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 September 30, 1994
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 No. 0-12588
GILBERT ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2280922
(State of Incorporation) (IRS Employer
Identification No.)
P.O. Box 1498, Reading, Pennsylvania 19603
(Mailing address of principal executive offices) (Zip Code)
(610) 775-5900
(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
Class A Class B
Number of shares of each class of
common stock outstanding as of
September 30, 1994 (excluding 2,000,800
Class A treasury shares): 5,682,791 1,301,709
This report consists of 10 pages
<PAGE>
GILBERT ASSOCIATES, INC.
INDEX
Part I. Financial Information Pages
Item I.
Consolidated Condensed Balance Sheets at
September 30, 1994 and December 31, 1993 (unaudited) 3
Consolidated Condensed Statements of Operations for the
nine and three month periods ended September 30, 1994
and October 1, 1993 (unaudited) 4
Consolidated Condensed Statements of Cash Flows
for the nine month periods ended September 30, 1994
and October 1, 1993 (unaudited) 5
Notes to Consolidated Condensed Financial Statements 6-7
Item II.
Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-9
Part II. Other Information
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
- 2 -
<PAGE>
Part I. Financial Information
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS Sept. 30, 1994 Dec. 31, 1993
Current assets:
Cash and cash equivalents $ 2,894,000 $ 10,716,000
Accounts receivable, net of allowance
for doubtful accounts of $2,637,000 and
$3,427,000, respectively 34,909,000 38,526,000
Unbilled revenue 21,344,000 23,480,000
Inventories 6,315,000 6,402,000
Deferred income taxes 4,555,000 4,205,000
Other current assets 7,816,000 5,751,000
----------- -----------
Total current assets 77,833,000 89,080,000
----------- -----------
Property, plant and equipment 92,547,000 89,475,000
Less accumulated depreciation and amortization 50,242,000 46,924,000
----------- -----------
42,305,000 42,551,000
Other assets 1,962,000 2,117,000
Deferred income taxes 1,200,000 1,100,000
Goodwill 23,898,000 35,399,000
----------- -----------
TOTAL ASSETS $147,198,000 $170,247,000
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Note Payable $ - $ 5,000,000
Accounts payable 4,403,000 5,593,000
Salaries and wages 9,122,000 9,469,000
Income taxes 779,000 1,868,000
Estimated liability for contract losses 5,448,000 2,813,000
Contractual billings in excess of
recognized revenue 2,010,000 2,194,000
Other accrued liabilities 12,352,000 12,431,000
----------- -----------
Total current liabilities 34,114,000 39,368,000
----------- -----------
Self-insurance reserves 5,112,000 4,663,000
Other long-term liabilities 7,508,000 8,102,000
Commitments and contingencies - -
Stockholders' equity:
Common stock 8,985,000 8,985,000
Capital in excess of par value 38,714,000 38,932,000
Retained earnings 84,419,000 101,081,000
Foreign currency translation adjustments 55,000 83,000
Treasury stock (31,709,000) (30,967,000)
----------- -----------
Total stockholders' equity 100,464,000 118,114,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $147,198,000 $170,247,000
=========== ===========
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
Sept. 30, 1994 Oct. 1, 1993 Sept. 30, 1994 Oct. 1, 1993
<S> <C> <C> <C> <C>
Revenue:
Engineering and consulting revenue $177,748,000 $184,775,000 $ 54,505,000 $ 59,025,000
Communication equipment sales 34,490,000 31,358,000 11,651,000 10,387,000
Other income 4,591,000 4,261,000 1,763,000 1,413,000
----------- ----------- ---------- ----------
216,829,000 220,394,000 67,919,000 70,825,000
----------- ----------- ---------- ----------
Costs and expenses:
Engineering and consulting costs 137,885,000 140,177,000 42,900,000 44,592,000
Communication equipment costs 23,572,000 20,371,000 7,973,000 6,977,000
Selling, general and administrative
expenses 62,704,000 46,760,000 31,204,000 14,273,000
Depreciation and amortization 5,158,000 4,693,000 1,737,000 1,604,000
Interest expense 143,000 145,000 45,000 56,000
----------- ----------- ---------- ----------
229,462,000 212,146,000 83,859,000 67,502,000
----------- ----------- ---------- ----------
Income(Loss) before provision(benefit) for
taxes on income(loss) and cumulative effect
of changes in accounting principles (12,633,000) 8,248,000 (15,940,000) 3,323,000
