and make certain
investments or acquisitions. In addition, the Company is required to meet
certain financial ratios. At June 30, 1996, the Company had available borrowings
of approximately $15,827,000 under the credit agreement and borrowings of
$2,950,000 outstanding.
The Company has not historically made substantial capital expenditures. The
Company has no current plans to increase in any material respect its historical
level of capital expenditures. The Company believes that funds provided from
operations and available borrowings will be sufficient to meet the operating
needs and capital expenditures of the Company through 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 19, 1994, an action was filed against the Company by a former
employee of the Company, alleging that the Company willfully and intentionally
violated the Fair Labor Standards Act by failing to pay overtime to the
plaintiff and other similarly situated current and former employees of the
Company. The plaintiff seeks payment by the Company of unpaid overtime pay,
liquidated damages, and reasonable attorney fees and certification of the case
as a class action. On October 27, 1994, the case was removed to the U.S.
District Court for the Southern District of Georgia. In January, 1996, the
Company filed a motion for partial summary judgment with respect to those claims
which are barred partially or entirely by the statute of limitations. In
February, 1996, the plaintiffs filed a motion requesting an order permitting
them to conduct discovery at the Company's offices nationwide. On June 18, 1996,
the Court ruled that (a) all claims arising more than three years before the
date each employee or former employee filed his or her consent to "opt in" to
the case are barred by the statute of limitations, and (b) plaintiffs' motion to
conduct discovery nationwide was denied. The Company believes that it has valid
defenses and intends to defend the action vigorously. However, the Company
cannot at this time predict the ultimate outcome of the litigation.
7
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On June 18, 1996, the 1996 Annual Meeting of the Stockholders of the
Company was held at the Columbia Hilton Inn, 5485 Twin Knolls Road, Columbia,
Maryland, to (1) elect a slate of ten directors for a term of one year and until
their successors have been duly elected and qualified, and (2) ratify the
selection of KPMG Peat Marwick LLP as the Company's independent auditors for the
year ended December 31, 1996. Ten directors were elected by the affirmative vote
of a plurality of shares present and entitled to vote at the meeting in person
or by proxy, and the selection of independent auditors was ratified by a
majority of the outstanding shares of the Company's common stock present and
entitled to vote at the meeting. The results are summarized in the following
table:
<TABLE>
<CAPTION>
Votes
Against/
Votes For Withheld Abstentions Non-Votes
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
(1)
Jerome I. Feldman 8,456,069 35,796 n/a 844,713
Sheldon L. Glashow 8,458,166 33,699 n/a 844,713
Lawrence M. Gordon 8,458,166 33,699 n/a 844,713
Scott N. Greenberg 8,458,166 33,699 n/a 844,713
Bernard M. Kauderer 8,458,166 33,699 n/a 844,713
John C. McAuliffe 8,458,166 33,699 n/a 844,713
Martin M. Pollak 8,457,172 34,693 n/a 844,713
Ogden R. Reid 8,457,391 34,474 n/a 844,713
Gordon Smale 8,458,134 33,731 n/a 844,713
Russell C. Youngdahl 8,456,506 35,359 n/a 844,713
(2) 8,466,279 11,870 13,716 844,713
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
27. Financial Data Schedule.
(b) Reports
-------
There were no reports on Form 8-K filed by the Registrant during
the period covered by this report.
8
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Signature
---------
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.
GENERAL PHYSICS CORPORATION
Date: August 14, 1996 By:/s/ John C. McAuliffe
-----------------------------------
John C. McAuliffe
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 129
<SECURITIES> 0
<RECEIVABLES> 26,365
<ALLOWANCES> 991
<INVENTORY> 0
<CURRENT-ASSETS> 36,462
<PP&E> 6,781
<DEPRECIATION> 2,568
<TOTAL-ASSETS> 51,682
<CURRENT-LIABILITIES> 18,917
<BONDS> 0
0
0
<COMMON> 277
<OTHER-SE> 19,973
<TOTAL-LIABILITY-AND-EQUITY> 51,682
<SALES> 0
<TOTAL-REVENUES> 55,770
<CGS> 0
<TOTAL-COSTS> 49,160
<OTHER-EXPENSES> 3,384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 889
<INCOME-PRETAX> 2,407
<INCOME-TAX> 1,032
<INCOME-CONTINUING> 1,375
<DISCONTINUED> 0
<EXTRAORDINARY> 69
<CHANGES> 0
<NET-INCOME> 1,444
<EPS-PRIMARY> 0.14
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</TABLE>