Provision(Benefit) for taxes on
income(loss) (180,000) 3,349,000 (1,190,000) 1,398,000
----------- ----------- ---------- ----------
Income(Loss) before cumulative effect
of changes in accounting principles (12,453,000) 4,899,000 (14,750,000) 1,925,000
Cumulative effect of changes in
accounting principles - (200,000) - -
----------- ----------- ---------- ----------
Net income(loss) $(12,453,000) $ 4,699,000 $(14,750,000) $ 1,925,000
=========== =========== ========== ==========
Per share of common stock:
Income(Loss) before cumulative effect
of changes in accounting principles $(1.78) $.66 $(2.11) $.26
Cumulative effect of changes in
accounting principles - (.03) - -
----------- ----------- ---------- ----------
Net income(loss) $(1.78) $.63 $(2.11) $.26
=========== =========== ========== ==========
Cash dividends $.60 $.56 $.20 $.20
Average number of shares of common
stock outstanding 7,011,935 7,437,646 6,993,917 7,427,223
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Sept. 30, 1994 Oct. 1, 1993
Cash flows from operating activities:
Net income(loss) $(12,453,000) $ 4,699,000
Adjustments to reconcile net income(loss)
to net cash provided by operating activities:
Items not affecting cash 21,043,000 5,190,000
Changes in current assets and
current liabilities 40,000 6,272,000
Other, net (85,000) 192,000
---------- ----------
Net cash provided by operating activities 8,545,000 16,353,000
---------- ----------
Cash flows from investing activities:
Payment for acquisition of GENSYS Corporation (1,500,000) (1,250,000)
Net increase in short-term investments - (3,918,000)
Payments for property, plant and equipment (3,921,000) (3,114,000)
---------- ----------
Net cash used for investing activities (5,421,000) (8,282,000)
---------- ----------
Cash flows from financing activities:
Payments under note payable (5,000,000) -
Issuance of treasury stock in connection
with stock option and award plans 884,000 443,000
Payments to acquire treasury stock (1,844,000) (1,078,000)
Cash dividends paid (4,209,000) (4,165,000)
Other, net (777,000) 309,000
---------- ----------
Net cash used for financing activities (10,946,000) (4,491,000)
---------- ----------
Net (decrease)increase in cash and cash equivalents (7,822,000) 3,580,000
Cash and cash equivalents at beginning of period 10,716,000 6,952,000
---------- ----------
Cash and cash equivalents at end of period $ 2,894,000 $10,532,000
========== ==========
Supplemental cash flow disclosures:
Interest paid $ 80,000 $ 80,000
Income taxes paid, net of refunds received $ 1,219,000 $ 4,418,000
See accompanying notes to consolidated condensed financial statements.
- 5 -
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The financial statements furnished herein reflect all adjustments
which are, in the opinion of management, necessary for a fair
presentation of financial position and results of operations for the
interim periods. Prior year's consolidated condensed balance sheet
and statement of cash flows have been reclassified to conform with
the current year presentation.
2. Net income(loss) per share of common stock was determined using the
average number of Class A and Class B shares outstanding. The
effect on net income(loss) per share resulting from dilution upon
exercise of outstanding stock options is not material, and therefore
is not shown.
3. The results of operations for the quarter and nine months ended
September 30, 1994 include a charge to income of $15,800,000 (net of
$2,000,000 income tax benefit) or $2.26 per share, associated with
its nuclear service business. The charge is comprised of a
$12,200,000 or $1.74 per share goodwill write-off and $1,025,000 or
$.15 per share for severance and idled leased facility costs to
reflect the current market conditions. The charge also includes
$2,575,000 or $.37 per share to increase reserves to cover
contractual issues on contracts completed in prior years. The total
charge is included in selling, general and administrative expenses.
The entire charge, including the goodwill write-off, will not have a
material impact on future results of operations
The $12,200,000 goodwill write-off represents the entire goodwill
amount associated with United Energy Services Corporation (UESC) and
its subsidiaries. UESC provides consulting services principally to
the nuclear power industry.
The goodwill write-off stems primarily from the deterioration in the
commercial nuclear power market. Market forces including
deregulation of the electric utility industry, the emergence of
independent power producers and technological advances making fossil
plants more efficient have particularly affected the commercial
nuclear industry, resulting in a dramatic decline in the demand and
pricing of services. These changing market conditions have resulted
in increased competition on those services typically provided by
UESC. UESC incurred substantial losses late in 1993 and continued
to operate at a loss through September 30, 1994. For these reasons,
and the continued uncertainty surrounding UESC's nuclear business
returning to a level of profitability sufficient to recover the
carrying values of goodwill, it has now become apparent to
management, UESC's goodwill is permanently impaired and no longer
has any value.
- 6 -
<PAGE>
4. During the second quarter of 1994, the company closed
foreign subsidiaries and settled certain contractual issues which
had been previously reserved. The combination of these two events
increased net income by $75,000 or $.01 per share. Income(loss)
before provision(benefit) for taxes on income(loss) and cumulative
effect of changes in accounting principles was reduced by $525,000.
Of this amount, $1,100,000 related primarily to a reserve for a lease
obligation and severance costs, which was partially offset by a
$700,000 favorable outcome on the aforementioned contract
settlement. These amounts were recorded in selling, general and
administrative expenses. The provision(benefit) for taxes on
income(loss) was reduced by $600,000 primarily due to a federal
income tax deduction associated with the closure of foreign
subsidiaries.
5. During the first quarter of 1994, the company paid the
former stockholders of GENSYS $1,500,000 as part of the purchase
agreement for achieving certain earnings objectives. This resulted
in an increase in goodwill of $1,360,000, net of an income tax
benefit of $140,000.
6. In the second quarter of 1993, the company recorded a charge to
income of $1,320,000 (net of $880,000 income tax benefit), or $.18
per share, to increase reserves for costs associated with resolving
a series of claims filed by former employees of a subsidiary which
was closed in 1988. The $2,200,000 charge is included in
selling, general and administrative expenses. The company intends
to contest these matters vigorously and is in the process of
pursuing various legal actions. The timing of the final resolution
is not yet known.
7. In the first quarter of 1993, the company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). As a result
of this change, a $900,000 charge (net of $600,000 income tax
benefit) or $.12 per share was recorded by the company as a
cumulative effect of change in accounting principle.
8. In the first quarter of 1993, the company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). As a result of this change, an increase to net
income of $700,000 or $.09 per share was recorded by the company as
a cumulative effect of change in accounting principle.
- 7 -
<PAGE>
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Excluding all adjustments, net income and earnings per share decreased
47% and 44%, respectively, in the first nine months of 1994 as compared
to the same period of 1993 and, in the current quarter, declined 45% and
42%, respectively, compared to the third quarter of 1993. Adjustments
included a current quarter charge to income of $15,800,000 (net of
$2,000,000 income tax benefit) or $2.26 per share, associated with the
nuclear operations to reflect current market conditions (Note 3). This
charge will not have a significant impact on future operations.
Adjustments also included a $75,000 increase in net income, or $.01 per
share, in the second quarter of 1994 relative to closing foreign
subsidiaries and settlement of certain contractual issues (Note 4), a
$1,320,000 reduction in net income or $.18 per share in the second
quarter of 1993 to increase reserves for claims filed by former
employees (Note 6), and a $200,000 reduction in net income or $.03 per
share in the first quarter of 1993 for changes in accounting principles
(Notes 7 and 8). The decreases in net income relate primarily to lower
operating results within the engineering and consulting segment. The
favorable relationships between the changes in net income and earnings
per share is due to fewer shares outstanding.
The engineering and consulting segment revenue decreased 4% and 8% for the
nine and three month periods in 1994, respectively, as compared to the same
periods in 1993. These decreases are primarily due to declines in
services provided to the nuclear power market, offset in part by revenue
from SRA Technologies, Inc. (SRA), which was acquired on December 10,
1993. The gross profit percentage decreased from 24% to 22% in the
first nine months of 1994 as compared to the same period last year
primarily due to competitive pressures within the nuclear power market.
Current quarter gross profit declined to 21% compared to 24% in the third
quarter of 1993 due to the competitive pressures within the nuclear power
market and the engineering and consulting segment in general.
The communication equipment segment revenue increased 10% and 12% for
the nine and three month periods of 1994, respectively, as compared to
the same periods in 1993. The increases relate primarily to the
acquisition of Instrument Associates, Inc. (IAI), which was acquired on
December 28, 1993. The gross profit percentage decreased from 35% for
the nine month period of 1993 to 32% for the same period in 1994. This
decline is due primarily to additional costs associated with the
consolidation of manufacturing operations and IAI's operations. The third
quarter gross profit decreased from 33% in 1993 to 32% this year primarily
due to the acquisition of IAI. IAI operates at a lower gross profit
percentage than other communication equipment operations within this
segment but has lower selling, general and administrative expenses which
more than offset the impact of lower gross profit.
- 8 -
<PAGE>
Other income increased 8% and 25% for the nine and three month periods of
1994, respectively, as compared to the same periods of 1993. The increases
relate primarily to income derived from a joint venture within the engineering
and consulting segment offset in part by a decline in interest income.
Prior to the adjustments mentioned above, selling, general and
administrative expenses were comparable for the nine month periods of
1994 and 1993. Reduced expenses as a result of lower business activity
in the nuclear power market were offset by expenses associated with the
recent acquisitions, particularly SRA. Selling, general and
adminstrative expenses decreased 6% in the current quarter from the same
period last year due primarily to reductions made within the engineering
and consulting segment, reflecting the lower level of business activity
related to the nuclear power market offset in part by expenses from the
recent acquisitions. Depreciation and amortization increased 10% and 8%
for the nine and three month periods of 1994, respectively, as compared to
the same periods last year primarily due to amortization associated with
the recent acquisitions.
Excluding the adjustments mentioned above, income before provision for
taxes on income and cumulative effect of changes in accounting principles
decreased 46% and 44% for the nine and three month periods of 1994,
respectively, as compared to the same periods in 1993. These decreases
relate primarily to lower operating results within the engineering and
consulting segment, particularly the nuclear power market.
Excluding the aforementioned adjustments, the effective tax rate for the
first nine months of 1994 increased to 43% from 40% for the same period
last year. The effective tax rate for the current quarter increased to
44% from 42% for the third quarter of 1993. The increases primarily
relate to a higher ratio of non-deductible expenses to income before
provision for taxes on income and cumulative effect of changes in
accounting principles and a higher effective state tax rate.
Working capital decreased $5,993,000 primarily due to lower operating
results and cash and cash equivalents decreased $7,822,000 primarily due
to the repayment of notes payable. The company does not anticipate
requiring outside long-term financing during the next year. Amounts
generated from operations, combined with available cash and cash
equivalents and short-term lines of credit, should provide adequate
working capital to satisfy operating requirements, contractual and lease
obligations related to the third quarter 1994 charge mentioned above,
contingent payment to former IAI principals and the ongoing program to
repurchase the company's Class A common stock, of which approximately
$3,500,000 remains. Unused lines of credit with three banks aggregating
$15,500,000 are also available for short-term cash needs. No restrictions
on cash transfers between the company and its subsidiaries exist.
- 9 -
<PAGE>
Part II. Other Information
Item 5. Other Information
The registrant recorded a charge to income of $15,800,000 (net of
$2,000,000 income tax benefit) or $2.26 per share. See footnote 3
for further information.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
#27 Financial Data Schedule
(b) Reports on Form 8K
The registrant was not required to report any items on Form
8-K during the three months ended September 30, 1994.
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.
GILBERT ASSOCIATES, INC.
/s/J.R. Itin
---------------------------
J.R. Itin
Vice President and
Chief Financial Officer
Date: November 1, 1994
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Condensed Balance Sheet at September 30, 1994 and the Consolidated
Condensed Statement of Operations for the nine months ended September 30, 1994,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 2,894,000
<SECURITIES> 0
<RECEIVABLES> 34,909,000
<ALLOWANCES> 2,637,000
<INVENTORY> 6,315,000
<CURRENT-ASSETS> 77,833,000
<PP&E> 92,547,000
<DEPRECIATION> 50,242,000
<TOTAL-ASSETS> 147,198,000
<CURRENT-LIABILITIES> 34,114,000
<BONDS> 0
<COMMON> 8,985,000
0
0
<OTHER-SE> 91,479,000
<TOTAL-LIABILITY-AND-EQUITY> 147,198,000
<SALES> 34,490,000
<TOTAL-REVENUES> 216,829,000
<CGS> 23,572,000
<TOTAL-COSTS> 161,457,000
<OTHER-EXPENSES> 67,862,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143,000
<INCOME-PRETAX> (12,633,000)
<INCOME-TAX> (180,000)
<INCOME-CONTINUING> (12,453,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,453,000)
<EPS-PRIMARY> (1.78)
<EPS-DILUTED> (1.78)
</TABLE>
